M/S. ASSOCIATED CAPSULES PVT. LTD, MUMBAI V. THE DCIT CEN CIR-43, MUMBAI

ITA 4615/MUM/2007

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6334 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 27-10-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 19-06-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: SHRIM D INAMDAR
• Keywords: Difference of opinion; Validity of assessment; Change of opinion; Reassessment proceedings
• Section: 143(3); 80HHC; 148

Judgement Text

1 ITA 4615/M/07, M/S ASSOCIATED CAPSULE PVT. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H BEFORE SHRI P.M. JAGTAP, A.M. AND SMT. ASHA VIJAYAR AGHAVAN, JM ITA NO. 4615/MUM/07 ASSESSMENT YEAR 2001-02 M/S ASSOCIATED CAPSULES P. LTD., 1001 DALAMAL HOUSE, NARIMAN POINT, MUMBAI 400 021. PAN AAACA4769K VS. DCIT CIRCLE 43, AAYAKAR BHAWAN, 6 TH FLOOR, M.K. ROAD, MUMBAI . 20 APPELLANT RESPONDENT APPELLANT BY SHRIM.D. INAMDAR RESPONDENT BY SHRI SURENDRA KUMAR ORDER PER P.M. JAGTAP, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) CENT. II, MUMBAI DATED 30.3.2007. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPA NY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF EMPTY HARD GELATIN CAPSULES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY ITS ON 31.10.2001 DECLAR ING TOTAL INCOME OF ` 8,11,70,880/-. IN THE ASSESSMENT COMPLETED ORIGINALLY U/S 143(3) BY A N ORDER DTD. 22.3.04, THE TOTAL INCOME OF THE ASSESSEE WAS DETERMINED BY THE A.O. AT ` 10,49,53,410/-. AGAINST THE SAID ORDER, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT(A) WHO ALLOWED SUBSTANTIAL RELIEF TO THE ASSESSEE ON THE ISSUES RELATING TO TH E ASSESSEES CLAIM FOR DEDUCTION U/S 80HHC AND 80IA. ACCORDINGLY, THE TOTAL INCOME OF T HE ASSESSEE WAS REDUCED TO ` 6,97,38,513/- BY THE A.O. VIDE AN ORDER GIVING APPE AL EFFECT TO THE ORDER OF THE LD. CIT(A). THE DEPARTMENT FILED AN APPEAL BEFORE THE T RIBUNAL AGAINST THE ORDER OF THE LD. 2 ITA 4615/M/07, M/S ASSOCIATED CAPSULE PVT. LTD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THE ISSUES RELATING TO DEDUCTION U/S 80HHC AND 80-IA. DURING THE PENDENCY OF THE SAID APPEAL, THE ASSESSMENT WAS RE-OPENED BY THE A.O. BY ISSUING NOTICE U/S 148 ON 6.12.05 ON THE GR OUND THAT DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80HHC WAS COMPUTED WITHOUT REDUCING TH E AMOUNT OF PROFIT ALLOWED AS DEDUCTION U/S 80IA FROM THE PROFIT OF THE BUSINESS. ACCORDINGLY, IN THE REASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 VIDE AN ORDER DTD. 28.8.06, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80HHC WAS RESTRICTED BY THE A.O. TO ` 1,11,16,153/- AS AGAINST ` 1,94,96,098/- ALLOWED BY THE LD. CIT(A). 3. AGAINST THE ORDER PASSED BY THE A.O. U/S 143(3) R.W.S. 147, AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) CHALLENGING THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISPUTING THE ADDITION MADE THEREIN BY RESTRICTI NG ITS CLAIM FOR DEDUCTION U/S 80HHC. THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A .O. BY RESTRICTING THE ASSESSEES CLAIM FOR DEDUCTION U/S 80HHC RELYING ON THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S LEBEN LABORATORIES LTD. VS. DCIT RENDERED VIDE ITS ORDER DATED 29.9.06 IN ITA NO. 2850/M/04 WHEREIN IT WAS HELD THAT THE AMOUNT OF DE DUCTION U/S 80IA SHOULD BE DEDUCTED FROM THE PROFITS AND DEDUCTION U/S 80HHC HAS TO BE ALLOWED ONLY ON THE REMAINDER PROFITS. HE ALSO UPHELD THE VALIDITY OF ASSESSMENT MADE BY THE A.O. U/S 143(3) R.W,S. 147 OVERRULING THE OBJECTION OF THE ASSESSEE THAT THE R EOPENING OF ASSESSMENT WAS MADE BY THE A.O. MAINLY ON THE BASIS OF CHANGE OF OPINION. HE HELD IN THIS CONTEXT THAT THE ISSUE ON WHICH ASSESSMENT WAS REOPENED BY THE A.O. HAD NOT B EEN CONSIDERED AT ALL BY THE A.O. IN THE ASSESSMENT ORIGINALLY COMPLETED U/S 143(3) AND THERE BEING THUS NO EXPRESSION OF OPINION BY THE A.O. ON THE SAID ISSUE IN THE ORIGIN AL ASSESSMENT, THERE WAS NO QUESTION OF REOPENING OF THE SAID ASSESSMENT MERELY ON THE BASI S OF CHANGE OF OPINION. THE LD. CIT(A) THUS DISMISSED THE APPEAL OF THE ASSESSEE FI LED BEFORE HIM BY HIS APPELLATE ORDER DTD. 30.3.07 WHICH IS IMPUGNED BY THE ASSESSEE IN T HE PRESENT APPEAL FILED BEFORE THE TRIBUNAL. 3 ITA 4615/M/07, M/S ASSOCIATED CAPSULE PVT. LTD. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE PRELIMINARY ISSUE RAISED IN GROUND NO. 1 CHALLENGING THE VALIDITY OF RE-ASSESSMENT MADE BY THE A.O. U/S 143( 3) R.W.S. 147, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REITERATED BEFORE US THE SUBMISSIO NS MADE BEFORE THE AUTHORITIES BELOW TO THE EFFECT THAT THE RE-OPENING WAS BASED ON CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN LAW. IN SUPPORT OF THIS CONTENTION, HE HAS RELIED, INTER ALIA, ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR INDIA LT D. 256 ITR 1 AND THAT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF IL&FS INVESTMENTS MANAGERS LTD. VS. ITO 209 CTR 1(BOM). THE LEARNED D.R., ON THE OTHER HAND, HAS RE LIED ON THE IMPUGNED ORDER OF THE LD. CIT(A) IN SUPPORT OF THE REVENUES CASE THAT THE RE -OPENING OF ASSESSMENT ON THE BASIS OF REASONS RECORDED BY THE A.O. WAS IN ACCORDANCE WITH LAW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IN ORDER TO APPRECIATE THE STAND OF THE PARTIES ON THIS ISSUE, IT WOULD BE WORTHWHILE TO REFER TO THE REASONS RECORDED BY THE A.O. AS GIVEN ON PAGE NO. 1 & 2 OF THE ASSESSMENT ORDER WHICH ARE EXTRACTED BELOW: IN THIS ASSESSMENT ORDER THE ASSESSEE WAS ALLOWED DEDUCTION U/S 80HHC AMOUNTING TO ` 167.50 LAKHS AND 80IA DEDUCTION AMOUNTING TO ` 138.42 LAKHS RESPECTIVELY. IT IS OBSERVED THAT WHILE COMP UTING ELIGIBLE DEDUCTION U/S 80HHC THE PROFIT OF THE BUSINESS WAS WORKED OUT AT ` 1030.43 LAKHS WITHOUT REDUCING THE AMOUNT OF PROFIT ALLOWED U/S 8 01A AS PER THE PROVISIONS OF THE ACT. AS PER SECTION 80IA(9) WHERE ANY AMOUNT OF PROFIT OR GAINS OF AN INDUSTRIAL UNDERTAKING OR AN ENTERPR ISE IS CLAIMED AND ALLOWED U/S 801A FOR ANY ASSESSMENT YEAR, DEDUCTION TO THE EXTENT OF SUCH PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER ANY PROVISION OF THIS CHAPTER (CHAPTER VIA) UNDER THE HEADING C-DEDUCTION IN RESPECT OF C ERTAIN INCOMES AND SHALL NO CASE EXCEED THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS OF INDUSTRIAL UNDERTAKING OR ENTERPRISE AS THE CASE MA Y BE. THUS, FOR WANT OF DEDUCTION U/S 80HHC, THE INCOME CHARGEABLE TO TAX H AS ESCAPED THE ASSESSMENT AS ELABORATED IN SECTION 147 OF THE I.T. ACT. 4 ITA 4615/M/07, M/S ASSOCIATED CAPSULE PVT. LTD. 6. A PERUSAL OF THE ABOVE REASONS RECORDED BY THE A .O. CLEARLY SHOWS THAT THE ASSESSMENT WAS REOPENED BY HIM NOT ON THE BASIS OF ANY NEW MATERIAL OR INFORMATION WHICH HAD COME TO HIS POSSESSION AFTER THE COMPLETI ON OF ORIGINAL ASSESSMENT IN THE CASE OF THE ASSESSEE U/S. 143(3). THE ASSESSMENT COMPLE TED ORIGINALLY U/S. 143(3) THUS WAS RE- OPENED BY HIM ON THE BASIS OF SAME MATERIAL WHICH W AS AVAILABLE EVEN AT THE TIME OF COMPLETION OF ORIGINAL ASSESSMENT AS WELL AS ON THE BASIS OF SAME SET OF FACTS AND THIS POSITION HAS NOT BEEN DISPUTED EITHER BY THE LD. CI T(A) IN HIS IMPUGNED ORDER OR EVEN BY THE LD. D.R. AT THE TIME OF HEARING BEFORE US. THE LD. CIT(A), HOWEVER, STILL UPHELD THE VALIDITY OF INITIATION OF REASSESSMENT PROCEEDINGS REJECTING THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE ABOUT THE SAME BEING BASED ON CHANG E OF OPINION ON THE GROUND THAT NO ENQUIRIES WERE CONDUCTED BY THE A.O. DURING THE COU RSE OF ASSESSMENT COMPLETED ORIGINALLY U/S. 143(3) ON THE ISSUE WHICH FORMED PA RT OF THE REASONS RECORDED. HE HELD THAT THE CONCEPT OF CHANGE OF OPINION ARISES ONLY W HEN SOME OPINION HAS BEEN FORMED WITH REFERENCE TO THE MATERIAL ON RECORD AND ON AN APPLICATION OF MIND WHICH WAS MISSING IN THE CASE OF THE ASSESSEE. WE FIND IT DIFFICULT TO SUBSCRIBE TO THIS VIEW TAKEN BY THE LD. CIT(A) KEEPING IN VIEW THE LEGAL POSITION PROPOUNDE D ON THIS POINT IN THE VARIOUS JUDICIAL PRONOUNCEMENTS. 7. IN THE CASE OF KELVINATOR INDIA LTD. (SUPRA), TH E FULL BENCH OF HONBLE DELHI HIGH COURT HAS HELD THAT SECTION 147 OF THE ACT DOES NO T POSTULATE CONFERMENT OF POWER UPON THE A.O. TO INITIATE REASSESSMENT PROCEEDINGS UPON A MERE CHANGE OF OPINION. IT HAS ALSO BEEN HELD THAT WHEN A REGULAR ORDER OF ASSESSMENT I S PASSED U/S 143(3), A PRESUMPTION CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APP LICATION OF MIND. IN THE CASE OF ASIAN PAINTS LTD. VS. DCIT 308 ITR 195, THE HONBLE JURIS DICTIONAL HIGH COURT HAD AN OCCASION TO CONSIDER A SIMILAR ISSUE AND IT WAS HEL D IN THIS CONTEXT THAT WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF SECTION 1 43(3), A PRESUMPTION CAN BE RAISED THAT SUCH ORDER HAS BEEN PASSED ON AN APPLICATION OF MIN D. IT WAS ALSO HELD THAT IF NON- APPLICATION OF MIND BY A.O. IN PASSING AN ORDER WOU LD ITSELF CONFER JURISDICTION UPON THE A.O. TO RE-OPEN THE PROCEEDINGS WITHOUT ANYTHING FU RTHER, IT WOULD AMOUNT TO GIVING A 5 ITA 4615/M/07, M/S ASSOCIATED CAPSULE PVT. LTD. PREMIUM TO AN AUTHORITY EXERCISING QUASI-JUDICIAL F UNCTION TO TAKE BENEFIT OF ITS OWN WRONG. IT WAS FURTHER HELD THAT THE LEGISLATURE HAS NOT CONFERRED THE POWER ON THE A.O. TO REVIEW HIS OWN ORDER. THE REASSESSMENT PROCEEDINGS INITIATED IN THE SAID CASE THEREFORE WAS HELD TO BE INVALID BY THE HONBLE JURISDICTIONA L HIGH COURT ON THE GROUND THAT THE SAME WAS BASED ON CHANGE OF OPINION OF THE A.O. AS IT WAS MAINLY ON FRESH APPLICATION OF MIND BY THE A.O. TO THE SAME SET OF FACTS. 8. AS ALREADY NOTED, THE INITIATION OF REASSESSMENT PROCEEDINGS IN THE PRESENT CASE WAS NOT BASED ON ANY NEW MATERIAL OR INFORMATION WH ICH HAD COME TO THE POSSESSION OF THE A.O. AFTER THE COMPLETION OF ORIGINAL ASSESSMEN T U/S. 143(3). THE SAME THUS WAS BASED MERELY ON A FRESH APPLICATION OF MIND BY A.O. TO THE SAME SET OF FACTS AND TO THE SAME MATERIAL ON RECORD AS WAS AVAILABLE AT THE TIM E OF COMPLETION OF THE ASSESSMENT ORIGINALLY U/S. 143(3). THIS BEING THE UNDISPUTED POSITION, WE ARE OF THE VIEW THAT THE INITIATION OF REASSESSMENT PROCEEDINGS WAS BASED ON A MERE CHANGE OF OPINION OF THE A.O. WHICH IS NOT PERMISSIBLE IN LAW AS HELD BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASIAN PAINTS LTD.(SUPRA) AND BY THE FULL BE NCH OF HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR INDIA LTD. (SUPRA). RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND HONBLE DELHI HIGH COURT, WE HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS ITSELF IN TH E PRESENT CASE WAS BAD IN LAW AND THE REASSESSMENT COMPLETED BY THE A.O. U/S. 143(3)/147 IN PURSUANCE OF SUCH INITIATION IS LIABLE TO BE CANCELLED BEING INVALID. WE ORDER ACC ORDINGLY. 9. KEEPING IN VIEW OUR DECISION RENDERED ABOVE ON T HE PRELIMINARY ISSUE CANCELLING THE REASSESSMENT MADE BY THE A.O. U/S. 143(3)/147, THE OTHER GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL CHALLENGING THE ADDITION MA DE TO ITS TOTAL INCOME BY RESTRICTING THE AMOUNT OF DEDUCTION ALLOWABLE U/S 80HHC HAS BECOME INFRUCTUOUS. 6 ITA 4615/M/07, M/S ASSOCIATED CAPSULE PVT. LTD. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED ON 26 TH NOVEMBER, 2010. SD/- SD/- (ASHA VIJAYARAGHAVAN) ( P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 26 TH NOVEMBER , 2010. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENT. II - MUMBAI 4. THE CIT- CENTRAL -IV MUMBAI 5. THE DR BENCH, H 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 7 ITA 4615/M/07, M/S ASSOCIATED CAPSULE PVT. LTD. ` DATE INITIALS 1. DRAFT DICTATED 29.10.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 3.11.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. SR.P.S./P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S. 8. DATE OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.