HIKAL LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 5383/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8832 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 06-12-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 27-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHAN
• Keywords: Depreciation; Earning of tax free income; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 133A; 14A; 10B; 147; 148; 10

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./ I.T.A. NO. 5383/MUM/2012 ( / ASSESSMENT YEAR: 2004-05) ./ I.T.A. NO. 221/MUM/2014 ( / ASSESSMENT YEAR: 2004-05) M/S HIKAL LIMITED, 717/718, MAKER CHAMBERS V, NARIMAN POINT, MUMBAI 21. / V. DCIT- CIRCLE 3(1), MUMBAI. ./ PAN : AAACH0383A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI SANJAY PARIKH REVENUE BY : SHRI M.C. OMI NINGSHAN / DATE OF HEARING : 08-12-2016 / DATE OF PRONOUNCEMENT : 16-01-2017 / O R D E R PER AMIT SHUKLA, JUDICIAL MEMBER : THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESS EE AGAINST SEPARATE IMPUGNED ORDERS DATED 3 RD APRIL, 2012 AND 14 TH OCTOBER, 2013 PASSED BY THE LD. CIT (APPEALS) 7, MUMBAI FOR THE QUANTUM ASSESSMENT PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961; AND IN RELATION TO THE PENALTY PROCEEDINGS U/S 271 (1)(C) OF THE ACT FOR ASSESSMENT YEAR 2004-05. ITA 5383/M/12 & ITA 221/M/14 2 2. FIRST, WE WILL TAKE UP THE QUANTUM APPEAL IN I TA NO. 5383/MUM/2012, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE REOPENING OF THE COMPLETED ASSESSMENT WITHOUT VALID REASONS U/S 147 OF THE INC OME TAX ACT AS APPELLANT COMPANY HAS DISCLOSED FULLY AND TR ULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT FOR THE RELEVANT ASSESSMENT YEAR. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN REJECTING THE GROUND OF APPEAL (GROUND NO- 2) AND TREATING IT AS INFRUCTUOUS GROUND OF APPEAL BEING T HE GROUND OF SETTING OFF OF LOSSES OF NON-EOU UNITS AGAINST THE PROFIT OF THE EAU UNITS WHICH IS GOVERNED BY EXEMPTION SECTION 1O B OF THE INCOME TAX ACT & THEREBY NOT GRANTING CARRY FORWARD OF LOSSES OF NON EOU UNITS. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE SETTING OFF OF THE LOSSES O F NON EAU UNITS AGAINST THE PROFITS OF THE EOU UNITS WHICH IS GOVERNED BY EXEMPTION UNDER SECTION 1OB OF THE INCOME-TAX AC T AND THEREBY NOT GRANTING CARRY FORWARD OF LOSSES OF NON EOU UNITS RESTRICTING THE EXEMPTION U/S 1OB OF THE INCOME TAX ACT. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ALLOCATION OF ALL THE EXPENSES IN CLUDING DEPRECIATION OF INCINERATION PLANT OF DOMBIVALI UNI T AMOUNTING RS. 107,49,414/- TO TALOJA EOU UNIT AND THEREBY RED UCING THE AMOUNT OF EXEMPTION U/S 1OB OF THE INCOME TAX ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE INCINERATOR PLANT AT DOMBIVALI UNIT IS STAND ALONE AND INDEPENDENT UNIT AND NOT A PART OF THE TALOJA UNIT. ITA 5383/M/12 & ITA 221/M/14 3 6. WITHOUT PREJUDICE TO GROUND NO-4 ABOVE, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPR ECIATE THAT THE APPELLANT COMPANY HAS ALREADY CHARGED THE INTER- DIVISIONAL TRANSFER OF SERVICES OF INCINERATION SER VICES AT THE PREVAILING MARKET PRICES WHILE DETERMINING PROFITAB ILITY OF THE EAU UNITS IN ACCORDANCE WITH THE PROVISION OF S. 10 B(7) OF THE INCOME TAX ACT. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ALLOCATION OF RESEARCH & DEV ELOPMENT EXPENDITURE AMOUNTING TO RS. 50,67,9651- TO THE INC OME OF EAU UNITS INSTEAD OF NON-EOU UNITS IN DETERMINING D EDUCTION U/S 1OB OF THE INCOME TAX ACT. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ALLOWANCE IN RESPECT OF EXPE NDITURE OF RESEARCH AND DEVELOPMENT CENTRE U/S 35(1)(VI) TO TH E EXTENT OF RS. 1,46,79,997/- IN RESPECT OF NON-EOU UNITS IN STEAD OF RS. 1,93,92,095/- CLAIMED IN THE RETURN OF INCOME. 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A BY REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE I NCOME TAX ACT. 10. WITHOUT PREJUDICE TO GROUND NO.9 ABOVE, THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ADDITION OF RS. 42,468/- U/S 14A OF THE INCOME TAX ACT MADE ON MERE ASSUMPTION THAT SUCH EXPENDITURE MIGHT HAVE INCURRED IN ORDER TO EARN AN EXEMPT INCOME. 11. THE APPELLANT COMPANY PRAYS THAT, I. THE ORDER CONFIRMING THE REOPENING OF THE COMPLE TED ASSESSMENT U/S 147 OF THE INCOME TAX ACT MAY BE SET ASIDE OR BE HELD AS AGAINST THE PROVISION OF LAW. ITA 5383/M/12 & ITA 221/M/14 4 II. THE ORDER CONFIRMING THE REDUCTION OF THE DEDUC TION U/S 1OB BY RS. 107,49,414/- IN RESPECT OF TALOJA UNIT M AY BE SET ASIDE AS BEING PASSED WITHOUT CONSIDERING THE SUBMI SSION MADE BY THE APPELLANT COMPANY DURING THE COURSE OF THE APPELLATE PROCEEDINGS. III. THE EXEMPTION U/S 1OB BE ALLOWED OF RS. 34,35,27,392/- AND THEREBY ALLOW THE CARRY FORWARD OF LOSSES BY FOLLOWING THE APPELLANT COMPANY'S OWN ORDER DATE D 10.07.2010 AS DECIDED BY HON'BLE MUMBAI INCOME TAX TRIBUNAL FOR THE SAME ASSESSMENT YEAR. IV. THE EXPENDITURE OF RESEARCH & DEVELOPMENT AMOUN TING TO RS. 50,67,965/- BE ALLOCATED TO THE INCOME OF NO N EOU UNITS INSTEAD OF EAU UNITS. V. THE DEDUCTION IN RESPECT OF EXPENDITURE U/S 35(1 )(VI) BE ALLOWED AT RS. 1,93,92,0951- IN RESPECT OF NON- EOU UNITS. VI. ANY OTHER RELIEF YOUR HONOUR MAY DEEM FIT. 3. THE FACTS IN BRIEF QUA THE VALIDITY OF REOPENING U/S 147 ARE THAT, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AGROCHEMICAL AND PHARMA PRODUCTS. THE ASSESSEE IS H AVING ITS ADMINISTRATIVE OFFICE AT GREAT EASTERN CHAMBERS, 6T H FLOOR, CBD BELAPUR, NAVI MUMBAI. IN ADDITION, THE ASSESSEE HAS MANUFACTURING UNITS SITUATED AT FOLLOWING PLACES:- (I) MAHAD : MANUFACTURING AGROCHE MICALS (II)TALOJA : EOU , MANUFACTURING AGROCHEMICALS & CLAIMING DEDUCTION U/S. 1OB (III) PANOLI : EOU, MA NUTACTURLNQ PHARMA PRODUCTS OF LACTAM & CYDOHEXIDINE AND CLAIMING ITA 5383/M/12 & ITA 221/M/14 5 DEDUCTION (IV) PANOLI : NON-EOU, MA NUFACTURING AGRICHEMICALS FOR LOCAL MARKETS (V) BANGALORE : EOU, MANUFACTURING PHARMA PRODUCTS FOR EXPORT AND CLAIMING DEDUCTION U/S. 1OB. (VI) BANGALORE (R&D) : THE COMPANY IS DOING RESEARCH & DEVELOPMENT FOR IN-HOUSE PHARMA PRODUCT, THIS IS NON-EOU. (VII) DOMBIVALI : THE ASSESSEE IS HAVING INCINE RATION PLANT WHICH IS NON-OPERATIONAL FOR LAST 3 YEARS. (VIII) BANGALORE (NON-EOU) : IN THIS PLANT COMPA NY DOES SOLVENT RECOVERY PROCESS FOR ITS BANGALORE (EOU) AND IT WAS PURCHASED IN SEPTEMBER 2005 (RELEVANT TO A.Y. 2006-07). THE ASSESSEE COMPANY HAS MANUFACTURING UNIT FOR AGR OCHEMICALS AT MAHAD, TALOJA AND PANOLI UNIT. IN DOMBIVALI UNIT, T HE ASSESSEE HAS UNDERTAKEN JOB OF PROVIDING INCINERATION SERVICES T O VARIOUS CHEMICAL AND OTHER PLANTS INCLUDING OTHER DIVISION OF THE AS SESSEE COMPANY. THE ASSESSEE COMPANY HAS DISCLOSED TOTAL LOSS OF RS. (- ) 7,34,14,900/- IN THE RETURN OF INCOME. HOWEVER IN THE RETURN OF INCO ME, THE ASSESSEE COMPANY HAS SEPARATELY COMPUTED THE TAXABLE INCOME OF EOU UNITS CLAIMING EXEMPTION U/S 10B AND OTHER NON-EOU UNITS. AS AGAINST THE RETURNED LOSS, THE ASSESSMENT WAS COMPLETED UNDER S CRUTINY PROCEEDINGS U/S 143(3), VIDE ORDER DATED ON 23.2.20 06, WHEREBY THE TOTAL INCOME WAS DETERMINED AT RS. 1,52,618/- AFTER MAKING VARIOUS DISALLOWANCES. AS A RESULT OF SUCH ADDITIONS/DISALL OWANCES, THERE WAS DECREASE IN THE ELIGIBLE CLAIM OF DEDUCTION U/S 10B . LATER ON, THE ITA 5383/M/12 & ITA 221/M/14 6 ASSESSEES CASE HAS BEEN SOUGHT TO BE REOPENED U/S 147 AFTER ISSUING NOTICE U/S 148, DATED 18.3.2009 ON THE FOLLOWING R EASONS RECORDED:- RETURN OF INCOME WAS FILED BY THE ASSESSEE FOR A. Y. 2004-05 ON 29/10/2004 DECLARING TOTAL LOSS OF RS. 7,34,14, 900 /-. THE RETURN WAS PROCESSED U/S.143 (1) ON 21/02/2005 ACCEPTING T HE RETURNED LOSS. SUBSEQUENTLY, THE RETURN WAS SELECTED FOR SCR UTINY AND ASSESSMENT U/S.143(3) WAS COMPLETED ON 23/02/2006 A SSESSING TOTAL INCOME AT RS.NIL AND INCOME FROM SHORT TERM C APITAL GAINS AT RS.1,52,618/-. DURING THE COURSE OF SURVEY U/S.133A AND STATEMENT RECORDED ON 07/03/2007, IT WAS GATHERED T HAT ASSESSEE COMPANY WAS SHOWING LOSSES FROM ITS NON-EOU UNITS A ND HUGE PROFITS FROM ITS EOUS. IT WAS ALSO OBSERVED DURING THE COURSE OF SURVEY ACTION THAT THE ASSESSEE'S OPERATIONS AT ITS DOMBIVALI INCINERATOR PLANT WAS NOT OPERATIONAL SINCE LAST 2 YEARS AND THE ASSESSEE WAS USING THE DOMBIVALI INCINERATOR PLANT FOR DISPOSAL OF ITS INDUSTRIAL WASTE GENERATED AT ITS TALOJA UNIT A ND MAHAD UNIT. SINCE THE TALOJA UNIT IS AN EOU PLANT, THE DOMBIVAL I UNIT EXPENSES NEEDS TO BE ALLOCATED TO THE TALOJA EOU UNIT WHICH WILL REDUCE THE 108 DEDUCTION AND REDUCE THE C/F LOSSES. ON VERIFICATION OF RECORDS OF A. Y.2004-0S, IT IS S EEN THAT ASSESSEE COMPANY HAD CLAIMED LOSS IN RESPECT OF ITS DOMBIVAL I INCINERATOR PLANT WHICH NEEDS TO BE EXAMINED. AS PER JUDICIAL PRECEDENTS, ASSESSMENT COULD BE REO PENED BASED ON INFORMATION OBTAINED PURSUANT TO SUBSEQUENT SEARCH/ SURVEY AS WELL AS INFORMATION OBTAINED FROM EXTERNAL AGENCIES /OTHERWISE. FURTHER, IN THE FOLLOWING CASES IT HAS BEEN HELD TH AT SUCH INFORMATION WOULD CONSTITUTE VALID REASON FOR REOPE NING OF THE COMPLETED ASSESSMENT. (1) BPL LTD. VS. DGIT (2007) 293 ITR 321 (KARN) (2) ITO VS. SMT. GURMDES KAUR (2006) 102 ITR 189 (DEL.) (3) ACIT VS. BALBIR CHAND MANI (2007) 111 TTJ (CHD) 160 ITA 5383/M/12 & ITA 221/M/14 7 (4) CENTRAL PROVINCES MANGANSH ORE CO. LTD. THUS, THE ENTIRE BASIS FOR ENTERTAINING THE REASON TO BELIEVE TO REOPEN THE CASE BY THE AO IS BASED ON INFORMATION GATHERED DURING THE SURVEY U/S 133A WHICH WAS CARRIED OUT ON 07-03-2007 (THAT IS, RELEVANT FOR THE A.Y. 2007-08), WHICH IN TURN IS INFERRED FROM THE S TATEMENT RECORDED THAT, ASSESSEES DOMBIVILI UNIT HAS BEEN CLOSED SIN CE LAST TWO YEARS AND ADVERSE PRESUMPTION HAS BEEN DRAWN FOR THE A.Y. 200 4-05. THE RELEVANT STATEMENT RECORDED AT THE TIME OF SURVEY R EADS AS UNDER:- Q. 14 IT IS SEEN THAT IN THE DOMBIVALI UNIT YOU DO NT HAVE ANY SUBSTANTIAL INCOME. IT IS UNDERSTOOD THAT THIS UNI T WAS STARTED AS A INCINERATION UNIT FOR ALL YOUR TALOJA AND MAHAD UNI TS. IS IT NOT FAIR IF THE NET EXPENSES OF THIS UNIT IS APPORTIONED ON THE TURNOVER BASIS TO THESE TWO UNITS:- ANS: THIS UNIT WAS SET UP TO CARRY OUT WORK FOR CUS TOMERS BESIDES OUR OWN REQUIREMENTS IN TALOJA UNIT. AFTER SETTING UP THE UNIT THE MAHARSHTRA POLLUTION CONTROL BOARD SET UP THEIR OWN INCINERATION UNIT OFFERING SERVICES AT A MUCH LOWER COST VIA ITS CETP. HENCE ADDED TO THIS, WAS THE SHARP INCREASE IN FUEL OIL P RICES WHICH MADE IT UNECONOMICAL TO RUN. IN CASE WE RESTART THIS FAC ILITY, WE WOULD INCUR MUCH HIGHER LOSSES THEN WHAT WE ARE INCURRING AT PRESENT. WHATEVER STATED ABOVE IS TRUE AND CORRECT TO THE BE ST OF MY KNOWLEDGE AND BELIEF. THIS STATEMENT IS GIVEN VOLUN TARILY AND WITHOUT ANY THREAT, COERCION OR UNDUE INDUCEMENT. FROM THIS STATEMENT/INFORMATION, THE LD. A.O. INFER RED THAT THE ASSESSEE COMPANY WAS SHOWING LOSSES FROM NON-EOU UNITS AND H UGE PROFITS FROM EOU UNITS. HE FURTHER INFERRED THAT, THE ASSES SEES OPERATION AT DOMBIVALI PLANT WAS NOT OPERATIONAL, THEREFORE, THE EXPENSES OF DOMBIVALI UNIT NEED TO BE ALLOCATED TO TALOJA UNIT WHICH IS EOU PLANT. THUS, THERE HAS BEEN WRONG DEDUCTION U/S 10B. ITA 5383/M/12 & ITA 221/M/14 8 4. THE VALIDITY OF SUCH REOPENING WAS CHALLENG ED BY THE ASSESSEE BEFORE THE A.O. AS WELL AS LD. CIT(A). THE A.O. WI THOUT DEALING WITH THE VALIDITY OF REOPENING HAS PASSED THE ASSESSMENT ORD ER THEREBY ALLOCATING THE EXPENSES OF DOMBIVALI PLANT TO TALOJ A AND ALSO MAKING FURTHER DISALLOWANCE ON ACCOUNT OF DEDUCTION U/S 14 A AND R&D EXPENSES. THE LD. CIT(A), AFTER DETAIL DISCUSSION A ND FOLLOWING THE EARLIER ORDER FOR ASSESSMENT YEARS 2002-03 AND 2003-04, UPH ELD THE REOPENING U/S 147 AND REJECTED THE ASSESSEES GROUND ON THE L EGAL ISSUE. THE RELEVANT DISCUSSION BY THE LD. CIT(A) AND ASSESSEE S SUBMISSION ON THIS ISSUE ARE DEALT WITH FROM PAGES 3 TO 10 OF THE APPE LLATE ORDER. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SU BMITTED, THAT FIRST OF ALL, THE REOPENING HAS BEEN DONE ON WRONG ASSUMP TION OF FACTS, BECAUSE THE SURVEY WAS CONDUCTED IN THE MONTH OF MA RCH, 2007 AND THE A.O. HAS DRAWN ADVERSE INFERENCE WITHOUT ANY TA NGIBLE MATERIAL ON RECORD FOR THE A.Y. 2004-05 FOR WHICH REOPENING HAS BEEN SOUGHT. NOT ONLY THAT, AT THE TIME OF SURVEY ITSELF, REGARDING THE DOMBIVALI UNIT, IT WAS CATEGORICALLY STATED THAT THIS UNIT WAS SET UP TO CARRY OUT WORK FOR OUTSIDE CUSTOMERS BESIDES THEIR OWN REQUIREMENTS IN TALOJA UNIT. REGARDING NON CARRYING OUT THE ACTIVITIES IN THE SA ID UNIT IT WAS CLARIFIED THAT DUE TO MAHARASHTRA POLLUTION CONTROL BOARD HAD SET UP THEIR OWN INCINERATION UNIT OFFERING SERVICES AT A MUCH LOWER COST AND ALSO THERE WAS INCREASE IN FUEL OIL PRICES WHICH MADE IT UNECO NOMICAL TO RUN. BUT NOWHERE HAS IT BEEN SAID BY THE ASSESSEE THAT THE S AID UNIT WAS CLOSED IN FINANCIAL YEAR 2003-04. IN FACT, DURING THE COUR SE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED VARIOUS ITA 5383/M/12 & ITA 221/M/14 9 BILL/INVOICES RAISED BY DOMBIVALI UNIT TO ITS VARIO US CUSTOMERS, THE COPIES OF WHICH ARE APPEARING FROM PAGES 214 ONWARD S, SAMPLE BILLS ARE APPEARING IN PAGE 229 ONWARDS OF THE PAPER BOOK. TH US, IT CLEARLY SHOWS THAT DURING FINANCIAL YEAR 2003-04, THE DOMBI VALI UNIT WAS IN FULL OPERATION. IN FACT, THE MATERIAL AVAILABLE ON RECORD DOES NOT SUGGEST THAT THE DOMBIVALI UNIT WAS NOT OPERATIONAL AS INFE RRED BY THE AO RATHER IT WAS FULLY OPERATIONAL AND IT HAD EARNED B USINESS INCOME AS WELL AS CARRIED OUT FULL ACTIVITIES. IN THE REASON S, THE A.O. NOTED THAT THE DOMBIVALI PLANT IS NOT OPERATIONAL SINCE LAST 2 YEARS I.E. FROM MARCH, 2005. THIS ALSO CANNOT LEAD ANY INFERENCE TH AT IN THE FINANCIAL YEAR 2003-04, THE DOMBIVALI UNIT WAS NON-OPERATIONA L. THUS, THE ENTIRE PRESUMPTION OF FACTS BY THE AO TO ENTERTAIN REASON S TO BELIEF IS INCORRECT, THEREFORE, THE WHOLE RE-ASSESSMENT PROCE EDINGS INITIATED ON THE BASIS OF SUCH ADDITION DESERVES TO BE QUASHED. APART FROM THAT, HE POINTED OUT THAT IN THE ORIGINAL ASSESSMENT PROCEED INGS, THE A.O. HAS SOUGHT VARIOUS DETAILS REGARDING DEDUCTION U/S 10B, IN RESPONSE TO WHICH THE ASSESSEE HAD FILED ALL THE DETAILS WHICH ARE APPEARING IN THE PAPER BOOKS. THUS, SUCH REOPENING WITHOUT ANY TANGI BLE MATERIAL COMING ON RECORD AMOUNTS TO CHANGE OF OPINION, WH ICH IS IMPERMISSIBLE IN LAW. IN SUPPORT, HE RELIED UPON VA RIOUS DECISIONS, THE COPIES OF WHICH HAVE BEEN FILED BEFORE US WHICH ARE AS UNDER:- A) CIT V. KELVINATOR OF INDIA LTD. (2010) 320 ITR 5 61 (SC); B) ACIT V. ICICI SECURITIES PRIMARY DEALERSHIP LTD. (2012) 348 ITR 299 (SC); C) CIT V. JET SPEED AUDIO PVT. LTD. (2015) 372 ITR 762 (BOM); ITA 5383/M/12 & ITA 221/M/14 10 D) LALITHA CHEM INDUSTRIES P. LTD. V. DCIT (2014) 3 64 ITR 213 (BOM) E) ARONI COMMERCIALS LTD. V. DCIT (2014) 362 ITR 40 3 (BOM); F) ACIT V. ICICI GENERAL INSURANCE CO. LTD. (2014) 41 CCH 162 (MUM)(TRIB); G) SHRI SUNIL GAVASKAR [ITA NO. 3970 & 3971IMUML20 1 0] AT PARAS 11.4 TO 11.7 ON PAGES 16 TO 18; ON MERITS, HE SUBMITTED THAT THIS ISSUE STANDS SQUA RELY COVERED BY VARIOUS DECISIONS, SOME OF WHICH HAVE BEEN FILED BE FORE US, HOWEVER, THE SAME ARE NOT BEING DISCUSSED AS WE HAVE ONLY HEARD THE PARTIES ONLY ISSUE OF VALIDITY OF THE REOPENING. 6. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE INFORMATION R ECEIVED AFTER THE ASSESSMENT TO REOPEN THE CASE WAS IN THE FORM OF SU RVEY AND STATEMENT RECORDED DURING THE COURSE OF SURVEY PROCEEDINGS, W HEREIN IT WAS FOUND THAT THE DOMBIVALI UNIT WAS NOT OPERATIONAL AND THE ASSESSEE WAS SHOWING HUGE LOSSES IN NON-EOU UNITS, THEREFORE, TH IS ITSELF CONSTITUTES THE RELEVANT MATERIAL TO DRAW ADVERSE INFERENCE TO ACQUIRE JURISDICTION TO REOPEN THE CASE U/S 147. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PER USED THE RELEVANT MATERIAL PLACED ON RECORD. FROM THE PERUSAL OF THE REASONS RECORDED, IT IS QUITE EVIDENT THAT THE ONLY MATERIAL WHICH HA S BEEN REFERRED TO FOR REOPENING THE ASSESSMENT IS THE STATEMENT RECORDED U/S 133A FROM WHICH FOLLOWING PRESUMPTIONS HAS BEEN DRAWN; FIRSTLY, THE DOMBIVALI ITA 5383/M/12 & ITA 221/M/14 11 UNIT WAS NOT OPERATIONAL SINCE LAST TWO YEARS; AND SECONDLY, IT WAS USING INCINERATION SERVICES FOR DISPOSAL OF ITS IND USTRIAL WASTE GENERATED AT TALOJA UNIT AND SINCE TALOJA UNIT IS EOU, THEREF ORE, THE DOMBIVALI UNIT EXPENSES NEEDS TO BE ALLOCATED TO TALOJA EOU U NIT WHICH WILL HAVE EFFECT OF REDUCING THE 10B DEDUCTION AND ALSO REDUC ING THE CARRY FORWARD LOSSES. THE ENTIRE HYPOTHESIS IS BASED ON W RONG ASSUMPTION OF FACTS BECAUSE, NOTHING HAS BEEN GATHERED DURING THE COURSE OF SURVEY TO SHOW THAT EITHER IN FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2004- 05, THE DOMBIVALI UNIT WAS NOT OPERATIONAL OR THERE IS ANY MATERIAL TO PROVE THAT THE ASSESSEE HAS BEEN TRANSFERRING THE E XPENSES TO OTHER UNIT. ON THE CONTRARY, THERE WAS SUFFICIENT MATERIA L ON RECORD TO SHOW THAT THE DOMBIVALI UNIT WAS FULLY OPERATIONAL IN TH E A.Y. 2004-05 WHICH IS EVIDENT FROM VARIOUS INVOICES AND BILLS RAISED B Y THE DOMBIVALI UNIT TO VARIOUS THIRD PARTIES PERTAINING TO THIS PERIOD AND OTHER EVIDENCES WHICH HAVE BEEN PLACED IN THE PAPER BOOK, ON WHICH OUR ATTENTION WAS DRAWN. THESE DETAILS AND EVIDENCES GOES TO PROVE TH AT NOT ONLY THIS UNIT WAS FULLY OPERATIONAL BUT ALSO IT GENERATED BUSINES S INCOME. THESE INVOICES/BILLS AND DETAILS REGARDING CLAIM OF DEDUC TION U/S 10B FOR THE ELIGIBLE UNITS HAVE BEEN STATED TO BE FILED BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEA RS 2002-03, 2003- 04 AND ALSO 2004-05. THUS, THE MATERIAL ON RECORD R ATHER NEGATES AND REBUTS THE OBSERVATIONS MADE IN THE REASONS RECORD ED AND, THEREFORE, THE SAME CANNOT BE RECKONED TO BE REASONS TO BELIE F AS CONTEMPLATED U/S 147. ITS TRITE PROPOSITION OF LAW THAT THE REA SON TO BELIEVE MUST BE BASED ON TANGIBLE MATERIAL COMING ON RECORD HAVING LIVE-LINK NEXUS WITH THE INCOME CHARGEABLE TO TAX HAVING ESCAPED ASSESSM ENT. THE TANGIBLE MATERIAL SHOULD REFER TO FACTUAL MATERIAL COMING IN THE POSSESSION OF THE ITA 5383/M/12 & ITA 221/M/14 12 A.O. AND NOT ANY INFERENCE BASED ON EITHER WRONG AS SUMPTION OF FACT OR MATERIAL ALREADY IN EXISTENCE WHICH HAS ALREADY BEE N CONSIDERED DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THE REASON TO BELIEVE SHOULD BE HELD IN GOOD FAITH BASED ON OBJECTIVE FAC TS AND SPECIFIC MATERIAL SO AS TO ACQUIRE JURISDICTION TO REOPEN TH E ASSESSMENT U/S 147, ESPECIALLY WHEN THE ASSESSMENT HAS ALREADY BEEN MAD E UNDER SCRUTINY PROCEEDINGS U/S 143(3) AFTER ANALYZING THE RELEVANT DETAIL FILED ON RECORD QUA THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE. TH US, THE REASONS AS RECORDED BY THE A.O. DO NOT CLOTHE HIM WITH THE JUR ISDICTION TO REOPEN THE CASE U/S 147, BECAUSE, FIRSTLY, THEY ARE NOT BASED ON TANGIBLE MATERIAL SUGGESTING ANY ADVERSE OBJECTIVE FACTS REL EVANT FOR THE ASSESSMENT YEAR 2004-05; AND SECONDLY, THE PRESUMPTION DRAWN BY THE A.O. IS CONTRARY TO THE MATERIAL FACTS ALREADY ON R ECORD. RESULTANTLY, THE ENTIRE REASSESSMENT PROCEEDINGS BY THE AO INITIATED BY ISSUANCE OF IMPUGNED NOTICE U/S 148 IS HEREBY QUASHED AS WITHOU T JURISDICTION. ACCORDINGLY, WE ALLOW THE APPEAL FILED BY THE ASSES SEE ON LEGAL GROUND. NOW, WE SHALL TAKE UP THE APPEAL FILED BY THE ASSES SEE IN ITA NO. 221/MUM/2014 FOR A.Y. 2004-05. 8. THIS APPEAL RELATES TO THE PENALTY PROCEEDINGS I NITIATED U/S 271(1)(C) IN RELATION TO THE AFORESAID QUANTUM OF A SSESSMENT PASSED FROM THE SAME ASSESSMENT YEAR. SINCE WE HAVE ALREAD Y QUASHED THE REOPENING PROCEEDINGS U/S 147 IN THE AFORESAID QUAN TUM OF ASSESSMENT, THEREFORE, THE IMPUGNED PENALTY PROCEED INGS U/S 271(1)(C) DO NOT HAVE ANY LEGS TO STAND; AND THUS, ENTIRE PEN ALTY LEVIED BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) IS ALSO QUASHE D. ITA 5383/M/12 & ITA 221/M/14 13 9. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE COMPANY ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JANUARY, 2017. # $ % &' 16-01-2017 ( ) SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER $ MUMBAI: & DATED: 16 TH JAN, 2017 [ .+../ R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. , ( ) / THE CIT(A)- CONCERNED, M UMBAI 4. , / CIT- CONCERNED, MUMBAI 5. /0( ++12 , 12 , $ / DR, ITAT, MUMBAI H BENCH 6. (45 6 / GUARD FILE. / BY ORDER, / + //TRUE COPY// / (DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI