M/s. MERCK LTD., MUMBAI V. ITO - 6(3)(1), MUMBAI

ITA 915/MUM/2008

• Counselvise Citation: 91519914 RSA 2008
• Duration Of Justice: 5 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-11-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 08-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: ARATI VISSANJI AJIT C SHAH
• Keywords: Reopening of assessment; Depreciation; Audit objection; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 80IB; 147; 148

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - B BENCH. . , ! ! ! ! '#$% '#$% '#$% '#$% , # # # # &' &' &' &' BEFORE S/SH.D.MANMOHAN,VICE-PRESIDENT & RAJENDR A,ACCOUNTANT MEMBER ./ ITA NO.915/MUM/2008 , ( ( ( ( / ASSESSMENT YEAR-2000-01 MERCK LTD. LLOYDS CENTRE POINT, UNIT NO.21,&22, 2 ND FLOOR, A APPASAHEB MARATHE MARG, PRABHADEVI, MUMBAI 400 025 ITO 6(3)(1), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI 400020 PAN: AAACE2616F ( )* / APPELLANT) ( +,)* / RESPONDENT) )* )* )* )* - - - - # ## # / APPELLANT BY :SMT. ARATI VISSANJI &AJIT C. SHAH +,)* . - # / RESPONDENT BY :SHRI. A.C. TEJPAL . .. . / / / / / DATE OF HEARING : 19/11/2013 0( . / / DATE OF PRONOUNCEMENT : 27/11/2013 , 1961 . .. . 254(1) # ## # $/1/ $/1/ $/1/ $/1/     ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. CHALLENGING THE ORDER DATED 08.11.2007 OF THE CIT(A )-XXIV,MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN 1.1.CONFIRMING THE IMPUGNED REASSESSMENT ORDER PASS ED BY THE ASSESSING OFFICER U/S.143 (3) READ WITH SECTION 147 OF THE ACT AND FURTHER ERRED IN CO NFIRMING THE ORDER TO THE EXTENT IT WENT BEYOND REASONS FOR REOPENING. 1.2.CONFIRMING THE REASSESSMENT ORDER WHICH WAS ILL EGAL AND BAD IN LAW AND CONSEQUENTLY PASSING THE IMPUGNED APPELLATE ORDER PARTLY CONFIRM ING SUCH ILLEGAL AND BAD ORDER. 1.3.CONFIRMING THE REASSESSMENT ORDER DISALLOWING A ND ADDING VARIOUS ITEMS WHICH ARE THE SUBJECT MATTER OF THE APPEAL PETITION AND IN CONFIR MING ADDITIONS /DISALLOWANCES WHICH WERE NOT PART OF THE REASONS RECORDED FOR RE-OPENING THE A SSESSMENT. 1.4.CONFIRMING OF DISALLOWANCE OF PART OF THE DEBTS /DEBIT BALANCES WRITTEN OFF TO THE EXTENT OF RS.22,55,573/- AND RS.58,912/- AND ADDING THE SAME TO THE TOTAL INCOME OF THE APPELLANT. 1.5.CONFIRMING THE ADDITION OF RS.4,97,66,039/ IN R ESPECT OF ALLEGED DISCREPANCY IN VALUATION OF CLOSING STOCK. 1.6.CONFIRMING REDUCTION OF THE CLAIM FOR DEDUCTION U/S.80-IB OF THE ACT TO THE EXTENT OF DEPB BENEFIT OF RS. 71,72,000/-. 1.7.CONFIRMING RE-COMPUTATION OF THE DEDUCTION U/S. 80-HHC OF THE ACT BY REDUCING THE PROFIT IN RESPECT OF THE INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S.80-IB OF THE ACT AMOUNT BY 2 ITA NO.915/M/2008 MERCK LTD. RS.4,29,72,000/- 1.8.CONFIRMING THAT RS.71,72,000/- WAS REQUIRED TO BE REDUCED BEING THE DEPB BENEFITS FROM THE PROFIT OF THE BUSINESS FOR COMPUTATION OF DEDUCTI ON U/S.80-HHC OF THE ACT. 1.8.1.CONFIRMING THAT RS.7L.72,000/ IN RESPECT OF D EPB BENEFITS FROM THE PROFITS OF THE BUSINESS FOR COMPUTING DEDUCTION U/S.80-HHC OF THE ACT WAS L IABLE TO BE SO REDUCED, THOUGH HOWEVER, THE SAME WAS CHARGEABLE TO TAX U/S. 28(IV) OF THE ACT A ND NOT U/S. 28IIIC OF THE ACT. BRIEF FACT OF THE CASE : ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND SALE OF PHARMACEUTICAL PRODUCT FILED ITS RETURN OF INCOME,ON 17.11.2000.,DECLARING TOTAL INCOME OF RS.32.91 CRORES.ASSESSING OFFICER(AO)FINALISED THE ASSESSMENT ON 17.02.2003,U /S.143(3)OF THE ACT,DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.33.39CRORES.LATER ON A O ISSUED A NOTICE U/S.148 OF THE ACT,AS HE HAD REASON TO BELIEVE THAT TAXABLE INCOME HAD ESCAP ED ASSESSMENT.IN RESPONSE TO THE NOTICE ISSUED BY THE AO U/S.148 OF THE ACT, ASSESSEE FILED A RETURN DECLARING THE SAME INCOME AS RETURNED BY IT IN ITS ORIGINAL RETURN.AO PASSED AN ORDER U/S.143(3)R.W.S. 147 OF THE ACT,ON 30.11.2006,FINALISING THE INCOME OF THE ASSESSE AT RS.39.35 CRORES.IN THE APPELLATE PROCEEDINGS, BEFORE THE FIRST APPELLATE AUTHORITY(FAA), ASSESSEE RAISED VARIOUS GROUNDS OF APPEAL INCLUDING THE VALIDITY OF THE RE-OPENING.FAA HELD THAT THE AS SESSEE WAS NOT ENTITLED TO THE DEDUCTION U/S.80IB OF THE ACT ON DEPB BENEFIT,THAT SAME COULD NOT BE HELD TO BE THE PROFIT DERIVED FROM INDUSTRIAL UNDERTAKING,THAT AO HAD RECORDED THE REA SONS FOR REOPENING THE ASSESSMENT AND HAD SUPPLIED A COPY OF THE REASONS TO THE ASSESSEE,THAT AO HAD CONSIDERED THE OBJECTION OF THE ASSESSEE WITH REGARD TO REOPENING OF ASSESSMENT AND HAD REJECTED THE SAME,THAT ASSESSMENT HAD BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF AND UNDER ASSESSMENT,THAT THE AO HAD A RIGHT TO REOPEN THE MATTER FOR FRESH ADJUDICATION. 2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS FULLY AND TRULY ,THAT NOTICE WAS ISSUED AFTER 4 YEARS FROM THE END OF THE ASSESSMENT YEAR IN QUESTION,THAT AO HAS NOWHERE ALLEGED THAT BECAUSE OF THE FAILURE OF THE ASSESSEE INCOME ESCAPED ASSESSMENT,THAT ISSUE O F VALIDITY OF RE-OPENING SHOULD BE DECIDED FIRST.DEPARTMENTAL REPRESENTATIVE(AR) SUPPORTED THE ORDER OF THE FAA.HE ALSO PRODUCED THE REASONS RECORDED BY THE AO ALONG WITH THE FORWARDIN G LETTER THAT HE HAD ADDRESSED TO THE CIT. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.FROM THE LETTER SENT BY THE AO TO THE CIT IT BECOMES CLEAR THAT PROCESS OF RE-OPENING STARTED AFTER AN OBJECTION WAS RAISED BY THE INTERNAL AUDIT PARTY (IAP) WITH REGAR D TO UNDER-ASSESSMENT OF INCOME.IN THE FORWARDING LETTER ADDRESSED TO THE CIT,AO HAS MENTI ONED THE FOLLOWING REASONS FOR SUBMITTING THE PROPOSAL: I AM SENDING HEREWITH A PROPOSAL U/S. 147 IN THE AB OVE MENTIONED CASE FOR THE A.Y.2000-01 FOR REOPENING OF THE ASSESSMENT FOR THE REASONS MENTION ED IN THE ANNEXURE TO THE PROFORMA REPORT, WITH A REQUEST TO KINDLY ACCORD APPROVAL FOR THE SA ME.FURTHER, THIS IS TO BRING TO YOUR KIND NOTICE THE ABOVE THAT REMEDIAL ACTION IS BEING CARRIED OUT AS THERE IS A REVENUE AUDIT OBJECTION AND THE AUDIT PARTY HAS NOT ACCEPTED THE DEPARTMENTS REPLY . AS PER THE ASSESSEE,AO HAD SUPPLIED IT A COPY OF TH E REASONS RECORDED BY HIM AND SAME READ AS UNDER: UNDER THE PROVISIONS OF SECTION 80IB OF I.T. ACT,1 961,WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FRO M ANY ELIGIBLE BUSINESS SPECIFIED IN THE ACT, 3 ITA NO.915/M/2008 MERCK LTD. THERE SHALL BE IN ACCORDANCE WITH AND SUBJECT TO TH E PROVISIONS OF THIS SECTION,ALLOWED,IN COMPUT - ING THE TOTAL INCOME OF THE ASSESSE(LOCATED IN INDU STRIALLY BACKWARD AREA),A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO 100% FOR FI RST FIVE YEARS AND AT THE RATE OF 30% FOR THE SUBSEQUENT FIVE YEARS. THE ASSESSEE FILED RETURN OF INCOME ON 17-1 1-2000 DECLARING TOTAL INCOME OF RS.32,91,09,420/-. SUBSEQUENTLY,THE ASSESSMENT WAS COMPLETED U/S.143(3 ) ON A TOTAL INCOME OF RS.33,39,12,937/-. ON PERUSAL OF COMPUTATION OF INCOME FILED BY THE AS SESSEE, THE ASSESSEE HAS CLAIMED 80IB DEDUCTION OF RS.5,01,44,000/ IN RESPECT OF ITS SOFT GELATINE CAPSULE UNIT AT GOA.THE SAID PROFIT ALSO INCLUDES DEPB AMOUNTING TO RS.71,72,000/-.HOWEVER, THE SAID DEPB WAS NOT REDUCED FROM THE PROFITS OF INDUSTRIAL UNDERTAKING EVEN THOUGH THE S AME WAS NOT DERIVED FROM THE SAID UNDERTAKING. HENCE THE DEDUCTION SHOULD HAVE BEEN CLAIMED BY THE ASSESSEE ON RS.4,29,72,000/- INSTEAD OF RS.5,01,44,000/-. DEDUCTION U/S. 80I AND 80IB IS ALLOWABLE ON THE PRO FITS DERIVED FROM INDUSTRIAL UNDERTAKING AND IT IS NOT SUFFICIENT, IF A COMMERCIAL CONNECTIO N IS ESTABLISHED BETWEEN THE PROFITS EARNED AND THE INDUSTRIAL UNDERTAKING.THE EXPRSSION WORDS PRO FITS AND GAINS DERIVED FROM THE BUSINESS OF AN INDUSTRIAL UNDERTAKING CONNOTES THAT IMMEDIATE AND EFFECTIVE SOURCE OF INCOME ELIGIBLE DEDUCTION U/S.80I OR 80IB MUST BE THE INDUSTRIAL UN DERTAKING ITSELF AND NOT ANY OTHER SOURCE. THUS,THE LAW PROVIDES THAT UNLESS THE SOURCE OF THE INCOME IS THE INDUSTRIAL UNDERTAKING ITSELF, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S.80I OR 80IB ON THAT INCOME. IN THE INSTANT CASE, THE ASSESSEE HAD EARNED INCOME ON ACCOUNT OF DEPB WHICH CANNOT BE REGARDED AS PROFITS OR GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING.IN THIS REG ARD, RELIANCE IS PLACED ON THE DECISION OF SUPREME COURT IN THE CASE OF M/S.STERLING FOODS LTD . REPORTED IN 237 ITR 579 AND THE DECISION OF HON.MADRAS HIGH COURT IN THE CASE OF CIT V/S.JAMEEL LEATHERS AND UPPERS (246 ITR 97). 3.1. AFTER GOING THROUGH THE REASONS RECORDED BY THE AO WE ARE OF THE OPINION THAT REASON FOR RE- OPENING THE ASSESSMENT WAS NOT THE FAILURE OF THE A SSESSEE.BEFORE PROCEEDING FURTHER,WE WOULD LIKE TO DISCUSS VERY BROAD CONCEPTS OF RE-ASSESSMEN T OF ESCAPED INCOME AS ENVISAGED BY SECTIONS 147-148 OF THE ACT.SETTLED PRINCIPLES OF JURISPRUDE NCE EXPECT THAT LEGAL PROCEEDINGS,THAT HAVE ATTAINED FINALITY,SHOULD NOT BE DISTURBED UNLESS AN D UNTIL THERE ARE VERY STRONG REASONS TO DO SO. RESTARTING SUCH PROCEEDINGS,WITHOUT ANY PLAUSIBLE R EASON, NOT ONLY DESTROYS JUDICIAL DISCIPLINE, BUT IT ALSO CREATES AN ATMOSPHERE OF UNCERTAINTY.TA X STATUES REQUIRE SUCH A DISCIPLINE MORE THAN ANY OTHER STATUE,BECAUSE THEY ARE BASED ON THE SOUN D PRINCIPLE THAT SUBJECT SHOULD PROVIDE FULL INFORMATION ABOUT THEIR TAXABLE INCOME TO THE TAX-O FFICERS AND THAT OFFICERS SHOULD ASSESS THEIR INCOME CORRECTLY,FAIRLY AND CONCLUSIVELY.IT HELPS B OTH-THE STATE AND THE SUBJECT.BUT,ON MANY AN OCCASIONS BECAUSE OF CERTAIN REASONS ASSESSABLE INC OME ESCAPES ASSESSMENT.SUCH EVENTUALITIES NEED A NEW INNINGS TO BE PLAYED AND ASSESSMENT CONS IDERED FINAL HAVE TO BE REASSESSED.IN OUR OPINION,ON THE BASIS OF AUDIT OBJECTIONS PROCEEDING S UNDER SECTION 148 SHOULD NOT BE INITIATED.WE FIND THAT IN THE CASE OF THE SIMBHAOLI SUGAR MILLS LIMITED HONBLE DELHI HIGH COURT HAD DEALT WITH THE ISSUE OF REOPENING OF ASSESSMENT ON THE BA SIS OF OBJECTION RAISED BY THE AUDIT REPORT. IN THAT MATTER ASSESSE HAD FILED ITS RETURN OF INCO ME AT A TOTAL LOSS OF ABOUT RS.17.20 CRORES. INITIALLY THE RETURN WAS PROCESSED U/S.143(1)(A) OF THE ACT.SUBSEQUENTLY,THE CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON AT A TOTAL LOSS OF ABOUT RS.5. 28 CRORES AFTER MAKING CERTAIN ADDITION S AND UNABSORBED LOSSES AND DEPRECIATION.THE ASSESSEE PREFERRED APPEAL BEFORE THE FAA,WHO ALLOWE D CERTAIN RELIEFS TO THE ASSESSEE AND AFTER GIVING EFFECT TO THE APPELLATE ORDER, THE ASSESSMEN T ORDER FOR THE YEAR UNDER CONSIDERATION WAS REVISED ON A NET LOSS OF ABOUT RS.5.33 CRORES.LATER ON, AFTER EXPIRY OF FOUR YEARS, ON THE BASIS OF INFORMATION AVAILABLE WITH THE DEPARTMENT,PRIMARILY BASED ON THE AUDIT REPORT,AO HELD THAT CERTAIN INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESS MENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND BASED ON THIS,HE ISSUED A NOTICE UNDER SECTION 148 OF THE ACT.ACCORDINGLY, RE- 4 ITA NO.915/M/2008 MERCK LTD. ASSESSMENT PROCEEDINGS WERE COMPLETED ON A TOTAL IN COME OF RS.56,23,890/-.THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA,WHO DISMISSED TH E APPEAL AND CONFIRMED THE ADDITIONS MADE BY THE AO.THE ASSESSEE FILED APPEAL AGAINST THIS OR DER BEFORE THE INCOME TAX APPELLATE TRIBUNAL WHICH ALLOWED THE APPEALS.AGAINST THE ORDER OF THE TRIBUNAL THE REVENUE FILED AN APPEAL BEFORE THE HONBLE HIGH COURT.DISMISSING THE APPEAL HONBL E COURT HELD AS UNDER : .IT IS SEEN THAT THE BASIS OF ISSUE OF NOTICE UND ER SECTION 148 FOR RE-ASSESSMENT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION WAS NOTHING BUT THE INTERNAL AUDIT REPORT. IN THE REASONS TO BELIEVE AS RECORDED BY THE AO, HE HAD MENTIONED ABO UT THE OBJECTIONS AS RAISED IN THE AUDIT REPORT. BASED ON THIS AUDIT REPORT, A REVIEW WAS SO UGHT TO BE MADE BY THE AO UNDER THE NAME OF RE-ASSESSMENT ALLEGING ESCAPE OF INCOME IN THE ASSE SSMENT ALREADY CONCLUDED.THE ASSESSEE HAD MADE COMPLETE DISCLOSURE OF THE PARTICULARS BEFORE THE AO IN THE PROCEEDINGS OF ASSESSMENT UNDER SECTION 143(3)..REOPENING OF ASSESSMENT AFTE R FOUR YEARS WAS APPARENTLY NOT PERMISSIBLE. THERE IS A CATENA OF JUDGMENTS WITH RE GARD TO THE PROPOSITION OF LAW THAT ASSESSMENT CANNOT BE REOPENED UNDER SECTION 147 OF THE ACT MER ELY ON THE BASIS OF CHANGE OF OPINION BEYOND THE PERIOD OF FOUR YEARS WHEN THERE WAS NO FAULT ON THE PART OF THE ASSESSEE TO DISCLOSE, TRULY AND COMPLETELY THE MATERIAL PARTICULARS. REFERENCE IN T HIS REGARD CAN BE MADE TO SOME OF THE JUDGMENTS OF OUR OWN HIGH COURT AND THAT OF SUPREME COURT. IN COMMISSIONER OF INCOME TAX V. GOETZE (INDIA) LTD., (2010) 229 CTR 167, RELIANCE W AS PLACED ON THE JUDGMENT OF CIT V. KELVINATOR OF INDIA LTD.,(2002) 174 CTR (DEL) 174, A JUDGMENT OF OUR HIGH COURT WHEREIN IT WAS SPECIFICALLY OBSERVED THAT WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF SECTION 143(3) A PRESUMPTION CAN BE RAISED THAT SUCH AN ORD ER HAS BEEN PASSED ON APPLICATION OF MIND. IT WAS ALSO POINTED OUT THAT A PRESUMPTION COULD ALSO BE RAISED TO THE SAME EFFECT IN TERMS OF CLAUSE (E) OF SECTION 114 OF THE INDIAN EVIDENCE ACT INDIC ATING THAT JUDICIAL AND OFFICIAL ACTS HAD BEEN REGULARLY PERFORMED. THE FULL BENCH OBSERVED THAT I F IT WERE TO BE HELD THAT AN ORDER THAT HAS BEEN PASSED PURPORTEDLY WITHOUT APPLICATION OF MIND , WOULD ITSELF CONFER JURISDICTION UPON THE AO TO RE-OPEN THE PROCEEDINGS WITHOUT ANYTHING FURT HER, THE SAME WOULD AMOUNT TO GIVING PREMIUM TO AN AUTHORITY EXERCISING A QUASI-JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. THE FULL BENCH DECISION ALSO MAKES IT CLEAR THAT SECTIO N 147 OF THE ACT DOES NOT POSTULATE CONFERMENT OF POWER UPON THE AO TO INITIATE REASSESSMENT PROCE EDINGS UPON A MERE CHANGE OF OPINION. IT IS OBVIOUS THAT THE FULL BENCH DECISION HOLDS THE FIEL DIT MAY ALSO BE NOTED THAT APPEAL ARISING OUT OF THE AFORESAID FULL BENCH DECISION OF THIS COURT HAS ALSO BEEN DISMISSED BY THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V. KELVIN ATOR OF INDIA LTD., (2010) 228 CTR (SC) 488. THE SUPREME COURT, AFTER OBSERVING THE CHANGES AND AMENDMENTS BROUGHT ABOUT IN SECTION 147, FROM TIME TO TIME, HELD AS UNDER: 'HOWEVER, ONE NEE DS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH, WE ARE AFR AID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE AO 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 MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO RE-ASSESS. THE AO HAS NO POWER TO REVIEW; HE HAS THE POWER TO RE-ASSESS. BUT RE-ASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE-CONDITION AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEH ALF OF 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 ABUSE OF POWER BY THE AO. THERE IS ALSO CATENA OF JUDGMENTS TO THE EFFECT THA T INITIATION OF REASSESSMENT PROCEEDINGS ON THE BASIS OF AUDIT REPORT OBJECTIONS IS BAD IN LAW.A RE FERENCE IN THIS REGARD CAN BE MADE TO JUDGMENT OF OUR HIGH COURT TITLED TRANSWORLD INTERNATIONAL I NC. V. JOINT COMMISSIONER OF INCOME TAX, (2005) 273 ITR 242 AND ALSO JUDGMENTS OF SUPREME CO URT IN INDIAN AND EASTERN NEWSPAPER SOCIETY V. COMMISSIONER OF INCOME TAX, NEW DELHI, ( 1979) 119 ITR 996 AND COMMISSIONER OF INCOME TAX V. LUCAS T.V.S. LTD., (2001) 249 ITR 306 . THE SUM AND SUBSTANCE OF DISCUSSION IS THAT REASSESSMENT PROCEEDINGS UNDER SECTION 147 REA D WITH 148 OF THE ACT CANNOT BE INITIATED MERELY BASED ON THE AUDIT REPORT.AN AUDIT IS PRINCI PALLY INTENDED FOR THE PURPOSE OF SATISFYING THE 5 ITA NO.915/M/2008 MERCK LTD. AUDITOR WITH REGARD TO SUFFICIENCY OF RULES AND PRO CEDURES PRESCRIBED FOR THE PURPOSE OF SECURING AN EFFECTIVE CHECK ON THE ASSESSMENT,COLLECTION AND PROPER ALLOCATION OF REVENUE. FROM THE ABOVE IS CLEAR THAT IF REASSESSMENT PROCEE DINGS ARE INITIATED AFTER RECEIVING OBJECTIONS FROM THE AUDIT PARTY,IT IS NOT CONSIDERED A VALID R EASON BY THE COURTS.WE FIND THAT IN THE FORWARD - ING LETTER TO THE CIT,AO HAS SPECIFICALLY MENTIONED THAT REMEDIAL ACTION WAS BEING CARRIED OUT BECAUSE OF AN AUDIT OBJECTION AND THE AUDIT PARTY H AD NOT ACCEPTED THE DEPARTMENTS REPLY.IT CLEARLY PROVES THAT AO HAD FILED SOME REPLY IN RESP ONSE TO THE OBJECTION RAISED BY THE AUDIT PARTY BUT SAME WAS NOT ACCEPTED.FROM HIS REPLY ONE MORE T HING BECOMES CLEAR THAT THE AO WAS ALSO CONVINCED CORRECTNESS OF THE OBJECTION RAISED,BUT L ATER ON HAD TO RECOMMEND THE INITIATION OF PROCEEDINGS U/S.147OF THE ACT.IN OUR OPINION,RE-ASS ESSMENT PROCEEDINGS INITIATED ON THE BASIS OF OBJECTION RAISED BY THE AUDIT PARTY CANNOT BE HELD A JUSTIFIABLE BASIS AND THAT ALSO AFTER A PERIOD OF FOUR YEARS.MANDATE OF PROVISO TO SECTION 147 OF THE ACT IS VERY CLEAR-IT REQUIRES THE AO TO MENTION CLEARLY AND TO PROVE THAT BECAUSE OF THE FA ILURE OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS TRULY AND FULLY,TAXABLE INCOME HAD ESCAPED ASSESSME NT.PROVISO WAS INCORPORATED IN THE ACT TO PREVENT MISUSE OF RE-OPENING THE ASSESSMENTS BY THE AOS AFTER A PERIOD OF FOUR YEARS.PROVISION OF SECTION 147 OF THE ACT CAST ONUS ON THE AO TO PR OVE FAILURE OF THE ASSESSEE.IF THE AO FAILS TO DO SO,THEN ASSESSMENT PASSED BY HIM IN PURSUANCE OF RE-OPENING NOTICE,LOOSES LEGAL VALIDITY AND SANCTITY.IN THE CASE UNDER CONSIDERATION WHILE RECO RDING THE REASONS,FOR ISSUING NOTICE U/S.148 OF THE ACT,AO HAS NOT MENTIONED AS WHAT WERE THE RELEV ANT FACTS AND HOW THE ASSESSEE HAD FAILED IN NOT DISCLOSING THEM.WHILE FRAMING ORIGINAL ASSESSME NT ORDER,AO HAD TAKEN AN INFORMED DECISION WITH REGARD TO INCOME EARNED ON ACCOUNT OF DEPB AND HAD HELD THAT INCOME EARNED BY IT WAS INTEGRAL PART OF THE PROFITS OR GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING.IT IS NOT THE CASE OF TH E AO THAT ASSESSEE HAD HIDDEN INFORMATION ABOUT THE C LAIM MADE WITH REGARD TO DEPB.THE ISSUE THAT WHETHER THE AMOUNT ATTRIBUTABLE TO DEPB WAS DE RIVED FROM THE INDUSTRIAL UNDERTAKING OR NOT HAD ATTAINED FINALITY,WHEN THE AO HAD PASSED THE OR IGINAL ORDER.SO, THERE WAS NO NEED TO RECONSI -DER THE SAME ISSUE AND THAT ALSO ON THE BASIS OF A N OBJECTION BY THE AUDIT PARTY.WE ARE CONVINCED THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESS EE-COMPANY TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY FOR ASSESSMENT.THEREFORE,REVERSING THE ORDER OF THE FAA,WE DECIDE GROUND NO. 1.1.AND 1.2.,DEALING WITH JURISDICTIONAL ISSUE,IN F AVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILE D BY THE ASSESSEE STANDS ALLOWED. 3 /4 3/ . '5 . '/ 6 . ORDER PRONOUNCED IN THE OPEN C OURT ON 27 TH NOVEMBER,2013 .  . 0( # $ 7 8& 27 , 2013 . 1 9 SD/- SD/- ( . / D.MANMOHAN ) ( '#$% '#$% '#$% '#$% / RAJENDRA) / VICE-PRESIDENT # # # # &' &' &' &' /ACCOUNTANT MEMBER / MUMBAI, 8& /DATE: 27. 11 .2013 PS- A.K.PATEL 6 ITA NO.915/M/2008 MERCK LTD.     . .. . +/: +/: +/: +/: ;#:(/ ;#:(/ ;#:(/ ;#:(/ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / )* 2. RESPONDENT / +,)* 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR B BENCH, ITAT, MUMBAI / :>1 +/ , . . $ . 6. GUARD FILE/ 1 ? ,:/ +/ //TRUE COPY//  / BY ORDER, / ' DY./ASST. REGISTRAR , /ITAT, MUMBAI .