M/s Tibetan Primary Agricultural Credit Co-Op Society Ltd., Mysore V. ITO, Mysore

ITA 323/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9226 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K BIJU
• Assessee Lawyers: PRAKASH YADAV ADOVOCATE
• Keywords: Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 133A; 234B; 10B; 147; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C, BANGALORE BEFORE SHRI S.K.YADAV, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER ITA NOS.322 & 323(BANG) 2014 (ASSESSMENT YEARS : 2004-05 & 2005-06) M/S INTERGARDEN ((IND.) PVT.LTD. NO.29/A, MALLARABANAWADI VILLAGE, KUNIGAL MAIN ROAD, NELAMANGALA, BANGALORE -560 123 PAN NO.AAACI7692H APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(4), BANGALORE RESPONDENT ASSESSEE BY : SHRI PRAKASH YADAV, ADOVOCATE REVENUE BY : SHRI M.K.BIJU, JCIT DATE OF HEARING : 15-12-20 16 DATE OF PRONOUNCEMENT : 23-12-2016 O R D E R PER A. K. GARODIA, A. M : BOTH THESE APPEALS ARE FILED BY THE ASSESSEE WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE LD. CIT(A)-I, BA NGALORE BOTH DATED 16-12-2013 FOR ASSESSMENT YEARS 2004-05 & 2005-06. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.322 & 323(B)/2014 2 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO.32 2(B)/2014 FOR AY: 2004-05 ARE AS UNDER; I . THE ORDERS OF THE L EA R NED AUTHORITIE S BE L OW I N S O FA R IT IS PREJUDICIA L TO THE INTEREST S OF THE APPEL LA NT ARE BAD A N D E RRO NEO U S IN LAW AND AGAINST THE FACTS AND CIRCUMS T ANCES OF T H E C AS E . II. AS REGARDS VALIDITY OF REOPEN I NG THE A SSESSMENT UNDER SECTION 147 OF THE ACT : 1. TH E LEA RNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER IN REOPENING T HE ASSESSMENT U/S 1 47 T H OUGH THE INGREDIENTS NECESSAR Y TO W A RRANT SUCH AN ACTION ARE A B SENT . 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FA C TS IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFIC ER IN R E OPENIN G THE ASSESSMENT U/S 147 WITHOUT RECORDING AN Y REASONS AND M E R E L Y REL Y ING UPON T H E REASONS R ECORDED BY HIS PRE D ECE S SOR . 3. T H E L EA R NE D CI T(A) E R RED IN LAW A N D ON FACTS IN UPHOLDING THE ACTION OF T H E LEARNE D ASSESSING OF FI CER IN MAKING REASSESSMENT U/S 147 WITHO U T DISPOSING OFF THE OBJECTIONS RAIS E D B Y THE APPELLANT ON THE PROPOSAL TO REO P EN THE ASSESSMENT . 4. T H E LEARNE D CI T (A) HAS FAILED T O APPR ECIATE THAT T H E RE- ASSE SS MENT IS TIME BA R RE D UN D ER THE F I R S T PRO VISO WHICH ENVISAGES THAT NO ACTION OF ASSES S MENT O R REA S SES S MENT SH A LL BE T AKEN AFTER FOUR YE ARS AND SUCH EM B A R GO I S N O T D ILUTED B Y MER E ISSUE OF NOT I CE WITHIN SIX YEARS . 5. TH E L EA R NE D C IT(A) HAS ERRED IN L AW A ND ON F ACTS IN UPH O LDING TH E ACTION O F T H E L E ARNED ASSESSING OFFI CE R OF RE AS S E SSMEN T AFTER TH E EXPIR Y O F FOU R Y EARS FROM THE END OF THE RELEV A NT ASSES S MENT YEAR E V E N T H O U G H T H E APPELLANT HAS DIS C LOS E D FULL Y AND T RUL Y A LL TH E M A T ERIAL FACTS NECE SSAR Y FOR T H E ASSESS M ENT A ND I N F ACT, TH E AL L EGATION I S CONTRARY TO HIS OWN N O TIN GS I N TH E REA S O NS R EC ORDED. 6. THE LEARNE D CIT(A) HAS FAIL E D TO A PPR EC IA TE T H AT THE LE ARN E D AS S ESSI N G OFF ICE R WHILE CONCLUDIN G TH E AS SESSM E NT UND E R ITA NOS.322 & 323(B)/2014 3 S E CTI O N1 43(3) H A D ACCE PT E D THE CLAIM OF TH E A PP E LLANT FOR D E DU C TION U / S . 1O A ON T H E B A SIS OF DETAILS FURNISHED B Y T HE APPELL A NT AS IS AC KN OWLE D GE D IN THE EXTRA C T OF R E ASONS RE CORD E D W HI C H HA VE BEEN RE PR O DU CE D IN THE ASSESSMENT ORDER . 7 . TH E L E ARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ACTI ON OF THE ASS E SSIN G OFFICER IN REOPENING THE ASSESSMENT AS SUCH AN ACTION IS MER E L Y BASED ON CHANGE OF OPINION AND AS THE LEARNED ASSESSING OFFI CE R WHILE CONCLUDING THE ASSESSMENT UNDER SECTION 143(3) HAD AC C E PT E D TH E C LAIM OF THE APPELLANT FOR D E DUCTION IX] . 1OA ON THE BASIS OF DETAILS FURNISHED B Y THE APP E LL A NT AS IS ACKNOWLEDGED IN THE EXTRA C T OF REASONS RECORDED AS R E PRODUCED IN THE ASSESSMENT ORDER . 8 .TH E LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE AC TION OF THE LEARNED ASSESSING OFFICER IN REOPENING OF TH E ASSESSMENT EVEN THOUGH THERE IS NO NEW TANGIBLE MATERIAL FOUND BASED ON WHICH THE ASS E SSIN G OFFICER COULD HAVE REASON TO BELIEVE THAT INCOME C HARG E ABLE TO TAX HAS ESCAPED ASSESSMENT . 9. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPH OLDING REASS E SSMENT THOUGH THE LEARNED ASS E SSING OFFI CE R HAS MERELY STATED TH E CONCLUSION ITSELF AS REASONS RECORDED . 10. THE L E A RN E D CIT ( A) ERRED IN LAW AND O N FACTS IN UPHOLD I N G REAS S ES SMENT AS R EASONS M E REL Y REITER ATE C O NT ENTS OF S UR VE Y RE P O R T W I T HOUT R E FLECTING AN Y INDEPENDENT APPL I CA TION OF MIND A ND T HU S D O NOT QUALIFY T H E TE S TS OF VALID REASONS . 11. T HE LEAR N E D CIT( A ) IS NOT JUS T IFIED IN UPHO LD ING T H E A CTION OF T H E L E AR N E D A S S ES SING O F F I C E R I N RE OP E NIN G T H E A SS E SS M E N T M E R E L Y ON T HE BA S IS O F A ST ATEMENT O BTAINED IN TH E C O U RSE OF SURVE Y C ON DUCTE D U ND ER S EC. 133A O F T H E A C T I N T H E MON T H OF S E PTEMB E R 201 0 AS ST A T E ME NT RE CORD E D UND E R S ECT I ON 1 33 A H AS N O EV ID E NTI A R Y VALUE AN D AN Y A DMISSION MAD E DURING SUC H STATE M E NT C A NNO T B E MA DE BA SIS OF A DDITION . 12. W ITHO U T PREJU D IC E TO GROUND NO . 6 , THAT T H E L EA RN E D CIT ( A ) IS NO T J US T IFIE D IN UPHO LDING THE AC T ION OF THE L EAR N E D ASSESSING OFFIC E R IN REOPE N I N G THE A SSESSMENT REL Y ING ON TH E S TA T E MENT OBTAINED IN THE CO U R S E OF SU R VEY CON D UCTED UNDER SEC.13 3 A OF TH E ACT IN THE MONTH OF S E P T E MB E R 2010 FO R DE NYING DEDUCTION FOR A N E ARLIER ASSESSMENT Y EAR I . E . , 2 004-05 13. T H E L E ARNED C IT ( A) OUGHT TO HAVE A PPR EC IATED THAT NEITHE R DURIN G TH E COURSE OF SURVE Y NOR TH E S UB SE QU E N T ASSESSM E N T PRO C EEDINGS THE A S S ESSING OFFICER HAS SUBS TA NTIATED WITH COGENT R EA SONS AS TO HOW T H E ACTIVIT Y OF THE APP E LL A NT DO E S NOT AMOUNT TO PRODUC T ION AND O UGHT TO HAVE QU A SH E D THE REASSESSMENT PROCE E DINGS W H ICH ARE B A S ED ON THE ERRON E OUS R E ASONING THAT THE ITA NOS.322 & 323(B)/2014 4 ACT IVIT Y OF THE APPELLANT DOES NOT AMOUN T T O PRODUCTION . III. AS REGARDS DENIAL OF EXEMPTION U/S 1OB OF THE ACT ON THE GROUND THAT CONDITIONS LAID DOWN IN CLAUSE (IV) OF EXPLANATION 2 BELOW SECTION 1OB ARE NOT SATISFIED: 1. TH E LEA RN E D CIT (A ) E RRED IN L A W AND ON FACTS I N HOLDIN G T HAT T H E A PP E LL A N T IS NOT E NTITLED TO E X E MPTION I X] S 1O B O N THE G ROUND TH AT THE C ONDI T IONS L A ID DOWN IN CLAUSE (IV) OF E X PL A N A TI O N 2 BELOW SE C T I ON 1OB A R E NO T SATISFIED D E SPIT E THE FACT THAT T H E A PP E LLANT ' S EOU WA S GRANTED AP PRO VA L B Y TH E D E PU TY DEVEL O PM ENT COM M I SSION E R , C OCHIN SEZ VI D E L E TT E RNO . 16/13/2001:PER:E OU:K R :C SEZ/4174 D ATE D 29 . 05.2001 A N D T H E S A ID APPR OV AL W AS DUL Y RAT I FIE D B Y TH E BOA R D OF APPROVAL . 2. THE LEARNE D CIT(A) ERRED IN LAW AND ON FACTS I N D E N Y ING E XEMPTION U / S1O B O F T HE ACT ON TH E GROUND TH AT T H E A PP E LLANT H AS NOT PRODUCE D A N Y DOCUMENT/NOTIFICATION T O S H OW THAT TH E D E PU TY DEVELO PM E NT COMMISSIONER , CSEZ WHO GRA N TE D A PPROV A L TO TH E APPELLANT, WA S NOMINATED TO PERFORM VS ] S 1 4 O F TH E INDUSTRI ES ( D EVE LOPM E NT AND REGULATION) ACT, 1951 A S T H E A PPELLANT CANNOT B E BURD E N E D W ITH TH E REQUIREMENT OF FURNISHING SUCH NOTIFICATION OF G O VE RNM E NT DEPARTMENT MORE SO CONSIDERING T HAT SUCH BURDEN IS NOT C AST ON TH E APPELLANT IN SECTION 1OB. 3. THE FINDING OF THE LEARNED CIT(A) THAT TH E A PPR O V A L GRANTED BY THE D E PUT Y D E V E LOPMENT COMMISSIONER , COCHIN S EZ T O THE APPELLANT ' S EOU H A S NOT BEEN RATIFIED B Y THE BOARD O F A PPR OVA L FOR EOU IS NOT BASE D O N A NY MATERIAL ON RECORD AND THE S A M E B E ING IN FACT CONTR A R Y TO THE EVI D E NC E ON RECORD , IS LIABLE TO BE QU AS H E D . 4. T H E LEA RN E D CIT(A) IS NOT JUSTIFIED IN HOLDIN G TH AT THE MINUTES OF THE M EET I NG (2 011 S E RIES) OF THE BOARD OF APPROV A L FOR EOU SCHEM E WHEREIN T H E BOARD HAS RATIFIED THE APPROVALS G R A NT E D BY COCHIN SEZ BETWEEN 09.09.1996 TO 02 . 12.2010 CANNOT B E T A KEN AS EVIDENCE T O PROVE THAT THE APPROVAL GRANTED BY THE D E PUT Y DEVELOPMENT COMMISSIONER TO THE APPELLANT ' S EOU HAS B EE N R A TIFIED BY THE BOARD OF APPROV A L . 5. THE FINDING OF THE LEARNED CO MMISSION E R OF I N CO M E- T AX (A PP EAL S) TH AT T H E AP P ROVAL FOR APPELLANT'S EO U WA S N OT U ND ER A UTOM ATIC ROUT E IS IN C ORRE C T A ND THE SA M E BE I NG IN FA C T C ONTRA RY T O EVI D E NCE O N RE C ORD, IS LIABLE TO B E Q UA SH E D. I V . AS REGARDS DENIAL OF EX EMPTION U/S 1O B OF T H E A CT O N TH E GROUN D THAT TH E APPELLANT IS NOT ENGAGED IN MANUFACTURE OR PRO DUCTION OF ANY AR T I CLE OR THING : ITA NOS.322 & 323(B)/2014 5 1. TH E LEARNED A U THORITIES BELOW ERRED IN LAW A ND O N FA C TS IN HOLDING T H AT TH E ACTIVITY OF THE APPELLANT DOES NOT A MOUNT TO MANUFACTURE OF ANY A RTI C LE OR THING AND HENCE, IT IS NOT E NTITL E D TO E XEMPTION IS U/S 1 OB OF THE ACT . 2. TH E LEARNED CIT ( A ) I S NOT JUSTIFIED IN REL Y ING ON THE DIRECTIONS ISSUED B Y HIS PREDECESSOR TO THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX WHO IS NOT THE ASSESSING OFFI C ER , TO CONDUCT ENQUIRY AND THUS EXCEEDED HIS POWER UNDE R SECTION 251 . 3. WITHOUT PREJ UD ICE TO GROUND NO.2, THE LEARNED CIT(A) IS NOT JUSTIFIED I N CONSIDER I NG THE SUO M OTU SUBMISSIONS FILED BY THE LEARNE D ADDITION A L COMMI S SIONER OF INCOME-TAX VIDE HIS LETTER DATED 23. 0 2 . 20 1 2 AS THE LATTER HAS NO LOCUS STANDI IN THE MATTER . 4. THE LEARNED CI T(A) I S N O T JUSTIFIED IN UPHOLDING THE FINDING OF THE LEARNED ADDITIONAL COMMISSIONER OF INCOME - TAX THAT THE ACTIVIT Y OF THE APPELLA N T N E ITHER AMOUNTS TO MANUFA C TURING NOR PROCESSING AND THAT IT I S MER E L Y ENGAGED IN PACKAGING ACTIVIT Y . 5. THE LEARNE D CIT(A) OUGHT TO HAVE HELD THAT THE LEARNED ASSESSING OFFICER IS NO T JUSTIFIED IN FAILING T O D I F FERENTIATE THE ACT OF OUT R IGHT PURCHASE O F GHERKINS GROWN BY F A RM ERS AND THE ACT OF SUPPLYING S EE DS , F E RTILIZERS AND OTHER INPUTS A ND OBTA I NI N G T H E G HERKINS T HR O U G H CO NTR AC T FARMING. 6 . TH E LEA RN E D CIT(A) OUGHT TO HAVE APPR EC I A T E D T H AT T H E A PPELLAN T SUPPLIES THE SEE DS TO THE CONTR ACT FA RM ERS WHO WOULD GR O W T H E G H ERKI NS UND E R THE APPELLANT ' S CONTROL AND TH E APP EL L A NT SUBJE CT S SUCH G H E RKINS TO PRODUCE GHERKIN PI C KL E S . H E HAS FAILED TO APPRECIATE T H AT TH E APPELLANT ' S ACTIVIT Y S TA RT S WIT H SEE D A ND ENDS WITH G H E RK I N PICKLES . 7 . THE LEA RN E D C IT(A) HAS FAILED TO APPRECIAT E TH A T OU TSOU R C ING SOM E PR OCE SS E S IN THE COURSE OF MANUFACTUR E TO O UTSID E A G E NCY WHO WOU LD CA RR Y OUT SUCH PROCESS UNDER TH E CO N T R O L A ND G UIDAN C E OF THE A PP E LLANT WOULD NOT PREJUDICE THE CL A IM O F TH E A PPELLANT FOR TH E B E NEFIT OF SECTION 1OB. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE GHERKINS PROCURED B Y THE APPELLANT THROUGH C ONTRACT FARMING IS SUBJECTED TO VARIOUS PROCESSES AND THE END - PRODUCT SO DERIVED IS GHERKIN-PICKLES WHICH IS A NEW AND DI S T I NCTIVE OBJECT HAVING DISTINCT NAME, CHARACTER AND U S E. ITA NOS.322 & 323(B)/2014 6 9. TH E L EA RN E D AUTHORITIES BELOW ERRED IN LAW A ND ON FACT S I N HOLDING T H AT TH E E NTIRE GAMUT OF ACTIVITIES WHICH BEGIN FROM G ROWING OF GH E RKINS AND END WITH EXPORT OF GHERKIN-PICKLES IS A N ACTIVITY OF MANUFACTURE AND THE APPELLANT IS ENTI TLED TO THE BENEFIT OF SECTION 1OB . 10 . THE LEARNED AUTHORITIES BELOW ERRED IN LAW AND ON F A C TS IN HOLDING THAT THE ACTIVITY OF THE APPELLANT DOES NOT AMOUNT TO MANUFACTURE THOUGH IT FULFILLS THE TEST OF IRREV ERSIBILITY . 11 . T H E LEARNE D C IT( A) OUGH T TO HAVE QUAS H E D THE FIN D ING OF THE L EARNED ASSES S I N G O FFICER T H AT THE AP P E LL ANT DOES NOT BEA R THE COST OF PRODUCTION OF G HERKIN . 12. THE L EA RNED ASSESS IN G OFFICER ERRED IN LAW AND ON FA C TS IN APPL Y IN G THE DEFINI TION OF ' MANUFACTU R E ' AS GIVEN IN SECTION 2 ( 29BA ) EV EN THOU GH THE SAID DEFINITION IS NOT APPLI C ABLE FOR A SS E SSM E NT Y EAR 2 004-0 5 13. WITHOUT PREJ UD ICE TO THE A B OVE, T H E L EA RNED C I T( A) O U GHT TO H AVE QUASHED THE F IN DING OF T H E LEAR N ED A SSESSING OFFICER THAT THE AC TIVITY OF T H E A PPELLANT D OES N OT A M O UN T TO MANUFACTURE AS DEFINE D IN SECTIO N 2(29BA ) O F T H E A CT. 14. T H E L EA RN E D CIT(A ) IS NOT JUSTIFIED IN HOLD I N G TH AT TH E FACT T H AT T H E AC TIVIT Y C ARRIED OUT BY THE APPELLANT AMOUNT S T O M AN U FACT URE UND E R THE CENTRAL EXCISE ACT IS NOT A RELEVAN T F A C TOR F OR D ECI DING W H E TH E R T H E A PP E LLANT IS ENGAGED IN MANUFA C TU RING ACTIVITY O R N OT. 15 . T HE L E ARN E D A UTHORITIES BELOW ERRED IN LAW AND ON FACT S IN HOLD I N G T HAT TH E A CTI VI T Y OF THE APPELLAN T DOES NOT AMOUN T TO M A NUFACTUR E I G NORIN G THE FACT THAT THE ACTIVIT Y OF THE APP E LL A NT A MOUNTS TO M A NUFACTURE AS DEFINED UNDER THE CENTRAL EX CI S E A C T , 1944 . 16 . THE LEA RN E D C IT ( A ) OUGH T T O HA V E A PPR EC I ATE D THAT T H E FIN D ING OF THE L EA RN E D ADDL . CIT THA T T H E APP E LLANT 'S PR O DU CTS A R E NO T LIABL E FOR EXC IS E DU TY IS PERVERSE AND BE I NG CON T R ARY TO EVI D E N CE O N R E CORD IS LI A BL E TO BE Q U ASHED . 1 7 . WITHOUT P R EJUDICE TO THE MAIN CONTENTION T HAT T H E AC TI VITY CA R RI E D OU T B Y TH E APPELLA N T AMOUNTS TO MANUFAC T UR E, T HE LEARN E D AUTHORITI E S B EL O W OUGHT TO HA V E APPR E CIATED THA T T H E ACT I V I TY C ARRI E D OU T B Y T H E A PP E LLANT AMOUNT S TO P ROD U C TI O N ITA NOS.322 & 323(B)/2014 7 A ND H E N CE, E LI G IBL E F O R EXEM P TI O N U/ S 1OB OF THE A C T . 18 . WI T HOU T P RE J UD I CE TO T H E L EA RN E D A U T H ORITIES B E L OW ER R ED I N L AW A ND ON FACTS IN HO L DING TH A T T H E B E N EFIT OF SECTION 1 OB IS NO T AVAI L AB L E T O ACTIVITIES W H IC H A MOUNT TO PR OCESSING 19 . THE LEARNED CIT(A) O U GH T TO H AVE H E L D T H AT THE FI N DING OF TH E LEARNED ASSESSING OFF I CE R T H AT TH E A P PE LL A N T'S P RODUCT IS NOT COMPARA BL E TO PIC K LES IS P E RV E RS E AND BEING NOT BASE D ON ANY EVIDENCE ON RECORD IS LI A BLE TO B E QUASH E D . 20. T H E L EAR N ED C I T(A) O UGHT T O HAV E H E LD T H A T T H E F I ND I N G OF THE LEA RN E D AS SESSI N G O FFIC E R THAT TH E GH E RKIN S ARE N OT SUBJ EC T TO P RO CES S OF F ER M E N TATI ON IS NOT BASED O N A N Y M A T E RI AL ON R EC ORD A ND TH E SAM E BEING IN FACT CO N TRA R Y TO EV IDEN CE O N R EC O R D IS LIABL E T O B E QUASH E D. V . AS REGARDS LEVY OF INTEREST U/S 234B AND 234D OF TH E ACT : 1. TH E L EA RN E D ASS E SSING OFFIC E R IS NOT JUSTIFI E D IN L EVY ING I NT ER EST U N D ER S EC TIONS 2 348 W HEN THE CONDITION FO R L EVY O F IN T ERE S T DID NO T EX IS T . 2. TH E L EA RNED ASS E SSING OFFICER IS NOT JUS T IFI E D I N L EVY ING IN TE RES T UND ER S EC TI O NS 2 34D WHEN THE CONDIT I ON F O R L EVY OF INT ERE S T DID N OT EX IST . 3. TH E L E ARNED ASSESSING OFFICER ERRED IN L AW A ND ON F A CT S IN R EC AL C ULATIN G TH E INTEREST U/S 234 D I N R EA SS E S S M E NT PRO CE EDINGS EV E N THOUGH IT DO E S NOT QUALIFY AS REG U LAR ASS ES SM E N T . 3. SIMILARLY, IN ASSESSMENT YEAR 2005-06 THE ASSESS EE HAS RAISED THE FOLLOWING GROUNDS IN ITA NO.323(B)/2 014: THE ORDER S OF THE LEARNED AUTHORITIES BE L OW IN SO FA R I T IS PREJUDIC I A L TO THE INTERESTS OF THE APPELLAN T ARE BAD AND ERRONEOUS IN L A W AN D AGAINST THE FACTS AND CIRCUM S TAN CES O F T HE CASE . II. AS REGA R DS VALIDITY OF REOPENING THE A S SE S S MEN T UNDER SECTION 147 OF THE ACT : ITA NOS.322 & 323(B)/2014 8 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OF FI CER IN REOPENING THE ASSESSMENT U/S 147 THOUGH THE INGREDI E N TS NECESSAR Y TO WARRANT SUCH AN ACTION ARE ABSE N T. 2. THE LEARNED C IT ( A ) E RRED IN LA W AN D ON FACTS IN UPHOLDING THE ACTION OF THE LEAR N E D AS SE SS I N G O F FI CER IN REOPENING THE ASSESSMENT U/S 147 WITHOUT RECO RD ING ANY R E AS ONS AND MERELY RELYING UPON THE REASONS RECOR D E D B Y HIS PREDE C ESSO R . 3. THE L EARNED C IT ( A ) E R RE D IN LA W AN D ON FACTS IN UPH O L D ING THE ACTION OF THE LEAR N E D A SSESSING OF FICER IN MAKING REASSESSME N T U/S 147 WITHOUT DISPOSING OFF THE OBJECTIONS RAISED BY THE APPELLANT ON THE PROPOSAL TO REOPEN T HE ASSE SS MENT. 4. TH E LEARN E D CIT(A) HAS FAILED TO A P PRECIAT E TH A T THE RE- ASSESSMENT IS TIME BARRED UNDER THE FIR S T P R O VISO WHICH ENVISAGES THAT NO ACTION OF ASSESSMENT O R REA SS E SS MENT SHALL BE TAKEN AFTE R FOUR YEARS AND SUCH E MBA R GO I S NOT DIL UTED BY MERE ISS U E OF NOTICE WITHIN SIX YEARS. 5. T H E L E ARN E D CI T (A) HAS E R RED IN LAW AND ON F AC TS IN UPHOLDING THE AC TI O N O F TH E LE AR NED ASS E S S IN G O FF I C ER O F R EA SS ESS M E N T A FT E R TH E EX P IRY O F FOUR YEA RS FROM TH E E ND OF TH E RE L EVA N T A SS E SSM E NT YEA R EVE N T HOU G H TH E APP E LLANT H A S DIS C L O S E D FULL Y A ND T RUL Y ALL THE MATERIA L FACT S NECE SS ARY FOR T H E ASSES SM E NT AN D IN FACT , T H E ALLEGATION I S CO N TRARY TO HI S OWN NOTINGS IN T H E R EASO N S REC O R D E D . 6. THE LEARNE D CIT(A) H AS F A IL E D TO A PPR ECIATE T H A T T H E LE A RN E D ASSESS IN G OFFIC ER W HILE CO N C LUD I NG TH E A SS ESS M E N T UND E R S ECT ION 143(3) HA D ACC E PTED THE CLAIM O F TH E APP E LL A N T FOR D E DU C TION IX] . 1OA ON T H E B A SIS OF DETAILS FURNISH E D B Y T H E A PP E LLANT A S IS ACKNOW L E DG E D IN TH E EXTRA C T OF REASONS R EC ORD E D WHI C H H A V E B EE N R EP RODU CE D IN TH E ASSESSMENT ORDER . 7. T H E L E ARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE ASS E SSING OFFICER IN REOPENING THE ASSESSMENT AS SUCH AN ACTION IS MERE L Y B A SED ON CHANGE OF OPINION AND AS THE LEARNED ASSESSING O FF ICE R W HIL E CONCLUDING THE ASS E SSMENT UND E R S EC TION 143(3) HAD ACCE P TE D TH E C LAIM OF THE APPELLANT FOR DEDUCTION U/S.1OA ON THE B A S I S OF DETAILS FURNISHED BY TH E APPELLANT A S IS ACKNOWLEDGED IN THE E XTRACT OF REASONS RECORDED AS REPRODUCED IN THE ASSESSM E NT ORD E R . ITA NOS.322 & 323(B)/2014 9 8. THE L EA RNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING TH E ACTION OF THE LEARNE D ASS E SSING OFFICER IN R E OPENING O F TH E ASSESSMENT E VE N THO U G H T H E R E I S NO N E W TANGIBL E MATERI A L FOUND BAS E D ON WHICH THE ASSESS IN G O FFI CE R COULD HAVE REASON TO B E LIEVE THAT IN C OME C H ARGEA BL E TO T AX HAS ESCAPED ASSESSMENT . 9. TH E LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDI NG R EA SSESSMENT THOUGH THE LEARNED ASSESSING OFFICER HAS MEREL Y STATED THE CONCLUSION ITSELF AS REASONS RECORD E D. 10. T HE LEA R NE D C IT(A) E R RE D I N L A W AND ON F ACTS IN UPH O LDIN G RE A SS ESS MENT A S R EA SONS M ER EL Y REIT ERATE C ONT E N TS OF S U RVEY R E P O R T WITHOU T R E FL EC TIN G A N Y I ND E P E ND E NT A PPLI C ATION O F MIND A ND T HU S D O NOT QU A L I F Y T H E T E S TS OF VALID REA SONS . 11. TH E L EA RN ED CIT (A) IS NOT J U S TIFIED I N UPH O LD I N G T H E ACT I O N OF T H E L EA RN E D ASSE S S IN G O FFIC E R I N R E OP E NIN G TH E A S SESS M ENT M E R E L Y O N TH E B AS I S O F A STATEM E N T OBT A INED I N TH E C OURS E OF SUR VEY C ONDU CTE D UND ER S EC. 133A OF T H E ACT IN TH E MONTH O F SEPT E MB E R 2010 AS STATEMENT RECORDED UND E R SE C TION 1 33 A H A S NO E VIDENTIAR Y VALU E A ND A N Y A DMISSION M A DE DURIN G SU C H S T A T E MENT CA NNOT B E MAD E BASIS OF ADDITION. 12. WITHOUT P R EJUDICE TO GROUND NO. 6, THAT THE LEARNED C I T(A) IS NOT JU ST IFI ED I N UPH OLDI N G T H E ACTION OF THE LEARN E D ASSESSING OF F ICER IN REOPENING THE ASSES SM ENT RELYING ON THE STAT E M E NT OBTAINED IN THE C OURS E OF S U RVEY CO N DUC T E D UNDER SEC . 133A OF THE ACT IN THE MONTH OF S E PT E MB E R 2010 F O R D ENYING DEDUCTION FOR AN EARLIER ASSESS M ENT Y EAR I.E. , 2005-06 13. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED TH AT NEITHER DURING THE CO U RSE O F SU RVEY NOR THE S U BSEQUENT ASSESS M ENT PROCEEDINGS THE ASSESSING OFFICER HAS SUBSTANTIATED WITH C O G ENT REASONS AS TO HOW THE ACTIVIT Y OF THE APPELLANT DOES NOT AMO U NT TO PRODUCTION AND OUGHT TO HAVE QUASHED THE REASSESS M ENT PRO CEE DINGS WHICH ARE B ASED ON THE ERRON E OUS RE A SONING THAT THE A C T I V I TY OF THE APPELLANT DOES NOT AMOUNT TO PRODUCTION . III. AS REGARDS DENIAL OF EXEMPTION U/S1 LOB OF THE ACT ON THE GROUND THAT CONDITIONS LAID DOWN IN CLAUSE (IV) OF EXPLANATION 2 BELO W SECTION 1 OB ARE NOT SATISFIED: 1. TH E L EARNE D CIT (A) ERRED IN LAW AND ON FAC TS IN HOLDING TH AT THE A PP E LL ANT IS NOT ENTITLED TO EXEMPT I ON U/ S 1 OB ON THE GROUND TH A T TH E CO ND IT IONS LAID DOWN IN CLAUSE (IV) OF EXPL A N A TION 2 B E LOW S EC TION 1OB ARE N OT S A TISFIED DESPITE THE FACT TH A T TH E A PPELLANT ' S EOU WAS ITA NOS.322 & 323(B)/2014 10 GRA N TED A PP ROVA L B Y T H E DEPUT Y D EVE LOPM E N T CO MMISSION E R , COC H I N S EZ VI D E LETTER N O. 16/13/2001 : PER :EOU: KR : CSEZ / 4 1 74 D A TE D 29 . 05.2001 AN D T H E SA I D APPRO V AL WA S DUL Y R ATI F IE D B Y T H E B OAR D OF APP ROVAL . 2. T H E L EAR N E D CIT(A) ERRED IN LA W A ND O N F ACTS I N DEN Y IN G E X E MPTION U / S 1 OB OF THE ACT ON THE GROUND TH A T TH E APPELLANT HAS NOT PRODU CE D AN Y DOCUMENT/NOTIFICATION TO SHOW THAT THE DEPUTY DEVELOPM E NT COMMISSIONER , CSEZ WHO GRANTED APPROVAL TO THE A PPELLAN T, WAS NOMINATED TO PERFORM IX] S 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT , 1951 AS THE APPELLANT CANNOT BE BURDEN E D WITH THE REQUIREMENT OF FURNISHING SUCH NOTIFICATION OF G OVE RN ME N T DEPARTMENT MORE SO CONSIDERING THAT SUCH BURDEN IS NOT CA S T ON THE A PP E LLANT IN SECTION 1OB . 3. TH E F I N DING O F THE LEARNED CIT(A) THAT THE APPROVAL GRANTED BY THE D E P UTY DEVE L O PMENT COMMISSIONER , COCHIN SEZ TO THE APPELLANT ' S EO U H AS N OT B E EN RATIFIED BY THE BOARD OF APPROVAL FOR EOU IS NOT BASED ON A N Y MATERIAL ON RECORD AND THE SAME BEING IN FACT CONTRARY TO TH E E V I D E NC E ON RECORD, IS LIABLE TO BE QUASHED. 4. T H E L EARNE D C I T ( A) IS NOT JUSTIFIED IN HOLDING THAT THE MINUTES OF THE M EE T I N G (2 011 SERIES) OF THE BOARD OF APPROVAL FOR EOU SCHEME WH E R E IN T H E B O ARD HAS RATIFIED THE APPROVALS GRANTED BY COCHIN SEZ BETW EE N 0 9 .0 9 .1996 TO 02.12.2010 CANNOT BE TAKEN AS EVIDENCE TO PRO V E THAT TH E APPROVAL GRANTED BY THE DEPUTY DEVELOPMENT COMMISSIONER TO THE APPELLANT'S EOU HAS BEEN RATIFI ED BY THE BOARD OF APPROVAL . 5. TH E FI NDIN G O F T H E LEA RN E D COMMIS S I O N ER OF I NCO M E-TAX (APP EA LS) T H A T TH E AP PROV A L FO R A PPELLANT ' S E OU WAS NOT U ND ER AU TOMAT I C R O UT E IS IN CORREC T A ND T H E S A M E B E ING IN FACT C ON TRARY TO EVI D E N CE O N RECOR D , IS L IA BL E T O B E Q UASH E D . I V. AS REGARDS DENIAL OF EXEMPTION U / S 1OB OF THE ACT ON T HE GROUND THAT T H E APPELL A NT IS NOT ENGAGED IN MANUFAC TUR E O R P R ODUCT I ON OF ANY ARTICLE OR THING : 1. T H E L EA RN E D A UTH OR I TIES BELOW E R RE D IN L AW AND O N F ACTS I N H O LDIN G T H AT T H E ACTIV IT Y O F TH E A PPELLAN T DO ES N OT AMO UN T T O M A NUF ACT UR E O F AN Y A RTI C L E OR THING A ND H E NC E, IT IS NO T E N TI TL E D TO E X E MPTION U/ S 1OB OF TH E A CT . 2. TH E L EARN E D CIT(A) IS NOT JUSTIFI E D I N RE L Y IN G ON TH E ITA NOS.322 & 323(B)/2014 11 DIR E CTIONS ISS U ED BY H IS PR EDECESSOR TO THE LEARN E D ADDITION A L COMMISSION E R OF INCOME-TAX WHO IS NOT THE ASSESSING O F F IC E R, TO CONDU C T ENQUIR Y A ND THUS E X C E E DED HIS P OWER UNDER SECTION 2 51 . 3. W I T HOU T PR E JUDICE TO GROUND NO . 2 , T H E L EA RNED CIT(A) IS NOT J U STIFIE D I N C ONSIDERING THE SUO MOTU S UBM I SSIONS FIL E D B Y THE L EA RN E D ADDI T ION A L COMMISSION E R OF I NCO M E - T A X VID E HIS L E TTER D A T E D 23 .02 .2 012 A S TH E LATTER HAS NO LO C U S S T A NDI IN TH E MA T T E R . 4. TH E L EARNE D C IT(A) IS NOT JUST I FIED IN UP HO LD I N G THE FINDING OF THE L EA R NE D A DD I TION A L COMMIS S IONER OF INCOM E-TA X THAT THE ACTI V I TY OF THE AP P E LL A NT N E ITHER AMOUNTS TO MANUF A CTUR I NG NOR PROCESSING AND THAT I T IS M E REL Y ENGAGED IN PACKAGIN G AC T IV IT Y . 5. T H E L EAR N ED C I T( A ) OUGH T TO HAVE HELD TH AT T H E LE A RN E D ASS E SSING O FF IC ER IS NO T JUSTIFI E D IN FAILING TO D IFFER E NTI A T E T H E ACT O F OUTRIGHT PUR C H ASE OF GHERKINS GRO W N B Y FARMERS A ND TH E AC T OF S UPPL YI NG S EE DS , FE RTILIZ E RS A ND OTH E R I NPUTS A ND OBTA I NIN G TH E G H E RK I NS T HROUGH C ONTRACT FARMING. 6. TH E LEARN E D CIT(AL OUGH T TO HAVE APPRECIATED THAT TH E APPELL A N T S UPPLI ES TH E S EE DS T O T H E CO NTRACT FARM E R S W H O W OULD GROW TH E G H E RKINS UNDER TH E APPELLAN T ' S CONTROL AND TH E APP E LLANT SUBJE C T S SU C H G HERKINS TO PRODUC E GHERKIN PICKLES . H E HAS F A ILED T O A PPR EC I A T E THA T TH E A PP E LLANT' S ACT I VIT Y ST A RT S W I T H SEE D A ND E NDS WITH GHERKIN PICKLES . 7. THE LEARNED CIT(AL HAS FAILED TO APPRE C IAT E THAT OUTSOUR C ING SOM E PROCESSES IN THE COURSE OF MANUFACTURE TO OU T SID E AGENCY WHO W OULD C ARR Y OUT SUCH PROCESS UNDER THE CONTROL AND GUIDANCE OF THE APPELLANT WOULD NOT PREJUDICE THE CLAIM OF THE APPELLANT FOR THE BENEFI T OF SECTION 1OB. 8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT( AL OUGHT TO HAVE A PPR E CIATED THAT THE GHERKINS PROCURED B Y THE APPELLANT THROUGH CO NTRA C T FARMING IS SUBJECTED TO VARIOUS PROCESSES AND THE END- PRODU C T SO DERIVED IS GHERKIN - PICKLES WHICH IS A NEW AND DISTINCTIVE OBJECT HAVIN G DISTINCT NAME, CHARACTER AND USE. 9. T H E LEARNED AUTHORITIES BELOW ERRED IN LAW AND ON FACTS IN HOLDING T H A T THE ENTIRE GAMUT OF ACTIVITIES WHICH BEGIN FROM GROWING OF G H E RKINS AND END WITH EXPORT OF GHERKIN- ITA NOS.322 & 323(B)/2014 12 PICKLES IS AN ACTIVITY OF M A NUFACTURE AND THE APPELLANT IS ENTITLED TO THE BENEFIT OF SECTION 1 O B . 10. T H E LEARNED AUTHORITIES BELOW ERRED IN LAW AND ON FACTS I N H OLDING THAT THE ACTIVI TY OF THE APPELLANT DOES NOT AMOUNT TO M A NUFA C TURE THOUGH IT FULFILLS THE TEST OF IRREVERSIBILITY . 11 TH E L EA RN E D C IT(A) OUGHT T O HAVE QU A SH ED TH E FIN D I N G OF TH E L EA RN E D ASS E SSING OFFI C ER T HA T THE APPELLAN T D OES NOT B EA R TH E C OST OF PRODU C TION OF GHERKIN . 12. TH E L E ARN E D ASS E SSING O FFI CE R ERRED IN L AW AND O N FAC TS IN A PPL YI NG T H E D E FINIT I ON O F ' MANUFA C TUR E' AS GIVEN I N SE C TION 2( 2 9BA) EVE N THOUGH TH E S A ID DEFINITIO N I S NOT AP PL ICA BL E FOR ASSE S S M E N T YEA R 2 005 - 0 6 13.WITHOUT PR E JUDI CE TO TH E A BO VE, THE L EA RN E D C I T( A ) OUG HT TO H AVE QU A SH E D TH E FINDING OF TH E LEARNED ASS E SS I N G O FF ICE R THAT TH E A C TIVITY OF THE APPELLANT DO E S NOT AMOUNT TO M A NUFACTURE AS D E FIN E D IN SECTION 2(29BA) OF THE ACT . 14. THE LEARNED CIT(A) IS NOT JUSTIFIED IN HOLDING THAT TH E FACT THAT THE ACTIVITY CARRIED OUT BY THE APPELLANT AMOU NTS TO MANUFACTURE UNDER THE CENTRAL EXCISE ACT IS NOT A R ELEVANT FACTOR FOR DECIDING WHETHER THE APPELLANT IS ENGAGE D IN MANUFACTURING A C TIVITY OR NOT. 15. THE L E ARN E D A UTHORITIES BELOW ERRED IN LAW AND ON F AC TS IN HOLDING TH A T T H E AC TIVIT Y OF THE APPELLANT DOES NOT AMOUNT TO MANUFACTURE IGNORING THE FACT THAT THE ACTIVITY OF TH E APP E LL A NT A MOUNTS TO MANUFACTUR E AS DEFINED UNDER THE CENTRAL EXCIS E A C T , 1944. 16. THE LEARN E D CIT(A) OUGHT TO HAVE APPRECIATED THAT THE FINDING OF THE L E ARN E D ADDL . CIT THAT THE APPELLANT'S PRODUCTS A RE NOT LIABLE FO R E XCIS E DUTY IS PERVERSE AND BEING CONTRAR Y T O EV IDENCE ON R EC ORD IS LI A BL E TO BE QUASHED . 17. WITHOUT PREJUDICE TO THE MAIN CONTENTION THAT T H E ACT IVIT Y CARRIED OUT BY THE APPELLANT AMOUNTS TO M A NUFACTURE , TH E LEARNED AUTHORITIES BELOW OUGHT TO HAVE APPRECIATED THAT TH E ACTIVIT Y CA RR IED O U T B Y TH E APPELLAN T A MOUN TS TO PR O DU CT I O N A ND H E N CE, E LI G IBL E FOR EXE MPT I ON U/S 1OB OF TH E A CT. 18. W I TH O U T PR EJ UDIC E TO TH E L EA RN E D A UT HO RI TIE S B E L OW E RR E D IN LAW AND ON FACTS I N HOLDING TH A T TH E B ENEFIT OF S ECTION 1OB IS N O T AVA IL AB L E T O ACTIV ITIES WHI C H A MOUN T T O P ROCES S I N G ITA NOS.322 & 323(B)/2014 13 19 TH E L EARNE D C IT(A) OUGHT TO HAV E H E LD T H A T T H E FINDIN G OF TH E L EAR N ED A S SE SSIN G OFFICER T HAT TH E A PP E LL A N T'S P RO DU CT I S NOT C OMP ARA BL E T O PICKLES IS P E RV E RS E AND B E IN G NOT B ASE D ON AN Y E VID E N CE O N RE C ORD IS L IABLE TO B E QUASHED . 20. TH E L EA RN E D CIT(A) OUGHT TO HAVE H E LD TH A T TH E FINDIN G OF THE LE A RN E D ASS E SSING OFFICER THAT THE GHERKINS ARE NOT SUBJECT TO PROC E SS OF F E RMENTATIO N IS NOT BASED ON A N Y MATERIAL ON RECOR D AND THE SAME BEING I N F ACT CONTRARY TO EVIDENCE ON RECORD IS LIABLE TO BE QUASHED . V. AS REG ARDS DENIAL OF ALTERNATIVE CLAIM FOR DEDUCTION U/S 80- IB( LLA ) O F THE A CT : 1. TH E L EA RN E D CIT ( A ) E RR E D I N L AW A ND O N FACTS IN DENYING THE C LA I M OF T H E AP P E LLANT FOR DE D UCT I ON U/S 80 - IB(11A) OF THE ACT ON THE GRO UND THAT T HE APPEL LA NT HAS NOT MADE THE CLAIM IN THE RETURN OF I N CO M E , EVEN T HOUGH SECTION 80A(5) IS NOT IN V OKABL E ON T H E FACTS OF T H E CASE. 2. TH E LEARNE D CI T (A) ER R ED IN HOLDING TH A T A S T H E APPELLANT WAS PROS ECUTING IT S CLAIM UNDER SECTION 1OB , IT C OULD NOT H A V E CLAIM E D THE R E L IEF UNDER SECTION 80I B (11A) IN TERMS OF SE C TION 80A ( 4) WHICH B ARS DOUBL E CLAIM AND TH U S , THE CASE OF APPELLANT NOT CLAIMING R E LI EF UND E R SE C TION 8 0IB ( 1 1 A ) CANN O T B E REGARDED A S A FAILURE TO C L A I M . 3. WITHOUT PREJUDICE TO THE MAIN CONTENTION THAT TH E ACTIVITY CA RR IE D O U T B Y T H E AP P E LL ANT A M O U NT S T O M ANUFACT UR E, T H E L EARNED CIT( A ) H AV IN G N OT DIS PU TE D T H E FACT T H AT T H E AP P E L LA NT 'S ACTIVITY FALLS UND E R TH E CATEG OR Y OF ' BUSIN E SS OF PR OCE SSIN G, PR E S ERVATION A ND P AC K A GIN G O F F RU ITS O R VEGETA BL E S ' O U GHT TO H AVE G R A N TED D E D UCTION U/S 80-IB(I I A). VI . AS REGARDS LEVY O F INTE R EST U / S 234B AND 234D OF THE ACT : 1. T H E L E ARNED A S S ES SING O FFI CE R I S NO T J UST I FIE D IN L EVYING INTERES T UND E R S E C TI ONS 2 34B WH E N TH E C O N DITION FOR L EVY OF IN T EREST D ID NOT E XIS T . 2. THAT THE LEV Y O F INTE R EST U/ S 234B IS NO T IN ACCORDANCE WI TH S EC TION 234B(3) OF THE ACT . 3. TH E LEARNED ASSESSING OFFICER IS NOT JUST I FI E D IN L E V Y ING I NT E R E ST UNDER SECTIONS 234D WHEN THE CON D ITION FOR L E VY OF INTEREST DID NOT EXIST . ITA NOS.322 & 323(B)/2014 14 EAC H OF THE A BO VE GR OUNDS IS W I THOUT P REJU D IC E TO ONE ANOTH E R AND THE APPELLAN T C R AVES LEAVE OF THE HON ' BLE TRIBUNAL TO A DD , DELET E, AM EN D OR OTHER W IS E MODI FY O N E O R MORE OF TH E ABOV E GROUNDS EIT H E R B E F O R E OR AT THE TI M E OF H E AR I NG OF T HIS A PPEAL . IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT AS PER VARIOUS GROUNDS RAISED BY THE ASSESSEE IN BOTH THES E YEARS, ONE OF THE GRIEVANCES OF THE ASSESSEE IS REGARDING VALIDITY OF THE RE-ASSESSMENT PROCEEDINGS. HE SUBMITTED THAT TH E OBJECTION OF THE ASSESSEE REGARDING VALIDITY OF RE- ASSESSMENT PROCEEDING ARE TWO FOLDS. FIRST OBJECTION IN THIS REGARD IS THIS THAT IN BOTH THESE YEARS, THE ORIGINAL ASSESSMENT W AS COMPLETED BY THE AO U/S 143(3) AND THE SAME WAS RE- OPENED AFTER FOUR YEARS FROM THE END OF RELEVANT ASSESSMEN T YEARS AND THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW T HAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THESE TWO ASSESSMENT YEARS AND THEREFORE, AS PER THE PROVISIO NS OF FIRST PROVISO TO SEC.147, THE REOPENING IS NOT VALID. HE FURTHER SUBMITTED THAT REASONS RECORDED BY THE AO FOR RE-OP ENING IN THESE TWO YEARS ARE AVAILABLE ON PAGES-6 TO 9 AND F ROM THE SAME, IT CAN BE SEEN THAT THERE IS NO ALLEGATION OF THE AO IN THE REASONS RECORDED BY HIM THAT THERE IS ANY FAILU RE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS. HE FURTHER SUBMITTED THAT THE SECOND OBJECTI ON OF THE ITA NOS.322 & 323(B)/2014 15 ASSESSEE REGARDING VALIDITY OF THE RE-ASSESSMENT PR OCEEDINGS IS THIS THAT THE ASSESSEE HAS RAISED OBJECTIONS BEF ORE THE AO REGARDING VALIDITY OF RE-ASSESSMENT PROCEEDINGS AND SUCH OBJECTIONS ARE AVAILABLE ONPAGES-2 & 3 OF THE PAPER BOOK FOR ASSESSMENT YEAR 2004-05 AND PAGES-5 & 5A OF THE PAP ER BOOK FOR ASSESSMENT YEAR 2005-06 BUT THE AO HAS NOT PASS ED ANY SPEAKING ORDER REGARDING THESE OBJECTIONS OF THE AS SESSEE AND THEREFORE, THE REASSESSMENT ORDERS ARE NOT VALID BE CAUSE AS PER THE JUDGMENT OF THE HONBLE DELHI HIGH COURT RE NDERED IN THE CASE OF CIT VS MULTIPLEX TRADING INDUSTRIAL CO . LTD. 378 ITR 51(DEL.), IT WAS HELD BY THE HONBLE DELHI HIGH COURT THAT IF THE OBJECTIONS FILED BY THE ASSESSEE WERE NOT D ISPOSED OF BY THE AO BEFORE FRAMING THE ASSESSMENT IN RE-ASSESSME NT PROCEEDINGS, IT WOULD INVALIDATE THE EXERCISE OF JU RISDICTION U/S147/148 OF THE IT ACT, 1961. 4. REGARDING THE MERIT, HE SUBMITTED THAT THE TRIB UNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 20 06-07 AND 2007-08 IN ITA NO.1292(B)/2010 & 287(B)/2013 DATED 18-03- 2016 IS AVAILABLE ON PAGS-69 TO 90 OF THE PAPER BOO K AND AS PER THE SAME, IT WAS HELD BY THE TRIBUNAL THAT THE ASSESSEES CLAIM U/S 10B HAD TO BE ALLOWED. 5. AS AGAINST THIS, LD. DR OF THE REVENUE SUPPORTE D THE ORDERS OF AUTHORITIES BELOW. HE ALSO PLACED RELIANC E ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF ACIT VS MUKU T MAHAL ITA NOS.322 & 323(B)/2014 16 BANQUET (P) LTD. IN ITA NO.226(DEL.)/2012 DATED 23- 11-2012 AND SUBMITTED THAT IN THAT CASE ALSO, THE OBJECTION OF THE ASSESSEE REGARDING VALIDITY OF RE-ASSESSMENT PROCEE DINGS WERE NOT DISPOSED OF BY THE AO AND UNDER THESE FACTS, TH E TRIBUNAL RESTORED THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION THAT THE AO SHOULD FOLLOW THE PROCEDURE LAID DOWN B Y THE HONBLE APEX COURT IN THE CASE OF G.K.N DRIVESHAFT 259 ITR 29(SC) AND THE AO SHOULD DISPOSE OF THE OBJECTIONS OF THE ASSESSEE BY PASSING A SPEAKING ORDER AND ONLY THER EAFTER, HE SHOULD PROCEED WITH ASSESSMENT PROCEEDINGS IN ACCOR DANCE WITH LAW. HE SUBMITTED THAT AS PER THIS TRIBUNAL O RDER, EVEN IF THE OBJECTION OF THE ASSESSEE WERE NOT DISPOSED OF BY THE AO BY PASSING A SPEAKING ORDER, IT IS NOT ILLEGALITY B UT IT IS ONLY IRREGULARITY AND THEREFORE, THE MATTER SHOULD BE RE STORED BACK TO THE FILE OF THE AO FOR FRESH DECISION AS PER THI S TRIBUNAL ORDER. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS. FIRST WE CONSIDER AND DECIDE THE OBJECTION OF THE ASSESSEE R EGARDING VALIDITY OF THE RE-ASSESSMENT PROCEEDINGS. THIS IS TRUE THAT THE RE-ASSESSMENT IN BOTH THESE YEARS WERE INITIATED AF TER EXPIRY OF 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEARS A ND IN BOTH THE YEARS, ORIGINAL ASSESSMENT WAS COMPLETED BY THE AO U/S 143(3) OF THE IT ACT, 1961. THEREFORE, FIRST PROVIS O TO SEC.147 IS APPLICABLE IN THE PRESENT CASE. HENCE, IT HAS TO BE SEEN AS TO ITA NOS.322 & 323(B)/2014 17 WHETHER THERE IS ANY FAILURE ON THE PART OF THE ASS ESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS REQUIRE D FOR ASSESSMENT. TO EXAMINE THIS ASPECT, WE RE-PRODUCE T HE REASONS RECORDED BY THE AO FOR RE-OPENING FOR BOTH THE YEARS I.E. 2004-05 & 2005-06. THE SAME ARE AS UNDER; 7. IT IS SEEN FROM THE RECORDS THAT IN ASSESSMENT YEAR THE COMPANY HAS PURCHASED THE PLANT AND MACHINERY WORTH RS.3.86 CRORES IN AY: 207-08 AND RS.1.37 CRORES IN AY: 2008-09. KINDLY EXPLAIN THE REASONS FOR THESE HUGE ADDITIONS IN THE PLANT & MACHINERY? ANS: INTERGARDEN INDIA PVT.LTD. IS HAVING IMPORTED PLANS & MACHINERY FOR PACKING THE BOTTLES. IT IS HIGHLY SOPHISTICATED PLANT OF INTERNATIONAL FOOD SAFETY CLASS SO THE MACHINERIES IMPORTED FROM BELGIUM FOR THE ENTIRE PRODUCTION PROCESS. AND THE CAPACITY OF THE MACHINES IS 250 JARS (OF 720 ML) JAR PER MINUTE. GLOBAL GREEN COMPANY LTD. TOOK OVER INT3ERGARDEN INDIA PVT.LTD. WAS THIS VERY REASON ONLY THE TECHNOLOGY USED BY THE INTERGARDEN IN INDIA PVT.LTD. FOR PACKAGING THE BOTTLES WAS FAR AHEAD FROM THE INDIA TRADITIONAL PACKING. 9. THE COMPANY INTERGARDEN INDIA PVT.LTD. HAS SHOWN INCOME FOR THE ASST.YEAR 2007-08 MORE THAT RS.1.00 CRORES AND CLAIMED A DEDUCTION U/S 10B OF IT ACT, BUT INSUBSEQUENT YEAR ASST. YEAR 2008-09, THE COMPANY HAS INCURRED HUGE LOSS OF 9.00 CRORES, THE DEDUCTION U/S 10B WAS ALSO WITHDRAWN FROM THE ASST.YEAR 2008-09. KINDLY ITA NOS.322 & 323(B)/2014 18 EXPLAIN? ANS: THE COMPANY HAS PLANS TO MERGE 2 INDIAN COMPANIES ONE NAMELY GLOBAL GREEN COMPANY LTD. AND INTERGARDEN INDIA PVT.LTD. TO BRING IN COST SAVINGS ON ACCOUNT OF SYNERGIES ARISING OUT OF MERGER. SINCE THE GLOBAL GREEN CO. LTD. HAS OPTED OUT FOR THE DEDUCTION U/S 10B IN THE ASST. YEAR1999-2000 0LY TO ENABLE THE MERGER INTERGARDEN INDIA PVT.LTD. OPTED OUT FROM THIS SCHEME U/S 10B. THE REASONS BEHIND THE LOSS FOR AY: 2008-09 ARE THE DROP OF THE EXPORT SALE TO THE RUSSIAN MARKET FROM 48 CRORES TO 22 CRORES, THE DROP IN TURNOVER FROM AY: 2008-09 IS ALSO CAUSED BY THE COLLAPSE OF RUSSIAN MARKET. FROM THE REASONS RECORDED BY THE AO FOR RE-OPENING IN BOTH THESE YEARS AS REPRODUCED ABOVE, IT IS SEEN TH AT THE MAIN BASIS OF THE AOS REASONING IS THIS THAT DURING THE COURSE OF SURVEY CONDUCTED IN THIS CASE ON 22-09-2010, IT WAS FOUND THAT THE ASSESSEE IS NOT IN THE ACTIVITY OF MANUFAC TURING AND PRODUCTION OF GHERKINS. IN THIS REGARD, WE ALSO EXA MINE THE STATEMENTS OF DIRECTORS RECORDED IN COURSE OF SURVE Y ON 22-09- 2010, COPY AVAILABLE ON PAGES 107 111 AND 112 - 1 14 OF THE PAPER BOOK. FROM THE SAME, WE FIND THAT AS PER QUE STION NO.5, THE AO ASKED THE ASSESSEE TO STATE IN DETAILS THE BUSINESS OF THE ASSESSEE COMPANY AND IN REPLY, IT W AS SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF E XPORT OF ITA NOS.322 & 323(B)/2014 19 PROCESSED VEGETABLES MAINLY GHERKINS AND THESE ARE SOLD TO EUROPEAN AND RUSSIAN MARKETS. HE ALSO SUBMITTED TH AT THE ASSESSEE IS BUYING GHERKINS FROM FARMS THROUGH CONT RACT FARMING CULTIVATION AND THE ASSESSEE DOES NOT OWN ANY FARM AND IS NOT PRODUCING THE GHERKINS IN HIS OWN FARMS. THEREAFTER, IN QUESTION NO.7, IT WAS STATED THAT IT IS SEEN FROM THE RECORD THAT THE ASSESSEE COMPANY HAD PURCHASED THE PLANT & MACHINERY WORTH RS.3.86 CRORES IN AY: 2007- 08 AND RS.1.37 CRORES IN AY: 2008-09 AND THE ASSESSEE WAS ASKED TO EXPLAIN THE REASONS FOR SUCH HUGE ADDITIONS IN SUCH PLANT & MACHINERY. IN REPLY, IT WAS STATED THAT THE ASSESSE E COMPANY IS HAVING IMPORTED PLANT & MACHINERY FOR PACKING BO TTLES AND IT IS HIGHLY SOPHISTICATED PLANT OF INTERNATIONAL F OOD SAFETY CLASS SO, THE MACHINERIES WERE IMPORTED FROM BELGIU M FOR THEIR ENTIRE PRODUCTION PROCESS. HENCE, IT IS SEEN THAT EVEN AS PER THE STATEMENT RECORDED IN COURSE OF SURVEY, IT WAS MADE CLEAR BY THE ASSESSEE THAT THE ASSESSEE IS IN THE B USINESS OF EXPORT OF PROCESSED VEGETABLES MAINLY GHERKINS AND IT WAS SUBMITTED THAT THE SUCH GHERKINS ARE NOT PRODUCED I N ASSESSEES OWN FARMS BUT THIS CANNOT BE INFERRED FR OM THESE FACTS THAT MERELY BECAUSE THE GHERKINS ARE NOT PROD UCED IN THE FARMS OWNED BY THE ASSESSEE COMPANY, THE ASSESS EE IS NOT MANUFACTURING OR PRODUCING GHERKINS PICKLES WHICH A RE BEING EXPORTED. IN FACT, IN REPLY, TO QUESTION NO.7, IT WAS STATED THAT ITA NOS.322 & 323(B)/2014 20 THE ASSESSEE HAS IMPORTED MACHINERIES FOR PROCESSIN G AND PACKING OF THE GHERKINS PICKLES. AS PER THE TRIBU NAL ORDER IN ASSESSEES OWN CASE OR AY: 200708 ALSO, THIS ASPECT HAS REACHED FINALITY THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B FOR THE SAME ACTIVITY AND THE LD. DR OF THE REV ENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESEN T TWO YEARS AND IN AY: 2007-08. HENCE, WE ARE SATISFIED THAT IN THE FACTS OF THE PRESENT CASE, AS DISCUSSED ABOVE, IT CANNOT BE SAID THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE T O DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS AND THEREFORE, A S PER THE FIRST PROVISO TO SEC.147, RE-OPENING IN BOTH THESE YEARS IS NOT VALID. WE HOLD ACCORDINGLY. 7. NOW WE DECIDE THE VALIDITY ASPECT OF RE-OPENING WITH REGARD TO SECOND OBJECTION THAT NO SPEAKING ORDER W AS PASSED BY THE AO AGAINST THE OBJECTION OF THE ASSESSEE RAI SED BEFORE HIM REGARDING VALIDITY OF RE-ASSESSMENT PROCEEDINGS . AS PER THE JUDGMENT OF THE HONBLE DELHI HIGH COURT RENDER ED IN THE CASE OF CIT VS MULTIPLEX TRADING & INDUSTRIAL CO. ( SUPRA), IT WAS HELD THAT IF OBJECTIONS FILED BY THE ASSESSEE W ERE NOT DISPOSED OF BY THE AO BEFORE FRAMING THE ASSESSMENT IN RE- ASSESSMENT PROCEEDINGS, THEN, IT WOULD INVALIDATE T HE EXERCISE OF JURISDICTION U/S 147/148 OF THE IT ACT, 1961 BEC AUSE, THESE REQUIREMENTS ARE INTEGRAL PART OF SAFEGUARDS WHICH HAVE BEEN BUILT FOR ENSURING THAT THE ASSESSMENT ARE RE-OPENE D ONLY FOR ITA NOS.322 & 323(B)/2014 21 LAWFUL REASONS AND IN TRANSPARENT MANNER. HENCE, BY RESPECTFULLY FOLLOWING THIS JUDGMENT OF THE HONBLE DELHI HIGH COURT, WE HOLD THAT IN THE PRESENT CASE, RE-OPENING IS NOT VALID FOR THIS REASON ALSO THAT THE OBJECTIONS FILED BY T HE ASSESSEE WERE NOT DISPOSED OF BY THE AO BEFORE FRAMING THE R E- ASSESSMENT ORDER. 8. REGARDING THE TRIBUNAL ORDER RENDERED IN THE CA SE OF ACIT VS MUKUT MAHAL BANQUET (P) LTD.,(SUPRA), ON WH ICH RELIANCE HAS BEEN PLACED BY THE LD. DR OF THE REVEN UE, WE WOULD LIKE TO OBSERVE THAT IN PREFERENCE TO THE TRI BUNAL ORDER OF DELHI BENCH, THE JUDGMENT OF THE HONBLE DELHI H IGH COURT HAS TO BE FOLLOWED AND SINCE, WE ARE FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT, THIS TRIBUNAL ORDER C ITED BY THE LD. DR OF THE REVENUE IS NOT REQUIRED TO BE CONSIDE RED. HENCE, RESPECTFULLY FOLLOWING THE HONBLE DELHI HIGH COURT S JUDGMENT, WE HOLD THAT THE RE-OPENING IS NOT VALID FOR THIS REASON ALSO THAT THE OBJECTIONS OF THE ASSESSEE WER E NOT DISPOSED OF BY THE AO BEFORE FRAMING THE RE-ASSESSM ENT ORDER. 9. NOW WE EXAMINE AND DECIDE THE MERIT OF DISALLOW ANCE MADE AFTER RE-OPENING. IN BOTH THESE YEARS, THE DI SALLOWANCE HAS BEEN MADE BY THE AO AS PER THE RE-ASSESSMENT OR DERS PASSED IN BOTH THESE YEARS BY HOLDING THAT DEDUCTIO N CLAIMED BY THE ASSESSEE U/S 10B IS NOT ALLOWABLE BECAUSE, T HE ASSESSEE IS NOT ENGAGED IN MANUFACTURING ACTIVITY. IN AY: ITA NOS.322 & 323(B)/2014 22 2007-08, THE TRIBUNAL IN ASSESSEES OWN CASE HAS DE CIDED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10B FOR ITS ACTIVITY AND THIS IS NOT THE CASE OF REVENUE THAT THE FACTS IN THE PRESENT TWO YEARS AND AY: 2007-08 ARE DIFFERENT. HE NCE, WE FIND NO FIND NO REASON TO TAKE A CONTRARY VIEW IN T HE PRESENT TWO YEARS AND THEREFORE, BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR AY: 2007-08, WE HO LD THAT IN THE PRESENT TWO YEARS ALSO, THE ASSESSEE IS ELIGIBL E FOR DEDUCTION U/S 10B OF THE IT ACT, 1961. 10. REGARDING THE ISSUE OF LEVY OF INTEREST U/S 2 34B AND 234D OF THE ACT, WE HOLD THAT THE SAME IS CONSEQUEN TIAL AND NO SEPARATE ADJUDICATION IS CALLED FOR. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. (SUNIL KUMAR YADAV) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : .12.2016 AM* ITA NOS.322 & 323(B)/2014 23 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR, ITAT, BANGALORE ITA NOS.322 & 323(B)/2014 24 1. DATE OF DICTATION 2. , , DATE ON WHICH TYPED DRAFT IS PLACED BEFORE THE DICT ATING MEMBER .. 3. !' # . $ %# / $ %# # & DATE ON WHICH THE APPROVED DRAFT COMES TO THE PS/SR .PS. 4. ''() & * + DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTAT ING MEMBER FOR PRONOUNCEMENT 5. * . %# / # . . %# # + DATE ON WHICH THE ORDER COMES BACK TO THE PS/SR.PS .. 6 * !', + DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. ! !', ' , - ) IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. .% / 0 + DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. * 1'2 / 34 & 5 + DATE ON WHICH ORDER GOES FOR XEROX &ENDORSEMENT 10. 0 6 / + DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 11. * 7 & 0 8 + THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 12. !) * 9() & 0 9() /#5 . + THE DATE ON WHICH THE FILE GOES TO DESPATCH SECTION FOR DESPATCH OF THE TRIBUNAL ORDER 13. * 9() + DATE OF DESPATCH OF ORDER .