M/s. Deepak Mittal, Hoshiarpur V. The A.C.I.T., Hoshiarpur

ITA 430/ASR/2010

• Counselvise Citation: 43020914 RSA 2010
• Duration Of Justice: 3 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-12-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 10-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VINAY MALHOTRA
• Keywords: Reopening of assessment; Revision of order; Diversion of income; Question of law; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 142(1); 133A; 80IB; 147; 145; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NOS. 424, 425, 438 & 439.(ASR)/2009 ASSESSMENT YEARS:2001-02, 2002-03, 2004-05, 2005-06 PAN :AARPM7571R SHRI DEEPAK MITTAL VS. DEPUTY COMMISSIONER OF INC OME TAX, C/O M/S. SONALIKA AGRO INDS. HOSHIARPUR. JALANDHAR ROAD, HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO.77(ASR)/2010 ASSESSMENT YEARS:2006-07 PAN : AARPM7571R SHRI DEEPAK MITTAL VS. ADDL. COMMISSIONER OF INCO ME TAX, C/O M/S. SONALIKA AGRO INDS. HOSHIARPUR. JALANDHAR ROAD, HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO.430(ASR)/2010 ASSESSMENT YEARS:2007-08 PAN : AARPM7571R SHRI DEEPAK MITTAL VS. ASSTT. COMMISSIONER OF INC OME TAX, C/O M/S. SONALIKA AGRO INDS. HOSHIARPUR. JALANDHAR ROAD, HOSHIARPUR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. VINAY MALHOTRA, CA RESPONDENT BY:SH.TARSEM LAL, DR DATE OF HEARING: 18/03/2014 DATE OF PRONOUNCEMENT:31/03/2014 ORDER ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 2 PER BENCH ; THESE SIX APPEALS OF THE ASSESSEE ARISE FROM THE DIFFERENT ORDERS OF THE CIT(A), JALANDHAR FOR DIFFERENT ASSESSMENT YEAR S, AS MENTIONED HEREINBELOW ARE HAVING IDENTICAL FACTS AND THEREFOR E, ALL THESE APPEALS ARE BEING TAKEN TOGETHER BY THIS CONSOLIDATED ORDER. S.NO. ITA NO. ORDER BY CIT(A) ASSTT. YEAR DATE OF ORDER 1. 424(ASR)/2009 JALANDHAR 2001-02 26.8.2009 2. 425(ASR)/2009 -DO- 2002-03 26.8.2009 3. 438(ASR)/2009 -DO- 2004-05 26.8.2009 4. 439(ASR)/2009 -DO- 2005-06 26.8.2009 5. 77(ASR)/2010 -DO- 2006-07 26.11.2009 6. 430(ASR)/2010 -DO- 2007-08 30.09.2010 SINCE THE FACTS IN ALL THE APPEALS ARE IDENTICAL, T HE IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE IN ALL THE APPEALS AND THEREFORE, FOR THE SAKE OF CONVENIENCE GROUND RAISED BY THE ASSESSEE IN ITA N O.424(ASR)/2009 FOR THE ASSESSMENT YEAR 2001-02 ARE REPRODUCED HEREUNDER: 1. WHETHER THE LD. CIT(A), JALANDHAR (HEREINAFTER CALLED CIT(A) HAS ERRED IN UPHOLDING THE VALIDITY OF APPLICATION OF REASSESSMENT PROCEEDINGS U/S 147/148 ON THE FACTS & CIRCUMSTANCES OF THE CASE. HE HAS FURTHER ERRED IN NOT ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 3 APPRECIATING THE FACTS OF THE CASE AS PER THE LEGAL PROVISIONS ON THE FOLLOWING ISSUES: (I) THAT THE AO HAS NOT APPLIED HIS MIND INDEPENDENTLY BUT STARTED THE REASSESSMENT PROCEEDINGS UNDER THE INFLUENCE OF HIS SUPERIOR CIT, JALANDHAR-1. (II) THAT THE AO WAS HAVING NO POSITIVE MATERIAL IN HIS POSSESSION TO HAVE REASONS TO BELIEVE OF ESCAPEMENT OF ANY INC OME, AT THE TIME OF ISSUANCE OF NOTICE U/S 148. THE FINDINGS RE GARDING ASSESSEE IS NOT ELIGIBLE U/S 80IB WHICH HAS BEEN DE CIDED IN FAVOUR OF THE ASSESSEE BY THE LD. CIT(A), JALANDHAR AS WELL AS BY THE HONBLE BENCH. THEREFORE, THE VERY BASIS ON WHICH REASSESSMENT PROCEEDINGS STARTED WERE NOT LEGAL, HE NCE THE REASSESSMENT PROCEEDINGS ARE BARRED BY LIMITATIONS. (III) THAT THE REASSESSMENT PROCEEDINGS ARE STARTED MEREL Y ON THE BASIS OF CHANGE IN OPINION AND CONTRARY TO THE ORDE R PASSED BY THE SAME A.O. U/S 143(3) RELEVANT TO A.Y. 2003-04 ON 14.11.2005 AND THE NOTICE ISSUED U/S 148 ON 01.03.2 006. THEREFORE, IT IS PRAYED THAT THE ORDER PASSED MAY B E QUASHED WHICH IS BAD AND AGAINST THE PROVISIONS OF THE INCOME TAX A CT. 2. WHETHER THE LD. CIT(A) HAS ERRED LEGALLY & ON FACTS OF THE CASE IN ENHANCING THE INCOME OF THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 80-13(B) R.W.S. SEC. 80IA(10 WITHOUT APPRECIATING THE FACTS OF THE CASE & WITHOUT DISCHA RGING HIS ONUS THAT ANY EXTRA PROFIT HAS BEEN PRODUCED TO ASS ESSEE BY BRINGING ANY EVIDENCE ON RECORD. I) WHETHER THE LD. CIT(A) HAS ERRED IN INVOKING THE PR OVISIONS OF SECTION 80IB(13) R.W.S. 80IA(13) WITHOUT MAKING ANY ENQUIRY AND APPRECIATING THE FACTS OF THE CASE ESPECIALLY W HEN THE SAME ISSUE ON THE SIMILAR FACTS WAS ALSO CONSIDERED & DE CIDED BY THE CIT IN HIS ORDER U/S 263 RELEVANT TO THE A.Y. 2003- 04. THEREFORE, THE LD. CIT(A) IS HAVING NO POWER TO ADJ UDICATE ON THE MATTER ALREADY DECIDED BY THE CIT U/S 263 OR BY THE ITAT. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 4 II) THAT THE LD. CIT(A) HAS ACTED ARBITRARY WITHOUT BRI NG ANY EVIDENCE ON RECORD THAT THE AGREEMENT OF THE ASSESS EE IS WITHOUT BUSINESS OR COMMERCIAL CONSIDERATION & THE TRANSACT IONS ARE NOT GENUINE AND IS ARRANGED IN A FASHION TO PRODUCE MO RE PROFITS TO THE ASSESSEE. THEREFORE, THE APPLICATION OF THIS SE CTION IS AGAINST THE PROVISIONS OF THE I.T.ACT AND WITHOUT DISCHARGI NG THE ONUS OR COMPARISON WITH ANY OTHER SIMILAR UNIT OR CASE L AW. III) THAT THE LD. CIT(A) HAS NOT POINTED OUT ANY DEFECTS IN THE AUDITED RESULTS OF THE ASSESSEE EXCEPT THE SALARY O F TWO EMPLOYEES WHICH IS PAID BY THE PRINCIPLES M/S. INTE RNATIONAL TRACTORS LTD. THIS ISSUE WAS ALSO DISCUSSED IN THE ASSESSMENT OF ITL TO ASCERTAIN THE EXTENT OF UNREASONABLE PAYMEN TS MADE TO THE ASSESSEE U/S 40A(2)(A) AND NO EXCESSIVE PAYMENT S ARE FOUND EXCESSIVE. WHEREAS, THE ORDER OF THE LD. CIT(A) IS AGAINST THE FACTS, WITHOUT ENQUIRY WHICH IS BASED ON MERELY ASS UMPTION, SURMISES AND CONJECTURES AND IS AGAINST THE PROVISI ONS OF THE ACT. 3. FIRST OF ALL, WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.424(ASR)/2009 FOR THE ASSESSMENT YEAR 2001-02 AN D OUR DECISION HEREINBELOW SHALL BE APPLICABLE IDENTICALLY IN ALL OTHER APPEALS MENTIONED HEREINABOVE. 4. THE BRIEF FACTS IN ITA NO.424(ASR)/2009 FOR THE ASSESSMENT YEAR 2001-02 AS PER ORDER OF THE AO ARE REPRODUCED AS U NDER: A SURVEY U/S 133A OF THE I.T. ACT WAS CONDUCTED ON 10.01.2006 AT THE BUSINESS PREMISES OF M/S AUTO COMPONENTS INDUST RIAL CORPORATION, INDUSTRIAL AREA BADDI (HP), WHICH IS T HE PROPRIETARY CONCERN OF THE ASSESSEE, SH. DEEPAK MITTAL. ON THE BASIS OF ENQUIRIES MADE DURING AND AFTER SURVEY OPERATION, IT WAS NOTI CED THAT NO MANUFACTURING IS DONE AT THE SAID PREMISES OF THE A SSESSEE, THEREFORE DEDUCTION U/S 80-IB CLAIMED BY THE ASSESSEE WAS NOT IN ORDER AND NOT ALLOWABLE TO HIM. THEREFORE, PROCEEDINGS U/S 147 OF THE INCOME TAX ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 5 ACT, 1961 WERE INITIATED AND NOTICE U/S 148 OF THE I.T. ACT WAS ISSUED TO THE ASSESSEE, WHICH WAS SERVED ON 08.03.2006. IN RESPONSE TO THE NOTICE U/S 148, THE ASSESSEE FILED HIS REPLY DATED 11.03.2006, WHICH WAS RECEIVED ON 17.03.2006. IN HIS REPLY, THE ASSES SEE STATED THAT HE HAS FIELD THE RETURN OF INCOME TAX VIDE RECEIPT NO. 0156 DATED 31.10.2001 RELEVANT TO THE ASSESSMENT YEAR 2001-02 AND THE SAME MAY BE TREATED RETURN FILED IN RESPONSE TO NOTICE U /S 48. THE CASE WAS TAKEN UP FOR SCRUTINY AND NOTICES U/S 143(2) AND 142(1) OF THE I.T.ACT WERE ISSUED ON 03.07.2006 WHICH WERE SERVED ON 07.07.2006. IN RESPONSE TO THE NOTICES, SH. VINAY M ALHOTRA, CHARTERED ACCOUNTANT, ALONGWITH SH. BALWINDER BEDI, G.M. (ACC OUNTS), ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TI ME AND FURNISHED REQUISITE INFORMATION AND DOCUMENT CALLED FOR. THE BOOKS OF ACCOUNT, SUCH AS CASH BOOK, LEDGER AND EXPENDITURE VOUCHERS WERE ALSO PRODUCED WHICH WERE EXAMINED BY TEST CHECK. THE INFORMATION/DOCUMENTS FURNISHED BY THE ASSESSEE HAV E BEEN EXAMINED AND THE CASE HAS BEEN DISCUSSED. THE ASSESSEE IN HIS REPLY DATED 20.12.2006 SUBMITTE D HIS OBJECTIONS TO REASSESSMENT PROCEEDINGS IN ANNEXURE-I CHALLENGING THE VALIDITY OF NOTICE U/S 148 OF INCOME TAX ACT, 1961. THE ASSESSE E SUBMITTED THAT THE BASIC INGREDIENTS TO START REASSESSMENT SHOULD BE:- (I) THE A.O. MUST HAVE REASONS TO BELIEVE THAT INC OME HAS ESCAPED. (II) THERE MUST BE SOME INCOME WHICH HAS ESCAPED T HE ASSESSMENT (INCLUDING EXCESSSING ALLOWANCE OF ANY DEDUCTION). THE ASSESSEE CONTENDED THAT THE ASSESSING OFFICER S HOULD HAVE REASONS TO BELIEVE WHICH SHOULD NOT BE ARBITRARY OR IRRATIONAL, BUT BE BASED ON RELEVANT AND MATERIAL FACTS. IN REFERENCE TO THE SAME, HE CITED THE DECISIONS OF THE APEX COURT IN THE CASE OF S. N ARAYANAPPA VS. CIT 63 ITR 219 (1967) AND SHEO NATH SINGH VS. AAC 8 2-ITR-147 IN AS MUCH AS ONLY SUSPICION, GOSSIP, RUMOURS OR PRET ENCE SHOULD NOT FORM THE BASIS OF REASONS TO BELIEVE. THE ASSESSEE FURTHER QUOTED FOR DECISIONS OF APEX COURT IN THE CASE OF CIT VS. DAUL AT RAM RAWAT MALL 87-ITR-349 AND LAXMI RAWAT DASS 103-ITR-437 CO NTENDING THAT EXTRANEOUS AND IRRELEVANT MATERIAL SHOULD NOT BE BASIS FOR MAKING REASON TO BELIEVE AND THERE SHOULD BE SOME DIRECT NEXUS BETWEEN THE CONCLUSION OF FACTS AS ARRIVED AT AND THE PRIMARY F ACTS UPON WHICH THE ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 6 CONCLUSION IS BASED. THE ASSESSEE HAS BASED ITS OBJ ECTIONS PRIMARILY ON THE ARGUMENT THAT THE REASSESSMENT PROCEEDINGS WERE NOT LEGALLY VALID AS THEY WERE BASED ON MERE CHANGE OF OPINION . THE ASSESSEE HAS THEREAFTER PROCEEDED TO ARGUE THAT THE ACTIVITI ES CARRIED ON BY THE INDUSTRIAL UNIT AT BADDI DID, IN FACT, AMOUNT TO MANUFACTURE/PRODUCTION AS IT WAS AN AUTOMOBILE ANCI LLARY TO M/S INTERNATIONAL TRACTORS LTD., HOSHIARPUR WHICH WAS T HE MANUFACTURER OF TRACTOR AND WAS COVERED WITHIN THE PURVIEW OF SCHED ULE V, XII AND XIV OF INCOME TAX ACT, 1961. THE ASSESSEES ARGUMENTS HAVE BEEN PERUSED AND ALSO DISCUSSED WITH THE AUTHORIZED REPRESENTATIVE IN DETAIL. THE CONTEN TIONS RAISED BY THE ASSESSEE ARE NOT ACCEPTABLE IN VIEW OF THE DISCUSSI ON THAT FOLLOWS HEREAFTER. THE BASIC FACTS OF THE CASE ARE THAT AT SURVEY OPERATION U/S 133A WAS CARRIED OUT AT THE BUSINESS PREMISES OF M/ S AUTO COMPONENTS INDUSTRIAL CORPORATION ON 10.01.2006 AT BADDI. THE SAID CONCERN, A PROPRIETARY UNIT OF SH. DEEPAK MITTAL WA S ENGAGED IN CARRYING OUT JOB WORK ACTIVITY FOR M/S. INTERNATION AL TRACTORS LTD., HOSHIARPUR (I.E. M/S ITL, HOSHIARPUR) AND CLAIMED D EDUCTION U/S 40IB (4) OF THE INCOME TAX ACT. THE ASSESSEE CLAIMED TO JOB WORK FOR M/S INTERNATIO NAL TRACTORS LTD., JALANDHAR ROAD, HOSHIARPUR ON THE FOLLOWING COMPONE NTS OF TRACTORS:- (1) DIFFERENTIAL HOUSING (2) GEAR BOX HOUSING/REDUCTION UNIT (3) REAR COVER HOUSING DURING THE COURSE OF THE SURVEY, DETAILED STATEMENT S OF SH. HOSHIARPUR SINGH HAS BEEN LOOKING AFTER THE WORK OF M/S AUTO C OMPONENTS INDUSTRIAL CORPORATION SINCE 1999. APART FROM THAT, STATEMENTS OF WORKERS EMPLOYED AT M/S AUTO COMPONENTS INDUSTRIAL CORPORATION, BADDI WERE ALSO RECORDED. THE FACTS THAT EMERGED FR OM THE STATEMENTS CITED (SUPRA) CLEARLY REVEALED THAT ONLY ROUGH CUTT ING AND GRINDING OF COMPONENTS WAS BEING DONE AT BADDI WHEREAS THE FINA L FINISHING AND PROCESSING WAS BEING DONE AT M/S INTERNATIONAL TRAC TORS LTD., HOSHIARPUR. IT WAS ALSO A CASE IN POINT THAT EVEN C OMPLETE PROCESSING OF THE VARIOUS COMPONENTS WAS NOT BEING EFFECTED AT BADDI. IN ORDER TO CROSS VERIFY THE FACTS AS TO WHETHER THE VARIOUS CO MPONENTS PROCESSED AT BADDI WERE USED AS SUCH BY ITL, HOSHIARPUR IN T HE TRACTORS OR ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 7 WERE SUBJECTED TO FURTHER PROCESSING AND FINISHING AT ITL, HOSHIARPUR AFTER RECEIPT FROM BADDI UNIT, AN INSPECTION U/S 13 1(1)(A) WAS DONE AT ITL, HOSHIARPUR AND THE STATEMENT OF SH. ASHOK KAPO OR, GENERAL MANAGER, PRODUCTION M/S ITL HOSHIARPUR WAS RECORDED . FROM HIS STATEMENT, IT BECAME EVIDENT THAT ALL CRITICAL MACH INERY OPERATIONS OF CHASSIS PARTS I.E. OF REAR COVER, DIFFERENTIAL HOUS ING AND REDUCTION UNIT WERE BEING DONE AT ITL, HOSHIARPUR ON PRECISIO N SOPHISTICATED COMPUTERIZED NUMERICAL CONTROL (CNC) MACHINES AND O NLY ELEMENTARY MACHINING/GRINDING WORK WAS BEING DONE A T BADDI. ACCORDINGLY, IT WAS HELD BY THE DEPARTMENT THAT MAC HINING ON DIFFERENT PARTS COULD IN NO WAY SAID TO BE MANUFAC TURE/PRODUCTION OF ARTICLE OR THING FOR THE PURPOSES OF CLAIMING BENE FIT OF DEDUCTION I/S 80IB OF INCOME TAX ACT. SUBSEQUENTLY, NOTICE U/S 14 7 WAS ISSUED AS THE ASSESSMENT FOR ASSESSMENT YEAR 2001-02 ALREADY STOOD FINALIZED. THERE WAS THUS, NO ILLEGALITY IN ISSUE OF NOTICE U/ S 147. TO SAY THAT THE NOTICE WAS ISSUED ON THE BASIS OF SUSPICION, GOSSI P, RUMOUR OR PRETENCE IS COMPLETELY INCORRECT. TO SAY THAT THE ACTION WAS BASED ON EXTRANEOUS AND IRRELEVANT MATERIAL HAVING NO NEXUS WITH THE PRIMARY FACTS IS ALSO FACTUALLY INCORRECT. TO SAY THAT THE ACTION WAS BASED ON MERE CHANGE OF OPINION IS ALSO NOT CORRECT. THE F ACTS AS DETAILED IN THE FOREGOING PARAS MAKES IT CLEAR THAT ACTION U/S 147 WAS NECESSITATED FOLLOWING THE SURVEY OPERATION ON THE ASSESSEE ON 1 0.01.2006. PRIOR TO THE SURVEY, THE ASSESSEE HAD BEEN CLAIMING AND WAS ALSO BEING ALLOWED BENEFIT OF DEDUCTION U/S 80IB OF THE ACT. HOWEVER, DURING THE COURSE OF THE SURVEY, ACTUAL PROCESS OF WORK BEING CARRIED OUT AT BADDI WAS SEEN PHYSICALLY, STATEMENTS OF PERSONNEL RELATED WI TH THE WORK WERE RECORDED, CROSS VERIFICATION OF THE FACTS WAS DONE BY MEANS OF AN INSPECTION OF BUSINESS PREMISES OF THE PRINCIPAL I. E. ITL, HOSHIARPUR AND ONLY AFTER THAT, CERTAIN ACTION U/S 147 WAS UND ERTAKEN. IT IS CLEAR FROM THE ABOVE, THAT THE UNDERSIGNED SA TISFIED ABOUT VARIOUS FACTS AND HAVING SUFFICIENT, RELEVANT, RATIONAL AND REASONABLE REASON TO BELIEVE, BASED ON DIRECT, MATERIAL FACTS AND UNAMBI GUOUS EVIDENCE, ISSUED NOTICE U/S 147. IT IS ALSO THE CASE OF THE D EPARTMENT THAT ACTION U/S 147 WAS CONTEMPLATED BY THE UNDERSIGNED ONLY AF TER THE SURVEY CONDUCTED ON THE ASSESSEES PREMISES BROUGHT TO THE FORE CERTAIN FACTS WHICH HAD A DIRECT BEARING ON THE CLAIM OF BENEFIT OF DEDUCTION U/S 80IB OF THE INCOME TAX ACT. AS PER RETURN FILED FOR ASSESSMENT YEAR 2001-02, THE ASSESSEE CLAIMED A DEDUCTION OF RS. 48 ,79,502/- U/S 80IB. THE DEDUCTION WAS ALLOWED AS SUCH AS THE RETU RN WAS PROCESSED ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 8 U/S 143(1). NO SCRUTINY OF THE RETURN WAS CARRIED O UT BY THE ASSESSING OFFICER, HENCE NO DETAILED VERIFICATION OF ANY FACT S MATERIAL TO THE ISSUE IN QUESTION WAS EVER DONE AND NO SUCH DETAILS WERE EVER FILED BY THE ASSESSEE ALSO. THEREFORE, THE UNDERSIGNED WAS W ELL WITHIN HIS RIGHTS TO ISSUE NOTICE U/S 147 WHEN DETAILED FACTS CAME TO LIGHT FOLLOWING THE SURVEY. ALTERNATIVELY, THE ASSESSEE HAS CONTENDED THAT THE ISSUE REGARDING ALLOWABILITY OF CLAIM OF ASSESSEE U/S 80IB HAD BEEN DULY CONSIDERED BY THE ASSESSING OFFICER WHILE FRAMING ASSESSMENT U /S 143(E) RELEVANT TO ASSESSMENT YEAR 2003-04. SINCE THERE WAS NOTHING NEW ON RECORD, THE ASSESSING OFFICER COULD NOT MAKE AN ORDER OF RE ASSESSMENT INCONSISTENT WITH THE ORIGINAL ORDER. TO THIS ARGUM ENT OF THE ASSESSEE, IT IS RESPECTFULLY SUBMITTED THAT SURVEY ON THE ASS ESSEES PREMISES WAS CONDUCTED ON 10.01.2006 I.E. MUCH AFTER THE ORDER F OR ASSESSMENT YEAR 2003-04 HAD BEEN PASSED. DURING THE COURSE OF THE SURVEY, IT WAS SEEN THAT THE WORK DONE BY THE ASSESSEE AT BADDI W AS ONLY IN THE NATURE OF JOB WORK INVOLVING ELEMENTARY MILLING WOR K WHICH DID NOT LEAD TO THE MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING. THE WORK OF FINAL PROCESSING AND FINISHING WAS DONE BY THE PRINCIPAL I.E. ITL AT ITS PLANT IN HOSHIARPUR. IT WAS, THEREFORE, HELD THAT SINCE THE ASSESSEE WAS NOT CARRYING ON ANY ACTIVITY WHICH LED TO THE MANUFACTURE/PRODUCTION OF ANY ARTICLE OR THING, IT WAS NOT ENTITLED TO BENEFIT OF DEDUCTION U/S 80IB. ACCORDINGLY, THE A.O , HAVING REASON TO BELIEVE THAT THE DEDUCTION U/S 80IB HAD BEEN WRONGL Y ALLOWED TO THE ASSESSEE AND THAT SINCE THE DEDUCTION HAD BEEN ALLO WED, SO MUCH INCOME AS PERTAINING TO THE SAME HAD ESCAPED ASSESS MENT, ISSUED NOTICE U/S 147 FOR ASSESSMENT YEARS 2001-02 & 2002 -03 AND REFERRED THE ISSUE FOR RECONSIDERATION UNDER REVISIONARY PRO CEEDINGS FOR ASSESSMENT YEAR 2003-04. AS STATED (SUPRA), THIS AC TION WAS INITIATED ONLY AFTER NEW, FRESH FACTS, HITHERTO UNKNOWN TO T HE ASSESSING OFFICER CAME TO LIGHT DURING THE SURVEY AT THE ASSESSEES B USINESS PREMISED. ACCORDINGLY, THE UNDERSIGNED IN ORDER TO SAFEGUARD THE INTEREST OF REVENUE, INITIATED THE REASSESSMENT PROCEEDINGS IN THE RELEVANT YEARS. THERE IS THUS NO INCONSISTENCY IN THE ACTION OF THE DEPARTMENT. THE ACTION OF THE DEPARTMENT ALSO FINDS SUPPORT FRO M THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SWARAJ ENGINE LTD. V. ACIT 260-ITR-202 (2002). THE HEAD-NOTE OF THE SAME IS REPRODUCED AS UNDER:- ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 9 REASSESSMENT NOTICE REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT FINDING THAT SPECIAL DEDUCTION UNDER SECTION 80-I HAD BEEN WRONGLY ALLOWED IN ORIGINAL ASSESSMENT NOTICE OF REASSMENT VALID INCOME TAX ACT, 1961, SS. 147 , 148. WRIT REASSESSMENT NOTICE WRIT COURT CAN ONLY CONSIDER WHETHER NOTICE IS VALID WRIT COURT CANNOT CONSIDER SUFFICIENTY OF MATERIAL JUSTIFYING REASSESSMENT INCOME TAX ACT, 1961, S. 148 CONSTITUTION OF INDIA, ART. 226. AN INCOME TAX OFFICER ACQUIRES JURISDICTION TO REOP EN AN RE- ASSESSMENT UNDER SECTION 147(A) READ WITH SECTION 1 48 OF THE INCOME TAX ACT, 1961, ONLY IF ON THE BASIS OF SPECIFIC, RE LIABLE AND RELEVANT INFORMATION COMING TO HIS POSSESSING SUBSEQUENTLY, HE HAS REASONS, WHICH HE MUST RECORD, TO BELIEVE THAT, BY REASON OF OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE A TRUE AND FULL DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT DURING THE CONCLUDED ASSESSMENT PROCEEDINGS, ANY PART OF HIS INCOME, PRO FITS OR GAINS CHARGEABLE TO INCOME TAX HAD ESCAPED ASSESSMENT. HE MAY START REASSESSMENT PROCEEDINGS EITHER BECAUSE SOME FRESH FACTS HAD COME TO LIGHT WHICH WERE NOT PREVIOUSLY DISCLOSED OR SOME I NFORMATION WITH REGARD TO THE FACTS PREVIOUSLY DISCLOSED COMES INTO HIS POSSESSING WHICH TENDS TO EXPOSE THE UNTRUTHFULNESS OF THOSE F ACTS. AT THE STAGE OF NOTICE, THE COURT CAN ONLY CONSIDER WHETHER THERE IS A PRIMA FACIE CASE FOR REASSESSMENT AND REOPENING OF PROCEEDINGS CANNOT BE QUASHED BY GOING INTO THE SUFFICIENCY OR CORRECTNESS OF THE MATERIAL RELIED UPON BY THE ASSESSING AUTHORITY. THE PETITIONER HAD FILED HIS RETURN FOR THE ASSESSM ENT YEAR 1997-98 WHEREIN IT HAD CLAIMED DEDUCTION UNDER SECTION 80-I OF THE ACT TO THE EXTENT OF RS. 2,62,28,999/-. THE ASSESSING OFFICER MADE ASSESSMENT UNDER SECTION 143(1)(A) OF THE ACT BY GIVING THE BE NEFIT OF DEDUCTION UNDER SECTION 80-I. ON PERUSING THE ANNUAL REPORT O F THE PETITIONER FOR THE ACCOUNTING YEAR RELEVANT TO THE ASSESSMENT YEAR 1989-90, THE INCOME TAX OFFICER DISCOVERED THAT THE MANUFACTURIN G/PRODUCTION OF ARTICLES OR THINGS (WHICH WERE ENGINES IN THIS CASE ) STARTED IN THE PERIOD WHICH WAS RELEVANT FOR THE ASSESSMENT YEAR 1 989-90 AND THAT ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 10 THE INITIAL YEAR FOR THE PURPOSES OF DEDUCTION UNDE R SECTION 80-I WAS ASSESSMENT YEAR 1989-90. HE HELD THAT THE DEDUCTION UNDER SECTION 80- I HAD BEEN ERRONEOUSLY GIVEN IN THE ASSESSMENT YEAR 1997-98 AND ISSUED A NOTICE OF REASSESSMENT. ON A WRIT PETITION AGAINST THE NOTICE: HELD, DISMISSING THE WRIT PETITION, THAT THE INCOME TAX O FFICER HAD MATERIAL BEFORE HIM FOR ENTERTAINING A BELIEF THAT THE INCOME OF THE PETITIONER HAD ESCAPED ASSESSMENT. THE NOTICE OF RE ASSESSMENT WAS VALID. FURTHERMORE, THE AMBIT AND SCOPE OF SECTIONS 147 AN D 148 OF THE ACT WAS CONSIDERED BY THE SUPREME COURT IN PHOOL CHAND BAJRANG LAL VS. ITO (1993) 203-ITR-456. AFTER REVIEWING JUDICIAL PR ECEDENTS ON THE SUBJECT, THEIR LORDSHIPS OF THE SUPREME COURT LAID DOWN THE FOLLOWING PROPOSITION (PAGE 477): FROM A COMBINED REVIEW OF THE JUDGMENTS OF THIS CO URT, IT FOLLOWS THAT AN INCOME TAX OFFICER ACQUIRES JURISDICTION TO REOPEN AN ASSESSMENT UNDER SECTION 147(A) READ WITH SECTION 1 48 OF THE INCOME TAX ACT, 1961, ONLY IF ON THE BASIS OF SPECIFIC, RE LIABLE AND RELEVANT INFORMATION COMING TO HIS POSSESSING SUBSEQUENTLY, HE HAS REASONS, WHICH HE MUST RECORD, TO BELIEVE THAT, BY REASON OF OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO MAKE A TRUE AND FUL L DISCLOSURE OF ALL MATERIAL FACTS UNNECESSARY FOR HIS ASSESSMENT DURIN G THE CONCLUDED ASSESSMENT PROCEEDINGS, ANY PART OF HIS INCOME, PRO FITS OR GAINS CHARGEABLE TO INCOME TAX HAS ESCAPED ASSESSMENT. HE MAY START REASSESSMENT PROCEEDINGS EITHER BECAUSE SOME FRESH FACTS HAD COME TO LIGHT WHICH WERE NOT PREVIOUSLY DISCLOSED OR SOME I NFORMATION WITH REGARD TO THE FACTS PREVIOUSLY DISCLOSED COMES INTO HIS POSSESSING WHICH TENDS TO EXPOSE THE UNTRUTHFULNESS OF THOSE F ACTS. IN SUCH SITUATIONS, IT IS NOT A CASE OF MERE CHANGE OF OPIN ION OR THE DRAWING OF A DIFFERENT INFERENCE FROM THE SAME FACTS AS WERE E ARLIER AVAILABLE BUT ACTING ON FRESH INFORMATION. SINCE THE BELIEF IS TH AT OF THE INCOME TAX OFFICER, THE SUFFICIENCY OF REASONS FOR FORMING THE BELIEF IS NOT FOR THE COURT TO JUDGE.. IT IS ALSO THE CASE OF THE DEPARTMENT THAT THE LORD SHIPS, IN THE CASE OF RAYMOND WOOLLEN MILLS LTD. VS. ITO (1999) 236-ITR-3 4 (SC) REJECTED THE CHALLENGE TO THE NOTICE OF REASSESSMEN T BY OBSERVING THAT AT THE STAGE OF NOTICE, THE COURT CAN ONLY CONSIDER WHETHER THERE IS A ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 11 PRIMA FACIE CASE FOR REASSESSMENT AND REOPENING OF PROCEEDINGS CANNOT BE QUASHED BY GOING INTO THE SUFFICIENCY OR CORRECTNESS OF THE MATERIAL RELIED UPON BY THE ASSESSING AUTHORITY. THE RATIO OF DECISIONS AS MENTIONED ABOVE IS SQUARE LY APPLICABLE IN THE CASE OF THE ASSESSEE AS THE REASSESSMENT PROCEE DINGS WERE INITIATED BY THE DEPARTMENT ONLY AFTER FRESH, NEW FACTS CAME TO LIGHT FOLLOWING THE SURVEY WHICH WERE ABSOLUTELY MATERIALLY RELEVAN T TO THE ISSUE OF CLAIM OF BENEFIT OF DEDUCTION U/S 80IB. HENCE IN OR DER TO PROTECT THE INTEREST OF REVENUE AND TO BRING TO TAX THE INCOME WHICH HAD ESCAPED ASSESSMENT, IT BECAME IMPERATIVE ON THE PART OF THE DEPARTMENT TO INITIATED ACTION U/S 147 OF THE ACT. THUS, THERE WAS NO INFIRMITY IN THE ACTION OF THE A SSESSING OFFICER IN INITIATING PROCEEDINGS U/S 147 FOR THE RELEVANT YEA R. NOW, COMING TO THE OTHER PART OF THE ASSESSEES OBJ ECTION, I.E. THE TECHNICAL/LEGAL ASPECTS PERTAINING TO THE ACTIVITY AS CARRIED OUT BY THE ASSESSEE WHETHER AMOUNTING TO MANUFACTURE/PRODUCTIO N FOR THE PURPOSES OF DEDUCTION U/S 80IB CLAIMED BY THE ASSES SEE. FOR THE SAME OF BREVITY, THE FACTS ARE REPRODUCED AGAIN. THE ASS ESSEE, CARRIED ON JOB WORK ACTIVITY IN ITS INDUSTRIAL UNIT AT BADDI AND C LAIMED DEDUCTION U/S 80IA/80IB(4) IN VARIOUS YEARS. THE QUANTUM OF DEDUC TION FOR VARIOUS YEARS IS AS UNDER:- ASSESSMENT YEARS DEDUCTION U/S 80IB 2001-02 RS. 48,79,502/- 2002-03 RS. 99,78,629/- 2004-05 RS. 2,37,71,726/- 2005-06 RS. 4,74,56,607/- (SEC/. 80IC) IN ORDER TO VERIFY THE CORRECTNESS OF DEDUCTION, ES PECIALLY IN VIEW OF THE HUGE QUANTUM OF DEDUCTION INVOLVED, A SURVEY U/ S 133A WAS CONDUCTION ON THE ASSESSEES PREMISES AT BADDI ON 1 0.01.2006. SINCE THE FACTS PERTAINING TO THE DEDUCTION INVOLVE D IN ALL YEARS ARE COMMON, A SINGLE DISCUSSION IS MADE FOR THE SAKE OF CONVENIENCE. THE BASIC FACTS OF THE CASE ARE THAT A SURVEY OPE RATION U/S 133A WAS ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 12 CARRIED OUT AT THE BUSINESS PREMISES OF M/S AUTO CO MPONENTS INDUSTRIAL CORPORATION ON 10.01.2006 AT BADDI. THE SAID CONCERN, A PROPRIETARY UNIT OF SH. DEEPAK MITTAL WAS ENGAGED I N CARRYING OUT JOB WORK ACTIVITY FOR M/S INTERNATIONAL TRACTORS LTD., HOSHIARPUR (I.E. M/S ITL, HOSHIARPUR) AND CLAIMED DEDUCTION U/S 80IB (4) OF THE INCOME TAX ACT. THE ASSESSEE CLAIMED TO DO JOB WORK FOR M/S INTERNA TIONAL TRACTORS LTD., JALANDHAR ROAD, HOSHIARPUR ON THE FOLLOWING C OMPONENTS OF TRACTORS:- (1) DIFFERENTIAL HOUSING (2) GEAR BOX HOUSING/REDUCTION UNIT (3) REAR COVER HOUSING DURING THE COURSE OF THE SURVEY, DETAILED STATEMENT S OF SH. HOSHIAR SINGH, MANAGER, WERE RECORDED. SH. HOSHIAR SINGH HA S BEEN LOOKING AFTER THE WORK OF M/S AUTO COMPONENTS INDUSTRIAL CO RPORATION SINCE 1999. APART FROM THAT, STATEMENTS OF WORKERS EMPLOY ED AT M/S AUTO COMPONENTS INDUSTRIAL CORPORATION, BADDI WERE ALSO RECORDED. THE FACTS THAT EMERGED FROM THE STATEMENTS CITED (SUPRA ) CLEARLY REVEALED THAT ONLY ROUGH CUTTING AND GRINDING OF COMPONENTS WAS BEING DONE AT BADDI WHEREAS THE FINAL FINISHING AND PROCESSING WA S BEING DONE AT M/S INTERNATIONAL TRACTORS LTD., HOSHIARPUR. IT WAS ALSO A CASE IN POINT THAT EVEN COMPLETED PROCESSING OF THE VARIOUS COMPO NENTS WAS NOT BEING EFFECTED AT BADDI. IN ORDER TO CROSS VERIFY T HE FACTS AS TO WHETHER THE VARIOUS COMPONENTS PROCESSED AT BADDI WERE USED AS SUCH BY ITL, HOSHIARPUR IN THE TRACTORS OR WERE SUBJECTED TO FUR THER PROCESSING AND FINISHING AT ITL, HOSHIARPUR AFTER RECEIPT FROM BAD DI UNIT, AN INSPECTION U/S 131(1)(A) WAS DONE AT ITL, HOSHIARPU R AND THE STATEMENT OF SH. ASHOK KAPOOR, GENERAL MANGER, PROD UCTION M/S ITL HOSHIARPUR WAS RECORDED. FROM HIS STATEMENT, IT BEC AME EVIDENT THAT ALL CRITICAL MACHINERY OPERATIONS OF CHASSIS PARTS I.E. OF REAR COVER, DIFFERENTIAL HOUSING AND REDUCTION UNIT WERE BEING DONE AT ITL, HOSHIARPUR ON PRECISION SOPHISTICATED COMPUTERIZED NUMERICAL CONTROL (CNC) MACHINES AND ONLY ELEMENTARY MACHININ G/GRINDING WORK WAS BEING DONE AT BADDI. ACCORDINGLY, IT WAS HELD BY THE DEPARTMENT THAT MACHINING ON DIFFERENT PARTS COULD IN NO WAY SAID TO BE MANUFACTURE/PRODUCTION OF ARTICLE OR THING FOR THE PURPOSE OF CLAIMING BENEFIT OF DEDUCTION U/S 80IB OF INCOME TA X ACT. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 13 THE FACTS AS BROUGHT OUT (SUPRA) WERE DULY CONFRONT ED TO THE ASSESSEE. THE ASSESSEE. THE ASSESSEE FILED DETAILED REPLY AT VARIOUS HEARING. IT WAS ALSO SUBMITTED BY HIM THAT THE ASSESSMENT FINAL IZED FOR ASSESSMENT YEAR 2003-04 STOOD COVERED UNDER REVISIO NARY PROCEEDINGS U/S 263 OF THE ACT AND WERE PENDING, TH E DECISION IN THE INSTANT CASE BE ALSO KEPT IN ABEYANCE. HOWEVER, SIN CE THE CASE IS TIME BARRING ON 31.12.2006, THIS REQUEST OF THE ASSESSEE CANNOT BE ACCEDED TO. NOTWITHSTANDING THE SAME, THE ASSESSEE ALSO FIL ED A COPY OF ITS DETAILED SUBMISSIONS MADE BEFORE WORTHY COMMISSIONE R OF INCOME TAX, JALANDHAR-1, JALANDHAR IN THE REVISION PROCEED INGS AND THE SAME HAVE ALSO BEEN CONSIDERED WHILE FINALIZING THIS ASS ESSMENT. THE ASSESSEE FILED DETAILED SUBMISSIONS AGAINST THE ACTION PROPOSED BY THE DEPARTMENT. A GIST OF THE OBJECTIONS IS REPR ODUCED HEREUNDER. THE ASSESSEE ARGUES THAT IT IS ENGAGED IN MANUFACTU RING ACTIVITIES AS AN ANCILLARY UNIT TO M/S ITL, HOSHIARPUR. TECHNICAL WORK IS CARRIED ON THE RAW CASTINGS RECEIVED FROM M/S ITL BY WAY OF GR INDING/MACHINING OF DIFFERENTIAL HOUSING. GEAR BOX HOUSING AND REAR COVER HOUSING. THE ASSESSEE HAS BEEN AT PAINS TO EMPHASIZE THE FAC T THAT SPECIAL PURPOSE MACHINES E.G. SIMPLEX AND DUPLEX MILLING MA CHINES ARE BEING USED TO CARRY OUT VARIOUS OPERATIONS ON THE R OUGH CASTING AS PER SPECIFIC REQUIREMENTS OF THE PRINCIPAL, SUCH THAT T HE CASTING ACQUIRES ALTOGETHER DIFFERENT SHAPE, QUALIFY AND USE. THE A SSESSEE HAS MADE OUT A CASE THAT THE RAW CASTINGS HAVE UNDERGONE A BIG C HANGE AFTER THE ABOVE MENTIONED OPERATIONS AND A NEW PRODUCT HAS BE EN PRODUCED BY THE ASSESSEE AS APPARENT FROM DIFFERENT CODE CLASSI FICATION OF ITL. THE ASSESSEE HAS ALSO CONTENDED THAT THOUGH IT WAS COVERED UNDER THE DEFINITION OF S.S.I., THE SCOPE OF THE DEFINITION W AS ENLARGED BY S.O. 857(E) DATED 10.12.99 EXHORTING THAT THE ASSESSEE C AME WITHIN THE AMBIT OF ANCILLARY UNIT AND SHOULD BE DEALT WITH ACCORDINGLY. THE ASSESSEE HAS ALSO ATTEMPTED TO MAKE OUT A CASE IMPO RTING THE SUBSTANCE AND INTENT OF VTH SCHEDULE OF INCOME TAX ACT, 1961 AS APPLICABLE TO ITS OWN FACTS. THE ASSESSES HAS ALSO EMPHASIZED THE INTENTION OF THE LEGISLATURE IN CONFERRING A BENEFI T ON NEW INDUSTRY FOR THE ULTIMATE DEVELOPMENT OF BACKWARD AREA. THE ASSE SSEE HAS RELIED ON SEVERAL JUDICIAL DECISIONS IN ORDER TO DRIVE HOM E THE POINT THAT THE OPERATIONS CARRIED OUT BY HIM DID IN FACT AMOUNT TO MANUFACTURING/PRODUCTION. THE ARGUMENTS AS RAISED B Y THE ASSESSEE ARE BEING DEALT WITH SEPARATELY IN THE SUCCEEDING P ARAS. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 14 AS EXPLAINED EARLIER, THE ASSESSEE CARRIES ON JOB W ORK ACTIVITY FOR M/S ITL, HOSHIARPUR AND CLAIMS BENEFIT OF DEDUC TION U/S 80IB OF THE INCOME TAX ACT. A SURVEY U/S 133A WAS CONDUCTED ON THE ASSESSEES PREMISES AT BADDI ON 10.01.2006 WHEREIN THE PROCESS/PROCESSES CARRIED ON BY THE ASSESSEE WERE S EEN, DETAILED STATEMENTS OF VARIOUS PERSONS CONNECTED WITH THE WO RK WERE RECORDED AND CROSS VERIFICATION OF THE FACTS WAS MADE VIDE I NSPECTION AT M/S ITL, HOSHIARPUR INCLUDING STATEMENT OF THE GENERAL MANAGER PRODUCTION OF M/S ITL. PHOTOGRAPHS OF VARIOUS PROCE SSES WERE ALSO TAKEN. 5. THE AO THEREAFTER REPRODUCED THE PROVISIONS CONT AINED IN SECTION 80IB(4) AND RELEVANT EXTRACT OF THE STATEMENTS OF S H. HOSHIAR SINGH, WHO IS THE MAIN PERSON AND INCHARGE OF BADDI UNIT, STATEME NTS OF VARIOUS WORKERS I.E. MR. SUNIL KUMAR S/O SH. PRAKASH CHAND, MR. KUL DEEP KUMAR, MR. CHAMAN LAL, MR. MOHAN LAL, MR. BALDEV, MR. SUKHDEEP SINGH AND MR. NIRMAL SINGH ALONGWITH THE STATEMENT OF SH. VIPAN C HAND, MACHINE OPERATOR, WHICH ARE REPRODUCED AT PAGES 10 TO 15 O F AOS ORDER. THE AO OBSERVED FROM THESE STATEMENTS THAT ONLY ROUGH CUTT ING WAS BEING DONE AT BADDI. IN FACT, THE COMPONENTS IN EACH CASE WERE FI NISHED TO A STANDARD SIZE ONLY AT ITL, HOSHIARPUR. ALL THE WORKERS STATED THA T FINAL FINISHING AND STANDARDIZING WAS DONE AT ITL, HOSHIARUR. NONE OF T HE WORKERS HAS EVER STATED THAT THE PROCESS AS CARRIED OUT AT BADDI WA S FINAL AND NO FURTHER PROCESSING OF THE SAME WAS DONE AT ITL, HOSHIARPUR. THUS, ALL THE WORKERS WHOSE STATEMENTS WERE RECORDED, HAVE REPEATEDLY STA TED THAT ONLY ROUGH ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 15 CUTTING AND GRINDING OF COMPONENTS WAS BEING DONE AND THE FINAL FINISHING AND PROCESSING OF CASTING RECEIVED AT BADDI UNIT WA S BEING DONE AT ITL, HOSHIARPUR. THEREFORE, THE CERTIFICATE FROM M/S. IT L REGARDING THE SPECIFICATIONS OF GRINDINGS OR THE PLEA OF THE DEPA RTMENT OVERLOOKING ONE SH. ARKHROD, A TECHNICAL EXPERT CANNOT NOW COME TO THE RESCUE OF THE ASSESSEE AS BOTH THE PLEAS ARE CLEARLY AN AFTERTHOUGHT. IN ORDE R TO CORROBORATE THE FACTS FURTHER, AS TO WHETHER THE VARIOUS COMPONENTS SUCH AS DIFFERENTIAL HOUSING AND REAR COVER AS RECEIVED FROM BADDI WERE USED AS SUCH IN THE TRACTORS OR WERE SUBJECT TO FURTHER PROCESSING AND FINISHING AT THE ITL, HOSHIARPUR, AFTER BEING RECEIVED FROM AUTO COMPONENTS INDUSTRIAL CORP ORATION, BADDI, AN INSPECTION WAS DONE AT THE BUSINESS PREMISES OF ITL , JALANDHAR ROAD, HOSHIARPUR ON 13.01.2006. STATEMENT OF SH. ASHOK KA POOR, G.M. PRODUCTION WITH M/S. ITL, HOSHIARPUR WAS RECORDED ON 13.01.2006 AND THE RELEVANT PORTION OF THE STATEMENT OF SH. ASHOK KAPO OR IS AVAILABLE AT PAGES 16-17 OF AOS ORDER. FROM THE PERUSAL OF THE STATEM ENT OF SH. ASHOK KUMAR, GM, PRODUCTION, ITL, HOSHIARPUR, THE AO OBSE RVED THAT ALL CRITICAL MACHINERY OPERATION OF CHASSIS PARTS I.E. REAR COVE R, DIFFERENTIAL HOUSING AND REDUCTION UNIT ARE BEING DONE AT M/S. ITL, HOSH IARPUR ON PRECISION SOPHISTICATED CNC AND OTHER SPECIAL PURPOSE MACHINE S. THE WHOLE PROCESS WAS PHOTOGRAPHED AND 26 PHOTOGRAPHS WERE TAKEN AT T HE ITL, HOSHIARPUR ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 16 FROM WHICH IT BECAME CLEAR THAT ONLY ELEMENTARY MAC HINING WAS BEING DONE AT AUTO COMPONENTS INDUSTRIAL CORPORATION, BADDI AN D THE FINAL MACHINING WAS DONE AT ITL, HOSHIARPUR. THE AO OBSERVED THAT T HE MACHINING ON DIFFERENT PARTS IN NO WAY CAN BE SAID TO BE MANUFAC TURE OR PRODUCTION OF ARTICLE OR THING FOR THE PURPOSES OF CLAIMING BENEF IT OF DEDUCTION U/S 80IB OF THE INCOME TAX ACT, 1961. HE FURTHER OBSERVED THAT THERE IS NO DOUBT THAT THE MILLING/GRINDING OF THE OUTER SURFACE OF VARIOU S COMPONENTS DOES NOT IN FACT LEAD TO SOME CHANGE IN THE COMPONENT BUT DOES NOT CERTAINLY RESULT INTO THE FORMATION OF A NEW PRODUCT OR THING THAT WOULD QUALIFY AS MANUFACTURING/PRODUCTION. 6. THE AO REFERRING TO THE CONTENTION OF THE ASSESS EE OBSERVED THAT BY VIRTUE OF SECTION 80IB(14)(G), THE ASSESSEE CLAIME D THAT ITS CASE STOOD COVERED AS A SMALL SCALE INDUSTRIAL UNDERTAKING AND BY ITS EXTENDED MEANING AN ANCILLARY UNIT. ACCORDINGLY, THE AO OBSE RVED BY REFERRING TO SAID SECTION 80IB(14)(G) THAT THE ASSESSEE HAS ENDE AVOURED TO MAKE A CASE FOR ITSELF THAT SINCE IT WAS A SMALL SCALE INDUSTRI AL UNIT AS PER SECTION 11B OF INDUSTRIES ACT, IT ALSO STOOD COVERED WITHIN THE EX TENDED DEFINITION OF ANCILLARY UNIT, AS ACCORDING TO THE ASSESSEE, IT WA S AN ANCILLARY OF M/S. ITL, MANUFACTURING/ PRODUCING INTERMEDIATES. THEREFORE, ACCORDING TO THE ASSESSEE, MANUFACTURE/PRODUCTION OF INTERMEDIATES W AS SUFFICIENT TO COMPLY ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 17 WITH THE CONDITIONS AS OUTLINED IN SECTION 80IB(2)( III) WITH REGARD TO MANUFACTURE/PRODUCTION OF ARTICLE OR THING. THE AO OBSERVED THAT CONCEPT OF S.S.I AND ANCILLARY UNIT FOR THE PURPOSE OF SECTION 80IB APPEARS TO BE MISPLACED SINCE THE CONCEPT OF S.S.I. IN THE ENTIRE SECTION APPEARS ONLY AS AN EXCEPTION CLAUSE. THE AO REFERRING TO SECTION 80IB (2)(I)(II)(III) OBSERVED THAT THE DEDUCTION U/S 80IB IS AVAILABLE TO ANY IN DUSTRIAL UNDERTAKING WHICH FULFILLS ALL THE CONDITIONS MENTIONED THEREIN. THER E IS NO DEMARCATION IN THE SECTION ABOUT TYPES OF INDUSTRIAL UNDERTAKINGS WHET HER S.S.I. OR ANCILLARY, TINY OR MEDIUM, LIGHT OR HEAVY EXCEPT WITH REGARD T O THE MANUFACTURE OR PRODUCTION OF ARTICLES IN 11 TH SCHEDULE BY S.S.I. ADMITTEDLY, THE CASE OF THE ASSESSEE DOES NOT FALL WITHIN THE AMBIT OF THIS PAR T OF THE PROVISO AS IT DOES NOT MANUFACTURE ANY ARTICLE OR THING SPECIFIED IN T HE 11 TH SCHEDULE. 7. THE AO FURTHER OBSERVED THAT EVEN IF AS PER ASS ESSEES VERSION, IT IS TAKEN TO BE AN ANCILLARY UNIT, THE DEFINITION OF AN CILLARY UNIT AS PER S.O. 857(E) DATED 10.12.1999 NEEDS TO FULFIL TWO REQUIR EMENTS: (I) THE INDUSTRIAL UNDERTAKING SHOULD BE ENGAGED IN THE MANUFACTURE/PRODUCTION OF PARTS, COMPONENTS, INTERM EDIATES ETC. II) RENDERING OF SERVICES OR UNDERTAKING SUPPLIES O F NOT MORE THAN 50% OF ITS PRODUCTION/SERVICES. THE AO ACCORDINGLY OBSERVED THAT AS PER ASSESSEE S CONTENTION, IT IS AN ANCILLARY UNIT ENGAGED IN MANUFACTURING/PRODUCTION OF INTERMEDIATES IS QUITE ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 18 FAR FETCHED. NOTWITHSTANDING THE ABOVE, THE CRUX OF THE MATTER BOILS DOWN TO THE ISSUE OF MANUFACTURE/PRODUCTION AS THE DEFINITI ON OF ANCILLARY UNIT ALSO TALKS ABOUT MANUFACTURE/PRODUCTION OF INTERMEDIATES . THE ASSESSEE HAS ALL ALONG INSISTED THAT THE ACTIVITIES CARRIED ON BY I T DID IN FACT AMOUNT TO MANUFACTURE/PRODUCTION OF ARTICLE OR THING. IT IS A CASE IN POINT AND ACCEPTED AS SUCH BY THE ASSESSEE ALSO, THAT THE WORD MANUFA CTURE/PRODUCTION HAS NOT BEEN DEFINED ANYWHERE IN THE ACT. HOWEVER, IT HAS R ECEIVED THE GREATEST AND WIDEST OF LEGAL ATTENTION AND HAS BEEN DISCUSSED AT LENGTH IN VARIOUS JUDICIAL PRONOUNCEMENTS. THEREFORE, IN ORDER TO COMPREHEND THE CONCEPT OF MANUFACTURE/PRODUCTION, IT BECOMES IMPERATIVE TO TU RN TOWARDS NUMEROUS DECISIONS OF VARIOUS HIGH COURTS AND THE APEX COURT . THE AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAWS OF VARIOUS COURTS RELIED UPON BY THE ASSESSEE, CITING CERTAIN DECISIONS BY THE AO, THE AO REJECTED THE CONTENTION OF THE ASSESSEE. 8. THE AO REFERRED TO ANOTHER ARGUMENT ADVANCED BY THE ASSESSEE AND SUBMITTED THAT IT WAS ENTITLED TO BENEFIT U/S 80IB AS ITS UNIT WAS A NEW INDUSTRY IN A BACKWARD AREA. ADMITTEDLY, THE ASSESS EES CASE IS COVERED U/S 80IB(4) AS THE ASSESSEES UNIT IS IN BADDI, H.P. W HICH IS AN INDUSTRIALLY BACKWARD STATE AND BY VIRTUE OF THE SAME, IT WAS EN TITLED TO 100% DEDUCTION OF ITS PROFITS BEING IN THE INITIAL 5 YEARS OF ASS ESSMENT . THE ASSESSEE HAS ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 19 ALSO CITED THE CASES OF CIT VS. MARWELL SEA FOODS (1987) 166 CTR 624 (KER) AND CIT VS. BARAKA OVERSEAS TRADERS (1993) 20 1 ITR 827 (KER) TO SUPPORT ITS CASE. IN BOTH CASES CITED SUPRA, THE AS SESSES WERE ALLOWED RELIEF ON GROUNDS THAT THE NEW INDUSTRY WAS FOR THE ULTIMA TE DEVELOPMENT OF BACKWARD AREAS. THE ASSESSEE STAKES ITS CLAIM TO HI GHER DEDUCTION ON THE BASIS OF BEING LOCATED TO THE DEVELOPMENT OF THAT B ACKWARD AREA IS REBUTTABLE. THE ASSESSEE IS NEITHER A LABOUR INTENS IVE UNIT NOR A MATERIAL INTENSIVE UNIT. IT MERELY CARRIES ON JOB WORK ACTIV ITIES FOR THE PRINCIPAL I.E. ITL WHICH IS BASED AT HOSHIARPUR. ADMITTEDLY, AS PE R THE ASSESSEE, THE JOB WORK IS CARRIED OUT BY SOPHISTICATED SIMPLEX AND D UPLEX MILLING MACHINES. AS DISCUSSED EARLIER, HARDLY 12 WORKERS (MOSTLY UNSKILLED) WERE EMPLOYED IN THE SAID UNIT AND DREW MINIMUM WAGES. THE ROUGH CASTINGS WERE NOT MANUFACTURED IN BADDI, SO NO RAW MATERIAL WAS USED, NEITHER ANY EMPLOYMENT GENERATED. THE CASTINGS WERE PROCURED BY ITL FROM DERA BASSI IN PUNJAB. ONLY LIMITED JOB WORK WAS DONE AT BADDI AND THE CASTINGS WERE SENT BACK TO ITL, HOSHIARPUR FOR FURTHER PROCESSIN G. IT MAY NOT BE OUT OF PLACE TO MENTION THAT M/S. ITL IS A CLOSELY HELD CO MPANY. ONE OF ITS DIRECTORS, SH. DEEPAK MITTAL IS THE PROPRIETOR OF M /S. AUTO COMPONENTS INDUSTRIAL CORPORATION, BADDI. THE PAYMENTS MADE TO M/S. AUTO COMPONENTS INDUSTRIAL CORPORATION ARE DETERMINED BY M/S. ITL. THUS, THE ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 20 SCHEME OF THINGS AS IT STANDS IS THAT HEAVY PAYMENT S ARE MADE BY M/S. ITL, HOSHIARPUR TO THE PROPRIETARY CONCERN OF ONE OF ITS DIRECTORS AND IS THUS A COLOURABLE DEVICE FOR THE DIVERSION OF INCOME. THE ENTIRE PROFIT OF M/S. AUTO COMPONENTS INDUSTRIAL CORPORATION, IS CLAIMED TO BE EXEMPT ON THE BASIS OF SECTION 80IB(4), THUS LEADING TO BUILD UP OF CAPITAL IN THE HANDS OF FAMILY MEMBERS WHICH IS EVENTUALLY ROUTED BACK TO T HE COMPANY (ITL, HOSHIARPUR) IN SOME MANNER (MOSTLY AS DEPOSITS/LOAN S ETC.). SO, THE PHILANTHROPIC MOTIVE OF DEVELOPMENT OF BACKWARD AR EA AS TOUTED BY THE ASSESSEE IS COMPLETELY DEFEATED/NEGATED. MOREOVER, EVEN THE BENEVOLENT INTENTION OF THE LEGISLATURE CANNOT BE SO STRETCHED AS TO OVERRIDE THE BASIC REQUIREMENTS OF SECTION 80IB(2) BEFORE AVAILING THE BENEFIT U/S 80IB(4). 9. THE AO REFERRED TO THE REASONING ADVANCED BY T HE ASSESSEE THAT A PROVISION INTENDED FOR PROMOTING ECONOMIC GROWTH HA S TO BE INTERPRETED LIBERALLY, WHICH WAS REJECTED BY THE A.O. THE AO FU RTHER OBSERVED THAT THE REAL TEST, THEREFORE, IS THAT THERE SHOULD HAVE BEE N A TRANSFORMATION INTO A NEW COMMODITY HAVING ITS OWN CHARACTER, USE AND NATURE. REFERRING TO THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. N.C. BUDHRAJA & CO. (1993) 204 ITR 412, THE AO OBSERVED THAT THE MACHINING/GRINDING OF THE VARIOUS COMPONENTS SUCH AS DIFFERENTIAL HOUSING AND REAR COVER AT M/S. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 21 AUTO COMPONENTS INDUSTRIAL CORPORATION, BADDI, WHIC H ARE RECEIVED FROM ITL, HOSHIARPUR DOES NOT BRING INTO EXISTENCE ANY A RTICLE OR THING, WHICH MAY BE SAID TO BE DISTINCT FROM THE ARTICLE ON WHI CH PROCESS HAS BEEN APPLIED. ACCORDINGLY, THE AO OBSERVED THAT IN VIEW OF CLEAR DISTINCTION BETWEEN THE EXPRESSIONS MANUFACTURE AND PRODUCTI ON IN N.C. BUDHRAJAS CASE (SUPRA), THE MACHINING/GRINDING OF THE VARIOUS COMPONENTS DONE AT M/S. AUTO COMPONENTS INDUSTRIAL CORPORATION, BADDI. DOES NOT AMOUNT TO MANUFACTURING OR PRODUCING ANY ARTICLE OR THING WIT HIN THE MEANING OF SECTION 80IB OF THE ACT. EVEN WHATEVER LITTLE PROCE SSING IS DONE ON THE CASTING RECEIVED AT BADDI FROM ITL, HOSHIARPUR IS OF VERY ELEMENTARY NATURE AND FALLS WELL SHORT OF EVEN COMPLETE PROCESSING AS REQUIRED IN THE JOB WORK. FURTHER, REFERRING TO VARIOUS DECISIONS OF VARIOUS COURTS OF LAW, THE AO OBSERVED THAT IT IS ALSO PERTINENT TO MENTION THAT THE ASSESSEE IS NOT CARRYING ON ANY ACTIVITY OR PROCESS THAT ALTERS THE COMPOSIT ION OF THE ROUGH CASTING. ONLY THE PHYSICAL DIMENSIONS ARE ALTERED MARGINALLY . EVEN IN CASES WHERE THE CHEMICALS COMPOSITION, NATURE AND USE OF THE CO MMODITY UNDERWENT A DISTINCT CHANGE, IT WAS HELD BY THE ITAT AS NOT AMO UNTING TO MANUFACTURING OR PRODUCING ARTICLE OR THING. 10. FURTHER, THE AO OBSERVED THAT AT THE BEST, THE ACTIVITIES OF THE ASSESSEE CAN BE CALLED A LIMITED PROCESSING WHICH DOES BRING ABOUT SOME QUALITATIVE ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 22 CHANGE BUT DOES NOT BRING INTO EXISTENCE ANY DISTIN CT ARTICLE AS A NEW ARTICLE OR THING. THUS, THERE IS NO MANUFACTURE / PRODUCTIO N WITHIN THE MEANING OF SECTION 80IB(2)(III) OF THE ACT. 11. LASTLY, THE AO OBSERVED WHICH FOR THE SAKE OF C ONVENIENCE IS REPRODUCED HEREUNDER: LASTLY, IT HAS BEEN EMPHASIZED THROUGHOUT THE DISC USSION THAT, NO DOUBT, THE PROCESS CARRIED ON BY THE ASSESSEE DOES RESULT IN SOME CHANGE TO THE ORIGINAL COMMODITY BUT IT IS NOT A RA DICAL TRANSFORMATION INTO A COMMERCIALLY VIABLE COMMODIT Y AS TO MERIT BEING QUALIFIED AS PRODUCTION AS THE REQUIREMENT OF THE INCOME TAX ACT ARE DIFFERENT. IN THIS CONTEXT, THE DECISIO N IN THE CASE OF MAHENDER KUMAR AGGARWAL V. CIT (2005) 277 ITR 71 (A LL) IS QUITE RELEVANT WHERE IT WAS POINTED OUT THAT THE ASSESSE E HAD EITHER PLANT OR MACHINERY NOR HAD ENGAGED THE MINIMUM REQUIREM ENT OF 10 WORKERS, WHILE THE CLOTH, WHICH HE HAD GOT WEAVED, WAS AS PER DESIGNS OF OTHERS. IT WAS FURTHER POINTED OUT THAT THOUGH THE ASSESSEE COULD BE TREATED A MANUFACTURER FOR THE PURPOSE OF REGULATIONS RELATING TO SMALL SCALE INDUSTRIAL UNDERTAKINGS UND ER THE INDUSTRIES (DEVELOPMENT & REGULATION) ACT, 1951, THE REQUIREME NT OF MANUFACTURE BY THE ASSESSEE U/S 80-I OF THE INCOME TAX ACT CANNOT BE BYPASSED. THE REQUIREMENTS AS PER INCOME TAX ACT AR E DIFFERENT FROM THOSE OF THE INDUSTRIES (DEVELOPMENT & REGULATION) ACT, 1951 IN AS MUCH AS THE EXPRESSION MANUFACTURE/PRODUCTION GOE S. 12. BEFORE THE LD. CIT(A), THE LD. COUNSEL FOR THE ASSESSEE MADE WRITTEN SUBMISSIONS, WHICH WERE SENT TO THE AO FOR COMMENTS . THE COMMENTS OF THE AO WERE HANDED OVER TO THE LD. AR FOR THE ASSESSEE FOR REJOINDER. THE LD. AR WAS ALSO REQUESTED TO COMMENT SPECIFICALLY ON TH E APPLICATION OF PROVISIONS OF SECTION 80IA(10) IN THE CASE OF ASSES SEE W.R.T. HIS TRANSACTIONS ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 23 WITH M/S. ITL. HE WAS ALSO REQUESTED TO GIVE DETAIL S OF THE SHARE HOLDING OF THE ASSESSEE IN ITL, FAMILY SHAREHOLDING IN ITL, ST ATUS OF ITL, DETAILS OF OTHER DIRECTORS ON ITL BOARD WITH DESIGNATION AND T O JUSTIFY THE PROFITS EARNED THROUGH TRANSACTION WITH ITL 13. THE LD. COUNSEL FOR THE ASSESSEE RESPONDED TO A OS COMMENTS VIDE LETTER DATED 31.07.2009, WHICH ARE REPRODUCED IN LD . CIT(A)S ORDER AT PAGES 14 & 15 OF THE ORDER. 14. THE LD. CIT(A) VIDE PARA 2 AND ONWARDS OBSERVE D, ESPECIALLY IN PARA 2.2 AT PAGES 17 & 18 OF THE ORDER, WHICH FOR THE SA KE OF CONVENIENCE IS REPRODUCED AS UNDER HAVING EXAMINED THE JUDGMENT OF HONBLE ITAT IN A SSESSEES CASE, THE FACTS WHICH STAND OUT ARE THAT THE ITAT HAVE HE LD THAT THE AO TOOK A CONSCIOUS DECISION AT THE TIME OF ORIGINAL ASSESS MENT. IT WAS HELD THAT THE DECISION OF THE AO WAS NOT PRIMA FACIE WRO NG JUDICIALLY AND, THEREFORE, THE CIT COULD NOT IMPOSED THE VIEW ON T HE GIVEN SET OF FACTS BEFORE THE AO TO SET ASIDE THE ASSESSMENT. HOWEVER, THEY HAVE ALSO REFERRED TO THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF TEXTILE MACHINERY CORPN, RAMIT KUMAR SHARMA (SUPRA) AND OTHER JUDGMENTS AND HELD THAT THE ORDER OF THE AO WAS NOT ERRONEOUS. IN PARA 6.3 OF THEIR ORDER, THE ITAT HAVE CLEARLY HELD THAT THE ACTIVITY CARRIED OUT BY THE ASSESSEE INVOLVED MANUFACTURE/PR ODUCTION OF ARTICLE OR THING. BEFORE ARRIVING AT THIS CONCLUSION, THE I TAT ALSO EXAMINED THE RAW CASTINGS AND THE MACHINED CASTINGS WHICH WE RE PRODUCED BEFORE THE BENCH AND UNDERSTOOD THE PROCESSES INVO LVED IN THE TRANSFORMATION. IN VIEW OF THE SPECIFIC FINDINGS OF THE ITAT CONTAINED IN PARA 6, PARA 6.3 AND PARA 10, I AM OF THE VIEW T HAT THE HONBLE ITAT HAS GIVEN A FINDING THAT THE OPERATION OF THE ASSESSEE AT BADDI AMOUNTED TO MANUFACTURE OR PRODUCTION OF ARTICLE OR THING WHICH ENTITLED THE ASSESSEE TO DEDUCTION U/S 80IB. THIS I S NOT A DECISION ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 24 RESTING ONLY ON THE BASIS OF CHANGE OF OPINION FROM THE VIEW OF THE AO TO VIEW OF THE CIT U/S 263. THE ITAT HAVE EXAMINED THE PRODUCTION PROCESS INVOLVED AND AFTER CONSIDERING THE JUDICIAL DECISIONS ON THE SUBJECT, HELD THAT THE ASSESSEE WAS ENGAGED IN MANU FACTURE AND PRODUCTION OF ARTICLE OR THING. IN LIGHT OF THE FIN DINGS OF THE ITAT IN THE ASSESSEE;S CASE ITSELF FOR THE A.Y.2003-04 THAT THE PROCESS OF MACHINING RAW CASTINGS INTO MACHINE CASTINGS AMOUN TED TO MANUFACTURE OR PRODUCTION OF ARTICLE OR THING AND S INCE THE ACTIVITIES OF THE ASSESSEE CONTINUE TO BE THE SAME AND SIMILA R FOR A.YS 2001-02 TO 2005-06, RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT (SUPRA), I HOLD THAT THE ASSESSEE WAS ENGAGED IN THE MANUFAC TURE AND PRODUCTION OF ARTICLE OR THING IN THE PRESENT ASSES SMENT YEAR ALSO. 15. THE AO IN HIS WRITTEN SUBMISSIONS DATED 24.07.2 009 SUBMITTED THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 80IB (4), POINTED OUT THAT EVEN OTHERWISE THE ASSESSEES CASE WAS HIT BY THE PROVIS IONS CONTAINED IN SEC. 80IB(13) R.W.S. 80IA(10) OF THE ACT AND THE ASSESSE ES CLAIM FOR DEDUCTION U/S 80IB(4) WAS NOT JUSTIFIED ON THIS ACCOUNT. 16. THE LD. COUNSEL FOR THE ASSESSEE IN RESPONSE T O THE SUBMISSIONS OF THE A.O. SUBMITTED THAT IN THE PRESENT CASE WE MAY SUB MIT THAT THE APPELLATE PROCEEDINGS WERE STARTED IN THIS CASE ON 27.09.2007 . THE FINAL SUBMISSIONS & COUNTER SUBMISSIONS FROM BOTH APPELLATE AND RESPO NDENT WERE SUBMITTED ON 14.02.2008. THE CASE WAS AGAIN FIXED FOR 09.07.2 009. THE APPELLATE ONLY SUBMITTED THE COPY OF ORDER OF THE ITAT AND IN THE SUBMISSIONS ONLY HIGHLIGHTING THE RELEVANT PARTS OF THE ORDER WHICH DIRECTLY RELATES TO THE CASE UNDER CONSIDERATION BEFORE YOUR GOODSELF. ALLOWING TIME TO ANY PART TO THE APPEAL ESPECIALLY WHEN BOTH PARTIES HAVE CONCLUDED THEIR ARGUMENTS, IS NOT ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 25 AS PER LAW. MOREOVER, FOR RAISING ANY FRESH ISSUE C ONTRARY TO THE MATTER ALREADY DECIDED ON THE FACTS BEFORE THE LD. CIT-1, JALANDHAR, THE LD. ADDL. CIT, LD. DCIT WHO HAVE MADE RELEVANT ORDER FOR DIFF ERENT ASSESSMENT YEARS SIMPLY BASED ON ASSUMPTIONS & SURMISES AT THIS STAG E MAY PLEASE NOT BE ENTERTAINED. 17. THE LD. CIT(A) MADE A QUERY FROM THE LD. COUNSE L FOR THE ASSESSEE ABOUT THE JUSTIFICATION OF PROFIT WHICH WAS IMPLIE D, WHICH HAS BEEN REPRODUCED AT PAGES 19 TO 25 OF HIS ORDER. 18. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF ASSESSEES COUNSEL AND COMMENTS OF THE A.O. OBSERVED IN PARA 3 .14 AS UNDER: BASED ON THE DISCUSSION ABOVE AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, I AM OF THE OPINION TH AT THERE IS CLOSE CONNECTION BETWEEN THE ASSESSEE AND M/S. ITL AND TH E COURSE OF BUSINESS BETWEEN THE TWO HAS BEEN SO ARRANGED SO AS YIELD MORE THAN ORDINARY PROFIT TO THE ASSESSEE IN RESPECT OF THE O PERATIONS OF THE BADDI UNIT. I FURTHER HOLD CONSIDERING THE INVESTM ENT MADE IN THE FIXED ASSETS OF THE BADDI UNIT, THE LEVEL AND EXPE RTISE OF THE WORKERS EMPLOYED OVER THERE, THE FACT THAT THE UNIT WAS BEI NG MANAGED BY AN EMPLOYEE OF M/S. ITL AND THE ACCOUNTS OF THE UNIT W ERE BEING HANDLED BY M/S. ITL, AND ALSO CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THAT 20% OF THE JOB RECEIPTS REPRESENT THE REASONABLE PR OFIT THAT WOULD EXPECTED TO BE EARNED BY THE ASSESSEE FROM THIS UN IT. I, THEREFORE, DIRECT THE AO TO LIMIT THE PROFIT OF THE BADDI UNIT TO 20% OF THE JOB WORK RECEIPTS FROM M/S. ITL FOR THE PURPOSE OF ALL OWING DEDUCTION U/S 80IB/80IC OF THE ACT UNDER THE PROVISIONS OF SECTIO N 80IA(10 ) OF THE ACT. THUS, WHILE THE ASSESSEES CONTENTION THAT D EDUCTION U/S 80IB SHOULD BE ALLOWED TO IT IS UPHELD, THE INCOME OF TH E ASSESSEE IS ENHANCED BY REDUCING THE AMOUNT OF DEDUCTION ALLOWE D U/S 80IB FROM THAT CLAIMED IN THE RETURN OF INCOME ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 26 19. AS REGARDS THE LEGAL ISSUE REGARDING REOPENING OF ASSESSMENT, THE LD. CIT(A) REJECTED THE GROUND OF THE ASSESSEE VIDE P ARAS 4.5 TO 4.7 OF HIS ORDER, WHICH IS REPRODUCED FOR THE SAKE OF CONVENIE NCE AS UNDER: 4.5. I HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND HAVE ALSO GONE THROUGH THE REASONS RECORDED BY THE AO FOR INI TIATING THE PROCEEDINGS U/S 148. THE AO NOTED THAT DURING THE C OURSE OF SURVEY U/S 133A IN THE CASE OF ASSESSEES BUSINESS PREMISE OF M/S. AUTO COMPONENTS INDS. CORPN., THE STATEMENT OF SH. HOSHI AR SINGH CHIEF MANAGER OF M/S. INTERNATIONAL TRACTORS LTD. WHOSE D UTIES WERE TO LOOK AFTER THE AUTO COMPONENT INDL. CORPN. SINCE 19 99 WAS RECORDED. SH. HOSHIAR SINGH STATED THAT JOB WORK OF TRACTOR PARTS I.E. PRIMARY PROCESS OF GRINDING OF CERTAIN COMPONENTS WAS ONLY BEING DONE AT FACTORY. WHEN ASKED WHETHER ANY MANUFACTURING/PRODU CING WAS BEING CARRIED OUT AT THE PREMISES OF THE ASSESSEES FACTO RY AT BADDI (HP) HE STATED THAT NO PROCESS OF ANY MANUFACTURING/PRODUCT ION WAS BEING DONE AT THIS PREMISE. HE ALSO INFORMED THAT ONLY F ACE GRINDING OF ONE SIDE OF THE TRACTOR COMPONENT WAS BEING DONE AND TH AT TOO OF DIFFERENT SPECIFICATIONS WHICH RANGED FROM 17 MM TO 20 MM. H E ALSO INFORMED THAT THESE WERE ONLY ROUGH GRINDING AND FINAL GRIN DING/MACHINING WAS DONE BY M/S. ITL AT HOSHIARPUR. HE ALSO INFORME D THAT NO CASTING WORK IS BEING DONE AT BADDI FACTORY. BASED ON THESE AND OTHER FACTS WHICH SHOWED THAT ONLY PART GRINDING WORK WAS BEING DONE AT THE ASSESSEES FACTORY, THE AO CAME TO THE CONCLUSION T HAT NO MANUFACTURING WAS BEING DONE AT THE ASSESSEES FACT ORY PREMISES AT BADDI (HP). HE ALSO NOTED THAT THE GP RATE DECLARED BY THE ASSESSEE WAS 85.42% WHEREAS THE GP RATE DECLARED BY ENTITIES DOING SIMILAR TYPE OF BUSINESS FOR ITL RANGES FROM 7% TO 10%. THE AO HELD THAT SINCE NO MANUFACTURING WAS BEING DONE AT ASSESSEES BUSINESS PREMISES, DEDUCTION U/S 80IB WAS NOT ALLOWABLE TO T HE ASSESSEE AND HE CAME TO THE BELIEF THAT DEDUCTION CLAIMED BY TH ASS ESSEE REFLECTED INCOME WHICH HAD ESCAPED ASSESSMENT. IT IS SEEN THA T FOR A.Y.2001-02 NO ASSESSMENT U/S 43(3)/147 WAS DONE PRIOR TO THE ISSUE OF NOTICE U/S 148. THE REASONS RECORDED BY THE AO WERE BASED ON T HE FINDINGS AT THE BUSINESS PREMISES OF THE ASSESSEE WHICH, PRIMA FACIE INDICATED THAT NO MANUFACTURING ACTIVITIES WERE CARRIED OUT BY IT. IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. 291 ITR 500 ( SC), THE HONBLE APEX COURT HELD THAT AT THE TIME OF ISSUE OF NOTICE U/S 148, THE AO ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 27 COULD NOT BE EXPECTED TO HAVE FINALLY ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONCLUSION AT THE TIME OF ISSUE OF NOTI CE U/S 148. IT WAS FURTHER HELD THAT THE ONLY QUESTION TO BE EXAMINED WAS WHETHER THERE WAS ANY REASONABLE MATERIAL BEFORE THE AO TO ARRIVE AT HIS BELIEF THAT INCOME HAD ESCAPED ASSESSMENT AND WHETHER THAT MATE RIAL HAD CONNECTION WITH THE INCOME ESCAPING ASSESSMENT. IT WAS HELD THAT IF THERE WAS SUCH MATERIAL AND THE CASE FELL UNDER THE MAIN PROVISIONS OF SEC. 147, THERE WAS NO BAR ON ISSUE OF NOTICE U/S 1 48. SIMILARLY, IN THE CASE OF RAYMOND WOOLEN MILLS 236 ITR 34(SC), THE HO NBLE APEX COURT HELD THAT THE COURT COULD NOT EXAMINE THE SUF FICIENCY OF REASONS THROUGH THERE SHOULD BE PRIMA FACIE MATERIAL ON THE BASIS OF WHICH DEPARTMENT WANTED TO ISSUE NOTICE U/S 148. THE ARS CONTENTION THAT THE AO HAD NO POSITIVE OR CONCLUSIVE EVIDENCE FOR H AVING BELIEF THAT ANY INCOME HAD ESCAPED ASSESSMENT IS, THEREFORE, NO T ACCEPTED IN VIEW OF THE AFORESAID DECISION. THE AR HAS STRESSED ON T HE FACT THAT AN ASSESSMENT US/ 143(3) FOR A.Y. 2003-04 HAVE BEEN MA DE AFTER FEW MONTHS PRIOR TO THE SURVEY AND DEDUCTION U/S 80IB H AVE BEEN ALLOWED THEREIN. HOWEVER, IT HAS TO BE NOTICED THAT THE BEL IEF ARRIVED AT BY THE AO WAS BASED ON FRESH FACTS AND MATERIAL GATHERED S UBSEQUENT TO THE ASSESSMENT U/S 143(3) AND ALL THAT HAD TO BE EXAMIN ED IS WHETHER AT THE TIME OF ISSUE OF NOTICE U/S 148 THERE WAS REASO NABLE MATERIAL BEFORE THE AO TO COME TO HIS BELIEF . SINCE THE PER SONS RESPONSIBLE FOR THE OPERATION AT THE ASSESSEES FACTORY HAD STATED THAT NO MANUFACTURING OR PRODUCTION WERE BEING CARRIED OUT AT THE BADDI FACTORY AND THE PROCESS BEING CARRIED OUT AT BADDI UNIT WAS FOUND TO BE ROUGH GRINDING WITHOUT PRODUCING FINISHED COMPON ENT, AND FURTHER THAT MORE WORK WAS DONE ON THE SAME COMPONENT AT TH E ITL FACTORY AT HOSHIARPUR AFTER BEING SENT BY THE ASSESSEES UNI T TO MAKE ITS USABLE, THERE WAS PRIMA FACIE MATERIAL AT THE TIME OF ISSU E OF NOTICE U/S 148 TO ARRIVE AT AOS BELIEF. THE ARS CONTENTION THAT THE RE WAS NOTHING ON RECORD AFTER THE ASSESSMENT U/S 143(3) FOR A.Y.2003 -04 IS NOT CORRECT SINCE SEVERAL NEW FACTS WERE DISCOVERED BEFORE THE ISSUE OF NOTICE U/S 148. 4.6. THE ASSESSEE HAS CONTENDED THAT THE HONBLE IT AT HAVE HELD IN THEIR ORDER IN RESPECT OF THE ORDER U/S 263 PASSED BY THE LD. CIT, JALANDHAR, IN ASSESSEES CASE FOR A.Y.2003-04 THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURED OR PRODUCTION OF ARTICLE OR THING. A REFERENCE TO THE OFFICE NOTE OF AOS ASSESSMENT ORD ER U/S 143(30 FOR A.Y.2003-04 HAS BEEN MADE FOR THE PROPOSITION THAT THE REOPENING HAD ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 28 BEEN DONE AT THE BEHEST OF A SUPERIOR AUTHORITY. I DO NOT ACCEPT THIS CONTENTION OF THE ASSESSEE. THERE IS NOTHING IN THE REASONS RECORDED OR IN THE ASSESSMENT RECORD TO SUPPORT THE VIEW THAT T HE REOPENING HAS BEEN DONE AT THE INSTANCE OF A SUPERIOR OFFICE. MER ELY BECAUSE A SHOW CAUSE U/S 263 HAD BEEN ISSUED BY THE CIT FOR THE A. Y. 2003-04 DOES NOT PROVE THAT THE NOTICE U/S 148 WAS ISSUED AT THE DIRECTION OF THE CIT. THE SURVEY WAS CONDUCTED BY THE AO AND THE RE SULT OF THE FINDINGS DURING THE SURVEY WERE KNOWN TO HIM INDEPE NDENTLY OF THE NOTICE U/S 263. THESE FINDINGS PRIMA FACIE CAN LEA D A REASONABLE PERSON TO INCUR THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 80IB IN RESPECT OF THE PROFITS OF THE BADDI UNIT. M ERELY BECAUSE THIS FINDING HAS HELD TO BE INCORRECT BY THE ITAT SUBSE QUENTLY WOULD NOT HOLD THE REASONABLE BELIEF OF THE AO AT THE TIME OF ISSUE OF NOTICE 148 TO BE INCORRECT AS HELD BY THE HONBLE SUPREME COUR T IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA) AND R AYMOND WOOLLEN MILLS LTD. (SUPRA). FURTHER, THE FACT THAT THE ASSE SSMENT FOR AY 2003- 04 U/S 143(3) WAS PASSED AFTER DISCUSSION WITH ADDL . CIT ALLOWING DEDUCTION U/S 80IB WILL NOT INVALIDATE THE NOTICE U /S 148 FOR AY 2001- 02 SINCE THE SAME IS BASED ON THE FINDINGS OF FACTS MADE SUBSEQUENTLY. IN THIS CASE, THE REASONS BEFORE THE AO WERE NOT B ASED ON SUSPICION SINCE SH. HOSHIAR SINGH AT THE ASSESSEES BADDI UN IT AND SH. KAPOOR OF M/S. ITL, BOTH RESPONSIBLE PERSONS, GAVE STATEM ENTS WHICH SHOWED THAT THE WORK BEING CARRIED OUT AT BADDI UNIT AMOUN TED TO SIMPLE PROCESSING WITHOUT ANY FINAL PRODUCT BEING MADE AN D FURTHER THAT NO MANUFACTURING OR PRODUCTION WAS BEING CARRIED OUT A T THE BADDI UNIT. FURTHER, THE FACTUAL FINDINGS REGARDING THE NATURE OF THE WORK AT THE BADDI UNIT ALSO GAVE THE AO MATERIAL TO FORM HIS BE LIEF THAT NO MANUFACTURING ACTIVITY WAS BEING CARRIED OUT AT BAD DI. AT THE STAGE OF ISSUE OF NOTICE U/S 148, THE COURTS HAVE HELD THAT THE SUFFICIENCY OF THE MATERIAL COULD NOT BE GONE INTO, THOUGH WHAT COULD BE SEEN WAS WHETHER THE MATERIAL HAD SOME LINK WITH THE FORMAT ION OF THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. IN THIS CASE, T HE MATERIAL BEFORE THE AO AND RECORDED IN THE REASONS ARE DIRECTLY LI NKED TO HIS BELIEF THAT THE INCOME HAD ESCAPED ASSESSMENT BY VIRTUE OF GRANT OF DEDUCTION U/S 80IB TO WHICH THE ASSESSEE WAS NOT IN VOLVED. 4.7. BASED ON THE DISCUSSION ABOVE, THE ASSESSEES OBJECTION TO THE ISSUE OF NOTICE U/S 148 ARE, REJECTED. THESE GROUND S OF APPEAL ARE DISMISSED. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 29 20. LASTLY, THE LD. CIT(A) IN PARA 6 OF HIS ORDER O BSERVED AS UNDER: AS PER THE DISCUSSIONS ABOVE, THE CLAIM OF THE ASS ESSEE THAT IT IS ENTITLED TO DEDUCTION U/S 80IB HAS BEEN FOUND TO BE VALID. THE SAME HAS, THEREFORE, BEEN ALLOWED. HOWEVER, IN TERM S OF THE ENHANCEMENT ORDERED ABOVE, THE AO HAS BEEN DIRECTED TO REDUCE THE DEDUCTION U/S 80IB BY RESTRICTING U/S 80 IA(100 THE REASONABLE NET PROFIT OF THE ASSESSEES BADDI UNIT TO 20% OF THE JOB RECEIPTS FROM M/S. ITL FOR THE YEAR AND TO COM PUTE THE DEDUCTION US/ 80IB/80IC ON THE BASIS OF THIS PROFIT , I AM ALSO OF THE VIEW THAT THE ASSESSEE HAS CLAIMED HIGHER DEDUC TION U/S 80IB BY NOT ACCOUNTING FOR EXPENDITURE ON THE SALA RY AND OTHER BENEFITS TO MR. HOSHIARPUR SINGH AND ON THE ACCOUNT S DEPARTMENT WHICH WAS BEING HANDLED BY M/S. ITL, AND ALSO BY SHOWING MORE THAN ORDINARY PROFITS FOR THE REASONS WHICH HAVE BEEN DISCUSSED EARLIER. BY DOING THIS, THE ASSESSEE HAS CLAIMED HIGHER DEDUCTION U/S 80IB THAN THAT IS ALLOWABLE TO IT. PENALTY PROCEEDINGS U/S 271(1) FOR CONCEALMENT OF INCOME AN D FOR FURNISHING INACCURATE PARTICULARS OF INCOME ARE INI TIATED BY ME AGAINST THE ASSESSEE IN RESPECT OF THE EXCESS DEDU CTION U/S 80IB CLAIMED BY THE ASSESSEE OVER AND ABOVE THAT ALLOWAB LE ON 20% OF THE JOB RECEIPTS. 21. THE LD. COUNSEL FOR THE ASSESSEE, MR. VINAY MAL HOTRA, CA, INVITED OUR ATTENTION AT PB 67 & 68 AND STATED THAT THE AO HAS NOT SIGNED THE REASONS RECORDED. THE LD. COUNSEL FURTHER INVITED OUR ATTEN TION TO PB-68, WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED AS UNDER: G.P. RATE DECLARED BY THE ASSESSEE IS 85.42% WHER EAS G.P. RATE DECLARED BY THE ENTITIES DOING SIMILAR TYPE OF BUSI NESS FOR ITL, RANGES FROM 7% TO 10% WHICH SHOWS THAT PRICES PAID TO THIS CONCERN ARE EXORBITANT AS THE PROFITS OF THE ASSESSEE ARE EXEMP T FROM TAX. THIS POINT ALSO NEEDS INVESTIGATION. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 30 21.1 THE LD. COUNSEL FURTHER INVITED OUR ATTENTION TO PB-10 AND STATED THAT THE CASE LAWS RELIED UPON BY THE LD. CIT(A) ARE NOT APPLICABLE FOR THE REASONS MENTIONED THEREIN. AT PAGES 12 TO 16 OF THE PB, THE LD. COUNSEL FOR THE ASSESSEE RELIED UPON DECISIONS OF VARIOUS COURTS OF LAW. 21.2. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTE D WRITTEN ARGUMENTS DATED 18.03.2014, WHICH ARE AVAILABLE AT PB-2 (PAGE S 7 TO 9) AND WHICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED AS UNDER: WE INVITE YOUR KIND ATTENTION TO PAGE NO. 3 TO 18 OF ABOVE PAPER BOOK FILED IN ITA NO.424 AND 425 RELEVANT TO A.Y. 2 001-02 & 2002- 03. WE FURTHER INVITE YOUR KIND ATTENTION TO OUR WR ITTEN SUBMISSION DATED 03.03.210. THE COPY OF THE REASONS RECORDED ( RERFER TO PAGE 6 7 & 68 PAPER BOOK) FOR INCENTING REASSESSMENT PROCEEDING. THE A O HAS NEITHER SIGNED NOR HAVING THE NAME OF THE OFFICER HENCE, IT IS NOT CLEAR WHETHER ANY SATISFACTION NOTE WAS EVER PREPARED OR BY WHOM.THIS SATISFACTION NOTE IS DATED 01.03.2006 AND THE COPY ISSUE TO THE ASSESSEE IS SIGNED AS TRUE COPY SIGNED BY THE CLERK (SSTA DATED 24.07.2006. THIS SATISFACTION IS NOT AFTER APPLICAT ION OF MIND AND IT HAS BEEN STATED IN THIS NOTE, THIS POINT ALSO NEED S INVESTIGATION. WE ALSO INVITE YOUR KIND ATTENTION TO PAGE 2 IN WHI CH THE OFFICE NOTE OF THE AO GIVEN IN HIS ASSESSMENT ORDER PASSED U/S 145 (3) RELEVANT TO A.Y.2003-04 WHICH DEALS WITH DEDUCTION U/S 80IB STA TES THE CASE WAS SELECTED FOR SCRUTINY AS THE ASSESSEE HAD CLAIM ED DEDUCTION AT RS.18829825/- U/S 80IB. AFTER VERIFICATION, THIS DE DUCTION HAS BEEN FOUND TO BE IN ORDER. THE SEQUENCE OF THE EVENTS ARE GIVEN ON PAGE NO.4 O F THE PAPER BOOK WHICH CLEARLY SHOWS THAT THE AO HAS CHANGED HIS OPI NION AND ISSUED THE NOTICES U/S 148 AS PER THE DIRECTION AND AFTER PROCEEDINGS ON ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 31 8.2.2002 STARTED U/S 263 BY THE LD. CIT. THE OTHER ISSUE AS TAKEN BY THE AO IS REGARDING THE ACTIVITY AS CARRIED OUT BY THE ASSESSEE DOES NOT AMOUNT TO MANUFACTURE. THIS ISSUE HAS ALREADY B EEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT AND THE APPEAL O F THE DEPARTMENT HAS BEEN DISMISSED BY THE P & H HIGH COURT AND SUPR EME COURT. WE DRAW YOUR KIND ATTENTION TO PAGE 8 OF THE PAPER BOO K IN WHICH CASE LAWS AS RELIED UPON BY THE ASSESSEE ARE GIVEN AND F URTHER THIS CASE LOSS HAS BEEN EXPLAINED GIVEN FROM PAGE NO. 12 TO 1 7. WE ALSO INVITE YOUR KIND ATTENTION TO PAGE NO. 2 & 3 OF WRITTEN SUBMISSION DATED 30.03.2010 IN WHICH THE CASE LOSS AS RELIED IS GIVEN. WE RELY ON THE JUDGMENT OF APEX COURT IN THE CASE OF CHHUGANMAL RAJPAL VS. S.P. CHALIHA 79 ITR 603 (SC) IN WHICH IT IS HELD THAT TO MAKE INVESTIGATION IS NOT A REASON TO BELIEVE FOR I SSUANCE OF VALID NOTICE U/S 148. THE RATIO OF THIS CASE IS GIVEN ON PAGE 15 & 16 OF OUR PAPER BOOK ALONGWITH EXTRACT OF COMMENTARY BY CHATU RVEDI & SHAH. THE CASE OF KALVINATOR INDIA LTD. 320 ITR 561 (SC) IN WHICH IT IS HELD THAT : ..REASSESSMENT CHANGE OF OPINION ABSNECE OF TANGI BLE MATERIALS AFTER 1.4.1989 REASSESSMENT HAS TO BE BASED ON FULF ILLMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHANGE OF OPINI ON IS REMOVED, AS CONTENDED BY THE DEPARTMENT, THEN IN THE GARB OF RE OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN INBUILT TEST TO CHECK ABUS E OF POWER BY THE AO. HENCE, AFTER 1.4.1989, AO HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT TH ERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE LIVE L INK WITH THE FORMATION OF THE BELIEF. PRIOR TO DIRECT TAX LAWS (AMENDMENT) ACT, 1987, RE -OPENING COULD BE DONE UNDER TWO CONDITIONS AND FULFILLMENT OF THE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSESSING OFFIC ER TO MAKE A BACK ASSESSMENT, BUT IN SECTION 147 OF THE ACT [WITH EFF ECT FROM 1ST APRIL, 1989], THEY ARE GIVEN A GO-BY AND ONLY ONE CONDITIO N HAS REMAINED, VIZ., THAT WHERE THE ASSESSING OFFICER HAS REASON T O BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. THEREFORE, POST-1ST APRIL, 1989, POWER TO RE-OPEN IS MUCH ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 32 WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTER PRETATION TO THE WORDS REASON TO BELIEVE FAILING WHICH, WE ARE AFR AID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICE R TO RE-OPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION , WHICH CANNOT BE PER SE REASON TO RE-OPEN. WE MUST ALSO KEEP IN M IND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO RE- ASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE HAS TH E POWER TO RE- ASSESS. BUT RE-ASSESSMENT HAS TO BE BASED ON FULFIL LMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHANGE OF OPIN ION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF RE- OPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ON E MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1ST AP RIL, 1989, ASSESSING OFFICER HAS POWER TO RE-OPEN, PROVIDED TH ERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS E SCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LI NK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABOVE. U NDER THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS REASON TO BELIEVE BUT ALSO INSERTED THE WOR D OPINION IN SECTION 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPR ESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS REASO N TO BELIEVE, PARLIAMENT RE-INTRODUCED THE SAID EXPRESSION AND DE LETED THE WORD OPINION ON THE GROUND THAT IT WOULD VEST ARBITRAR Y POWERS IN THE ASSESSING OFFICER. FOR THE AFORESAID REASONS, THERE IS NO MERIT IN THESE CIVIL APPEALS FILED BY THE DEPARTMENT, HENCE, DISMI SSED. 21.3. ACCORDINGLY, THE LD. COUNSEL FOR THE ASSESSEE PRAYED TO ALLOW THE LEGAL GROUND RAISED AGAINST REASSESSMENT PROCEEDING INITI ATED BY THE DEPARTMENT. 21.4. AS REGARDS THE ISSUE ON MERITS, THE LD. COUNS EL FOR THE ASSESSEE ARGUED THAT THE LD. CIT(A) HAS NOT DISCHARGED HIS ONUS OF ASCERTAINING EXCESSIVE PROFIT I.E. IN MAKING ENHANCEMENT OF INCOME ON ACCO UNT OF EXCESSIVE PROFIT. HE DREW OUR ATTENTION TO THE DECISION OF HONBLE SU PREME COURT IN THE CASE ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 33 OF VNM ARUNACHALA VS. COMMISSIONER OF EXCESS PROFI T TAX 44 ITR 352 (SC) AND THE RELEVANT FINDINGS HAVE BEEN SUMMARIZE D FOR THE SAKE OF CONVENIENCE AS UNDER: 1. THAT MERE FACT THAT A NEW BUSINESS STARTED AT A TIME WHEN BY SUCH STARTING THERE WOULD BE REDUCTION OF LIABILITY IS NOT BY ITSELF PROVE THAT IT WAS STARTED WITH THE MAIN OBJECT OF A VOIDING EXCESS PROFIT TAX. 2. THE BURDEN ON THE DEPT. TO PROVE THAT THIS WAS T HE MAIN PURPOSE WITH WHICH THE TRANSACTION WAS EFFECTED. 3. THE RELATIONSHIP BETWEEN THE PARTIES TO THE TRANSAC TIONS IS BY ITSELF NOT CONCLUSIVE TO PROVE THAT THE MOTIVE IN T HE TRANSACTION WAS AVOIDANCES OF LIABILITIES. 4. IT IS NOT SUFFICIENT IF THIS WAS AN INCIDENTAL ADVA NTAGE WHICH MIGHT HAVE OCCURRED TO THE ASSESSEE. 5. IT MUST BE THE MAIN MOTIVE TO COMPASS WHICH THE TR ANSACTIONS WAS BROUGHT OUT. 6. THERE IS NOTHING ON RECORD TO SHOW THAT THIS UNIT WAS STARTED WITH ANY PERSON. NEITHER THERE ARE ANYTHING TO PRO VE THAT THE AFFAIRS OF BUSINESS OR TRANSACTION SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THEM PRODUCES TO THE ASSESSEE MO RE THAN THE ORDINARY PROFITS. 21.5. HE ARGUED THAT HOW THE EXCESS PROFIT CAN BE E ARNED AND INVITED OUR ATTENTION TO PB-1 WITH REGARD TO THE RELEVANT DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF HONBLE SUPREME COURT IN THE CASE OF VNM ARUNCHALA VS. COMMISSIONER OF EXCESS PROFIT TAX (SUPRA). HE F URTHER RELIED UPON THE ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 34 DECISIONS OF VARIOUS COURTS OF LAW WHICH ARE AVAIL ABLE AT PB-25 AND ARE REPRODUCED HEREUNDER: I) CIT VS. SHRI RAM PISTON & RINGS LTD. 181 ITR 23 0 (DEL) II) ADDL. CIT VS. DELHI PRESS PATRA PARKASHAN 103 TTJ 578 (DEL.) III) ITO V. NOVEL CONSUMERS PRODUCTS P. LTD. 07 SOT 615 (MUM TRIB) IV) ITO VS. PCA ENGINEERS LTD. (1984) 8 ITD 518 (MUM) V) VNM ARUNCHALA VS. COMMISSIONER OF EXCESS PROFIT TAX 32 ITR 222 (MAD.) VI) ASSAM CARBON PRODUCT LTD. VS. ASSTT. CIT 100 TTJ 22 4 (KOL) VII) PUNJAB CONCAST STEELS LTD. VS. ASSTT. CIT (1994) 49 ITD 430 (CHD.) VIII) CIT VS. WALCHAND & CO. PVT. LTD. 65 ITR 381 (SC) IX) DIRECTOR OF INCOME TAX VS. LOVELY BAL SHIKSHAN PARI SHAD 266 ITR 349 (DEL.) X) DY. CIT VS. MANJARA SHETKARI SAHAKARI SAKHAR KARKHA NA LTD. (2004) 85 TTJ 369 (MUM) XI) UPPER INDIA PUBLISHING HOUSE (P) LTD. VS. CIT 117 ITR 569 (SC) 21.6. THE LD. COUNSEL FOR THE ASSESSEE, READ THE DE CISION IN THE CASE OF CIT VS. SHRIRAM PISTONS & RINGS LTD. (SUPRA), THE RELE VANT PART OF WHICH IS REPRODUCED AS UNDER: HELD: THE COMPANY LAW BOARD, WHICH IS ALSO AN EXPE RT IN THESE MATTERS, HAVING DECIDED THAT THE AMOUNT WAS REASONA BLE, IT SHOULD NOT ORDINARILY BE OPEN TO THE INCOME TAX AUTHORITIES TO REGARD SUCH FIXATION AS UNREASONABLE UNLESS THERE ARE SOME OTHER FACTORS WHICH CAN LEAD ONE TO THE CONCLUSION THAT THERE WAS NO PROPER APP LICATION OF MIND BY THE COMPANY LAW BOARD AT THE TIME OF THE SAID BOARD FIXING THE REMUNERATION. IT IS NOT CONTENDED THAT THERE WAS AN Y MISREPRESENTATION OF FRAUD PLAYED ON THE COMPANY LAW BOARD AND, THE C ONCLUSION OF THE TRIBUNAL IS ONE OF FACT AND NO QUESTION OF LAW ARIS ES. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 35 21.7. FURTHER, THE LD. COUNSEL FOR THE ASSESSEE AR GUED THAT THE RATES FOR SERVICES ARE APPROVED BY THE COMPANY LAW BOARD, AS PAID BY M/S. ITL AND NECESSARY APPROVAL IS PLACED AT PB 89 TO 101. THE L D. COUNSEL FURTHER PRAYED THAT THE ASSESSEE IS A SERVICE ORIENTED UNIT AND TH E RESULTS CANNOT BE COMPARED WITH THE SALE OF GOODS. HE FURTHER ARGUED THAT NOTIONAL TRADING ACCOUNTS INCLUDING THE COST OF MATERIAL KEEPING AL L OTHER FIGURES AND GP RATIO HAS COME TO 21.57% AND NET PROFIT RATE AT 18. 50% FOR THE YEAR ENDING 31.03.2001 WHEREAS FOR THE YEAR ENDING 31.03.2002 GP COMES TO 20.90% AND NP AT 19.18%, WHICH IS PLACED AT PB 102 & 103 . HE INVITED OUR ATTENTION TO PB 48 TO 61 WHERE THE PARAWISE REPLY TO LD. CIT(A)S OBSERVATIONS HAVE BEEN GIVEN. 21.8. HE FURTHER INVITED OUR ATTENTION TO PB-2( PAG ES 1 TO 7) AND ARGUED THAT THE QUANTUM OF PROFIT HAS BEEN APPROVED BY THE ITA T, AMRITSAR BENCH, WHICH ORDER HAS BEEN UPHELD BY THE HONBLE SUPREME COURT IN ASSESSEES OWN CASE, RELEVANT TO ASSESSMENT YEAR 2003-04 AND T HE RELEVANT ORDER HAS BEEN PLACED ON RECORD. HE FURTHER ARGUED AND INVIT ED OUR ATTENTION TO THE WRITTEN SUBMISSIONS DATED 05.08.2010 PLACED BEFORE US AND ANNEXURE-1 REGARDING EXPENSES INCURRED. 21.9. IN VIEW OF THE SUBMISSIONS MADE ABOVE, THE LD . COUNSEL FOR THE ASSESSEE PRAYED TO REVERSE THE ORDER OF THE LD. CIT (A) REGARDING ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 36 ENHANCEMENT OF INCOME, WHICH HAS BEEN MADE IN CASUA L MANNER ON THE RECOMMENDATION OF THE ASSESSING OFFICER, WHEREAS TH E AO HIMSELF IN HIS REPORT HAS DENIED THAT HE HAS REVIEWED THE ORDER O F HIS PREDECESSOR, AS SUBMITTED IN REPLY OF THE ASSESSEE ON THE REPORT O F THE A.O. 22. THE LD. DR, SH. TARSEM LAL, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS THE LEGAL ISSUE IN GROUND NO.1 (I) (II) & (III), THE AGITATION IN THESE GROUNDS BY THE ASSESSEE IS MAINLY ON ACCOUNT OF RE OPENING OF ASSESSMENT WITHOUT APPLICATION OF MIND, WHICH UNDER THE DICTAT E OF HIGHER AUTHORITIES AND THE REASONS ARE NOT RECORDED BY THEM AND THE S URVEY HAS BEEN CONDUCTED AT THE DICTATE OF THE LD. CIT AFTER THE CONCLUSION OF ASSESSMENT FOR THE ASSESSMENT YEAR 2003-04 ON 14.11.2005 WHEREAS SURV EY WAS CONDUCTED ON 10.01.2006. 23.1. ON PERUSAL OF THE NOTICE ISSUED UNDER SECTION 148 OF THE ACT, IT WAS REVEALED THAT REASONS RECORDED ARE NOT SIGNED BY T HE AO AND NOTHING HAS BEEN BROUGHT TO RECORD TO REBUT THE SAID ARGUMENTS AND MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE. IT IS A LSO OBSERVED THAT THE AO AS COMPARED GP RATIO OF OTHER UNITS, HAS STATED THAT THIS POINT NEEDS INVESTIGATION. WHEREAS THE LD. CIT(A) HAS ADMITTED THAT THERE IS NO ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 37 COMPARABLE CASE AVAILABLE. THEREFORE, IN THE PRESE NT FACTS AND CIRCUMSTANCES, THE AO HAS NOT APPLIED HIS MIND AND IT IS ONLY ON DOUBTS, SURMISES AND CONJECTURES, THE AO PROCEEDED TO MAKE INVESTIGATION AND IMMEDIATELY BEFORE THE SAID INVESTIGATION, THE AO P ROCEEDED TO REOPEN THE ASSESSMENT WHICH, IN FACT, IS NOT PERMISSIBLE UNDE R THE LAW. WE RELY UPON THE DECISION IN THIS REGARD IN THE CASE OF CHHUGAM AL RAJPAL VS. S.P. CHALIHA AND OTHERS (1971) 79 ITR 603 (SC), IN WHICH IT IS H ELD THAT TO MAKE INVESTIGATION IS NOT A REASON TO BELIEVE FOR ISSUAN CE OF VALID NOTICE U/S 148 OF THE ACT. SECONDLY, WE RELY UPON THE DECISION IN THE CASE OF CIT VS. KELVINATOR INDIA LTD. REPORTED IN 320 ITR 561 (SC), WHERE IT IS HELD THAT REASSESSMENT CHANGE OF OPINION ABSNECE OF TANGIBL E MATERIALS AFTER 1.4.1989 REASSESSMENT HAS TO BE BASED ON FULFILLMEN T OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTENDED BY THE DEPARTMENT, THEN IN THE GARB OF REOPENING THE ASSE SSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE O F OPINION AS AN INBUILT TEST TO CHECK ABUSE OF POWER BY THE AO. HENCE, AFTE R 1.4.1989, AO HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIA L TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE LIVE LINK WITH THE FORMATION OF THE BELIE F. ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 38 23.2. ACCORDINGLY, WE ARE OF THE VIEW THAT THE A.O. IS NOT JUSTIFIED IN REOPENING OF THE ASSESSMENT FOR THE IMPUGNED YEAR AND THE SAID REASSESSMENT IS TREATED AS INVALID AND ACCORDINGLY GROUND NOS. 1(I) (II) & (III) OF THE ASSESSEE ARE ALLOWED. 24. AS REGARDS THE MERITS OF THE CASE IN GROUND NO. 2 (I). (II) & (III) OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE DEPARTMENT HA S NOT REJECTED THE BOOKS OF ACCOUNT AND HAS ALSO NOT POINTED OUT ANY DEFICIE NCY IN THE BOOKS OF ACCOUNT. FURTHER, IT IS A CASE OF SURVEY AND THE SU RVEY PARTY IS REQUIRED TO VERIFY THE CORRECTNESS OF THE PROFIT EARNED BY THE ASSESSEE. FURTHER, AN IDENTICAL ISSUE HAS ALREADY BEEN DECIDED IN THE CAS E OF THE ASSESSEE DURING THE ASSESSMENT YEAR 2003-04 IN REVISIONARY PROCEED INGS UNDER SECTION 263 OF THE I.T.ACT,1961, WHERE THE ITAT, AMRITSAR BENCH HAS QUASHED THE ORDER PASSED BY THE LD. CIT. THE DEPARTMENT REACHED UP TO HONBLE SUPREME COURT AND THE HONBLE SUPREME COURT DISMISSED THE S .L.P.(CIVIL) FILED BY THE REVENUE, WHICH IS A MATTER OF RECORD. THEREFORE , THE ISSUE WITH RESPECT TO REASONABILITY OF PROFIT HAS ALREADY ATTAINED FINALI TY DURING THE ASSESSMENT YEAR 2003-04. IT HAS BEEN FURTHER OBSERVED THAT TH E FINDINGS OF THE SURVEY WERE SENT TO THE AO OF M/S. ITL, WHO HAS MADE DETA ILED ENQUIRY AND HAS MADE THE ADDITION ONLY OF RS.1,77,398/- ON ACCOUNT OF EXCESS PAYMENT MADE TO SPECIFIC PERSON I.E. THE ASSESSEE, AS IS EV IDENT FROM THE ASSESSMENT ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 39 ORDER OF M/S. ITL ON RECORD. THEREFORE, THE ADDITIO N, IF ANY MADE IN ASSESSEES HAND WILL TANTAMOUNT TO DOUBLE ADDITION. 24.1. THE LD. CIT(A) HIMSELF HAS STATED IN PARA 6 AT PAGES 52 -53 OF HIS ORDER AS UNDER: I AM ALSO OF THE VIEW THAT THE ASSESSEE HAS CLAIME D HIGHER DEDUCTION U/S 80IB BY NOT ACCOUNTING FOR EXPENDITURE ON THE SALARY AND OTHER BENEFITS TO MR. HOSHIARPUR SINGH AND ON THE ACCOUNT S DEPARTMENT WHICH WAS BEING HANDLED BY M/S. ITL, AND ALSO BY SH OWING MORE THAN ORDINARY PROFITS FOR THE REASONS WHICH HAVE BEEN D ISCUSSED EARLIER. 24.2. THEREFORE, WE ARE OF THE VIEW THAT THE ASSESS EE HAS SATISFACTORILY EXPLAINED THE PROFITS EARNED BY HIM AND NO DEFICIEN CY OR DISCREPANCY HAS BEEN MADE IN THE SALE INVOICES IMPOUNDED BY THE DEP ARTMENT DURING SURVEY. ACCORDINGLY, THE ORDER OF ENHANCEMENT OF THE LD. CIT(A) HAS BEEN FOUND TO BE MADE WITH A CASUAL APPROACH AND WITHOUT BRINGING ANY MATERIAL ON RECORD AND ACCORDINGLY, ENHANCEMENT SO MADE BY THE LD. C IT(A) IS DIRECTED TO BE DELETED. THUS, ALL THE GROUNDS OF THE ASSESSEE I.E. IN GROUND NO.2(1)I), (II) & (III) OF THE ASSESSEE ARE ALLOWED. 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.424(ASR)/2009 FOR THE A.Y. 2001-02 IS ALLOWED. 26. THE FACTS IN OTHER APPEALS I.E. IN ITA NOS.425, 438, 439(ASR)/2009 AND ITA NO. 70 & 430(ASR)/2010 FOR THE ASSESSMENT Y EARS MENTIONED HEREINABOVE ARE IDENTICAL TO THE FACTS IN THE APPE AL IN ITA NO.424(ASR)/2009 ITA NOS. 425,425,438, 439, 70 & 430 (ASR)/2009 & 10 40 FOR THE ASSESSMENT YEAR 2001-02 DECIDED BY US HERE INABOVE. ACCORDINGLY, AS MENTIONED BY OUR ORDER IN ITA NO.424(ASR)/2009 ON L EGAL ISSUE AS WELL AS ON MERIT, IS IDENTICALLY APPLICABLE IN THE PRESENT FIVE APPEALS AND ACCORDINGLY ALL THE GROUNDS OF THE ASSESSEE FOR ALL THE ASSESSM ENT YEARS ARE ALLOWED. 27. IN THE RESULT, ALL THE FIVE APPEALS FILED BY T HE ASSESSEE IN ITA NOS. 424, 425, 438 & 439(ASR)/2009 & ITA NOS. 70 & 430(A SR)/2010 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST MARCH, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31ST MARCH, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH. DEEPAK MITTAL, HOSHIARPUR. 2. THE ADDL. CIT/DCIT/ACIT, HOSHIARPUR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR