RAJAN ASWANI, MUMBAI V. ITO WD 12(2)2, MUMBAI

ITA 3068/MUM/2011

• Counselvise Citation: 306819914 RSA 2011
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-08-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 18-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C TRIPURA SUNDARI
• Assessee Lawyers: DHARMESH SHAH
• Keywords: Depreciation; Search and seizure; Audit objection; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion
• Section: 147; 148; 143(3); 80IB

Judgement Text

, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. , MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU MK0 ,L VH ,E IKOYU BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & DR. S.T.M . PAVALAN,JUDICIAL MEMBER /. ITA NO.3068/MUM/2011, ! ! ! ! / ASSESSMENT YEAR-2004-05 RAJAN ASWANI, DIAMEX INC. 502-TRELLIS, 5TH FLOOR, NEAR PENINSULA TECHNO PARK, OPP. ASHA PETROL PUMP, LBS MARG, KURLA (W), MUMBAI-400703 VS ITO WD 12(2)(2) MUMBAI. PAN:AABPA2008A ( '# / APPELLANT) ( $%'# / RESPONDENT) &' ( ) / ASSESSEE BY : SHRI DHARMESH SHAH ( ) / REVENUE BY : SMT. C. TRIPURA SUND ARI ( (( ( '+ '+ '+ '+ / DATE OF HEARING : 06-08-2014 ,-! ( '+ / DATE OF PRONOUNCEMENT : 06-08-2014 , 1961 ( (( ( 254 )1( '.' '.' '.' '.' / / / / ORDER U/S..254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DT.10.03.2011 OF THE CIT(A)-2 3,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN PASSING ORDER U/S.. 250 OF THE ACT PARTLY ALLOWING THE APPEAL FILED BY THE APPELLANT. 2.THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN NOT APPRECIATING THAT THE RE-OPENING OF THE ASSESSMENT U/S.. 147 OF THE ACT WAS BAD IN LAW AND INVALID. 3.THE LD.COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN LAW AND FACTS IN DISALLOWING THE DEDUCTION U/S.. 80-IB OF THE ACT AMOUNTING TO RS.82 ,08,649/-. 4.THE LD.COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN LAW AND FACTS IN NOT APPRECIATING THAT ONLY THE NET INCOME AFTER DEDUCTION OF THE EXP ENSES CAN BE EXCLUDED WHILE COMPUTING THE DEDUCTION U/S.. 80-IB OF THE ACT. 5.THE APPELLANT CRAVES LEAVE OF YOUR HONOUR TO ADD TO, ALTER, AMEND AND! OR DELETE ALL OR ANY OF THE FOREGOING GROUNDS OF APPEAL. WE FIND THAT GROUND NO.2 DEALS WITH JURISDICTION OF THE AO AND NEXT GROUND IS ABOUT THE MERIT OF THE ISSUE.IN OUR OPINION,BASIC QUESTION OF JURISDIC TION HAS TO BE DECIDED FIRST.BEFORE THAT,WE WOULD LIKE TO MENTION THE BRIEF FACTS OF THE CASE. 2. ASSESSEE,AN INDIVIDUAL,ENGAGED IN THE BUSINESS OF M ANUFACTURING AND EXPORT OF GARMENT,FILED HIS ORIGINAL RETURN OF INCOME ON 24.10.2004 DECLARING T OTAL INCOME OF RS.1,61,670/-,WHEREIN A CLAIM,AMOUNTING TO RS.82.08 LAKHS WAS MADE U/S.80-I B(4) OF THE ACT.ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT U/S.. 143 (3) OF THE ACT,O N 13.11. 2006, DETERMINING THE TOTAL INCOME AT RS.1,63,390/-AND ALLOWED HIM THE DEDUDCTION.THE AO SUBSEQUENTLY ISSUED A NOTICE U/S..148 OF THE ACT,AS HE WAS OF THE OPINION THAT INCOME HAD ESCAPE D ASSESSMENT.AS PER THE AO,DEDUCTION 2 ITA NO.3068/MUM/2011 RAJAN ASWANI . U/S..80-IB (4) OF THE ACT WAS CLAIMED ON THE TOTAL TURNOVER OF RS. 26,06,53,848/-WHICH INCLUDED EXPORT INCENTIVE AND DUTY DRAWBACK OF RS.2,80,38,30 2/-.HE HELD THAT DUTY DRAWBACK WOULD NOT CONSTITUTE PART OF PROFITS AND GAINS OF BUSINESS DE RIVED BY THE ASSESSEE AND SAME COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR COMPUTIN G DEDUCTION U/S. 80-IB (4) OF THE ACT. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).BEFORE HIM THE ASSESSEE ARGUED THAT THE ORIGI NAL ASSESSMENT HAD BEEN COMPLETED U/S.143 (3) OF THE ACT,THAT THE AO HAD ACCEPTED THE CLAIM MADE U/S.80-IB AFTER EXAMINING THE NATURE OF HIS BUSINESS,THAT NECESSARY EVIDENCES RELATING TO T HE ELIGIBILITY OF DEDUCTION U/S.80-IB OF THE ACT WERE AVAILABLE ON THE FILE,THAT THE REASONS RECORDE D BY THE AO WERE INVALID AS THE REOPENING WAS ON ACCOUNT OF CHANGE OF OPINION,THAT THE AO HAD ALR EADY CONSIDERED THE SUBMISSIONS FILED AND HAD ALLOWED THE DEDUCTION WHILE PASSING THE ORIGINAL AS SESSMENT ORDER,THAT THE DECISION TO ALLOW DEDUCTION WAS TAKEN AFTER SCRUTINY AND WAS BASED ON SETTLED LAW AT THE RELEVANT POINT OF TIME, THAT SAME SHOULD NOT HAVE BEEN REVERSED MERELY BECAUSE T HE AO AT A LATER DATE BECAME AWARE OF A POSSIBLE VIEW AGAINST THE ASSESSEE,THAT THE REASONS RECORDED DID NOT SUGGEST THAT THE ADVERSE VIEW TAKEN BY HIM WAS SUPPORTED BY JUDICIAL PRECEDENT,TH AT REOPENING ON THE BASIS OF CHANGE OF OPINION WAS NOT VALID,THAT NO NEW MATERIAL HAD BEEN DISCOVE RED BY THE AO AFTER THE ORIGINAL ASSESSMENT ORDER WAS PASSED,THAT THE REOPENING BASED ON AUDIT OBJECTION WAS ALSO INVALID AS THE AO COULD NOT REOPEN A COMPLETED ASSESSMENT ON BORROWED SATIS FACTION, 2.2. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND THE ASSESSMENT ORDER,THE FAA HELD THAT THE SPECIFIC ISSUE OF THE TREATMENT TO BE GIVEN TO THE DUTY DRAWBACK WAS NEVER SPECIFICALLY EXAMINED BY THE AO IN THE ORIGINAL ASSESSMENT PROCE EDINGS,THAT NEITHER ANY QUESTIONNAIRE WAS ISSUED BY THE AO NOR THE ASSESSEE HAD MADE SUBMISSI ONS BEFORE HIM WITH REGARD TO THE ISSUE OF DEDUCTION CLAIMED U/S.80IB,THT THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE HIM IN THE ORIGINAL ASSESSMENT PROCEEDINGS ONLY SPEAK OF THE FULFILLMEN T OF OTHER CONDITIONS OF THE LOCATION OF THE UNIT LIKE THE BUSINESS WAS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS OR THAT BUSINESS WAS NOT FORMED BY THE TRANSFER OF PLANT OR MACHINERY USED FOR ANY PURPOSE OR THAT MANUFACTURED ITEMS WERE NOT SPECIFIED IN THE ELEVEN TH SCHEDULE OR THAT MANUFACTURING WAS CARRIED OUT IN DAMAN,THAT THE REASONS FOR ISSUE OF NOTICE U/S. 148 HAD BEEN CLEARLY RECORDED BY THE AO,THAT ADEQUACY AND SUFFICIENCY OF REASONS TO BELI EVE COULD NOT BE CALLED IN QUESTION.HE REFERRED TO THE MATTER OF PHOOT CHAND BAJRANG (203 ITR 456) DELIVERED BY THE HONBLE SUPREME COURT AND HLED THAT MERE DISCLOSURE OF TRANSACTION AT THE TIME OF ASSESSMENT PROCEEDINGS COULD NOT BE SAID TO BE A DISCLOSURE OF TRUE AND FULL FACTS,T HAT HONBLE APEX COURT HAD HELD,IN THE CASE OF LIBERTY INDIA(317ITR 218)THAT INCENTIVES PROFITS WE RE NOT PROFITS DERIVED FROM THE ELIGIBLE BUSINESS UNDER SECTION 80IB,THAT IN VIEW OF THE DEC LARATORY LAW AND THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ACTION OF THE AO IN REOPENING ASSESSM ENT WAS JUSTIFIED. 2.3. BEFORE US,AUTHORISED REPRESENTATIVE(AR)ARGUED THAT THE ORIGINAL ASSESSMENT WAS PASSED U/S.143 (3) OF THE ACT,THAT DEDUCTION WAS ALLOWED B Y THE AO AFTER CONSIDERING ALL THE RELEVANT FACTS,THAT THE ASSESSMENT WAS REOPENED BECAUSE AN A UDIT OBJECTION RAISED,THAT THE AO HAD NOT ACCEPTED THE AUDIT OBJECTION,THAT LATER ON A NOTICE U/S.148 WAS ISSUED TO REOPEN THE ASSESSMENT, THAT IT WAS A CASE OF CHANGE OF OPINION,THAT REOPEN ING ON THE BASIS OF AN AUDIT OBJECTION WAS NOT VALID,THAT FOR REOPENING AN ASSESSMENT WITH IN THE PERIOD OF FOUR YEARS EXISTENCE OF TANGIBLE MATERIAL WAS A PRE-REQUISITE,THAT ON THE DATE OF CO MPLETING THE ASSESSMENT THERE WAS NO AMBIGUITY ABOUT THE ELIGIBILITY OF THE CLAIM MADE BY THE ASSE SSEE,THAT ON THE BASIS OF A SUBSEQUENT DECISION OF A COURT REOPENING CANNOT BE HELD VALID.HE RELIED UPON THE CASES OF IL & FS INVESTMENT MANAGERS LTD.(298ITR32-BOM.HC),ICICI HOME FINANCE C O.LTD.(WP NO.430/ 2012 ,DATED 20.07.2012-BOM.HC),XEROX MODICORP LTD.(350ITR308-DE L.HC),INDIAN AND EASTERN NEWSPAPER SOCIETY(119ITR 996-SC),SIMPLEX CONCRETE PILES(INDIA )LIMITED(CIVIL APPEAL NO. 2329 OF 2006, SC-DATED 11.09.2012)AND INFRASTRUCTURE LEASING AND FINANCIAL SERVICES LTD. (ITA / 167& 223/ MUM/2010,DATED 03.07.2013).HE REFERRED TO THE PAGES NO.6-11,14-16 OF THE PAPER BOOK. 3 ITA NO.3068/MUM/2011 RAJAN ASWANI . DEPARTMENTAL REPRESENTATIVE (DR)CONTENDED THAT THER E WAS NO CHANGE OF OPINION, THAT ACCEPTING OR REJECTING AUDIT OBJECTION WAS INTERNAL MATTER OF THE DEPARTMENT,THAT THE RE -OPENING WAS BASED ON THE DECISION OF HONBLE COURT,THAT DEDUCTION WAS ALLOWED WITHOUT MAKING PROPER INQUIRIES,THAT THE REASONS RECORDED BY THE AO WERE PROVIDED TO THE ASSESSEE,THAT SUFFICIENCY OR ADEQUACY OF BELIEF OF AN AO COULD NOT BE CHALLENGED. 2.5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.BEFORE CONSIDERING THE FACTS OF THE CASE IT WOULD BE USEFUL TO MENTION THE BASIC PRINCIPLES GOVERNING THE REOPENING OF A COMPLETED ASSESSMENT.COURTS ARE OF THE VIEW TH AT THE ASSESSING AUTHORITY CANNOT KEEP IMPROVING HIS CASE FROM TIME TO TIME AND THAT THE R EASSESSMENT PROCEEDINGS HAVE TO STAND OR FALL ON THE BASIS OF WHAT IS STATED IN THE REASONS RECOR DED U/S.148(2) AND NOTHING MORE.SECONDLY, ONCE THE AO ISSUES A NOTICE/RAISES QUERIES/EXTRACTS RESP ONSE FROM THE ASSESSEE ABOUT CERTAIN CLAIM MADE BY HIM IN THE RETURN FILED,THEN THE ASSESSEE WOULD HAVE NO CONTROL WHATSOEVER IN WHAT MANNER SUCH CLAIM IS TREATED IN THE FINAL ORDER OF ASSESSM ENT.ALLOWING OR REJECTING THE CLAIM OR PARTIALLY ALLOWING OR PARTIALLY REJECTING THE CLAIM IS THE DI SCRETION OF THE AO AND OVER THESE OPTIONS THE ASSESSEE WOULD HAVE NO CONTROL.SO,IF THE AO AFTER S CRUTINISING THE CLAIM DURING THE ASSESSMENT PROCEEDINGS ALLOWS SUCH A CLAIM AND CHOOSES NOT TO GIVE ANY REASONS FOR SUCH A COURSE OF ACTION,IT CAN HARDLY BE STATED THAT HE DID NOT FORM AN OPIN ION ON SUCH A CLAIM.IN SHORT, IN A GIVEN CASE,IF THE AO ON HIS OWN FOR REASONS BEST KNOWN TO HIM,CHO OSES NOT TO ASSIGN REASONS FOR NOT REJECTING THE CLAIM OF AN ASSESSEE AFTER SCRUTINY,IT HAS TO B E ADMITTED THAT THE THE AO HAD FORMED OPINION ON THE ISSUE. HONBLE JURISDICTIONAL HIGH COURT,IN THE CASE OF EX PORT CREDIT GUARANTEE CORPORATION OF INDIA LTD.(350ITR651),HAS HELD THAT WHEN AN ASSESSMENT IS SOUGHT TO BE REOPENED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR,THE TEST TO BE APPLIED IS WHETHER THERE IS TANGIBLE MATERIAL TO DO SO.WHAT IS TANGIBLE IS SOME THING WHICH IS NOT ILLUSORY, HYPOTHETICAL OR A MATTER OF CONJECTURE.SOMETHING WHICH IS TANGIBLE NE ED NOT BE SOMETHING WHICH IS NEW.THUS,THE MOST IMPORTANT FACTOR TO ISSUE NOTICE U/S.148 OF TH E ACT IS EXISTENCE OF TANGIBLE MATERIAL. REFERR - ING TO THE JUDGMENT OF HONBLE APEX COURT DELIVERED IN THE CASE OF KELVINATOR OF INDIA LTD.(320 ITR561),IT WAS HELD THAT WHERE THE ASSESSMENT WAS S OUGHT TO BE REOPENED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE GOVERNING TEST HAS BEEN FORMULATED IN THE SAID JUDGMENT OF THE SUPREME COURT.HONBLE BOMBAY H IGH COURT RELIED UPON THE FOLLOWING PORTION OF THE ORDER OF THE KELVINATOR OF INDIA LTD . (SUPRA) : 'THEREFORE, POST 1ST APRIL, 1989, POWER TO REOPEN I S MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BE LIEVE' FALLING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN ASS ESSMENTS ON THE BASIS OF 'MERE CHANGE OF OPINION', WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REA SSESS. THE AO HAS NO POWER TO REVIEW ; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITION AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVE D, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVI EW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE AO. HENCE, AFTER 1ST APRIL, 1989, THE AO HAS POWER TO REOPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMEN DMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS 'REASON TO BELIEVE' BUT ALSO INSE RTED THE WORD 'OPINION' IN SECTION 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPRESENTATIONS FROM THE COM PANIES AGAINST OMISSION OF THE WORDS 'REASON TO BELIEVE', PARLIAMENT REINTRODUCED THE SAID EXPRE SSION AND DELETED THE WORD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE A O.' FROM THE ABOVE DISCUSSION IT IS CLEAR THAT THE AO E VEN WITHIN A PERIOD OF FOUR YEARS CANNOT REOPEN AN ASSESSMENT MERELY ON THE BASIS OF A CHANGE OF OP INION.THE AO HAS NO POWER TO REVIEW AN ASSESSMENT WHICH HAS BEEN CONCLUDED. BUT,WHERE HE H AS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOME FR OM ASSESSMENT, THE POWER TO REOPEN CAN BE EXERCISED. 4 ITA NO.3068/MUM/2011 RAJAN ASWANI . AS FAR AS REOPENING ON THE BASIS OF AN AUDIT OBJECT ION IS CONCERNED,IT HAS BEEN DECIDED BY THE COURTS THAT COMPLETED ASSESSMENT SHOULD NOT BE REOP ENED ONLY ON THE BASIS OF AN AUDIT OBJECTION. IN THE CASE OF INDIAN AND EASTERN NEWSPAPER SOCIETY (SUPRA)THE HONBLE APEX COURT HAS HELD AS UNDER: THE OPINION OF AN INTERNAL AUDIT PARTY OF THE INCOM E-TAX DEPARTMENT ON A POINT OF LAW CANNOT BE REGARDED AS 'INFORMATION' WITHIN THE MEANING OF S. 147(B) OF THE I.T. ACT, 1961, FOR THE PURPOSE OF REOPENING AN ASSESSMENT. BUT ALTHOUGH AN AUDIT PART Y DOES NOT POSSESS THE POWER TO PRONOUNCE ON THE LAW,IT NEVERTHELESS MAY DRAW THE ATTENTION OF T HE ITO TO IT. LAW IS ONE THING, AND ITS COMMUNICATION ANOTHER. IF THE DISTINCTION BETWEEN T HE SOURCE OF THE LAW AND THE COMMUNICATION OF THE LAW IS CAREFULLY MAINTAINED, THE CONFUSION WHIC H OFTEN RESULTS IN APPLYING S. 147(B) MAY BE AVOIDED. WHILE THE LAW MAY BE ENACTED OR LAID DOWN ONLY BY A PERSON OR BODY WITH AUTHORITY IN THAT BEHALF, THE KNOWLEDGE OR AWARENESS OF THE LAW MAY BE COMMUNICATED BY ANYONE. NO AUTHORITY IS REQUIRED FOR THE PURPOSE. THAT PART ALONE OF THE NOTE OF AN AUDIT PARTY WHICH MENTIONS THE LAW WHICH ESCAPED THE NOTICE OF THE ITO CONSTITUTES 'IN FORMATION WITHIN THE MEANING OF S. 147(B); THE PART WHICH EMBODIES THE OPINION OF THE AUDIT PARTY IN REGARD TO THE APPLICATION OR INTERPRETATION OF THE LAW CANNOT BE TAKEN INTO ACCOUNT BY THE ITO. IN EVERY CASE, THE ITO MUST DETERMINE FOR HIMSELF WHAT IS THE EFFECT AND CONSEQUENCE OF THE LAW MENTI ONED IN THE AUDIT NOTE AND WHETHER IN CONSEQUENCE OF THE LAW WHICH HAS NOW COME TO HIS NO TICE HE CAN REASONABLY BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. THE BASIS OF HIS BELIEF MUS T BE THE LAW OF WHICH HE HAS NOW BECOME AWARE. THE OPINION RENDERED BY THE AUDIT PARTY IN REGARD T O THE LAW CANNOT, FOR THE PURPOSE OF SUCH BELIEF, ADD TO OR COLOUR THE SIGNIFICANCE OF SUCH LAW. THE TRUE EVALUATION OF THE LAW IN ITS BEARING ON THE ASSESSMENT MUST BE MADE DIRECTLY AND SOLELY BY THE ITO. IN THE CASE OF IL & FS INVESTMENT MANAGERS LTD.(SUP RA),THE HONBLE JURISDICTIONAL HIGH COURT HAS DELIBERATED UPON THE FACTS OF THE CASE AND THE ISSUE OF AUDIT OBJECTION AS UNDER: THE ASSESSEE WAS AN ASSET MANAGEMENT COMPANY WHICH MANAGED PRIVATE INSTITUTIONAL FUNDS OF INDIAN AND FOREIGN INVESTORS FOR INVESTMENTS IN IND IA. THE ASSESSEE ENTERED INTO AN AGREEMENT DATED APRIL 12, 2002, WITH ITS SISTER CONCERN BY WH ICH IT AGREED TO PURCHASE THE BUSINESS OF MANAGING PRIVATE EQUITY FUNDS AND VENTURE CAPITAL F UNDS AND PROVIDING FINANCIAL SERVICES, FOR A LUMPSUM CONSIDERATION OF RS. 14.15 CRORES. UNDER TH E AGREEMENT, IT PURCHASED VARIOUS INTANGIBLE ASSETS. IT FILED ITS RETURN FOR THE ASSESSMENT YEAR 2003-04 WHEREIN IT CLAIMED DEPRECIATION ON THE INTANGIBLE ASSETS.THIS WAS ALLOWED. SUBSEQUENTLY, A NOTICE WAS ISSUED TO THE ASSESSEE SEEKING TO WITHDRAW THE DEPRECIATION. . WE HAVE CONSIDERED TH E SUBMISSIONS OF BOTH COUNSEL. IN THE FACTS OF THE PRESENT CASE, IT IS QUITE CLEAR THAT THE PETITI ONER WAS GRANTED DEPRECIATION ALLOWANCE ON THE INTANGIBLE ASSETS IN THE NATURE OF KNOW-HOW PURCHAS ED BY IT. A REGULAR ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT. IN REPLY TO THE DIRECTOR OF AUDIT, THE ASSESSING OFFICER HAD OPPOSED THE REOPENING. IN SPITE OF THE SAME, HE HAS REOPENED THE ASSESS-MENT. IT IS, THEREFORE, DIFFICULT TO SAY THAT HE HAS FORMED HIS OWN OPINION THAT THE INCOME HAS ESCAPED ASSESSMENT.SECONDLY, IT IS NOT AT ALL A CASE THAT T HE PETITIONER HAS NOT DISCLOSED ANY-THING TO THE RESPONDENTS. THE PETITIONER HAS GIVEN FULL PARTICUL ARS OF THE INTANGIBLE ASSETS AND IT HAS MAINTAINED THAT IT IS ELIGIBLE FOR THE DEPRECIATION. .WE MAY NOT EXPRESS OUR OPINION ON THE MERITS OF THE CLAIM OF THE PETITIONER. BUT THE FACT REMAINS THAT AS FAR AS THIS ASSESSMENT YEAR 2003-04 IS CONCERNED, THE STAND TAKEN BY THE PETITIONER WAS ACCEPTED BY THE R ESPONDENTS ON THE MERITS AND EVEN AFTER DISAGREEING WITH THE AUDIT OBJECTION, AS A SECOND T HOUGHT ON THE OBJECTIONS FROM THE AUDITORS, HE HAS REOPENED THE ASSESSMENT. IN THE REASONS TO REOP EN AS WELL AS IN THE DECI-SION ON THE OBJECTIONS,HE HAS NOWHERE STATED AS TO HOW THE INCO ME HAS ESCAPED ASSESSMENT. IN OUR VIEW, REOPENING OF THE ASSESSMENT WITHOUT ANY BASIS AND M ERELY A CHANGE OF OPINION IS NOT PERMISSIBLE WHILE EXERCISING THE POWERS UNDER SECTION 147 READ WITH SECTION 148 OF THE INCOME-TAX ACT. NOW,WE WOULD LIKE TO REPRODUCE THE AUDIT OBJECTION RAISED BY THE AUDIT PARTY AND THE REASONS FOR REOPENING RECORDED BY THE AO .THE AUDIT OBJECTION READS AS UNDER: SUB: INCORRECT ALLOWANCE, OF DEDUCTION U/S 80IB. AS PER SUB-SECTION 4 OF SECTION 80IB OF INCOME,TAX ACT, 1961, THE AMOUNT OF DEDUCTION IN THE CASE OF AN INDUSTRIAL UNDERTAKING IN AN INDUSTRIALLY BACKWA RD STATE SPECIFIED IN THE EIGHTH SCHEDULE SHALL BE HUNDRED PERCENT OF THE PROFIT AND. GAINS DERIVED FR OM SUCH INDUSTRIAL UNDERTAKING FOR FIVE ASSESSMENT YEARS BEGINNING WITH THE INITIAL ASSESSMENT YEAR A ND THEREAFTER TWENTY-FIVE PERCENT (OR THIRTY PERCEN T WHERE THE ASSESSEE IS A COMPANY)OF THE PROFITS AND GAINS DERIVED FROM SUCH INDUSTRIAL UNDERTAKING. RETURN OF INCOME WAS FILED ON 24.10.2004 DECLARING TOTAL INCOME OF RS 161670 AFTER CLAIMING 5 ITA NO.3068/MUM/2011 RAJAN ASWANI . DEDUCTION OF RS 8208649 U/S 80IB(4).THE ASSESSMENT WAS COMPLETED U/S.143(3) AFTER SCRUTINY ON 13.11.2006 DECLARING TOTAL INCOME OF RS 163390 AFTE R ALLOWING DEDUCTION OF RS 8208649 U/S. 80IB(4). X X X AUDIT SCRUTINY OF P& L A/C AND DETAILS RECORDS REVE ALED THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 80IB(4) ON TOTAL TURNOVER I.E, SALES OF RS 26065384 8 WHICH INCLUDED EXPORT INCENTIVE I.E.DUTY DRAWBACK OF RS 28038302.THIS IS NOT PROPER.THE DUTY DRAWBACK WILL NOT CONSTITUTE PROFITS AND GAINS DERIVED FROM ASSESSEES UNDERTAKING AND SAME CANNOT BE INCLUDED IN INCOME OF ASSESSEE FOR COMPUTING DEDUCTION U/S. 80IB.IT IS A1O DECIDED BY HONBLE DELHI HIGH COURT IN THE CASE OF RITESH INDUSTRIES LTD.274 ITR 324 THAT DUTY DRAWBACK SHALL NOT BE TREATED AS INCOME DERIVED FROM AN INDUSTRIAL UNDERTAKING SO AS TO ENTITLE THE ASSESSE E A DEDUCTION U/S 80IB.THE DUTY DRAWBACK INCENTIVE SHOULD BE TREATED AS INCOME FROM OTHER SOURCES.AFTE R REDUCING DUTY DRAWBACK FROM PROFIT OF RS. 8208649,THE TOTAL INCOME OF THE ASSESSEE BECOMES NE GATIVE HENCE, NOT ELIGIBLE FOR DEDUCTION U/S 80IB.THIS HAS RESULTED IN UNDER ASSESSMENT OF INCOM E OF RS. 8208649 AND CONSEQUENTIAL SHORT-LEVY OF TAX OF RS. 3575687 INCLUDING INTEREST U/S 234B. FOLLOWING REASONS WERE RECORDED BY THE AO: IT IS NOTICED FROM THE ASSESSMENT RECORDS THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SEC. 80- IB(4) OF THE IT. ACT. 1961 ON THE TOTAL TURN-OVER O F RS. 26,06,53,848/- WHICH INCLUDES EXPORT INCENTIVE I.E. DUTY DRAWBACK OF RS. 2,80,38,302/-. THE DUTY DRAW BACK WILL NOT CONSTITUTE THE PART OF PROFITS AND GAINS DERIVED BY THE ASSESSEE AND THE S AME CANNOT BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR COMPUTING THE DEDUCTION UNDER SEC. 80- IB(4) OF THE ACT. THE DUTY DRAW BACK INCENTIVE SHOULD BE TREATED AS INCOME FROM OTHER SOURCES. THU S AFTER REDUCING DUTY DRAW BACK FROM THE PROFITS OF RS. 82,08,649/- THE TOTAL ELIGIBLE INCOM E OF THE ASSESSEE BECOMES NEGATIVE. HENCE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SEC. 8 0-IB(4) OF THE ACT.IN VIEW OF THE ABOVE STATED FACTS, I HAVE REASON TO BELIEVE THAT THE ABOVE INCO ME HAS ESCAPED THE ASSESSMENT FOR .A.Y. 2004-05, YOU ARE ALSO REQUESTED TO ATTEND THIS OFFICE ON 1 7.8.2009 AT 4.00 P.M. AND SUBMIT ALL THE DETAILS OF YOUR CLAIM UNDER SEC. 80-IB(4) OF THE ACT WITH SUPP ORTING EVIDENCES. YOU ARE ALSO REQUESTED TO GIVE DETAILS OF DUTY DRAW BACK RECEIVED BY YOU. FURTHER YOU ARE ASKED TO SHOW CAUSE AS TO WHY DED UCTION UNDER SEC. 80-IB(4) OF THE I.T. ACT SHOULD NOT BE DISALLOWED ON THE DUTY DRAW BACK AMOUNT OF R S. 2,80,38,302/- AS IT DOES NOT CONSTITUTE THE PART OF THE PROFITS AND GAINS OF BUSINESS. YOU ARE ALSO ASKED TO SHOW CAUSE AS TO WHY THE SAID AMOUNT OF DUTY DRAW BACK SHOULD NOT BE TREATED AS I NCOME FROM OTHER SOURCES AND TAXED ACCORDINGLY ANYONE ON A CURSORY GLANCE AT THE CONTENTS OF THE A UDIT OBJECTION AND THE REASONS RECORDED CAN EASILY SAY THAT REASONS ARE NOTHING BUT REPRODUCTIO N OF THE AUDIT OBJECTION IN A DIFFERENT LANGUAGE. THE TEXTURE,TONE AND SPIRIT OF THE REASONS RECORDED BY THE AO FOR REOPENING THE ASSESSMENT IS THE SAME AS OF THE AUDIT OBJECTION.IN OUR OPINION,THE A BOVE TWO PARAGRAPHS LEAVE NO DOUBT THAT ASSESSMENT WAS REOPENED BECAUSE OF THE AUDIT OBJECT ION AND THERE WAS NO TANGIBLE MATERIAL WITH THE AO FOR INVOKING THE PROVISIONS OF SECTION 147 A ND 148 OF THE ACT.WE FURTHER FIND THAT AO IN HIS THREE PAGE LETTER DATED 29.102007 ADDRESSED TO THE PRINCIPAL DIRECTOR OF THE AUDIT(PG.9-11 OF THE PB)HAD MENTIONED THAT AUDIT OBJECTION/OBSERVATI ON MIGHT BE TREATED AS CANCELLED.IN HIS LETTER HE HAD MENTIONED AT LENGTH AS HOW THE ASSESSEE WAS ENTITLED FOR THE DEDUCTION.NOT ONLY THIS,HE HAD RELIED UPON CERTAIN CASE LAWS TO BUTTRESS HIS S TAND.CLEARLY NOT ONLY AT THE TIME OF ORIGINAL ASSESSMENT,BUT ALSO TIME COMMUNICATING WITH THE AUD IT DEPARTMENT THE AO WAS FULLY CONVINCED THAT THE ASSESSEE CLAIM MADE BY THE ASSESSEE WAS AL LOWABLE. CONSIDERING THE ABOVE BACKGROUND IF WE LOOK AT THE REASONS RECORDED,IT BECOMES CLEAR THAT THE AO HAD TO ISSUE A NOTICE U/S.148 NOT BECAUSE HE BELIEV ED THAT THE INCOME HAD ESCAPED ASSESSMENT BUT FOR OTHER EXTRANEOUS REASON I.E.AUDIT OBJECTION.THO UGH WE ARE NOT PRIVY TO THE CHRONOLOGY OF EVENTS THAT TOOK PLACE BETWEEN THE LETTER SENT BY T HE AO TO THE AUDIT DEPARTMENT AND ISSUE OF NOTICE U/S.148 OF THE ACT,YET IT CAN BE LOGICALLY I NFERRED THAT THE AO HAD TO CHANGE HIS OPINION ABOUT THE ALLOWABILITY OF THE CLAIM MADE BY THE ASS ESSEE .THUS,THERE IS NO DOUBT THAT THE TRIGGER POINT OF REASSESSMENT EXERCISE WAS THE AUDIT OBJECT ION.IN OUR OPINION,IF BECAUSE OF AN OBJECTION RAISED BY AN AUDIT PARTY THE AO CHANGES HIS OPINION OR HE IS FORCED TO CHANGE HIS OPINION SUCH AN ACTION CANNOT BE HELD TO BE A VALID BASIS FOR RE-OP ENING OF AN COMPLETED ASSESSMENT.IT WILL AMOUNT TO REVIEW OF AN ORDER BY THE AO AND THE ACT DOES NO T ALLOW THE AO TO REVIEW HIS OWN ORDERS . BECAUSE OF THE SO CALLED CHECKS AND BALANCES SYSTEM PREVALENT IN THE DEPARTMENT,IF THE AO HAS TO 6 ITA NO.3068/MUM/2011 RAJAN ASWANI . ADOPT A PARTICULAR LINE OF ACTION IT HAS TO BE TREA TED A PART OF DEPARTMENTAL DISCIPLINE.BUT,IF SUCH A N ACTION RESULTS IN AFFECTING THE TAX LIABILITY OF A TAXPAYER THEN HIS ACTION CANNOT AVOID SCRUTINY. WE ARE AWARE THAT AS PER THE INSTRUCTIONS OF THE CBDT REMEDIAL ACTION IS REQUIRED TO BE TAKEN BY THE AO,WHEN AN AUDIT REPORT IS RECEIVED BY HIM AND IN P URSUANCE OF THE PROVISIONS OF SECTION 119 OF THE ACT HE IS BOND TO FOLLOW THE INSTRUCTIONS OF TH E BOARD.BUT,HIS COMPULSION OF CANNOT AND SHOULD NOT FORM BASIS FOR DISTURBING THE FINALITY A RRIVED AT THE TIME OF ORIGINAL ASSESSMENT. CONSIDERING THE FACTS OF THE CASE WE ARE CONVINCED THAT IT IS A CASE OF CHANGE OF OPINION AND THE AO HAD REOPENED THE ASSESSMENT ONLY BECAUSE THE AUD IT OBJECTION.ON BOTH THE COUNTS THE ACTION TAKEN BY THE AO CANNOT BE ENDORSED.THEREFORE,REVERS ING THE DECISION OF THE FAA,WE DECIDED THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSE E.AS THE ORDER OF THE AO HAS BEEN HELD TO BE WITHOUT JURISDICTION,SO,WE ARE NOT ADJUDICATING THE OTHER GROUND. AS A RESULT,APPE AL FILED BY THE ASSESSEE STANDS ALLOWED. 0'1 &' 2 3 ( . 4 ( ' 56. ORDER PRONOUNCED IN THE OPEN COURT ON 06TH AUGUST,2014 . / ( ,-! 8 9 6 VXLR , 201 4 - ( . : SD/- SD/- ( MK MKMK MK0 00 0 ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU ,L VH ,E IKOYU / DR. S.T.M.PAVALAN) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9 /DATE: 06.08.2014. SK / / / / ( (( ( $'; $'; $'; $'; <;!' <;!' <;!' <;!' / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 22 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR D BENCH, ITAT, MUMBAI / ;?. $' MH MHMH MH , . . . 6. GUARD FILE/ . 0 %;' %;' %;' %;' $' $'$' $' //TRUE COPY// / / BY ORDER, @ / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI