ITO 5(2)(1), MUMBAI V. NACHIKETA IMPEX P. LTD, MUMBAI

ITA 872/MUM/2009

• Counselvise Citation: 87219914 RSA 2009
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-08-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 09-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: DR P DANIEL
• Keywords: Reopening of assessment; Opportunity of being heard; Difference of opinion; Reason to believe; Change of opinion; Revenue expenditure
• Section: 147; 28; 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER. ITA NO. 2 61 /MUM / 09 (ASSESSMENT YEAR : 2000-01) M/S. NA CHIKETA IMPEX P. LTD. 11, 3 RD FLOOR, SHEELA APARTMENTS, MAHALAXMI TEMPLE ROAD, MUMBAI-400 028 PAN AAACN1877D VS. INCOME TAX OFFICER 5(2)(1), MUMBAI. APPELLANT . RESPONDENT. ITA NO.872/MUM/09 (ASSESSMENT YEAR : 2000-01) INCOME TAX OFFICER 5(2)(1), MUMBAI. VS. M/S. NICHIKETA IMPEX P. LTD. MUMBAI-400 028 APPELLANT. RESPONDENT. ASSESSEE BY : DR.P. DANIEL. REVENUE BY : SHRI P.C. MAURYA. DATE OF HEARING : 02.08.2011. DATE OF PRONOUNCEMENT : 10.08.2011. O R D E R PER SHRI RAJENDRA SINGH : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS) DT. 10.12.2008 FOR THE ASSESSMENT YEA R 2000-01. THE DISPUTES RAISED IN THESE APPEALS IS REGARDING LEGAL VALIDITY OF REOPEN ING OF ASSESSMENT BY THE ASSESSING OFFICER AND COMPUTATION OF DEDUCTION U/S. 80HHC. THESE APPEALS WHICH WERE HEARD TOGETHER, ARE BEING DISPOSED OF BY A SINGLE CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.261 & 872/MUM//09 - 2 - 2. WE FIRST TAKE UP THE APPEAL OF THE REVENUE IN IT A 872/MUM/2009 AS THIS INVOLVES THE BASIC ISSUE OF REOPENING OF ASSESSMENT BY THE ASSESSING OFFICER WHICH HAS BEARING ON OTHER GROUNDS RAISED IN THESE APPEALS. 2.1. THE FACTS IN BRIEF ARE THAT THE ASSESSEE, WHO WAS IN THE BUSINESS OF EXPORT OF CELLULOSIC AND NON-CELLULOSIC, MIXED/BLENDED TEXTIL ES INCLUDING FABRICS, ETC., HAD FILED RETURN OF INCOME ON 29.11.2000 FOR ASSESSMENT YEAR 2000-01 DECLARING TOTAL INCOME AT RS.43,140. THE RETURN HAD BEEN PROCESSED ON 9.3.20 02. IN THE RETURN OF INCOME, THE ASSESSEE HAD DECLARED THE EXPORT SALES OF RS.2,22,3 7,741 AND AFTER CREDITING THE CENTRAL EXCISE DUTY OF RS.3,63,091 AND PROFIT ON SA LE OF IMPORT ENTITLEMENT OF RS.40,55,018 IT DECLARED NET PROFIT OF RS.2,281,697 IN RESPECT OF WHICH DEDUCTION U/S.80HHC HAD BEEN CLAIMED AT RS.22,23,786 WHICH HA D BEEN ALLOWED. SUBSEQUENTLY, THE ASSESSING OFFICER NOTED THAT AFTER EXCLUDING TH E EXCISE DUTY REFUND AND THE PROFIT ON SALE OF IMPORT ENTITLEMENT, THERE WAS LOS S OF RS.21,36,411. UNDER THE AMENDED PROVISIONS OF SECTION 80HHC BY THE TAXATION LAWS (AMENDMENT) 2005 APPLICABLE FROM 1.4.1998, THE LOSS WAS TO BE SET OF F AGAINST 90% OF INCENTIVES SPECIFIED IN SECTION 28(IIIA) TO 28(IIIE) IN THE PROPORTION O F THE EXPORT TURNOVER TO THE TOTAL TURN OVER OF THE BUSINESS WHICH HAD NOT BEEN DONE AND RE SULTED IN EXCESS CLAIM OF DEDUCTION U/S.80HHC TO THE TUNE OF RS.3,18,480. THE ASSESSIN G OFFICER THEREFORE REOPENED THE ASSESSMENT U/S.147 AFTER RECORDING THE FOLLOWING REASONS : IN THIS CASE THE RETURN OF INCOME HAS BEEN FURNIS HED ON 29.11.2000 DECLARING TOTAL INCOME OF RS.43,140. THE RETURN OF INCOME HA S BEEN PROCESSED U/S.143(1) ON 9.3.2002 ACCEPTING THE INCOME DECLARE D OF RS.43,140. IN THE RETURN OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTIO N U/S.80HHC OF ITA NOS.261 & 872/MUM//09 - 3 - RS.22,23,786 AS PER AUDIT REPORT INFORM NO.10CCAC. IT IS SEEN THAT THE ASSESSEES BUSINESS PROFIT AFTER EXCLUDING SALE OF IMPORT LICENCE OF RS.40,55,018 AND CENTRAL EXCISE REFUND OF RS.3,63,0 91 IS A LOSS OF RS.21,36,411. AS PER THE AMENDED PROVISION OF SECTION 80HHC BY TH E TAXATION LAWS (AMENDMENT) 2005, WHERE THE ASSESSEE IS HAVING EXPO RT TURNOVER AND IF THE COMPUTATION U/S.80HHC(3) IS A LOSS IT WILL BE SET O FF AGAINST 90% OF ANY ONE OF THE EXPORT INCENTIVE SPECIFIED IN SECTION 28(IIIA) TO 28(IIIE) IN THE PROPORTIONATE OF THE EXPORT TURNOVER TO THE TOTAL T URNOVER OF THE BUSINESS. IN VIEW OF THIS, THE DEDUCTION CLAIMED BY THE ASSE SSEE U/S.80HHC IS IN EXCESS OF RS.3,18,480. I HAVE, THEREFORE, REASON T O BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147(B) OF THE I.T. ACT. 2.2 THEREAFTER THE ASSESSING OFFICER COMPLETE D THE ASSESSMENT U/S.143(3)/147 IN WHICH THE DEDUCTION ALLOWED WAS ONLY RS.10,89,877 I N PLACE OF CLAIM OF RS.22,23,786. THE ASSESSEE CHALLENGED THE DECISION OF THE ASSESSI NG OFFICER TO REOPEN THE ASSESSMENT U/S.147 AND SUBMITTED THAT THERE WAS NO MATERIAL ON RECORD TO SHOW THAT THERE WAS ESCAPEMENT OF INCOME. THE REASSESSMENT O RDER PASSED ON THE SAME MATERIAL AVAILABLE ON RECORD COULD NOT BE JUSTIFIED. THE CI T(A) AFTER EXAMINING THE RECORDS OBSERVED THAT THE ASSESSING OFFICER HAD SET OFF 90% OF ONLY ONE OF THE INCENTIVES REFERRED TO IN CLAUSES (IIIA), (IIIB) OR (IIIC) OF SECTION 28 OF THE INCOME TAX ACT WHICH HAD RESULTED INTO LOWER DEDUCTION U/S.80HHC. THE C IT(A) FURTHER OBSERVED THAT 90% OF ALL THE INCENTIVES AND NOT ONLY ONE OF THE INCEN TIVES WERE REQUIRED TO BE SET OFF AGAINST THE LOSS AND IN CASE THIS HAD BEEN DONE, TH ERE WERE NO EXCESS CLAIM OF DEDUCTION U/S.80HHC. THEREFORE, HE HELD THAT THERE WAS NO MATERIAL AVAILABLE WITH THE ASSESSING OFFICER FOR FORMATION OF REASONABLE B ELIEF FOR ESCAPEMENT OF INCOME ITA NOS.261 & 872/MUM//09 - 4 - AND REOPENING OF ASSESSMENT, WAS THUS BAD IN LAW. HE THEREFORE QUASHED THE REASSESSMENT AGGRIEVED BY WHICH REVENUE IS IN APPE AL BEFORE US. 2.3. BEFORE US, THE LEARNED AUTHORISED REPRESENTATI VE FOR THE ASSESSEE DEFENDED THE ORDER BY THE CIT(A). IT WAS ARGUED THAT, IN CA SE THE RETURN HAS ONLY BEEN PROCESSED U/S.143(1), THE SAME CAN BE REOPENED ONLY WHEN SOME FRESH MATERIAL IS AVAILABLE BEFORE THE ASSESSING OFFICER AFTER PROCE SSING OF THE RETURN TO FORM A REASONABLE BELIEF THAT THERE IS ESCAPEMENT OF INCOM E AND NOT ON THE BASIS OF SAME MATERIAL AVAILABLE AT THE TIME OF 143(1). FOR THE SAID PROPOSITION, RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS IN THE CASE OF BAPALAL AND CO. EXPORTS VS. JCIT (OSD) (289 ITR 37). HE ALSO RELIE D ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF AIPITA MARKETING (P. ) LTD. VS. ITO (21 SOT 302) IN WHICH THE TRIBUNAL HAS TAKEN THE SAME VIEW FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS (SUPRA). RELIANCE WAS ALSO PLACED ON THE JU DGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF PRASHANT S JOSHI AND ANOTHER VS. ITO (324 ITR 154) IN SUPPORT OF THE PLEA. 2.4 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE, STRONGLY SUPPORTED THE REOPENING OF THE ASSESSMENT BY THE AS SESSING OFFICER. IT WAS ARGUED THAT THERE WAS NO CHANGE OF OPINION INVOLVED AS THE ASSESSMENT HAD BEEN ONLY PROCESSES U/S.143(1) AND NO ASSESSMENT HAD BEEN MAD E U/S.143(3). IT WAS ALSO SUBMITTED THAT THE REASONS RECORDED BY THE ASSESSIN G OFFICER CLEARLY SHOWED THAT THERE WAS MATERIAL AVAILABLE FOR FORMATION OF BELIE F FOR ESCAPEMENT OF INCOME AND ITA NOS.261 & 872/MUM//09 - 5 - THEREFORE REOPENING OF THE ASSESSMENT WAS JUSTIFIED . REFERENCE WAS MADE TO THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CI T VS. RAJESH JHAVERI STOCK BROKERS P. LTD. (291 ITR 500). 2.5 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING REOPENING OF THE ASSESSMEN T MADE BY THE ASSESSING OFFICER U/S.147 OF THE INCOME TAX ACT. THERE IS NO DISPUTE THAT NO ASSESSMENT U/S.143(3) HAD BEEN MADE IN THIS CASE AND ACTION U/S.148 HAD BEEN TAKEN AFTER ISSUE OF INTIMATION U/S.143(1). THERE IS ALSO NO DISPUTE THAT THE REAS SESSMENT HAS BEEN MADE ONLY ON THE BASIS OF MATERIAL AVAILABLE IN THE RETURN AND THAT NO FRESH MATERIAL HAD COME TO THE NOTICE OF ASSESSING OFFICER AFTER PROCESSING OF RET URN U/S.143(1). THE ISSUE IS WHETHER REOPENING OF ASSESSMENT U/S.147 ON THE FACT S AND IN THE CIRCUMSTANCES MENTIONED ABOVE CAN BE JUSTIFIED. IN OUR VIEW, THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P. LTD . (SUPRA) COVERS THE ISSUE RAISED IN THIS APPEAL. IN THAT CASE, THE ASSESSEE HAD CLAIME D BAD DEBT OF RS.1285.72 LAKHS IN THE RETURN OF INCOME. THE AUDIT ON THE BASIS OF MATE RIAL AVAILABLE IN THE RETURN, POINTED OUT THAT CONDITIONS OF SECTION 36(1)(VII) R.W.S. 36 (2), WERE NOT FULFILLED IN THIS CASE AND THEREFORE BAD DEBT HAD BEEN WRONGLY ALLOWED. THE ASSESSING OFFICER THEREAFTER REOPENED THE ASSESSMENT U/S.148 AFTER FORMING THE B ELIEF THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. BEFORE THE HON'BLE SUP REME COURT, IT WAS ARGUED THAT FOR REOPENING OF ASSESSMENT THERE HAD TO BE AN ASSE SSMENT ALREADY MADE WHICH WAS NOT SO IN THAT CASE AS THE INTIMATION ONLY HAD BEEN ISSUED AND SECONDLY THE ASSESSMENT ITA NOS.261 & 872/MUM//09 - 6 - HAD BEEN REOPENED BASED ON THE SAME MATERIAL AND T HEREFORE IT WAS A CASE OF CHANGE OF OPINION WHICH WAS NOT PERMITTED. THE HON'BLE SU PREME COURT HELD THAT INTIMATION U/S.143(1) WAS NOT AN ASSESSMENT AS THE ASSESSING OFFICER U/S.143(1) HAD NO POWER TO GO BEYOND THE RETURN OF INCOME AND DOCUMENTS, ACCOM PANYING THE RETURN AND FURTHER HE COULD MAKE ONLY PRIMA FACIE ADJUSTMENTS AND HAD NO POWER TO ADJUDICATE ON DEBATABLE ISSUES. THE SUPREME COURT HELD THAT INTI MATION U/S.143(1) WAS NOT AN AMENDMENT. IT WAS ALSO HELD THAT ASSESSMENT COULD BE REOPENED EVEN IN CASES IN WHICH ONLY INTIMATION HAD BEEN ISSUED AND NO ASSESSMENT H AD BEEN MADE U/S.143(3). THE CONTENTION RAISED REGARDING CHANGE OF OPINION IN RE OPENING THE ASSESSMENT WAS NOT ACCEPTED AS THE ASSESSING OFFICER HAD NO POWER TO T AKE VIEW ON ANY MATTER WHILE ISSUING INTIMATION AND THEREFORE IT COULD NOT BE A CASE OF CHANGE OF VIEW WHEN THE ASSESSMENT WAS REOPENED SUBSEQUENTLY ON THE BASIS O F THE SAME MATERIAL. THE HON'BLE SUPREME COURT IN THE SAID CASE HELD THAT THERE BEI NG NO ASSESSMENT U/S.143(1)(A), THE QUESTION OF CHANGE OF OPINION, AS CONTENDED, DOES N OT ARISE. HOWEVER, IT WAS FURTHER HELD THAT THE INGREDIENTS OF SECTION 147 WERE REQUI RED TO BE FULFILLED BEFORE THE REOPENING OF ASSESSMENT. IN OTHER WORDS, IT HAS TO BE SEEN THAT THERE ARE REASONS TO BELIEVE FOR ESCAPEMENT OF INCOME AND FORMATION OF B ELIEF IS WITHIN THE SUBJECTIVE SATISFACTION OF A.O. THE PRINCIPLE RELATING TO CHAN GE OF OPINION IS NOT APPLICABLE. IN THE PRESENT CASE, THE REASONS RECORDED WHICH HAVE BEEN REPRODUCED EARLIER CLEARLY SHOW THAT THERE WAS MATERIAL FOR FORMATION OF BELIEF FOR ESCAPEMENT OF INCOME AS THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80HHC WHICH WAS EXCESSIVE. IT MAY ALSO BE NOTED ITA NOS.261 & 872/MUM//09 - 7 - THAT CLAUSE (B) OF EXPLANATION 2 TO SECTION 147 CLE ARLY PROVIDES THAT EVEN IN A CASE WHERE RETURN HAS BEEN FILED BY THE ASSESSEE AND NO ASSESSMENT HAS BEEN MADE, THE ASSESSING OFFICER COULD EXERCISE JURISDICTION FOR R EOPENING OF ASSESSMENT IN CASE THE ASSESSEE HAD UNDERSTATED THE INCOME OR HAD CLAIMED EXCESSIVE LOSS, DEDUCTION/ALLOWANCE OR EXCESSIVE RELIEF IN THE RETU RN. 2.6 THE JUDGMENTS RELIED UPON BY THE LEARNE D COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE. IN CASE OF BAPALAL AND CO. EXPORT S (SUPRA), THE HONBLE HIGH COURT OF MADRAS HAD HELD THAT IN THE ABSENCE OF ANY NEW MATE RIAL, THE ASSESSING OFFICER WAS NOT EMPOWERED TO REOPEN THE ASSESSMENT MADE U/S.143 (1) OR 143(3). OBVIOUSLY, THE HIGH COURT HAD TREATED THE INTIMATION U/S.143(1) AS AN ASSESSMENT WHICH IS NO LONGER A GOOD LAW IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF RAJESH JHAVERI STOCK BROKERS P. LTD. (SUPRA) WHICH WAS NOT AVAILAB LE AT THE TIME OF PASSING OF JUDGMENT BY THE HIGH COURT AND IN WHICH IT WAS HELD THAT ASSESSMENT COULD BE REOPENED ON THE SAME MATERIAL AVAILABLE IN THE RET URN PROVIDED BASED ON SUCH MATERIAL REASONABLE BELIEF COULD BE FORMED THAT INCOME HAD E SCAPED ASSESSMENT. FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS (SUPRA), T HE TRIBUNAL IN THE CASE OF AIPITA MARKETING (P) LTD. VS. ITO (SUPRA) HAD TAKEN THE SA ME VIEW THAT ASSESSMENT COULD NOT BE REOPENED U/S.147 WITHOUT ANY FRESH MATERIAL EVEN IN CASE OF INTIMATION ISSUED U/S.143(1). THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF RAJESH JHAVERI (SUPRA) HAD BEEN REFERRED BEFORE THE TRIBUNAL WHO OBSERVED THAT THE SAID CASE RELATED TO A DIFFERENT PERSPECTIVE THAT IT WAS NOT NECESSARY THA T THERE SHOULD BE ASSESSMENT ITA NOS.261 & 872/MUM//09 - 8 - U/S.143(3) FOR REOPENING OF ASSESSMENT. THE TRIBUN AL HAD OVERLOOKED ONE IMPORTANT ASPECT THAT IN THE SAID CASE THE ISSUE OF CHANGE OF OPINION HAD ALSO BEEN RAISED AND HON'BLE SUPREME COURT CLEARLY HELD THAT SINCE THERE WAS NO ASSESSMENT U/S.143(1), THE QUESTION OF CHANGE OF OPINION DID NOT ARISE. THIS ASPECT HAD BEEN DULY NOTED BY THE HONBLE HIGH COURT OF BOMBAY IN CASE OF PRASHANT S . JOSHI VS. ITO (324 ITR 154) ON WHICH RELIANCE HAS BEEN PLACED BY THE LEARNED A.R. FOR THE ASSESSEE. 2.7 IN THE CASE OF PRASHANT S. JOSHI (SUPRA), THE ASSESSEE WHO WAS A PARTNER IN A FIRM, HAD AGREED TO RECEIVE A SUM OF RS.50 LAKHS, I N ADDITION TO THE BALANCE LYING TO HIS CREDIT ON THE CAPITAL AND/OR CURRENT ACCOUNT AS REF LECTED IN THE BOOKS OF ACCOUNT AS ON 8.3.2005, IN FULL AND FINAL SETTLEMENT OF HIS DUES ON ACCOUNT OF RETIREMENT. OUT OF THE AMOUNT OF RS.50 LAKHS, THE ASSESSEE HAD RECEIVED A SUM OF RS.17 LAKHS IN THE F.Y. 2004-05, RELEVANT TO THE ASSESSMENT YEAR 2005-06 AN D THE BALANCE RS.33 LAKHS IN F.Y. 2005-06 WHICH HAD BEEN DULY DISCLOSED IN THE RETURN S WHICH HAD BEEN PROCESSED U/S.143(1) AND INTIMATION HAD BEEN ISSUED. THEREAF TER, THE ASSESSMENTS HAD BEEN REOPENED U/S.147 ON THE GROUND THAT THE PAYMENT MAD E TO THE PARTNER ON RETIREMENT HAD BEEN ALLOWED AS REVENUE EXPENDITURE IN THE CASE OF THE FIRM AND THEREFORE THERE WAS REASON TO BELIEVE THAT INCOME WAS CHARGEABLE IN CASE OF PARTNER U/S.28(IV) AND 28(V) OF THE ACT. THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P. LTD. (SUPRA) HAD BEEN REFE RRED BEFORE THE HIGH COURT. THE HIGH COURT NOTED THAT HON'BLE SUPREME COURT IN THE SAID CASE HAD HELD THAT INTIMATION WAS NOT AN ASSESSMENT AND THERE BEING NO ASSESSMENT U/S.143(1), THE QUESTION OF ITA NOS.261 & 872/MUM//09 - 9 - CHANGE OF OPINION DID NOT ARISE. THUS THE HIGH COU RT DID NOT ACCEPT THE ARGUMENT BASED ON CHANGE OF OPINION. HOWEVER, THE HIGH COUR T FURTHER NOTED THAT HON'BLE SUPREME COURT IN THE SAID CASE HAD ALSO HELD THAT I NGREDIENTS OF SECTION 147 SHOULD BE FULFILLED WHICH, IN OTHER WORDS, MEANT THAT THERE S HOULD BE REASON TO BELIEVE FOR ESCAPEMENT OF INCOME. THE HIGH COURT FURTHER HELD T HAT ON THE BASIS OF MATERIAL AVAILABLE ON RECORD, THERE WAS NO REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. THE HIGH COURT OBSERVED THAT CLAUSE (I V) OF SECTION 28 SPECIFIED THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE I NTO MONEY OR NOT, AND THEREFORE DID NOT APPLY TO THE CASE OF THE ASSESSEE IN WHICH PAYM ENTS HAD BEEN RECEIVED IN CASH. THE HIGH COURT ALSO OBSERVED THAT PAYMENT MADE TO A PAR TNER IN REALIZATION OF HIS SHARE IN THE NET VALUE OF THE ASSETS UPON HIS RETIREMENT FRO M A FIRM, DID NOT FALL UNDER CLAUSE (V) OF SECTION 28. IT WAS ACCORDINGLY HELD THAT TH ERE WAS NO MATERIAL FOR FORMATION OF REASONABLE BELIEF FOR ESCAPEMENT OF INCOME. IN TH E PRESENT CASE, AS WE HAVE POINTED OUT EARLIER THERE WAS MATERIAL SHOWING THAT THE ASS ESSEE HAD CLAIMED EXCESS DEDUCTION U/S.80HHC AND ACCORDINGLY THE INCOME HAD ESCAPED AS SESSMENT. THE CIT(A) HAS MENTIONED THAT IN CASE 90% OF ALL THE INCENTIVES WE RE SET OFF, THERE WAS NO ESCAPEMENT OF INCOME WHICH IS NOT CORRECT BECAUSE E VEN THE CIT(A) HAD COMPUTED DEDUCTION U/S.80HHC AT RS.15,33,435 AGAINST THE CLA IM OF THE ASSESSEE AT RS.22,23,786 WHICH SHOWS THAT EVEN AS PER THE INTER PRETATION GIVEN BY THE CIT(A), THERE WAS EXCESSIVE DEDUCTION CLAIMED BY THE ASSESS EE. MOREOVER, IN THIS CASE, THE ONLY INCENTIVE RECEIVED BY THE ASSESSEE WAS PROFIT ON SALE OF IMPORT ENTITLEMENT WHICH ITA NOS.261 & 872/MUM//09 - 10 - HAD ONLY BEEN CONSIDERED BY THE ASSESSING OFFICER F OR SET OFF. THERE WAS OBVIOUSLY EXCESS CLAIM OF DEDUCTION. 2.8 IN VIEW OF THE FOREGOING DISCUSSION AND FOR T HE REASONS GIVEN EARLIER, WE HOLD THAT THE ASSESSMENT U/S.147 HAD BEEN CORRECTLY REOP ENED BY THE ASSESSING OFFICER. THE ORDER OF THE CIT(A) QUASHING THE REASSESSMENT C ANNOT BE SUSTAINED AND THE SAME IS SET ASIDE AND THE REOPENING OF ASSESSMENT MADE B Y THE ASSESSING OFFICER IS UPHELD. 2.9 THE ONLY OTHER GROUND RAISED IN THE APPEAL OF R EVENUE IS REGARDING COMPUTATION OF DEDUCTION U/S.80HHC AS TO WHETHER 90% OF ALL IN CENTIVES SHOULD BE CONSIDERED FOR SET OFF OR ONLY ONE INCENTIVE. THIS ISSUE HAS BECO ME ACADEMIC AS ONLY ONE INCENTIVE IS INVOLVED IN THIS CASE, THAT IS, PROFIT ON SALE OF I MPORT ENTITLEMENT. THE REFUND OF EXCISE DUTY IS NOT AN INCENTIVE AND WILL ONLY GO TO REDUCE THE COST OF PURCHASES THIS YEAR. THIS GROUND IS THEREFORE DISMISSED AS INFRUCT UOUS. 3. ITA 261/MUM/2009 THE APPEAL BY THE ASSESSEE. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS AP PEAL IS REGARDING COMPUTATION OF DEDUCTION U/S.80HHC. IT ALSO INVOLVES RELATED I SSUES SUCH AS WHETHER THE ASSESSEE IS A MANUFACTURER OR A TRADER AND DEDUCTION OF DIRE CT AND INDIRECT EXPENSES IN RELATION TO THE SCRAP WHILE COMPUTING THE DEDUCTION U/S.80HH C. AS MENTIONED EARLIER, THE ASSESSEE FOR THE RELEVANT YEAR HAD CLAIMED DEDUCTIO N U/S.80HHC OF RS.22,23,786 ON EXPORT TURN OVER OF RS.2.22 CRORES. THE ASSESSEE A LSO CLAIMED FULL DEDUCTION IN RELATION TO PROFIT ON SALE OF IMPORT ENTITLEMENT OF RS.40,55 ,018 AND IN RELATION TO REFUND OF CENTRAL EXCISE DUTY OF RS.3,63,091. THE ASSESSING O FFICER IN VIEW OF THE AMENDED ITA NOS.261 & 872/MUM//09 - 11 - PROVISIONS OF SECTION 80HHC(3), SET OFF 90% OF THE EXPORT INCENTIVE I.E. PROFIT ON SALE OF IMPORT LICENCE ENTITLEMENT IN THE RATIO OF EXPOR T TURN OVER TO TOTAL TURN OVER AGAINST THE LOSS FROM BUSINESS WHILE COMPUTING THE DEDUCTIO N U/S.80HHC. HE ALSO TREATED THE ASSESSEE AS A TRADER AND NOT AS A MANUFACTURER AND COMPUTED DEDUCTION U/S.80HHC AT RS.10,89,877. THE ASSESSING OFFICER ALSO TREATED 1 0% OF THE INCENTIVES AS INDIRECT EXPENSES WHILE COMPUTING THE DEDUCTION. THE ASSESS EE DISPUTED THE VIEW TAKEN BY THE ASSESSING OFFICER. 3.1 THE CIT(A) AFTER EXAMINING THE RECORDS OBSERVED THAT THE ASSESSEE HAD DEBITED ONLY THE PROCESSING CHARGES AND NOT MANUFAC TURING EXPENSES. FURTHER, THE ASSESSEE HAD PURCHASED ONLY COMPUTER WORTH RS.52,50 0 AND OFFICE EQUIPMENT WORTH RS.20,470. THERE WERE NO OTHER EXPENSES ON ACCOUNT OF SALARY PAID TO ANY PROFESSIONALS. THE ASSESSEE ALSO FILED NO EVIDENCE TO SHOW THAT GOODS HAD BEEN MANUFACTURED UNDER HIS OWN DIRECTION AND CONTROL. THE CIT(A), THEREFORE UPHELD THE ORDER OF THE ASSESSING OFFICER TREATING THE ASSESSE E AS TRADER EXPORTER AND NOT A MANUFACTURER. THE CIT(A) ALSO HELD THAT 10% OF THE INCENTIVES SHOULD BE REDUCED FROM THE INDIRECT COST AND THAT 90% OF ALL THE INCE NTIVES IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURN OVER AND NOT ONLY ONE INCENT IVE SHOULD BE SET OFF. AGGRIEVED BY THE DECISION OF THE CIT(A), BOTH THE PARTIES ARE IN APPEAL. THE REVENUE IS AGGRIEVED BY THE DECISION OF CIT(A) TO SET OFF 90% OF ALL THE INCENTIVES AND NOT ONLY ONE INCENTIVE AND THE ASSESSEE HAS CHALLENGED THE DECIS ION OF CIT(A) TO TREAT THE ASSESSEE ITA NOS.261 & 872/MUM//09 - 12 - AS TRADER AND NOT AS MANUFACTURER AND ALSO CHALLENG ED THE DECISION TO COMPUTE DIRECT AND INDIRECT COST IN RELATION TO SCRAP. 3.2 BEFORE US, THE LEARNED A.R. FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE WAS A MANUFACTURER AND WAS GETTING GOODS MANUFACTURED THR OUGH THIRD PARTIES AND THAT THE ASSESSING OFFICER IN REASSESSMENT HAD NOT RAISED AN Y SUCH ISSUE AND TREATED THE ASSESSEE AS A TRADER WITHOUT ANY OPPORTUNITY TO EXP LAIN THE MATTER. IT WAS FURTHER SUBMITTED THAT EVEN IF THE GOODS WERE MANUFACTURED THROUGH THIRD PARTIES ON JOB WORK BASIS, THE ASSESSEE HAD TO BE TREATED AS A MANUFACT URER. RELIANCE WAS PLACED ON THE DECISION OF THE TRIBUNAL IN CASE OF ACIT VS. M/S. T ULSIDAS TAHILRAM (INDIA) IN ITA NOS.3689 & 3690/MUM/03 DT.29.06.2006. IT WAS ALSO S UBMITTED THAT THE ASSESSING OFFICER HAD NOT RAISED ANY ISSUE REGARDING DIRECT A ND INDIRECT COST IN RELATION TO SCRAP. AS REGARDS, THE EXCISE DUTY REFUND, IT WAS SUBMITTE D THAT THE SAME WAS NOT AN INCENTIVE AND IT WAS ONLY REFUND OF EXCISE DUTY WHI CH WILL GO TO REDUCE THE COST OF PURCHASE. HE RELIED UPON THE DECISION OF THE TRIBU NAL IN THE CASE OF CITY CAT INTERNATIONAL LTD. VS. DCIT (ITA NO.400/MUM/2002 DT .08.02.2006 IN WHICH FOLLOWING THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN TH E CASE OF ALFA LAVAL INDIA LTD. VS. DCIT (266 ITR 418), IT WAS HELD THAT REFUND WOULD REDUCE THE COST OF GOODS PURCHASED AND SHOULD BE TAKEN INTO ACCOUNT IN COMPU TATION OF BUSINESS PROFITS. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE O THER HAND, PLACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. ITA NOS.261 & 872/MUM//09 - 13 - 3.3 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING COMPUTATION OF DEDUCTION U /S.80HHC. THE ASSESSING OFFICER WHILE COMPUTING THE DEDUCTION TREATED THE ASSESSEE AS A TRADER AND NOT A MANUFACTURER. THE ASSESSEES CASE IS THAT IT IS GET TING THE GOODS MANUFACTURED THROUGH THIRD PARTIES ON JOB WORK BASIS AND THEREF ORE IT HAD TO BE TREATED AS A MANUFACTURER. WE FIND THAT THIS ISSUE HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. THE HONBLE HIGH COURT OF MUMBAI IN THE C ASE OF ANGLO FRENCH DRUG CO. (EASTERN) (119 ITR 92), HAVE HELD THAT PROCESSING O F GOODS THAT IS GREY CLOTH ON JOB WORK BASIS IN THE PLANT AND MACHINERY OF OTHERS UND ER ASSESSEES OWN GUIDANCE/SPECIFICATION, SUPERVISION AND CONTROL MAK ES AN ASSESSEE ELIGIBLE FOR DEDUCTION U/S.80HHC. THEREFORE THE ISSUE WHETHER T HE ASSESSEE IS MANUFACTURER OR TRADER REQUIRES FRESH EXAMINATION BY THE ASSESSING OFFICER IN THE LIGHT OF JUDICIAL DECISIONS AVAILABLE ON THE SUBJECT. THE ASSESSING O FFICER HAS ALSO NOT GIVEN ANY OPPORTUNITY TO THE ASSESSEE ON THE ISSUE OF COMPUTA TION OF DIRECT COST AND INDIRECT COST IN RELATION TO SCRAP. AS REGARDS THE EXCISE D UTY, WE AGREE THAT THIS IS NOT AN INCENTIVE BUT ONLY REFUND OF EXCISE DUTY WHICH WILL INCREASE THE PROFIT AND THIS HAS TO BE CONSIDERED AS PART OF THE BUSINESS PROFIT AND NO T AN INCENTIVE. THE ASSESSEE HAD ONLY ONE INCENTIVE I.E. PROFIT ON SALE OF IMPORT LI CENCE ENTITLEMENT. THE ASSESSING OFFICER HAS SET OFF 90% OF ONLY PROFIT ON SALE OF IMPORT LICENCE ENTITLEMENT AND THEREFORE THERE IS NO ERROR IN THE ORDER OF ASSESSI NG OFFICER. THE ISSUE WHETHER 90% OF ALL THE INCENTIVES OR ONLY ONE INCENTIVE HAS TO BE SET OFF HAS BECOME ONLY ITA NOS.261 & 872/MUM//09 - 14 - ACADEMIC IN SO FAR AS THIS APPEAL IS CONCERNED AS T HERE IS ONLY ONE INCENTIVE INVOLVED IN THIS CASE. HOWEVER, THE ISSUE OF MANUFACTURE ACTIV ITY AND DIRECT AND INDIRECT COST IN RELATION TO SCRAP HAS NOT BEEN EXAMINED PROPERLY. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ISSUE TO THE FILE OF ASS ESSING OFFICER FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF O UR ABOVE OBSERVATIONS AND AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 17. IN THE RESULT THE APPEAL OF REVENUE IS PARTLY A LLOWED WHERE AS THAT OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 18. ORDER PRONOUNCED IN THE OPEN COURT ON 10-08-201 1. SD/- SD/- (D.K. AGARWAL) (RAJENDRA SINGH) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DT.10-08-2011. *GPR TRUE COPY COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE, ITAT, MUMBAI. 6. GUARD FILE. BY ORDER DY./ASST.REGISTRAR, ITAT, MUMBAI