Divya Industries, Goa v. ITO, Panaji

ITA 106/PAN/2006 | 2001-2002
Pronouncement Date: 14-05-2010 | Result: Allowed

Appeal Details

RSA Number 10620114 RSA 2006
Bench Delhi
Appeal Number ITA 106/PAN/2006
Duration Of Justice 3 year(s) 11 month(s) 15 day(s)
Appellant Divya Industries, Goa
Respondent ITO, Panaji
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 14-05-2010
Date Of Final Hearing 04-05-2010
Next Hearing Date 04-05-2010
Assessment Year 2001-2002
Appeal Filed On 29-05-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I: NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NO. 106/PNJ/2006 ASSESSMENT YEAR: 2001-02 DIVYA INDUSTRIES 325 KUNDIAM INDUSTRIAL ESTATE KUNDIAM GOA VS. ITO WARD 2(1) PANAJI GOA. (APPELLANT) (RESPONDENT) & ITA NOS. 198 TO 202/PNJ/2005 ASSESSMENT YEARS: 1997-98 TO 2001-02 DIVYA INDUSTRIES 325 KUNDIAM INDUSTRIAL ESTATE KUNDIAM GOA VS. ITO WARD 2(1) PANAJI GOA. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SANJAY KUMAR GARG CA RESPONDENT BY: SH. G.S. SAHOTA & M. MOHSIN ALAM DR O R D E R PER BENCH : ITA NO. 106/PNJ/2005 : - IT IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE C UMULATIVE ORDER PASSED BY CIT U/S 263 DATED 29.03.06 IN RESPECT OF ASSESSM ENT YEARS 1997-98 TO 2001-02. IT WAS SEEN THAT IN RESPECT OF ASSESSM ENT YEARS 1997-98 TO 2000-01 THE APPEALS FILED BY THE ASSESSEE AGAINST V ERY IMPUGNED ORDER 2 ITA NOS. 106 198 TO 202/PNJ/2005 WERE ALLOWED BY THE COORDINATE BENCH VIDE ORDER DAT ED 02.01.08 IN ITA NOS. 102 TO 105/PNJ/2006 THE COPY OF WHICH WAS PLA CED ON OUR RECORD DURING THE COURSE OF HEARING BY THE LD. AR OF THE A SSESSEE. ITA NOS. 198 TO 202/PNJ/2005 : - THESE APPEALS ARE DIRECTED AGAINST SEPARATE ORDERS OF CIT(A) DATED 16.09.05 FOR A.Y. 1997-98 TO 2001-02. IN THESE APP EALS THE COMMON ISSUES INVOLVED ARE REGARDING VALIDITY OR OTHERWISE OF REASSESSMENT PROCEEDINGS AND REST ISSUE IS REGARDING CLAIM OF DE PRECIATION WHILE COMPUTING THE DEDUCTION U/S 80IB. IT MAY BE MENTIO NED HERE THAT THE ISSUES REGARDING VALIDITY OR OTHERWISE REASSESSMENT PROCEEDINGS IS NOT THERE IN A.Y. 2001-02 I.E. ITA NO. 202/PNJ/05. 1. THE FACTS RELATING TO THESE APPEALS ARE COMMON E XCEPT THE DIFFERENCE THAT FOR A.Y. 2000-01 THERE IS NO REASSE SSMENT PROCEEDINGS. 2. THESE APPEALS WERE ARGUED TOGETHER AND IT WAS NO T DISPUTED BY LD. AR THAT THE FACTS INVOLVED IN THE YEARS UNDER C ONSIDERATION ARE SAME WHERE THE REASSESSMENT PROCEEDINGS ARE INVOLVED. T HEREFORE FOR THE SAKE OF CONVENIENCE WE WILL REFER TO THE FACTS RELA TING TO A.Y. 1997-98 AND THE DECISION TAKEN WILL BE APPLICABLE TO ALL TH E OTHER YEARS. 3. ORIGINALLY ASSESSMENT IN ALL THESE YEARS WERE MA DE U/S 143(1) AND REASSESSMENT PROCEEDINGS WERE INITIATED FOR THE REASON THAT 3 ITA NOS. 106 198 TO 202/PNJ/2005 ASSESSEE DID NOT CLAIM DEPRECIATION WHILE CLAIMING QUANTUM OF DEDUCTION U/S 80IA/80IB. 4. THE REPLY GIVEN BY ASSESSEE OBJECTING THE INITIA TION OF REASSESSMENT PROCEEDING WAS AS UNDER: - YOU HAVE STATED IN THE ABOVE LETTER THAT THE NON CONSIDERATION OF DEPRECIATION WHILE COMPUTING THE Q UANTUM OF DEDUCTION ADMISSIBLE U/S 80HHC AND 80I AS YOUR O NLY REASONS TO BELIEVE THAT INCOME HAS ESCAPED ASSESSME NT WITHIN THE MEANING OF SEC. 147. KINDLY NOTE THAT NET CLAIMING DEPRECIATION FOR THE SAID YEARS HAS RESULTED IN A HIGHER GROSS TOTAL INCOME BEING O FFERED TO TAX. THEREFORE THERE CAN BE NO INCOME ESCAPING ASSESSMENT BY VIRTUE OF NOT CLAIMING DEPRECIATION F OR THE SAID YEARS. WE AWAIT YOUR VIEWS IN THE ABOVE MATTER. HOWEVER IN THE MEAN TIME KINDLY ADJOURN OUR NEXT SCHEDULED APPEAR ANCE ON THE 21 ST AUGUST 2003 TILL THE ABOVE MATTER IS RESOVED. 5. IN RESPONSE TO SUCH REPLY THE OBSERVATIONS OF AO ARE AS UNDER: - THE ASSESSEES CONTENTION THAT NOT CLAIMING DEPREC IATION FOR THE SAID YEAR HAS RESULTED IN A HIGHER GROSS TOTAL INCOME BEING OFFERED TO TAX AND THERE CAN BE NO INCOME ESC APING ASSESSMENT BY VIRTUE OF NOT CLAIMING DEPRECIATION I S NOT CORRECT AS BECAUSE THE DEPRECIATION HAS TO BE DEDUC TED WHILE COMPUTING PROFITS AND BEFORE DEDUCTION UNDER CHAPTER VIA. BY NOT DEDUCTING DEPRECIATION THE ASSESSEE IS CLAIMING NOT ONLY HIGHER BENEFIT U/S 80IA/80IB BUT ALSO TRYI NG TO CLAIM ADDITIONAL BENEFIT OF CARRYING FORWARD HIGHER WDV F OR FUTURE CLAIM OF DEPRECIATION WHICH IS NOT IN ORDER AS PER LAW. 4 ITA NOS. 106 198 TO 202/PNJ/2005 6. THEREAFTER LD. AO WHILE REFERRING TO VARIOUS DEC ISIONS INCLUDING INTER-ALIA THE JURISDICTIONAL HIGH COURT IN THE CAS E OF INDIAN RAYON CORPORATION LTD. VS. CIT 261 ITR 98 HAS HELD THAT W HILE COMPUTING DEDUCTION U/S 80IA/80IB THE DEPRECIATION HAS TO BE CONSIDERED TO ARRIVE AT THE ELIGIBLE AMOUNT OF DEDUCTION AND ACCORDINGLY HE COMPUTED THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80IA/80IB A T A SUM OF RS. 18 92 604/- IN PLACE OF 21 83 603/- (REFERENCE CAN BE MADE TO THE RETURN FILED BY THE ASSESSEE FOR A.Y. 1997-98) COPY OF WHI CH IS PLACED AT PAGES 24 TO 33 OF THE PAPER BOOK. 7. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE C IT(A). THE REASSESSMENT PROCEEDINGS WERE AGITATED ON THE BASIS OF DECISION OF FULL BENCH OF HONBLE DELHI HIGH COURT IN THE CASE OF CI T VS. KELVINATOR INDIA LTD. 256 ITR 1. IT WAS CONTENDED THAT THERE WERE C ONFLICTING DECISIONS OF DIFFERENT BENCHES OF ITAT AT MUMBAI AND ACCORDING T O REASONS RECORDED THE AO COULD NOT HAVE SAID TO HAVE FORM A REASONABL E BELIEF TO HOLD THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. IT WAS SUBMITTED THAT NO MATERIAL WAS AVAILABLE WITH THE AO TO DRAW SUCH INFERENCE. IT WAS SUBMITTED THAT DECISION OF BOMBAY HIGH COURT IN THE CASE OF INDIAN RAYON VS. DCIT (SUPRA) WAS DISTINGUISHABLE ON FACTS . IT WAS SUBMITTED THAT IN VIEW OF DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT VS. MAHINDRA MILLS 243 ITR 56 AND SUBSEQUENT INSERTION OF EXPLANATION 5 TO SEC. 32 W.E.F. 1.4.02 IT IS ABUNDANTLY CLEAR THAT D URING THE YEARS UNDER CONSIDERATION DEPRECIATION COULD NOT BE TRUSTED UPO N THE ASSESSEE. RELIANCE WAS ALSO PLACED ON THE VARIOUS OTHER JUDIC IAL PRONOUNCEMENTS. 5 ITA NOS. 106 198 TO 202/PNJ/2005 LD. CIT(A) HAS REJECTED THESE SUBMISSIONS FIRSTLY; ON THE GROUND THAT THOUGH THE INITIATION OF REASSESSMENT PROCEEDINGS I S BY WAY OF A NOTICE ISSUED BEYOND THE PERIOD OF 4 YEARS FROM THE END OF THE ASSESSMENT YEAR BUT THESE ASSESSMENTS EARLIER WERE FRAMED U/S 143(1) HENCE PROVISO TO SEC. 147 WAS NOT APPLICABLE. SECONDLY; ON THE GROUND THAT W.E.F. 1.4.1989 THE LAW REGARDING REOPENING OF ASSE SSMENT HAD CONSIDERABLY CHANGED AND ACCORDING TO THE PRESENT L AW IT WAS NOT NECESSARY TO SHOW THE FAILURE OF THE ASSESSEE TO MA KE A RETURN OR TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSAR Y FOR ASSESSMENT AND THUS HE UPHELD THE VALIDITY OF REASSESSMENT PROCEE DINGS. 8. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY L D. AR THAT IN VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. KELVINATOR INDIA LTD. (SUPRA) WHICH DECISION IS UPHELD BY HON BLE SUPREME COURT RECENTLY THE REASSESSMENT PROCEEDINGS BASED ON CH ANGE OF OPINION CANNOT BE HELD VALID. HE SUBMITTED THAT ALL THE PA RTICULARS WERE DULY DISCLOSED IN THE RETURN OF INCOME AND THE DOCUMENTS FILED WITH THE SAID RETURN AND THEREFORE THERE WAS A COMPLETE DISCLOS URE OF ALL THE FACTS. THEREFORE INITIATION OF REASSESSMENT PROCEEDINGS W AS BASED ON MERE CHANGE OF OPINION. IT WAS FURTHER SUBMITTED THAT FOR VALID INITIATION OF REASSESSMENT PROCEEDINGS THERE SHOULD BE A NEW MATE RIAL WITH THE AO ON WHICH HE COULD FORMED A BELIEF THAT THE INCOME O F THE ASSESSEE HAD ESCAPED ASSESSMENT. HE SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR 100% DEDUCTION U/S 80IA/ 80IB THEREFORE THERE COU LD NOT BE ANY INCOME ASSESSABLE TO TAX WHICH COULD HAVE ESCAPED ASSESSME NT IRRESPECTIVE OF 6 ITA NOS. 106 198 TO 202/PNJ/2005 THE FACT THAT WHETHER OR NOT THE DEPRECIATION IS CL AIMED BY THE ASSESSEE. HE SUBMITTED THAT EVEN THE CLAIM OF DEPRECIATION BY THE ASSESSEE WOULD NOT HAVE RESULTED IN ANY EXTRA INCOME IN VIEW OF 10 0% DEDUCTION. THEREFORE THERE WAS NO SCOPE FOR ANY INCOME CHARGE ABLE TO TAX WHICH COULD HAVE ESCAPED. THUS HE SUBMITTED THAT INITIA TION OF REASSESSMENT PROCEEDING IN THE PRESENT CASES SHOULD BE HELD INVA LID. 9. ON MERITS HE FAIRLY SUBMITTED THAT THE ISSUE IS COVERED AGAINST ASSESSEE BY SPL. BENCH DECISION IN THE CASE OF VAHI D PAPER 98 ITD 165. 10. ON THE OTHER HAND LD. DR SUBMITTED THAT THE RE ASSESSMENT PROCEEDINGS IN THE PRESENT CASE HAVE RIGHTLY BEEN U PHELD BY LD. CIT(A). HE SUBMITTED THAT THE ASSESSMENT IN THE PRESENT CAS ES WERE FRAMED U/S 143(1) AND THEREFORE IT COULD NOT BE CLAIMED BY T HE ASSESSEE THAT IT IS A CASE OF CHANGE OF OPINION. IT WAS SUBMITTED THAT T HE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR IS WITH REGARD TO THE CASES WHERE ASSESSMENT ORIGINALLY ARE FRAMED U/S 143(3) T HEREFORE RATIO OF THAT DECISION CANNOT BE APPLIED TO THE FACTS OF THE PRES ENT CASE. HE SUBMITTED THAT THE APPROPRIATE DECISION UPON WHICH THE RELIANCE CAN BE PLACED BY THE REVENUE IS THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF ACIT VS. RAJESH JHAWERI STOCK BROKERS P. LT D. 291 ITR 500 (SC) WHEREIN THEIR LORDSHIPS AFTER CONSIDERING THE AMENDED PROVISIONS OF SEC. 147 SUBSTITUTED W.E.F. 1.4.1989 HAVE HELD THAT THE SUBSTITUTED PROVISIONS ARE SUBSTANTIALLY DIFFERENT FROM THE PRO VISIONS AS THEY STOOD PRIOR TO SUCH AMENDMENT. THEIR LORDSHIPS HAVE HELD THAT SO LONG AS THE 7 ITA NOS. 106 198 TO 202/PNJ/2005 INGREDIENTS OF SEC. 147 ARE FULFILLED THE AO IS FR EE TO INITIATE PROCEEDINGS U/S 147 AND FAILURE TO TAKE STEPS U/S 143(3) WILL N OT RENDER THE AO POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMATION U/S 143(1) HAD BEEN ISSUED. HE SUBMITTED THAT THEIR LO RDSHIPS OF HONBLE SUPREME COURT IN THAT CASE HAD DISCARDED THE APPLIC ATION OF DOCTRINE OF CHANGE OF OPINION IN A CASE WHERE ORIGINALLY ASSE SSMENT IS MADE U/S 143(1)(A). 11. THUS RELYING UPON THE ORDER OF LD. CIT(A) IT W AS PLEADED BY LD. DR THAT REASSESSMENT PROCEEDINGS WERE VALIDLY INITIATE D AND HIS ORDER IN THIS REGARD SHOULD BE UPHELD. 12. ON MERITS HE SUBMITTED THAT THE ISSUE IS COVER ED IN FAVOUR OF DEPARTMENT BY THE AFOREMENTIONED DECISION OF SPL. B ENCH IN THE CASE OF VAHID PAPER CONVERTERS VS. ITO AND ALSO THE DECISIO N OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIAN RAY ON CORPORATION LTD. (SUPRA) WHICH IS ALSO RELIED BY AO IN PARA 15 OF TH E IMPUGNED ASSESSMENT ORDER. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. THE ARGUMENT OF LD. AR THAT REASSESSMENT PROCEEDINGS IN THE PRESENT CASE SHOULD BE HELD TO B E INVALID ON THE GROUND OF CHANGE OF OPINION CANNOT BE ACCEPTED IN VIEW OF THE AFOREMENTIONED DECISION OF HONBLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAWERI STOCK BROKERS P. LTD. (SUPRA) W HEREIN THEIR LORDSHIPS 8 ITA NOS. 106 198 TO 202/PNJ/2005 AFTER CONSIDERING THE PROVISIONS OF SEC. 143(1)(A) HAVE OBSERVED THAT THERE IS NO QUESTION OF CHANGE OF OPINION IN A CASE WHERE ASSESSMENT IS MADE U/S 143(1)(A) AS AO HAD NO POWER TO GO BEHIND THE RETURN ACCOUNTS OR DOCUMENTS EITHER IN ALLOWING OR IN DIS ALLOWING DEDUCTIONS ALLOWANCE OR RELIEF. THEIR LORDSHIPS HAVE NOTED TH AT INTIMATION US/ 143(1)(A) WAS GIVEN WITHOUT PREJUDICE TO THE PROVIS IONS OF 143(2) AND DEMAND NOTICE ISSUED U/S 146 IN PURSUANCE THEREOF D ID NOT PER SAY PRECLUDE THE RIGHT OF AO TO PROCEED U/S 143(2). IT IS FURTHER HELD THAT THE SCOPE AND EFFECT OF SEC. 147 AS SUBSTITUTED W.E.F. 1 ST APRIL 1989 AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFFERENT FRO M THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION AND IN THE SUBSTIT UTED PROVISIONS OF SEC. 147 THE EXISTENCE OF ONLY ONE CONDITION THAT AO MUS T HAVE REASONS TO BELIEVE THAT INCOME PROFIT OR GAINS CHARGEABLE INC OME TAX HAVE ESCAPED ASSESSMENT HAS TO BE FULFILLED AND IF IT IS FULFILL ED THAT WILL CONFER JURISDICTION TO REOPEN THE ASSESSMENT IN THE CASE W HERE MAIN PROVISIONS OF SEC. 147 ARE APPLICABLE. IT IS FURTHER HELD THA T SO LONG AS INGREDIENTS OF SEC. 147 ARE FULFILLED THE AO IF FREE TO INITIATE PROCEEDINGS U/S 147 AND FAILURE TO TAKE STEPS U/S 143(3) WILL NOT RENDER TH E AO POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMAT ION U/S 143(1) HAD BEEN ISSUED. THE RELEVANT OBSERVATIONS OF THEIR LO RDSHIPS FROM THE SAID DECISION ARE REPRODUCED BELOW: - IT MAY BE NOTED ABOVE THAT UNDER THE FIRST PROVISO TO THE NEWLY SUBSTITUTED SECTION 143(1) WITH EFFECT FROM 1-6-1999 EXCEPT AS PROVIDED IN THE PROVISION ITSELF THE ACKNOWLEDGEMENT OF THE RETURN SHALL BE DEEMED TO BE AN INTIMATION UNDER SECTION 143(1) WHERE (A) EITHER NO SUM IS PAYABLE BY THE ASSESSEE OR (B) NO REFUND IS DUE TO HIM. IT IS 9 ITA NOS. 106 198 TO 202/PNJ/2005 SIGNIFICANT THAT THE ACKNOWLEDGEMENT IS NOT DONE BY ANY ASSESSING OFFICER BUT MOSTLY BY MINISTERIAL STAFF. CAN IT BE SAID THAT ANY ASSESSMENT IS DONE BY THEM ? THE RE PLY IS AN EMPHATIC NO. THE INTIMATION UNDER SECTION 143(1)( A) WAS DEEMED TO BE A NOTICE OF DEMAND UNDER SECTION 156 FOR THE APPARENT PURPOSE OF MAKING MACHINERY PROVISIONS REL ATING TO RECOVERY OF TAX APPLICABLE. BY SUCH APPLICATION ONL Y RECOVERY INDICATED TO BE PAYABLE IN THE INTIMATION BECAME PE RMISSIBLE. AND NOTHING MORE CAN BE INFERRED FROM THE DEEMING PROVISION. THEREFORE THERE BEING NO ASSESSMENT UNDER SECTION 143(1)(A) THE QUESTION OF CHANGE OF OPINIO N AS CONTENDED DOES NOT ARISE. IT WAS FURTHER OBSERVED: 17. THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM 1-4-1989 AS ALSO SECTIONS 148 TO 152 A RE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. UNDER THE OLD PROVISIONS OF S ECTION 147 SEPARATE CLAUSES (A) AND (B) LAID DOWN THE CIRCUMST ANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS COULD BE ASSESSED OR REASSESSED. T O CONFER JURISDICTION UNDER SECTION 147(A) TWO CONDIT IONS WERE REQUIRED TO BE SATISFIED FIRSTLY THE ASSESSING OFFI CER MUST HAVE REASON TO BELIEVE THAT INCOME PROFITS OR GAINS CHARGEABLE TO INCOME TAX HAVE ESCAPED ASSESSMENT A ND SECONDLY HE MUST ALSO HAVE REASON TO BELIEVE THAT S UCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER (I) OMI SSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT OF THAT YEAR. BOTH THESE CONDITIONS WERE CONDITIONS PRECEDENT TO BE SATISFIED BEFORE THE ASSESSING OFFICER COULD HAVE J URISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 147(A). 10 ITA NOS. 106 198 TO 202/PNJ/2005 BUT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRST CONDITION SUFFICES. IN OTHER WORD S IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT IT CONFERS JURIS DICTION TO REOPEN THE ASSESSMENT. IT IS HOWEVER TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED IF THE CASE FALLS WITHIN THE AMBIT OF THE PROVISO TO SECTION 147. THE CASE AT HA ND IS COVERED BY THE MAIN PROVISION AND NOT THE PROVISO. 18. SO LONG AS THE INGREDIENTS OF SECTION 147 ARE F ULFILLED THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDIN G UNDER SECTION 147 AND FAILURE TO TAKE STEPS UNDER SECTION 143(3) WILL NOT RENDER THE ASSESSING OFFICER POWERL ESS TO INITIATE REASSESSMENT PROCEEDINGS EVEN WHEN INTIMAT ION UNDER SECTION 143(1) HAD BEEN ISSUED. (EMPHASIS OURS) 14. THE DECISION IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) CANNOT BE APPLIED TO THE FACTS OF THE PRESENT CASE AS IN A LL THE PRESENT CASES THE ORIGINAL ASSESSMENTS ARE FRAMED U/S 143(1)(A) AND I N THAT CASE THE ASSESSMENTS WERE FRAMED U/S 143(3). 15. IT CAN BE SEEN FROM COPY OF THE NOTICE U/S 148 IN RESPECT OF A.Y. 1997-98 (COPY PLACED AT PAGE 65 OF THE PAPER BOOK) THE DATE OF ISSUE IS 20.2.03. IT IS TO BE SEEN THAT ON THAT DATE WHETHE R THERE WAS ANY MATERIAL WITH THE AO TO JUSTIFY THE REASON OF BELIE F THAT INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. IT IS OBSERVED TH AT THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF INDIAN RAY ON CORPORATION LTD. VS. CIT(SUPRA) WAS RENDERED BY HONBLE HIGH COURT O N 22.01.03 WHEREIN THEIR LORDSHIPS HAVE OBSERVED THAT ONE CANN OT EXCLUDE 11 ITA NOS. 106 198 TO 202/PNJ/2005 DEPRECIATION ALLOWANCE WHILE COMPUTING PROFIT DERIV ED FROM NEWLY ESTABLISHED UNDERTAKING FOR COMPUTING DEDUCTIONS UN DER CHAPTER VIA AND IT WAS HELD THAT ASSESSEES CLAIM FOR ALLOWANCE OF DEDUCTION U/S 80HH WITHOUT TAKING INTO CONSIDERATION THE CURRENT DEPRE CIATION WAS TO BE REJECTED. THUS PRIOR TO THE ISSUE OF NOTICE U/S 1 48 THERE WAS A DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN WHICH THE P ROPOSITION WAS LAID DOWN THAT FOR CLAIMING DEDUCTIONS UNDER CHAPTER VIA THE DEPRECIATION ALLOWANCE HAS TO BE ALLOWED AND WHILE HOLDING SO TH EIR LORDSHIPS HAVE CONSIDERED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAHINDRA MILLS (SUPRA) ON WHICH THE ASSESSEE IS PLA CING THE RELIANCE. THEREFORE THERE WAS A NEW MATERIAL WITH THE AO UPO N WHICH IT COULD BE SAID THAT DUE TO THE WRONG CLAIM MADE BY THE ASSESS EE ITS INCOME HAD ESCAPED. HERE THE ARGUMENT OF LD. AR IS THAT AS DE DUCTION U/S 80IA/80IB IS ALLOWABLE AT THE RATE OF 100% NO INCOME COULD H AVE ESCAPED. HERE IT WILL BE RELEVANT TO OBSERVE THAT THE EXPLANATION 1 DEFINES THE CASES WHICH SHALL BE DEEMED TO BE THE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND THOSE DEEMED CASES OF ES CAPEMENT OF INCOME HAVE BEEN DEFINED AS FOLLOW: - (A) WHERE INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED; OR (B) WHERE SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RATE; OR (C) WHERE SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT OR UNDER THE INDIAN INCOME TAX ACT 1922 (11 OF 1922); OR (D) WHERE EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE HAS BEEN COMPUTED. 12 ITA NOS. 106 198 TO 202/PNJ/2005 16. HERE IT IS THE CONTENTION OF LD. AR THAT EVEN I F DEPRECIATION IS ALLOWED THEN ALSO THE WHOLE OF THE INCOME IS ALLOWA BLE AS DEDUCTION AND THEREFORE THERE IS NO ESCAPEMENT OF INCOME. BUT A S PER EXPLANATION 1 EVEN IN THE CASES WHERE INCOME HAS BEEN MADE SUBJEC T OF EXCESSIVE RELIEF IS A DEEMED CASE OF ESCAPEMENT OF INCOME. I T HAS BEEN ALREADY OBSERVED IN THE ABOVE PART OF THIS ORDER THAT IN AB SENCE OF CLAIM OF DEPRECIATION THE DEDUCTION ALLOWABLE TO ASSESSEE W AS A SUM OF RS. 21 83 603/- WHEREAS THE DEDUCTION ALLOWED IN THE A SSESSMENT ORDER IS 18 92 604/-. IN ANY CASE THE DEDUCTIBLE AMOUNT AS PER ACT IS LESS THAN THE AMOUNT CLAIMED BY THE ASSESSEE. THUS IT COULD NOT BE SAID THAT IN THE PRESENT CASE THERE IS NO ESCAPEMENT OF INCOME. IF THIS PLEA OF THE ASSESSEE IS ACCEPTED THEN THERE IS NO GRIEVANCE AR ISES TO THE ASSESSEE TO FIGHT THIS GROUND AS THAT WILL BE ACADEMIC FOR T HE ASSESSEE BECAUSE ACCORDING TO THAT ARGUMENT NO TAX IS INVOLVED. BUT THIS ARGUMENT CANNOT BE ACCEPTED ALSO ON ANOTHER GROUND THAT IF THE INCO ME IS DETERMINED WITHOUT CLAIMING OF DEPRECIATION THEN THE WDV OF TH E ASSETS ON WHICH THE DEPRECIATION IS NOT CLAIMED WILL REMAIN SAME AND IN THE YEARS WHEN ASSESSEE IS NOT ENTITLED TO CLAIM SUCH DEDUCTION H E WILL BE ENJOYING HIGHER BENEFIT OF THE DEPRECIATION WHICH IS NOT ENV ISAGED IN THE ACT AS PROFIT OF EACH YEAR HAS TO BE COMPUTED AS PER PROVI SIONS OF THE ACT AND THE DEPRECIATION BEING CHARGE ON SUCH INCOME IS TO BE ALLOWED PARTICULARLY WHEN IT IS A CASE OF CLAIM OF DEDUCTIO N UNDER CHAPTER VIA. THEREFORE IT IS ALSO A CASE OF ESCAPEMENT OF INCOM E THE EFFECT OF WHICH MAY NOT BE FOR THE YEAR UNDER CONSIDERATION BUT THE ASSESSEE IS POSTPONING THAT EFFECT IN HIS FAVOUR FOR THE FORTHC OMING PERIOD. 13 ITA NOS. 106 198 TO 202/PNJ/2005 17. IN VIEW OF ABOVE DISCUSSION AS THERE WAS JURIS DICTIONAL HIGH COURT DECISION EXPRESSING THE OPINION THAT DEPRECIATION W AS TO BE CONSIDERED IN THE CASES WHERE DEDUCTION IS CLAIMED UNDER CHAPT ER VIA AND THE SAID DECISION WAS EXISTING BEFORE THE ISSUANCE OF NOTICE U/S 148 THEREFORE IT CANNOT BE SAID THAT THE CONDITION REGARDING EXISTEN CE OF MATERIAL AND CONDITION REGARDING ESCAPEMENT OF INCOME WAS NOT FU LFILLED AS THE AO COULD FORM A REASONABLE BELIEF THAT INCOME OF THE A SSESSEE FOR THE YEARS UNDER CONSIDERATION HAD ESCAPED ASSESSMENT. THUS IT IS HELD THAT CIT(A) WAS RIGHT IN HOLDING THAT REASSESSMENT PROCE EDINGS WERE VALIDLY INITIATED. 18. SO AS IT RELATES TO MERITS NOT ONLY THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISION OF SPL. BENCH IN THE CASE O F VAHID PAPER CONVERTERS (SUPRA) BUT THE ISSUE IS COVERED AGAINST ASSESSEE BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F INDIAN RAYON CORPORATION LTD. (SUPRA) AND THIS DECISION WAS ALSO CONSIDERED BY THE SPL. BENCH IN PARA 40 OF THE ORDER TO COME TO A CON CLUSION THAT DEPRECIATION HAS TO BE ALLOWED IRRESPECTIVE OF THE FACT THAT WHETHER IT IS CLAIMED BY THE ASSESSEE OR NOT WHERE THE QUESTION O F DEDUCTION U/S 80HH 80IA 80IB ETC. IS INVOLVED. 19. IN THIS VIEW OF THE SITUATION ON MERITS THE GR OUNDS OF THE ASSESSEE FOR ALL THESE YEARS ARE DISMISSED. 14 ITA NOS. 106 198 TO 202/PNJ/2005 20. IN THE RESULT ALL THESE APPEALS ARE DISMISSED. 21. ITA NO. 106 : - DURING THE COURSE OF HEARING IT WAS BROUGHT TO OUR NOTICE BY LD. AR THAT IMPUGNED ORDER OF CIT WAS A CUMULATIVE ORDER FOR AS SESSMENT YEARS 1997-98 TO 2001-02. IT WAS SUBMITTED THAT IN RESPE CT OF ASSESSMENT YEARS 1997-98 TO 2000-01 THE APPEALS HAVE BEEN DECI DED BY TRIBUNAL VIDE ORDER DATED 02.01.08 IN ITA NOS. 102/PNJ/2006 TO 105/PNJ/2006. HE HAS PLACED BEFORE US COPY OF THE SAID ORDER. IT WAS SUBMITTED THAT THIS APPEAL OF THE ASSESSEE IS COVERED BY THE SAID DECISION OF TRIBUNAL. 22. ON THE OTHER HAND LD. DR RELYING ON THE ORDER OF CIT PLEADED THAT THE ORDER PASSED BY THE AO U/S 143(3) WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE AS AO DID NO T PROPERLY EXAMINE THE ISSUE REGARDING ALLOWBILITY OR OTHERWISE OF DEDUCTI ON U/S 80IB. THUS HE PLEADED THAT CIT HAS RIGHTLY INVOKED HIS POWER U/S 263 AND HIS ORDER SHOULD BE UPHELD. 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ON IN THE LIGHT OF MATERIAL PLACED BEFORE US. WE HAVE GONE THROUGH TH E ORDER OF LD. CIT AND IT IS FOUND THAT THE REASONS GIVEN BY HIM TO IN VOKE SEC. 263 IN RESPECT OF ASSESSMENT YEARS 1998-99 1999-2000 200 0-01 & 2001-02 ARE ALMOST SAME AND THESE HAVE BEEN REPRODUCED AT P AGE 2 OF THE IMPUGNED ORDER WHICH FOR THE SAKE OF CONVENIENCE IS REPRODUCED BELOW: AS THE FINDINGS OF FACT WERE AVAILABLE ON RECORD D URING THE PROCEEDINGS FOR THE A.Y. 2002-03 THE PREVIOUS FIVE YEARS 15 ITA NOS. 106 198 TO 202/PNJ/2005 ASSESSMENTS WERE EXAMINED AND IT WAS FOUND BY THE A O THAT VARIOUS CONDITIONS FOR ALLOWANCE OF DEDUCTION U/S 80IB WERE NOT SATISFIED IN ALL THE FIVE YEARS. HENCE T HE PROPOSALS U/S 263 HAVE BEEN PUT UP. THE LIST OF THESE SECTIO NS IN EACH YEAR IS AS FOLLOWS: A.Y. 1997-98 MANUFACTURING ACTIVITY APPEARS TO BE MAINLY DONE B Y GETTING JOB WORK THROUGH VARIOUS OTHER PARTIES. TH ERE ARE VARIOUS CONTRADICTIONS IN THE DESCRIPTION OF MANUFA CTURING PRODUCTS. SECONDLY THE FACTORY BUILDING IS SHOWN AS WORK IN PROGRESS. HENCE THERE WAS APPARENTLY NO PLACE EXC EPT A GUESTHOUSE TAKEN ON HIRE WHERE THE ACTIVITY COULD H AVE BEEN CARRIED OUT. THE PLANT & MACHINERY ETC. SHOWN WEE SUBSTANTIAL HENCE IT IS NOT CLEAR HOW THEY WERE ACCOMMODATED IN A GUESTHOUSE. FURTHER WAGE REGIST ER WAS NOT PRODUCED AND IT WAS SEEN THAT AS PER RECORD 10 WORKERS HAD NOT BEEN EMPLOYED IN THE MANUFACTURING PROCESS. A.Y. 1998-99 THE MANUFACTURING ACTIVITY APPEARED TO BE THROUGH JOB WORK GOT DONE THROUGH OTHER PARTIES AND THE NATURE OF ITS OWN ACTIVITY WAS NOT CLEAR. IT WAS ALSO NOT CLEAR WHETHER 10 OR MORE WORKERS WERE EMPLOYED IN THE CONCERN. A.Y. 1999-2000 THE MANUFACTURING ACTIVITY APPEARED TO BE THROUGH JOB WORK GOT DONE THROUGH OTHER PARTIES AND THE NATURE OF ITS OWN ACTIVITY WAS NOT CLEAR. IT WAS ALSO NOT CLEAR WHETHER 10 OR MORE WORKERS WERE EMPLOYED IN THE CONCERN. A.Y. 2000-01 THE MANUFACTURING ACTIVITY APPEARED TO BE THROUGH JOB WORK GOT DONE THROUGH OTHER PARTIES AND THE NATURE OF ITS OWN ACTIVITY WAS NOT CLEAR. IT WAS ALSO NOT CLEAR WHETHER 10 OR MORE WORKERS WERE EMPLOYED IN THE CONCERN. A.Y. 2001-02 16 ITA NOS. 106 198 TO 202/PNJ/2005 THE MANUFACTURING ACTIVITY APPEARED TO BE THROUGH JOB WORK GOT DONE THROUGH OTHER PARTIES AND THE NATURE OF ITS OWN ACTIVITY WAS NOT CLEAR. IT WAS ALSO NOT CLEAR WHETHER 10 OR MORE WORKERS WERE EMPLOYED IN THE CONCER. 24. IN THIS VIEW OF THE SITUATION AS THE REASONS T O INVOKE SEC. 263 BEING PERIMATERIA IN RESPECT OF ASSESSMENT YEARS 19 98-99 TO 2001-02 THE ABOVE DECISION OF TRIBUNAL IN RESPECT OF THESE YEARS WILL BE FULLY APPLICABLE. IN THE AFOREMENTIONED DECISION THE TRI BUNAL HAS HELD THAT CIT WAS NOT JUSTIFIED IN ASSUMING JURISDICTION U/S 263 HENCE HIS ORDER FOR A.Y. 1997-98 TO 2000-01 WAS QUASHED. FOR THE SAKE OF CONVENIENCE THE FINDINGS OF THE TRIBUNAL FOR THESE YEARS ARE REPROD UCED BELOW: - 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD CAREFULLY. THE ITAT IN THE CASE OF MRS. KHATIZA S. OOMERBHOY VS. ITO MUMBAI 101 TTJ 1095 ANALYZED IN DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AS WELL AS HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE O F GABRIEL INDIA LTD. AND HAS PROPOUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN U/S 263. THE FUNDAMENTAL PRINCIPLE WHICH EMERGE FROM THE ABOVE CASES MAY BE SUMMARIZED BELOW (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. 17 ITA NOS. 106 198 TO 202/PNJ/2005 (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW. (VI) IF WHILE MAKING THE ASSESSMENT THE AO EXAMINES THE ACCOUNTS MAKES ENQUIRIES APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME THE CIT WHILE EXERCISING HIS POWER U/S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AT A CONCLUSION SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT BEFORE EXERCISING HIS JURISDICTION U/S 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO 18 ITA NOS. 106 198 TO 202/PNJ/2005 ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. IN THE LIGHT OF THE ABOVE PRINCIPLE IF WE EXAMINE T HE RECORD CAREFULLY THEN IT WILL REVEAL THAT THE ONLY DISPUTE BEFORE THE LD. AO WAS IN RESPECT OF DEDUCTION ADMISSIBLE U/S 80IA & 80IB. THE ASSESSEE HAD MADE A CLAIM OF SUCH DEDUCTION IN THE RETURN FLED BY IT. THE CLAIM WAS FIRSTLY ACCEPTED AS IT IS WHEN THE RETURNS WERE PROCESSED ONLY U/S 143(1)(A) OF TH E ACT. THE LD. AO RECORDED REASONS FOR REOPENING OF THE ASSESSMENT ONLY WITH A VIEW THAT WRONG CLAIM OF DED UCTION U/S 80IA & 80IB OF THE ACT WAS MADE. HE REOPENED T HE ASSESSMENT AND EXAMINED THE CLAIM OF ASSESSEE. ALL L THE FACTS REGARDING THE CONDITIONS WHETHER 10 OR MORE WORKERS WERE EMPLOYED WHETHER ASSESSEE IS A SMALL SCALE IN DUSTRY OR NOT WHAT PRODUCT WAS BEING MANUFACTURED AT THE RELEVANT TIME ETC. ARE THE MATERIAL FACTS FOR EXAMINING THE DEDUCTION ADMISSIBLE U/S 80IA/80IB. ALL THESE FACTS WERE AVA ILABLE TO HIM. THUS HE EXAMINED THE ACCOUNTS OTHER RECORDS OF THE ASSESSEE MADE ENQUIRIES AND APPLIED HIS MIND TO TH E FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINED THE IN COME OF THE ASSESSEE AFTER GRANTING DEDUCTION ETC. IN S UCH SITUATION THE LD. COMMISSIONER WHILE EXERCISING HI S POWER U/S 263 CANNOT BE PERMITTED TO SUBSTITUTE HIS OPINI ON AND START ONE MORE ROUND OF ENQUIRY. IF THAT BE PERMIT TED THEN THERE WILL NOT BE ANY END TO ATTAIN THE FINALITY OF THE DISPUTE. THUS TAKING INTO CONSIDERATION ALL THESE FACTS AND CIRCUMSTANCES WE ARE OF THE OPINION THAT LD. COMMIS SIONER IS NOT JUSTIFIED IN ASSUMING JURISDICTION U/S 263 OF T HE ACT. THE ORDER OF THE LD. COMMISSIONER PASSED U/S 263 IN A.Y . 1997- 98 TO 2000-01 IS THEREFORE QUASHED. 19 ITA NOS. 106 198 TO 202/PNJ/2005 8. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 2.1.08. 25. AS THE REASON FOR INVOKING U/S 263 FOR THE PRESENT YEAR IS SAME THEREFORE RESPECTFULLY FOLLOWING THE AFOREMENTIONE D DECISION OF COORDINATE BENCH WE QUASH THE ORDER OF CIT FOR THE YEAR UNDER CONSIDERATION ALSO AND THE APPEAL FILED BY THE ASSE SSEE IS ALLOWED. 26. IN THE RESULT ITA NO. 106/PNJ/2006 IS ALLOWED AND REST OF THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.05.2010 (R.C. SHARMA) ACCOUNTANT MEMBER (I.P. BANSAL) JUDICIAL MEMBER DATED: *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR