u/s. 254(1) of the Income-tax Act, 1961 (Act)
Rajendra, A.M.:— Challenging the order dated 26.12.11 of CIT(A)-23, Mumbai the assessee has raised following grounds of appeal:
1. That the learned Commissioner of Income Tax Appeals has erred in confirming the reopening of assessment u/s. 147.
2. Your appellant craves leave to add, alter, amend or furnish fresh and detailed grounds of appeals.
Brief Facts
Assessing Officer (AO) completed the assessment u/s. 143(3) r.w.s 147 of the Act on 28.02.2006, computing total taxable income at Rs. 5.82 Crores as against the return income of Rs. 2.46 Crores. The main reason for variation in the income computed was on account of disallowance made by him u/s. 80HHC of the Act, amounting to Rs. 9.85 Crores. As per the AO the entire claim of deduction u/s. 80HHC was on account of DEPB credit received by the assessee during the relevant previous year and same was not allowable as per the provisions of law. During the appellate proceedings, the First Appellate Authority (FAA) held that assessee was not entitled to deduction, that the conditions envisaged under third proviso of the section were not satisfied. The Tribunal, deciding the appeal, directed the AO to follow the ruling of the Special Bench delivered in the case of Topman Exports and Kalpataru Colours and Chemicals. The AO passed the order u/s.143(3) r.w.s. 254 on 30.09.2010 determining the income of the assessee at Rs. 12.32 Crores. As per the AO the assessee did not appear before him nor did it file any submission the AO decided the issue on merits
2. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. In the second round of appeal, before him, it was argued that the AO had erred in reopening the assessment u/s. 147 by issue of notice dated 22.03.2005, that the original assessment was completed u/s.143(3) on 31.03.2003, that the reopening was entirely based on change of opinion about the allowability of deduction u/s. 80HHC on DEPB and DFRC benefits, that the reassessment was completed on the basis of amendment in section 80HHC effected in December 2005, that the retrospective amendment to section 80HHC w.e.f.AY. 1998-99 had come after recording the reasons of reopening by the AO, that the reopening on 26.03.2005 was purely based on change of opinion, that the assessment was completed as per the amended provisions. The assessee placed relied on the order of the Vijay Silk House (Delhi) (ITA/6147/Mum/2006) and Ahuja Exports (ITA/6036/Mum/2008).
3. After considering the submission of the assessee and the assessment order, the FAA held that original assessment order was passed on 31.03.2003, the AO had not allowed reduction of CCS from the direct cost for the purpose of computation of direct cost, that there was no discussion in the assessment order or the working of the deduction by the AO of the nature of incentives, that it could not be said that the AO had considered the issue of DEPB/DFRC and had decided the issue at the time of completion of original assessment, that there is no evidence that the AO had made any enquiry with reference to the nature of incentives, that the then FAA, that during the first round of appeal had not considered the issue of nature of incentives-specifically DEPB/DRFC. The FAA referred to the case of Narayan Das Sugnomal (ITA/7051/Mum/2007 dated 26.05.2009) and held that the facts and circumstances of both the cases were identical. He further held that the AO had cited CBDT Circular as one of the basis for reopening the assessment, that the AO had not considered the nature of DEPB/DFRC incentives, that he had made enquiry about allowability of reducing 10% of CCS from the direct cost of computation, that belief of the AO was justified by the later amendment made, that the matter of Narayan Das Sugnomal (supra) was not considered in the cases of Vijay Silk House (Supra) and Ahuja Exports. The FAA confirmed the order of the AO.
4. Before us, Authorised Representative (AR) contended that amendment to section 28 and section 80HHC was brought in December 2005, that by a retrospective amendment clause 3(c) & 3(d) of section 28 were amending, that reopening notice was issued in March 2005, that at that point of time the law was in favour of the assessee, that it was mere change of opinion he referred to cases of Vijay Silk House (Mumbai) for the AY-2001-02 and 2002-03 (supra) and Ahuja Exports (supra). Departmental Representative (DR) supported the order of the FAA.
5. We have heard the rival submissions and perused the material before us. We find that while reopening the assessment AO has recorded following reasons;
The assessee has filed Return of income for the above-mentioned assessment year(2001-02) declaring total income of Rs. 2,46,44,996/-. Assessment was completed under section 143(3) on 31.03.2003. The assessee has claimed deduction under section 80HHC of Rs. 9,26,20,840/-. It is seen from the working of deduction under section 80HHC and the assessee has included income from sale of DEPB licence, an amount of Rs. 669,72,838/-, while computing the deduction under section 80 HHC. However, DEPB licence is not a license granted under Import (Control) Order, 1955 made under the Import and Export (Control Act, 1947) and hence it is not an incentive covered under clause (iii) of Section 28 of the I.T. Act. As the profit of sale of DEPB licence is not eligible for deduction under section 80 HHC (3). It is also not covered under section 28(iib) as it cannot be called as Cash assistance and under section 28(iic) as it is different from Duty drawback repaid or repayable under Custom and Central Excise Duty Drawback Rule, 1971.
It is also clarified by the CBDT vide File No. 153/93/2004 dated 8th September, 2004 than the profit on sale of DEPB is not eligible for deduction under section 80HHC.
Therefore, I have reason to believe that income chargeable to tax to the extent of Rs. 139,65,238/- has escaped assessment. Issue Notice u/s. 148.
We further find that the retrospective amendment taxing the DEPB incentives was brought o statute in December 2005 whereas the notice for reopening the assessment was issued in March 2005. At that point of time taxing of DEPB was not part of the section 28 or 80HHC. The AO had, during the original assessment order passed u/s. 143(3) of the Act, taken a view and therefore the notice issued by him u/s. 148 for reopening of the assessment would fall under the category of change of opinion. We find that in the case of Ahuja Exports, Vijay Silk Mills and PG Enterprises (93 ITD 138) the issue stand decided in favour of the assessee. In the case of Ahuja Exports (supra) the Tribunal has held as under:
11. We have heard both sides and perused the relevant material on record. From the reasons for reopening, as reproduced above, it is seen that the view point of the learned A.O. at that time was that the receipts on sale of DEPB benefit etc. were to be taxed u/s. 28(iv) of the Act. There is no reference to any retrospective amendment carried out by Taxation Laws (Amendment) Act, 2005 in such reasons. However while framing the assessment the Assessing Officer took recourse to the amendment to section 80HHC and section 28 of Taxation Laws (Amendment) Act, 2005. It is a case in which original assessment was completed u/s. 143(3) on 23.12.2003 and the reopening was done within a period of four years from the end of the relevant assessment year. In order to reopen any assessment it is necessary that there must be reasons to believe on the part of the A.O. to the effect that income chargeable to tax escaped assessment. In the instant case the Assessing Officer did not resort to the amendment to Taxation Laws (Amendment) Act, 2005 for the purpose of reopening the assessment. His opinion was that the receipt on sale of credit benefit/license etc. were to be taxed u/s. 28(iv) of the Act. In other words it constituted change of opinion from the one already found by the A.O. while finalizing the assessment without taking note of the amendment carried out u/s. 28 and 80HHC by the Taxation Laws (Amendment) Act, 2005. It is settled legal position that reassessment cannot be done on the basis of change of opinion. When all the facts were stated by the assessee in the original return and regular assessment was finalized accepting the treatment given to income from the sale of DEPB as such, it was not open to the AO to change his opinion later on for coming to the conclusion that such income was taxable u/s. 28(iv). The situation would have been otherwise if the AO had issued notice of reassessment on the basis of subsequent retrospective amendment leading to the escapement of income, in which case the reassessment would have been justified in such circumstances. As the facts indicate that it is only a case of change of opinion de hors the cognizance of any subsequent retrospective amendment, the reassessment cannot be upheld. The learned A.R. has placed on record a copy of an order passed by the Mumbai Bench of the Tribunal in identical circumstances in Vijay Silk House (Mumbai) Ltd. v. DCIT in ITA No. 6149Mum/2006 for assessment year 2001-2002. Vide order dated 25.6.2010 the Tribunal in the above case has quashed the reassessment in similar circumstance. The relevant discussion has been made in para 2 from where it can be noticed that the original assessment in that case was completed u/s.143(3) and reopening was done by considering sale of DEPB u/s. 28(iv). The learned A.R. has also placed on record another order in the case of Vijay Silk House (Delhi) Limited v. DCIT dated 31.12.2007 in ITA No. 6147/Mum/2006 in which case also similar view has been taken and the reassessment has been quashed. The learned Departmental Representative could not bring on record any fact to distinguish the cases already decided by the Tribunal in similar circumstances. Respectfully following the precedents we hold that the reassessment was wrongly initiated by the A.O. in the instant case. The same is, therefore, set aside. Respectfully following the same, we hold that reopening was not valid. Effective ground of appeal is decided in favour of the assessee.
As a result, appeal filed by the assessee stands allowed.
Order pronounced in the open court on 30, March, 2015.
Taxation Laws (Amendment) Act, 2005