Deputy Commissioner of Income-tax, Circle - 8, Pune V. M/s. Alfa Laval India Ltd, Pune

ITA 2173/PUN/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6879 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 14-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Audit objection; Wrong claim; Difference of opinion; Reason to believe; Change of opinion; Set aside
• Section: 147; 148; 143(3); 80HHC; 251

Judgement Text

आयकर अपीलीय अिधकरण“ए”᭠यायपीठ पुणे मᱶ । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI PARTHA SARATHI CHAUDHURY, JM AND DR. DIPAK P. RIPOTE, AM आयकरअपीलसं. / ITA No.2173/PUN/2017 िनधाᭅरण वषᭅ / Assessment Year : 2003-04 The Dy.CIT, Circle-8, Pune. .......अपीलाथᱮ /Appellant बनाम / V/s. M/s.Alfa Laval India Ltd., S.No.2221 A, Mumbai – Pune Road, Dapodi, Near Kasarwadi, Pune – 411 012. PAN: AAACA 5899 A ......ᮧ᭜यथᱮ / Respondent Revenue by : Shri S.P.Walimbe - DR Assessee by : Shri Nikhil S Pathak - AR सुनवाई कᳱ तारीख / Date of Hearing : 10.03.2022 घोषणा कᳱ तारीख / Date of Pronouncement : 15.03.2022 आदेश / ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the Revenue directed against the order of ld.Commissioner of Income Tax(Appeals)-6, Pune dated 01.05.2017 for the Assessment Year 2003-04. The Revenue raised the following grounds of appeal: “1. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) is correct in holding the reopening of assessment u/s.147 as bad in law? 2. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) is justified in not appreciating that the mistake in the original assessment due to erroneous construction or due to non-consideration of the conditions required to be eligible for claiming deduction u/s ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 2 80HHC were subsequently observed and therefore the proceedings u/s 147 were rightly initiated by the A.O.? 3. Whether on the facts and in the circumstances of the case and in law the Ld.CIT(A) is justified in not appreciating that the notice u/s 148 has been rightly issued before completion of 06 years from the end of the relevant assessment year? 2. Brief facts of the case are that the assessee is a company filed its return of income dated 27.11.2003 by showing total income of Rs.56,59,85,744/- for the A.Y. 2003-04. The return was processed u/s.143(1) of the Act, and later on the case was selected for scrutiny and the assessment was completed under section 143(3) of the Act by assessing income at Rs.63,67,31,543/-. The Assessing Officer(AO) initiated the reopening proceedings by issuing notice under section 148 of the Act on 26.03.2010. The assesses see company vide letter dated 19.04.2010 requested to consider original return of income filed on 11.07.2003 as the return of income filed in pursuance of notice under section 148 of the Act. The appellant asked the AO to provide the reasons recorded. Vide letter dated 12.05.2010, the reasons recorded for reopening were provided to the appellant company. The re-assessment order under section 147 r.w.s 143(3) of the Act was passed on 31.12.2010. The appellant filed an appeal before the ld.CIT(A) against the re-assessment order dated 31.12.2010 3. Before the ld.CIT(A), the ld.Authorised Representative(ld.AR) of the assessee challenged the re-opening ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 3 of the assessee. The submission by the appellant before the ld.CIT(A) is as under: “It is argued by the appellant that as per the proviso to sec. 147 , no action u/s. 147 shall be taken after expiry of 4 years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. It is the submission of the appellant that as per the 80HHC report, in the turnover of the business, it had included the lease rental and in the profits of the business, this amount was not reduced. The appellant also pointed out from the assessment order u/s 143(3) dtd.20/3/2006 that the AO had reworked the deduction u/s 80HHC while passing the assessment order. In view of this, the appellant pleads that the reopening would amount to change of opinion and relied on the Supreme Court decision in the case of CIT Vs. Kelvinator of India [2010] 320 ITR 561 (SC). The appellant also relied on the following deicison: a. IPCA Laboratories Ltd Vs. Gajanand Meena DCIT [2001] 251 ITR 416 (Bom). b. Bhor Industries Ltd Vs. ACIT & ORS [2004] 267 ITR 335 (Bom). c. Desai Brothers Ltd Vs. ANR [2005] 272 ITR 335 (Bom). d. Hindustan Lever Ltd Vs. R.B.Wadkar, ACIT [2004] 268 ITR 332 (Bom) e. Mangalore Refinery & Petrochemicals Ltd Vs. ACIT & ORS [2006] 282 ITR 516 (Bom) f. Industan Petroleum Corporation Ltd Vs.DCIT& ANR [2010] 328 ITR 534 (Bom) g. Prashant Project Ltd Vs. ACIT & ORS [2011] 333 UTR 368 (Bom) h. Titanor Components Ltd Vs. ACIT & ORS [2012] 343 ITR 0183 (Bom). 5.1.1 The appellant also relied on the decision of Pune Tribunal in the appellant’s own case for A.Y. 2004-05 on identical facts where it was held that the issuance of notice u/s 147 and 148 is bad in law.” ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 4 4. The ld.CIT(A) vide order dated 01.05.2017 held that reopening is bad in law. The relevant portion of the ld.CIT(A) is as under: “5.2 The appellant’s submissions and the paper book filed have been perused. It is seen from the report issued u/s 80HGHC by the C.A. i.e. Form No.10CCAC, at item no.18 of the report, the components of the turnover of the business and the profits of the business adopted for deduction u/s 80HHC are mentioned. In the profits of the business, the items whose 90% value deducted from the profits are clearly mentioned therein and they include commission, interest received, sale of scrap assets, commission from travel agent and incentive from brokers. For the purpose of turnover of the business, the following items have been considered namely goods and jobs, services, scrap sale, finance income for lease and hire charges and lease rentals and this fact is clearly mentioned in the report along with the values/figures. In view of this, it has to be held that the appellant has disclosed all the facts fully and truly necessary for the assessment. At para no.147 of the assessment order passed u/s 143(3) on 20/3/2006, the AO has clearly dealt with the 80HHC deduction. In that para, the AO has deducted the finance income from the eligible profits of the business for the purpose of 80HHC deduction. It is also seen that the AO has dealt with the issue of considering the sales tax and excise as part of the turnover. He even excluded the income from lease and hire purchase from the eligible profits for arriving at 80HHC deduction. Thus, the AO has considered the items which are reflected in the 80HHC report. Under these circumstances, it would be farfetched to hold that the AO did not consider the nature of lease rental receipt for its exclusion from the eligible profits. Therefore the reopening on the issues which have been considered in the original assessment order would only mean that there is a change of opinion. Considering the totality of the facts and circumstances of the case, the decision of the Supreme Court relied upon by the appellant clearly applies to the facts of this case. It is also further seen that the ITAT itself has held the reopening bad in law for the A.Y. 04-05 on identical facts. Taking into consideration these decisions, the reopening is held to be bad in law.” ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 5 5. The reasons recorded for reopening are as under: “1. The assessee company filed its return of income for A.Y. 2003-04 on 27/11/2003 declaring total income of Rs.56,59,85,744/- and the assessment was completed u/s.143(3) of the Income tax Act, 1961 on 20/3/2006 determining total income of Rs.63,67,32,540/- 2. On verification of case records it is seen that the assessee company had claimed a sum of Rs.1,53,01,248/- as Professional and Consultancy charges. This amount includes a sum of Rs.33,26,267/- paid as charges towards Alfa Laval separation. The same was allowed by the A.O. The said expenses could be claimed only in the year when demerges takes place. Since there was no demerger in the said year the allowance of Rs.33,26,627/- has led to under assessment of income during the said Assessment Year. 3. Further, the assessee company was allowed deduction u/s.80HHC of the Income tax Act, 1961 of Rs.7,81,53,240/-. The income on account of impact on financial activity amounting to Rs.1,19,16,552/- should have been excluded from the Profit eligible for deduction u/s.80HHC of the Income tax Act, 1961. Due to the above omission there has been excess deduction u/s.80HHC of the Income tax Act, 1961 amounting to Rs.16,99,667/-. 4. Both the points leading to short levy of tax of Rs.18,4,7163/- (Rs.12,22,535/- + Rs.6,24,628/-). Therefore, I have reason to believe that income has escaped assessment within the meaning of Sec. 147 of the Income tax Act, 1961. Issued a notice u/s.148 of the Income tax Act, 1961. 5. The notice u/s.148 is issued with approval of the CIT- IV, Pune vide letter No.Pn/CIT-V/147/2009-10/3909 dated 17.03.2010 .” 6. Before us, the ld.Departmental Representative(ld.DR) submitted that the ld.CIT(A) has erred in deciding that the notice under section 148 is bad in law. The ld.DR for the Revenue has accepted that the notice under section 148 has been issued after 04(four) years after the original assessment.The ld.DR submitted that as per the provision of ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 6 section 147 in a case where there is failure on the part of the assessee to disclose fully and truly the particulars of income the case can be reopened u/s 147 with the prior approval of the CIT not later than completion of 06 years from the end of the relevant assessment year. In the present case the time-barring date for issue of 148 notice is 31.03.2010 i.e. six years from the end of the relevant A.Y. 2003-04. Hence the reopening of assessment has been done within the prescribed time limit as laid down in section 147. Hence the decision of Ld.CIT(A) cannot be accepted on merits. The 148 notice has been rightly issued before completion of 06 years from the end of the relevant assessment year i.e. A.Y. 2003-04. Moreover the case is covered under the exceptional clause as per Board’s Circular No.21 of 2015 dated 10.12.2015. The assessment has been reopened on the basis of Revenue Audit Objection which has been accepted by the Department. The decision of Ld.CIT(A) is not acceptable for the reason that the mistake in the original assessment due to erroneous construction or due to non- consideration of the conditions required to be eligible for claiming deduction u/s 80HHC were subsequently observed and therefore the proceedings u/s 147 were rightly initiated by the A.O. The Ld.CIT(A) has relied upon Hon’ble ITAT’s decision on identical issue in assessee’s own case for A.Y. 2004-05 wherein the Hon’ble ITAT has held the reopening of assessment to be bad in law. ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 7 7. The ld.AR submitted that during the original assessment proceedings all the details were submitted. The AO during the original assessment proceedings has verified the documents, applied his mind and arrived at the figure of 80HHC. Therefore, the re-opening is based on change of opinion. All the material facts have been disclosed fully and truly before the AO during the original assessment proceedings. The ld.AR categorically stated that in the reasons recorded for reopening, the AO has not stated that assessee has failed to disclose fully and truly all material facts necessary for assessment. Since the reopening is after Four(04) years, as per section 147 of the Act, the assessment can be reopened only when assessee has failed to disclose fully and truly all material facts necessary for the assessment. The ld.AR relied on various case laws. The ld.AR stated that in assessee’s own case for the A.Y. 2004-05, the ITAT Pune has held on identical facts that initiation of proceedings the issuance of notice under section 148 of the Act was bad in law. The relevant portion of the Hon’ble ITAT order in assessee’s own case is reproduced here as under: “13. In this background, one has to examine as to whether the initiation of proceedings under s. 147 of the Act is justified, which would depend on whether there is a failure on the part of the assessee to disclose fully and truly all material facts relating to the assessment for the year under consideration. Now, the material on record discloses that assessee had furnished with its return of income, the details of computation of income, the adjustment made to the returned income on account of 'impact on financial activity', the claim for deduction under s. 80HHC, details of the total turnover computed for the purposes of s. 80HHC, details of "the profits of the business" computed for the purposes of s. 80HHC by applying Expln, (baa) thereof, and the entire factual aspect was furnished in the manner ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 8 prescribed in law i.e. by way of a report of a chartered accountant contained in Form No. 10CCAC. The aforesaid material, in our opinion, clearly depicted the manner in which “theprofits of the business" were computed for the purposes of s. 80HHC of the Act by applying Expln, (baa) thereof. In fact, with respect to the income on account of 'impact on financial activity', the AO duly applied his mind to the issue when he passed the order of assessment under s. 143(3) of the Act on 28th Dec, 2006. We say so for the reason that in the last part of para 17(b) of the assessment order he has specifically noted the income credited to the P&L a/c on account of finance income for lease and hire purchase of Rs.31,63,353 and excluded the same from "the profits of the business" for the purposes of computing deduction under s. 80HHC of the Act. Thus, the AO chose to exclude only a sum of Rs. 31,63,353 in order to compute "the profits of the business" as per Expln. (baa), although the incremental income declared on this count amounting to Rs. 98,43,701 was very much before him by way of computation of income and Annex. 1 thereof and also in columns 18(A) and (B) of the certificate issued by a chartered accountant for deduction under s. 80HHC of the Act. Therefore, it is a case where not only full and true disclosure has. been made by the assessee of all the material facts in relation to the computation of "the profits of the business" for the purpose of deduction under s. 80HHC of the Act but there was also a due application of mind by the AO. At this point, we may also refer to an argument set up by the Revenue that 90 per cent of Rs. 98,43,701 is excludible from "the profits of the business" for the purpose of computing deduction under s. 80HHC of the Act and thus excessive deduction stood allowed and therefore, invoking of s. 147 of the Act is sought to be justified. A similar argument has been answered by the Hon'ble Bombay High Court in the case of Titanor Components Ltd. (supra) by stating that there is a difference between a wrong claim made by the assessee after disclosing the full and true material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. According to the Hon'ble High Court, it is only in the latter cases that an AO is entitled to proceed under s. 147 of the Act. In the present case, as we have concluded earlier, assessee has disclosed full and true material facts and even if the original assessment has resulted in allowing of a wrong claim it cannot be proceeded with by the AO under s. 147 of the Act because it is not a case where the claim has been made by the assessee by withholding the material facts fully and truly. 14. Therefore, in the present case, the condition precedent to exercise the jurisdiction to reopen the assessment beyond four years from the end of the relevant assessment year has not been fulfilled as there was no failure on the part of the assessee to disclose fully and truly all material facts. Thus, as rightly pointed out by the assessee, in terms of the judgment of the Hon'ble Bombay High Court in the case of Prashant Projects Ltd. v. Asstt. CITf20111 333 ITR 368/9 taxmann.com 237/201 Taxman 158 (Mag.) (Bom.) as also the judgment in the case of Titanor Component Ltd. {supra), the initiation of proceedings under s. 147 of the Act is liable to be set aside. We hold so. 15. Before parting, we may refer to the judgment of the Hon'ble Bombay High Court in the case of Indian Hume Pipe Co. Ltd. v. Asstt. CIT1~20121 348 ITR 439/204 Taxman 347/16 taxmann.com 190 which has been relied upon by the CIT(A) and the. Revenue before us to support the initiation of proceedings under s. 147 of the Act. In the case before the Hon'ble High Court, issue related to reopening of assessment after the end of four years ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 9 from the relevant assessment year and the original assessment was made under s, 143(3) of the Act. The claim made by the assessee was that initiation was bad in law because it had disclosed fully and truly all material facts necessary for assessment and therefore, the initiation of proceedings was bad in view of the same being non-compliant with the first proviso to s. 147 of the Act. The Hon'ble High Court did not accept the aforesaid plea of the assessee. However, the said judgment of the Hon'ble High Court does not help the Revenue in the present case because before the Hon'ble High Court it was factually demonstrated that there was no full and true disclosure of the relevant facts by the assessee. Factually speaking, the position in the present case stands on a different footing and therefore the ratio of the judgment of the Hon'ble Bombay High Court in the case of Indian Hume Pipe Co. Ltd. (supra) does not apply in the present case. Considering the factual position in the present case, the issue in the present case is liable to be decided having regard to the judgments of the Hon'ble Bombay High Court in the case of Titanor Components Ltd. (supra) and Prashant Projects Ltd. (supra) in favour of the assessee. 16. In the result, we hold that the initiation of proceedings by the issuance of notice under s. 147/148 of the Act in the present case is bad in law and therefore, the consequential assessment made is hereby cancelled. Thus, assessee succeeds on this aspect.” 8. In this case it is a fact that, in the reasons recorded for reopening, the assessing officer has not alleged that assessee has failed to disclose material facts truly and fully. It is also a fact that reopening has been done based on the record already available at the time of original assessment order. No new information has been received by the assessing officer. The CIT(A) in his order has demonstrated that during original assessment order the assessing officer has considered income on account of financial activity while calculating 80HHC deduction. 8.1 Before us, the AR filed copy of submission dated 10/01/2006 filed by the Assessee during the original assessment proceeding before the assessing officer Addl.CIT ITA No.2173/PUN/2017 for A.Y. 2003-04 Alfa Laval India Ltd. (R) 10 Range 8 ( paper book page 60-81). The assessee had submitted all the details during original assessment proceedings. Therefore, the reopening is merely based on Change of Opinion. Therefore, respectfully following the decision of Hon’ble Bombay High Court in the case of Titanor Components Ltd. vs. ACIT (writ petition no.71 of 2005) and Hon’ble ITAT’s decision in assessee own case (ITA 1499/Pun/2012), it is held that notice under section 148 of the Act is bad in law and therefore, the consequential re-assessment is hereby by cancelled. Thus, the grounds of appeal by Revenue are dismissed. 9. In the result, appeal of the Revenue is dismissed. Order pronounced in the open Court on 15 th March, 2022. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 15 th March, 2022/ SGR* आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A)-6, Pune. 4. The Pr. CIT-3, Pune. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकरअपीलीयअिधकरण, पुणे/ITAT,Pune.