The DCIT, Circle-5, Ahmedabad V. Parle International Pvt. Ltd., Ahmedabad

ITA 3520/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0111 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-08-2010
• Assessment Year: misc
• Appeal Filed On: 17-08-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Business income; Depreciation; Retrospective amendment; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; Set aside
• Section: 80HHC; 32; 147; 148; 56

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M DY. CIT, CIR-5, AHMEDABAD. VS. PARLE INTERNATIONAL LTD. (FORMERLY KNOWN AS BISLERI BEVERAGES (P) LTD.), 101, GIDC, INDL. ESTATE, VATVA, AHMEDABAD. (APPELLANT) .. (RESPONDENT) REVENUE BY :- SHRI ANIL KUMAR, DR ASSESSEE BY:- SHRI J.P. SHAH, AR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS :- (1) THE LD. COMMISSIONER OF INCOME TAX (A) - XI, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE DEDUCTION UNDER SECTION 32AB OF RS. 1,10,62,710/-. (2) THE LD. COMMISSIONER OF INCOME TAX (A) - XI, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWA NCE OF RS. 1,53,48,336/~ MADE BY WAY OF WITHDRAWAL OF THE DEDU CTION UNDER SECTION 801 OF THE INCOME TAX ACT, 1961 IN RESPECT OF VARIOUS UNITS, (3) THE LD. COMMISSIONER OF INCOME TAX (A) - XI, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 11,30,616/- MADE ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIME D UNDER SECTION 80HHA OF THE INCOME TAX ACT, 1961. ITA NO.3520/AHD/2007 ASST. YEAR :1988-89 2 (4) THE LD. COMMISSIONER OF INCOME TAX (A) - XI, AH MEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE REDUCTION OF INTEREST INCOME OF RS. 14,70,329/- FROM THE PROFITS OF THE B USINESS FOR COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE INCOME TAX ACT, 1961. (5) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. COMMISSIONER OF INCOME TAX (A) -XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER, (6) IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . COMMISSIONER OF INCOME TAX (A) XI, AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE MANUFACTURING OF NON-ALCOHOLIC BEVERAGE SUCH AS COLD DRINKS LIKE THUMPS UP, LIMCA, GOLD SPOT ETC. 3. THE FIRST ISSUE RELATES TO ALLOWING OF DEDUCTION UNDER SECTION 32AB. IT WAS CLAIMED BEFORE THE AO THAT ASSESSEE WAS DERI VING INCOME FROM SEVERAL ACTIVITIES LIKE CANNING DIVIDENDS, DEALING IN SECURITIES, FOOD DIVISION, INTEREST, IN ADDITION TO INCOME FROM MANU FACTURING AND SALE OF NON-ALCOHOLIC BEVERAGES. ORIGINALLY THE ASSESSEE WA S ALLOWED THE CLAIM UNDER SECTION 32AB ON THE BASIS OF REPORT PERTAININ G TO ITS PALGHAR UNIT. THE PROFITS FROM SUCH MANUFACTURING UNIT ALSO INCLU DED CERTAIN INCOME FROM OTHER SOURCES. THE AO WAS OF THE VIEW THAT INC OME FROM OTHER SOURCES CANNOT FORM PART OF ELIGIBLE INCOME FOR DED UCTION UNDER SECTION 32AB. HE ACCORDINGLY DISALLOWED THOSE RECEIPTS WHIL E GRANTING THE DEDUCTION. THE LD. CIT(A) ALLOWED THE DEDUCTION ON THE GROUND THAT SECTION 32AB(3) MAKES REFERENCE TO PROFIT OF THE BU SINESS AS COMPUTED IN PART II AND PART III OF SCHEDULE VI OF THE COMPANIE S ACT, 1956 AND THEREFORE, DIVIDEND, HIRE CHARGES, INTEREST ETC. WI LL FORM PART OF THE NET PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 32AB. T HE MATTER WAS TAKEN UP BEFORE THE TRIBUNAL WHICH IN A CONSOLIDATED ORDER F OR ASST. YEARS, 1986- 3 87, 1987-88, 1988-89, 1989-90 & 19990-91 VIDE PARA 6.1 HELD THAT DEDUCTION UNDER SECTION 32 AB HAS TO BE ALLOWED AS PROFITS HAVE BEEN COMPUTED AS PER SCHEDULE-VI OF THE COMPANIES ACT. T HE TRIBUNAL OBSERVED AS UNDER :- 6.1 AFTER HEARING THE PARTIES TO THE DISPUTE, WE A RE OF THE OPINION THAT THE VARIOUS UNITS OF THE ASSESSEE BEING SEPARATE IN DUSTRIAL UNDERTAKINGS WHERE GROSS BLOCK OF PLANT AND MACHINERY WAS LESS T HAN RS.35 LACS. ARE ENTITLED TO DEDUCTION U/S 32AB AND AS PER CLAUSE 3 OF SECTION 32AB THE DEDUCTION HAS TO BE ALLOWED ON THE PROFITS OF THE U NDERTAKING AS COMPUTED IN ACCORDANCE WITH PART II AND PART III OF VITH SCH EDULE TO THE COMPANIES ACT. THE ISSUE IN DISPUTE IS COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF THE HON. KERALA HIGH COURT IN THE CASE OF APOLLO TYRES LTD. (237 ITR 706) AS WELL AS THE DECISION OF THE TRIBUN AL IN THE CASE OF DCIT VS. TORRENT LABORATORIES P. LTD. (ITA NO.818/AHD/94 DATED 13.12.1999). ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THESE GROU NDS RAISED BY THE REVENUE WHICH ARE HEREBY DISMISSED. ACCORDINGLY, IT A NO.521/AHD/94 IS DISMISSED. 4. HOWEVER, ASSESSMENT WAS REOPENED UNDER SECTION 1 47. THE AO AGAIN DISALLOWED THE CLAIM UNDER SECTION 32AB BUT W AS ALLOWED BY LD. CIT(A) VIDE PARA 6.1 OF HIS ORDER. 5. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VIE W THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF CIT(A). THE CLAIM HAS BEEN ALLOWED BY THE TRIBUNAL. NO FRESH FACTS HAVE BEEN BROUGHT OUT BY THE AO TO TAKE A DIFFERENT VIEW. ACCORDINGLY, THIS GROUND OF REVENUE IS REJECTED. 6. GROUND NO.2 RELATES TO CLAIM U/S 80I. THE AO DIS CUSSED THIS ISSUE IN PARA 3 OF HIS ORDER. THE AO ADMITS THAT THIS ISS UE HAS BEEN DISCUSSED IN OTHER ASST. YEAR AND ALSO IN THIS ASST. YEAR IN THE ORIGINAL ASSESSMENT. LD. AO DISALLOWED THE CLAIM ONLY ON THE GROUND THAT DEPARTMENT HAS NOT ACCEPTED THE ORDER OF LD. CIT(A) IN EARLIER YEARS A LLOWING THE CLAIM. A PERUSAL OF THE IMPUGNED ORDER OF LD. CIT(A) INDICAT ED THAT DEDUCTION 4 UNDER SECTION 80I WAS ALLOWED BY THE TRIBUNAL IN TH E FIRST INNINGS AS PER PARA 5.5 PAGE 12 OF THEIR ORDER DATED 29.8.2000 AS UNDER:- WE ARE OF THE OPINION THAT THE ASSESSEE DESERVES T O SUCCEED ON ITS ALTERNATE PLEA AS THE COST OF GROSS BLOCK OF PLANT AND MACHINERIES IN RESPECT OF EACH UNIT OF THE APPELLANT ASSESSEE COMP ANY IS LESS THAN THE PRESCRIBED LIMIT OF RS.35 LACS AS PER THE DETAILS G IVEN BY THE ASSESSEE IN RESPECT OF AHMEDABAD AND DELHI UNITS WHICH WE HAVE EXTRACTED IN PARA 5.4 ABOVE ALTHOUGH IT IS TRUE THAT THESE DETAILS WE RE NOT AVAILABLE BEFORE THE AO/CIT(A). ACCORDINGLY WE DIRECT THE AO TO VERI FY THE VALUE OF GROSS BLOCK OF PLANT AND MACHINERY IN THE VARIOUS ASSESSM ENT YEARS UNDER CONSIDERATION IN RESPECT OF AHMEDABAD AND DELHI UNI TS AS WELL AS OTHER INDUSTRIAL UNDERTAKINGS AT NOIDA, BANGALORE, BARODA , BOMBAY, CHITOOR, MADRAS AND OTHER PLACES AND IF THE VALUE OF THE GRO SS BLOCK OF PLANT AND MACHINERY IN EACH UNDERTAKING IS LESS THAN RS.35 LA CS THE ASSESSEE WILL BE ENTITLED TO DEDUCTION U/S 80 HH, 80HHA AND 80I OF T HE ACT. THIS JUDGEMENT WAS FURTHER REFERRED BY THE TRIBUNAL IN THEIR SUBSEQUENT ORDER DATED 23.8.2004 IN ITA NO.3566 TO 3568/AHD/19 97 ALONG WITH C.O.NO.51 ARISING OUT OF ITA NO.3568/AHD/1997 FOR A SST. YEARS 1988- 89, 1992-93 & 1993-94 AT PARA 8.1 PAGE 6 OF THEIR O RDER. 7. WE HAVE HEARD THE PARTIES. SINCE THE ISSUE IS CO VERED BY THE ORDER OF THE TRIBUNAL AND NO FRESH FACTS HAVE BEEN BROUGH T IN BY THE AO THEN QUESTION OF TAKING A DIFFERENT VIEW DOES NOT ARISE. ACCORDINGLY THIS GROUND OF REVENUE IS ALSO REJECTED. 8. THE NEXT GROUND RELATES TO DEDUCTION UNDER SECTI ON 80 HHA. IN THE FIRST INNING RELATING TO ORIGINAL ASSESSMENT PROCEE DINGS THE CLAIM WAS ALLOWED BY THE TRIBUNAL AS DISCUSSED IN PARA 5.5.1 OF THEIR ORDER DATED 29.8.00. THE RELEVANT PARA HAS BEEN REFERRED ABOVE. AFTER DISCUSSING WITH THE PARTIES BEFORE US WE DECLINE TO INTERFERE IN TH E ORDER OF CIT(A). THIS GROUND OF REVENUE IS DISMISSED. 5 9. GROUND NO.4 RELATES TO CLAIM OF DEDUCTION UNDER SECTION 80 HHC. THIS IS A NEW ISSUE ARISING THIS YEAR ON ACCOUNT OF REOPENING OF THE ASSESSMENT. IN THE ORIGINAL ASSESSMENT PROCEEDINGS THIS ISSUE WAS NOT DISCUSSED. WHEN THE ASSESSMENT WAS REOPENED THE AO CONSIDERED THIS ISSUE AND MADE THE ADDITION. ACCORDING TO THE AO TE MPORARY SURPLUS FUNDS WERE INVESTED BY WAY OF DEPOSITS FOR SHORT DU RATIONS ON WHICH INTEREST WAS EARNED. THIS INTEREST INCOME WAS INCLU DED BY THE ASSESSEE IN THE PROFITS FOR COMPUTING DEDUCTION UNDER SECTION 8 0 HHC. THE CLAIM IN THE ORIGINAL ASSESSMENT WAS ALLOWED BUT IN THE RE-A SSESSMENT UNDER SECTION 147, THE AO DISALLOWED THE CLAIM. THE LD. C IT(A) DELETED THE ADDITION ON THE GROUND THAT REASONS RECORDED DID NO T CONTAIN THIS GROUND. THIS ADDITION WAS MADE DUE TO CHANGE OF OPINION. IN THIS REGARD HE OBSERVED AS UNDER :- 9.1.2 WITHOUT PREJUDICE AND IN THE ALTERNATIVE, TH E APPELLANT ALSO CONTENDED THAT THE INCOME FROM INTEREST BEING RS.14 ,70,329/- REPRESENTED SHORT TERM AND TEMPORARY INVESTMENT OF FUNDS HELD T EMPORARILY IN SURPLUS AND HE RELIED ON GUJARAT HIGH COURT JUDGMENT IN THE CASE OF GUJARAT MINERAL DEVELOPMENT CORPORATIONS CASE 132 ITR 379. THE APPELLANT ALSO CARRIES ON SEASONAL BUSINESS OF INVESTMENT IN MANGO PULP WHICH IS THE BUSINESS ONLY OF 2.1/2 TO 3 MONTHS IN A YEAR. T HE DISALLOWANCE THUS MADE IS OUT OF CHANGE OF OPINION. ALSO FOLLOWING TH E SAID JUDGMENT AND FACTS I DELETE THE EXCLUSION OF THE ABOVE REFERRED INCOME WHILE COMPUTING 80 HHC RELIEF. 10. THE LD. DR SUBMITTED THAT ONCE ASSESSMENT HAS B EEN VALIDLY REOPENED THEN AO IS WELL WITHIN HIS POWER TO INCLUD E ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT. THE QUESTION WHETHER DEDUCTION UNDER SECTION 80HHC ON INTEREST INCOME EARNED ON SHORT-TE RM DEPOSITS IS ALLOWABLE OR NOT IS NOW SETTLED BY VARIOUS DECISION S SUCH AS IN CIT VS. ABAD FISHERIES (2002) 177 CTR (KER) 532, RANI PALIW AL VS. CIT 268 ITR 220 (P & H), CIT VS. COSMOS INTERNATIONAL (2009) 31 8 ITR 314 (DEL), CIT VS. DELHI BRASS & METAL WORKS LTD. 313 ITR 352 (DEL). HE FURTHER 6 SUBMITTED THAT EXPLANATION -3 TO SECTION 147 INTROD UCED BY THE FINANCE ACT, 2009 WITH RETROSPECTIVE EFFECT 1.4.1989 WAS C LARIFICATORY IN NATURE AND ANY OTHER ESCAPED INCOME FOUND DURING THE COURS E OF REASSESSMENT PROCEEDINGS CAN ALWAYS BE ASSESSED AGAIN. IT IS NOT THE CASE THAT EXPLANATION-3 HAS MADE OUT A NEW LAW. IN FACT IT HA S ONLY AFFIRMED WHAT WAS ALREADY THE LAW EARLIER. THEREFORE, IT IS INCOR RECT TO SAY THAT EXPLANATION -3 WOULD NOT BE APPLICABLE TO ASST. YEA R 1988-89 WHICH IS PRIOR TO 1.4.1989. HE REFERRED TO THE DECISION OF H ON. SUPREME COURT IN V. JAGMOHAN RAO & ORS. VS. CIT (1969) 75 ITR 373 (S C) WHICH HAS BEEN SUBSEQUENTLY FOLLOWED BY HON. CALCUTTA HIGH CO URT IN CIT VS. RAMSEVAK PAUL & ORS. (1977) 110 ITR 527 (CAL), BY H ON. ALLAHABAD HIGH COURT IN MANOO LAL KEDARNATH VS. UNION OF INDI A & ORS. (1978) 114 ITR 884 (ALL), BY HON. DELHI HIGH COURT IN D.P . BYRNE VS.CIT (2001) 249 ITR 311 (DEL), BY HON. SUPREME COURT IN ITO VS. MEWALAL DWARKA PRASAD (1989) 176 ITR 529. THEREFORE, THE AO WAS JUSTIFIED IN MODIFYING DEDUCTION UNDER SECTION 80 HHC BY EXCLUDI NG INTEREST INCOME. 11. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT AF TER THE AMENDMENT WHICH IS MADE RETROSPECTIVE W.E.F. 1.4.1989 THE AO CANNOT INCLUDE ANY OTHER INCOME WHICH DOES NOT FORM PART OF THE REASON S RECORDED, IN RESPECT OF ASST. YEAR 1988-89 AND EARLIER. 12. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. IN OUR CONSIDERED VIEW THE EXPLANATION 3 TO SECTION 14 7 HAS BEEN INTRODUCED IN THE ACT ONLY AS AN ABUNDANT CAUTION. FOR THE SAK E OF CONVENIENCE WE REPRODUCE EXPLANATION-3 TO SECTION 147 AS UNDER :- EXPLANATION-3 FOR THE PURPOSE OF ASSESSMENT OR REA SSESSMENT UNDER THIS SECTION, THE AO MAY ASSESS OR REASSESS THE INCOME I N RESPECT OF ANY ISSUE, WHICH HAS ESCAPED ASSESSMENT, AND SUCH ISSUE COMES TO HIS NOTICE 7 SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THAT THE REASONS FOR SUCH ISSUE HAV E NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB-SECTION (2) OF SECTI ON 148. WHILE INTRODUCING THIS AMENDMENT BY FINANCE ACT, 20 09 WITH RETROSPECTIVE EFFECT FROM 1.4.1989, RELEVANT CIRCUL AR TO EXPLANATION ABOVE AMENDMENT READS AS UNDER :- CIRCULAR NO. 5 OF 2010, DATED 3RD JUNE, 2010. SUBJECT : FINANCE (NO. 2) ACT, 2009EXPLANATORY NO TES TO THE PROVISIONS OF FINANCE (NO. 2) ACT, 2009. 47. CLARIFICATORY AMENDMENT IN RESPECT OF REASSESSM ENT PROCEEDING UNDER SECTION 147 47.1 THE EXISTING PROVISIONS OF SECTION 147 PROVIDE S THAT IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTION 148 TO 153, ASSESS OR REASSES S SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX, WHICH HAS ESCAP ED ASSESSMENT. FURTHER ASSESSING OFFICER MAY ALSO ASSESS OR REASSE SS SUCH OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS UNDER THI S SECTION. ASSESSING OFFICER IS REQUIRED TO RECORD THE REASONS FOR REOPE NING THE ASSESSMENT BEFORE ISSUING NOTICE UNDER SECTION 148 WITH A VIEW TO REASSESS THE INCOME OF ASSESSEE. 47.2 SOME COURTS HAVE HELD THAT THE ASSESSING OFFIC ER HAS TO RESTRICT THE REASSESSMENT PROCEEDINGS ONLY TO THE REASONS RECORD ED FOR REOPENING OF THE ASSESSMENT AND HE IS NOT EMPOWERED TO TOUCH UPO N ANY OTHER ISSUE FOR WHICH NO REASONS HAVE BEEN RECORDED. THE ABOVE INTE RPRETATION IS CONTRARY TO THE LEGISLATIVE INTENT. 47.3 THEREFORE, TO ARTICULATE THE LEGISLATIVE INTEN TION CLEARLY EXPLANATION 3 HAS BEEN INSERTED IN SECTION 147 TO PROVIDE THAT THE ASSESSING OFFICER MAY EXAMINE, ASSESS OR REASSESS ANY ISSUE RELEVANT TO INCOME WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF P ROCEEDINGS UNDER THIS SECTION, NOTWITHSTANDING THAT THE REASON FOR SUCH I SSUE HAS NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SUB-SECTION (2) OF SECTION 148. 8 47.4 APPLICABILITY.THIS AMENDMENT HAS BEEN MADE AP PLICABLE WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1989 AND WILL APPLY ACCORDINGLY IN RELATION TO ASSESSMENT YEAR 1989-90 AND SUBSEQUENT YEARS. 13. THIS AMENDMENT ONLY CLARIFIES THE POSITION AS E XISTING EARLIER BY VIRTUE OF PROVISION OF MAIN SECTION WHICH READS AS UNDER :- 147 INCOME ESCAPING ASSESSMENT IF THE AO HAS REA SON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHAR GEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTIC E SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION, O R RECOMPUTED THE POSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANC E, AS THE CASE MAY BE, FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVANT ASS ESSMENT YEAR). IT CLEARLY ENABLES THE AO TO INCLUDE IN THE RE-ASSE SSMENT ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSME NT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PRO CEEDINGS UNDER THIS SECTION. THUS THE POWER TO INCLUDE ANY OTHER ITEM O F INCOME ESCAPING THE ASSESSMENT BUT NOT FORMING PART OF THE REASONS RECO RDED WAS ALREADY EXISTING IN THE STATUTE. HON. BOMBAY HIGH COURT IN DEVI PRASAD KEJRIWAL VS. CIT (1976) 102 ITR 180 (BOM) HELD THAT SERVICE OF NOTICE U/S 148 RESULTS IN COMMENCEMENT OF DE NOVO ASSESSMENT PROCE EDINGS WHICH ARE GOVERNED BY ALL THE RELEVANT PROVISIONS OF THE ACT. HON. SUPREME COURT IN V. JAGMOHAN RAO VS. CIT (1970) 75 ITR 373 (SC) ON WHICH LD. DR HAS RELIED HAD OBSERVED AS UNDER :- .ONCE PROCEEDINGS UNDER SECTION 34 ARE TAKEN TO B E VALIDLY INITIATED WITH REGARD TO TWO-THIRDS SHARE OF THE INCOME, THE JURISDICTION OF THE INCOME-TAX OFFICER CANNOT BE CONFINED ONLY TO THAT PORTION OF THE INCOME. SECTION 34 IN TERMS STATES THAT ONCE THE INCOME-TAX OFFICER DECIDES TO REOPEN THE ASSESSMENT HE COULD DO SO WITHIN THE PER IOD PRESCRIBED BY 9 SERVING ON THE PERSON LIABLE TO PAY TAX A NOTICE CO NTAINING ALL OR ANY OF THE REQUIREMENTS WHICH MAY BE INCLUDED IN A NOTICE UNDER SECTION 22(2) AND MAY PROCEED TO ASSESS OR REASSESS SUCH INCOME, PROFITS OR GAINS. IT IS, THEREFORE, MANIFEST THAT ONCE ASSESSMENT IS REOPENE D BY ISSUING A NOTICE UNDER SUB-SECTION (2) OF SECTION 22 THE PREVIOUS UN DER-ASSESSMENT IS SET ASIDE AND THE WHOLE ASSESSMENT PROCEEDINGS START AF RESH. WHEN ONCE VALID PROCEEDINGS ARE STARTED UNDER SECTION 34(1)(B ) THE INCOME-TAX OFFICER HAD NOT ONLY THE JURISDICTION BUT IT WAS HI S DUTY TO LEVY TAX ON THE ENTIRE INCOME THAT HAD ESCAPED ASSESSMENT DURING TH AT YEAR. THE ABOVE DECISION OF HON. SUPREME COURT WAS FOLLOW ED IN NEW KAISHER-I-HIND SPG. & WVG. CO. LTD. (1977) 107 ITR 760 (BOM) WHEREIN IT IS HELD THAT AO WAS DUTY BOUND TO LEVY T HE TAX ON ENTIRE INCOME THAT HAS ESCAPED THE ASSESSMENT. THIS WAS FU RTHER ELABORATED BY HON. BOMBAY HIGH COURT IN CIT VS. INDIAN RARE EARTH LTD. (1989) 181 ITR 22 (BOM) WHEREIN IT IS HELD THAT ONCE VALID PRO CEEDINGS UNDER SECTION 147 ARE STARTED THE AO HAS NOT ONLY THE JUR ISDICTION TO CONSIDER BUT HE IS ALSO DUTY BOUND TO COMPLETE THE WHOLE ASS ESSMENT DE NOVO. FOLLOWING THE DECISION OF HON. SUPREME COURT IN V. JAGMOHAN RAO & ORS. VS. CIT (SUPRA) IT WAS HELD BY HON. MADRAS HIG H COURT IN CIT VS. STANDARD MOTOR PRODUCTS OF INDIA LTD. (1983) 142 IT R 877(MAD) THAT ONCE ASSESSMENT IS REOPENED IT IS THE DUTY OF THE A O TO DETERMINE THE TAX LIABILITY OF AN ASSESSEE AND FOR THE SAID PURPOSE H E WILL HAVE TO LEVY TAX ON THE ESCAPED INCOME IN RESPECT OF WHICH NOTICE UN DER SECTION 148 WAS ISSUED BUT ALSO ON THE ENTIRE INCOME THAT HAS ESCAP ED THE ASSESSMENT DURING THAT YEAR. THUS ONCE AN ASSESSMENT IS VALID LY REOPENED THE ORDER OF ASSESSMENT STANDS AUTOMATICALLY CANCELLED. THE R E-ASSESSMENT ORDER REPLACES THE ORIGINAL ASSESSMENT ORDER. HON. RAJAST HAN HIGH COURT IN HIRALAL VS. CIT (1980) 121 ITR 89 (RAJ) ALSO HELD THAT THE JURISDICTION OF THE AO IS NOT LIMITED ONLY TO THE ITEMS IN RESPECT OF WHICH THE NOTICE WAS ISSUED AS PER REASONS RECORDED, BUT ON THE ENTIRE E SCAPED INCOME 10 INCLUDING THAT PART OF INCOME WITH RESPECT TO WHICH AO HAD ISSUED NOTICE UNDER SECTION 148(1). HON. ANDHRA PRADESH HIGH COUR T IN STATE BANK OF HYDERABAD VS.CIT (1988) 171 232 (AP) LAID DOWN FOLL OWING PROPOSITION:- (I) ONCE AN ASSESSMENT IS REOPENED UNDER SECTION 147, T HE ENTIRE ASSESSMENT PROCEEDINGS ARE AT LARGE. IT IS OPEN TO THE TAX AUTHORITIES TO RECONSIDER IN SUCH REASSESSMENT ALL ITEMS OF ESCAPEMENT OF INCOME WITHOUT LIMITATION; AT THE SAM E TIME IT IS OPEN TO THE ASSESSEE TO PUT FORWARD CLAIM FOR DEDUC TION OF ANY EXPENDITURE WHICH WAS INADVERTENTLY OMITTED IN THE ORIGINAL ASSESSMENT PROCEEDINGS. LIKEWISE, THE ASSESSEE CAN ALSO PUT FORWARD CLAIMS FOR NON-TAXABILITY OF ITEMS OF RECEI PT WHICH WERE NOT PUT FORWARD IN THE ORIGINAL ASSESSMENT. (II) IN ANY EVENT, THE INCOME FOR PURPOSES OF REASSESSME NT CANNOT BE REDUCED BEYOND THE INCOME ORIGINALLY ASSESSED, AS B ASICALLY THE ASSESSMENT IS REOPENED ON ACCOUNT OF ESCAPEMENT OF INCOME AND BY ALLOWING AN ASSESSEE TO CLAIM DEDUCTIONS, IT IS NOT PERMISSIBLE UNDER LAW TO REDUCE THE INCOME ORIGINALLY ASSESSED. EVEN IF THE ASSESSEES FRESH CLAIMS, DURING THE COURSE OF REASS ESSMENT ENQUIRY, ARE ACCEPTED, STILL THE ALLOWANCE OF THE CLAIMS SHO ULD BE LIMITED TO THE EXTENT TO WHICH THEY REDUCE THE INCOME TO THAT ORIGINALLY ASSESSED UNDER SECTION 143(3). (III) IF A CLAIM FOR DEDUCTION OR A CLAIM FOR NON-TAXABIL ITY OF A RECEIPT WAS PUT FORWARD IN THE ORIGINAL ASSESSMENT PROCEEDI NGS AND WAS CONSIDERED AND REJECTED BY THE TAX AUTHORITIES AND THAT FINDING HAD BECOME FINAL, IT IS NOT OPEN TO AN ASSESSEE TO PUT FORWARD THOSE CLAIMS ONCE AGAIN DURING THE COURSE OF REASSESSMENT PROCEEDINGS. HON. DELHI HIGH COURT IN D.P. BYRNE VS. CIT (2001) 249 ITR 311 (DEL) FOLLOWED THE ABOVE JUDGMENT OF HON. SUPREME COURT I N V. JAGMOHAN RAO & ORS. VS. CIT (SUPRA) HOLDING THAT ONCE VALID PROCEEDINGS WERE INITIATED THE ITO NOT ONLY HAS THE JURISDICTION BUT ALSO DUTY BOUND TO INCLUDE ALL OTHER ITEMS DISCOVERED DURING THE REASS ESSMENT PROCEEDINGS. IN VIEW OF THE ABOVE WE HOLD THAT EXPLANATION-3 DOE S NOT LAY DOWN A NEW LAW SO AS NOT TO MAKE IT APPLICABLE TO ASST. YEAR 1 989-90 AND ONWARDS 11 BECAUSE OF ITS RETROSPECTIVE EFFECT WITH EFFECT FRO M 1.4.1989, BUT IT ONLY CLARIFIES THE POSITION OF LAW EXISTING SINCE THE JU DGMENT OF HON. SUPREME COURT IN V. JAGMOHAN RAO & ORS. VS. CIT (SUPRA) AND HAS BEEN FOLLOWED BY VARIOUS COURTS AS REFERRED TO ABOVE. THEREFORE, WE REJECT THE ARGUMENT OF LD. AR THAT BECAUSE OF EXPLANATION -3 TO SECTION 147 AO CANNOT INCLUDE IN THE REASSESSMENT ORDER FOR ASST. YEAR 1988-89 TH E ISSUE REGARDING NON- AVAILABILITY OF DEDUCTION UNDER SECTION 80 HHC ON I NTEREST RECEIVED FROM FUNDS TEMPORARILY PARKED IN BANK. THIS ISSUE IS NOW SETTLED THAT ASSESSEE WILL NOT BE ENTITLED TO DEDUCTION UNDER SECTION 80 HHC ON INTEREST RECEIVED FROM PARKING OF SURPLUS FUND IN THE BANK. 13. LD. DR HAS CORRECTLY RELIED ON THE AUTHORITIES ON THIS ISSUE. WE THEREFORE, UPHOLD HIS ARGUMENT. INTEREST INCOME FRO M FUNDS KEPT IN THE BANK HAS NO DIRECT NEXUS WITH THE EXPORT INCOME AND IT CANNOT BE SAID THAT SUCH INTEREST INCOME IS DERIVED FROM EXPORT. HON. D ELHI HIGH COURT IN CIT VS. DELHI BRASS & METAL WORKS LTD. (SUPRA) HELD THAT THERE IS NO IMMEDIATE NEXUS OF INTEREST INCOME ON FIXED DEPOSIT WITH EXPORT. IT IS TO BE TREATED AS INCOME FROM OTHER SOURCES. HON. MADRA S HIGH COURT IN DOLLAR APPARELS VS. ITO (2007) 294 ITR 484 (MAD) HE LD THAT WHERE PART OF EXPORT PROFITS ARE DEPOSITED IN THE BANK GIVING INTEREST THEREON THEN SUCH INCOME WOULD NOT BE ENTITLED TO SPECIAL DEDUCT ION UNDER SECTION 80 HHC. EVEN IN CIT VS. SHRI RAM HONDA POWER EQUIP. & ORS. (2007) 289 ITR 475 (DEL) IT IS HELD THAT WHERE SURPLUS FUNDS A RE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON, IT CAN ONLY BY CATE GORIZED AS INCOME FROM OTHER SOURCES COVERED UNDER SECTION 56 OF THE ACT. SIMILARLY, IN CIT VS. ABAD FISHERIES (2002) 258 ITR 641 (KER) IT IS HELD THAT INTEREST ON BANK DEPOSITS IS NOT BUSINESS INCOME FOR THE PURPOSES OF SECTION 80 HHC. ACCORDINGLY THE AO WAS JUSTIFIED IN HOLDING THAT DE DUCTION UNDER SECTION 80 HHC WAS WRONGLY ALLOWED ON INTEREST EARNED FROM BANK DEPOSITS OUT 12 OF SURPLUS FUNDS. THEREFORE, IN REASSESSMENT PROCEE DINGS AO WAS JUSTIFIED IN REFUSING DEDUCTION UNDER SECTION 80 HH C ON INTEREST RECEIVED FROM BANK ON FIXED DEPOSIT. LD. CIT(A) HAD INCORREC TLY REFERRED TO THE DECISION OF HON. GUJARAT HIGH COURT IN CIT VS. GUJA RAT MINERAL DEV. CORPN. (1981) 132 ITR 377 (GUJ). THIS JUDGMENT RELA TES TO ELECTRICAL CABLES. THIS JUDGMENT RELATED TO DEDUCTION UNDER SE CTION 80J WHEREIN IT IS HELD THAT INTEREST EARNED FROM SHORT-TERM FIXED DEP OSIT ARE PARTLY INCLUDIBLE IN COMPUTING CAPITAL. THIS JUDGMENT CANN OT BE APPLIED FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC WHICH HAS TO BE DETERMINED IN ACCORDANCE WITH THE JUDGMENT OF HON. SUPREME COU RT IN PANDIAN CHEMICALS LTD. VS. CIT (2003) 262 ITR 278 (SC) WHER EIN THE CONCEPT OF PHRASE DERIVED FROM HAS BEEN EXPLAINED WHICH HAS BEEN SUBSEQUENTLY FOLLOWED BY OTHER COURTS AS SUBMITTED BY LD. DR AND ALSO REFERRED TO BY US ABOVE. THE INTEREST INCOME IS NOT DERIVED FROM EXPO RT AND, THEREFORE, NOT ENTITLED TO DEDUCTION UNDER SECTION 80 HHC. AS A RE SULT, WE UPHOLD THE ORDER OF AO AND SET ASIDE THAT OF LD. CIT(A) ON THI S ISSUE. THIS GROUND OF REVENUE IS ACCORDINGLY ALLOWED. 14. IN THE RESULT, APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 1/9/10. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 1/9/10. MAHATA/- 13 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD