M/s. PRIYA LTD., MUMBAI v. ACIT CIR. - 2(2), MUMBAI

ITA 2738/MUM/2007 | 2001-2002
Pronouncement Date: 09-09-2011 | Result: Allowed

Appeal Details

RSA Number 273819914 RSA 2007
Assessee PAN AAACP2210Q
Bench Mumbai
Appeal Number ITA 2738/MUM/2007
Duration Of Justice 4 year(s) 5 month(s)
Appellant M/s. PRIYA LTD., MUMBAI
Respondent ACIT CIR. - 2(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 09-09-2011
Date Of Final Hearing 18-07-2011
Next Hearing Date 18-07-2011
Assessment Year 2001-2002
Appeal Filed On 09-04-2007
Judgment Text
1 ITA 2738/ M/07 PRIYA LIMITED IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A BEFORE SHRI N.V. VASUDEVAN J.M. AND SHRI R.K. PAND A A.M. ITA NO. 2738/MUM/2007 ASSESSMENT YEAR 2001-02 PRIYA LTD. KRISHNA HOUSE GROUND FLOOR RAGHUVANSHI MILLS COMPOUND S BAPAT MARG LOWER PAREL MUMBAI -400 013. PAN AAACP 2210 Q VS. ASST. COMMISSIONER OF INCOME TAX CIRCLE 2(2) AAYAKAR BHAWAN R. NO. 550 5 TH FLOOR M.K. MARG MUMBAI 400020. APPELLANT RESPONDENT APPELLANT BY SHRI J.P. BAIRAGRA RESPONDENT BY SHRI N.K.B. MENON DATE OF HEARING 18.7.2011 DATE OF PRONOUNCEMENT ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DT. 8.2.2007 OF THE CIT(A)- II MUMBAI RELATING TO A.Y. 2001-02. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING THE RE-OPENING OF THE ASSESSMENT U/S 147 OF THE INCOME TAX ACT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FURTHER ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN WITHDRAWING THE DEDUCTION U/S 80-HHC OF ` 61 67 923/- WHICH WAS EARLIER GRANTED WHILE PASSING THE ORIGINAL ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT ON 8.3.2004. 2 ITA 2738/ M/07 PRIYA LIMITED 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING AND EXPORT OF DYES AND CHEMICAL S. IT FILED ITS RETURN OF INCOME ON 29.10.2001 DECLARING TOTAL INCOME AT ` 34 48 600/-. IN THE SAID RETURN THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80HHC AT ` 63 20 898/-. THE A.O. COMPLETED THE ASSESSMENT U/S 143(3) ON 8.3.200 4 DETERMINING THE TOTAL INCOME AT ` 37 01 580/-. IN THE SAID ORDER THE A.O. RESTRICT ED THE DEDUCTION U/S 80HHC TO ` 61 67 923/- BY REJECTING THE CLAIM OF NETTING OFF OF INTEREST INCOME AGAINST INTEREST EXPENDITURE. IN THE SAID O RDER THE A.O. FURTHER ACCEPTED THE CONTENTION OF THE ASSESSEE THAT EXPLAN ATION (BAA) TO SECTION 80HHC IS NOT APPLICABLE TO THE ASSESSEE SINCE THE P ROVISIONS OF SECTION 80HHC (3)(B) ARE ATTRACTED. 3.1 SUBSEQUENTLY THE A.O. RE-OPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 TO THE ASSESSEE ON 30.3.2005. THE REASONS FOR RE-OPENING ARE AS UNDER:- DURING THE ASSESSMENT PROCEEDINGS OF A.Y. 99-00 AND A.Y. 2000-01 IT WAS SEND FROM THE DETAILS OF PURCHASES GIVEN THE ASSESSEE HAS REDUCED THE DEPB CREDIT FROM THE PURCH ASE INSTEAD OF CREDITING THE SAME IN PROFIT & LOSS ACCOUNT. BY TH IS ADJUSTMENT OF DEPB CREDIT THE COMPUTATION OF DIRECT COST IS REDU CED THEREBY CLAIMING A HIGHER DEDUCTION OF HO HHC. SECTION 80 HHC PROVIDES THAT FOR DEDUCTION FROM TH E TOTAL INCOME IN RESPECT OF PROFITS DERIVED FROM THE EXPOR T OF GOODS OR MERCHANDISE WHICH ARE REALIZED IN CONVERTIBLE FOR EIGN EXCHANGE AND IN RESPECT OF INCIDENTAL INCOME ARISING THROUGH A G OVERNMENT SCHEME. FURTHER THE ELABORATE SCHEME OF COMPUTATIO N OF DEDUCTION PROVIDED UNDER SECTION 80 HHC(3) OF I.T. ACT DOES N OT COVER THE DEPB CREDIT. SUCH PROFITS ARE THEREFORE NOT ELIG IBLE FOR DEDUCTION U/S 80HHC. THE ASSESSEES METHOD OF ACCOUNTING BEING SIMILAR IN A.Y. 2001-02 THE ASSESSEES CLAIM OF 80 HHC TO THE EXTE ND OF ` 63 20 898/- NEEDS TO BE DISALLOWED IN THIS YEAR. R ELIANCE IS PLACED IN THE CASE OF M/S ROHAN DYES & INTERMEDIATES LTD. (270 ITR 350) (MUM.) 3.2 THE ASSESSEE OBJECTED TO THE REOPENING OF THE R EASSESSMENT BY FILING DETAILED REASONS. HOWEVER THE A.O. FOLLOWING THE D ECISION OF THE HONBLE 3 ITA 2738/ M/07 PRIYA LIMITED JURISDICTIONAL HIGH COURT IN THE CASE OF ROHAN DYES AND INTERMEDIATES LTD. REJECTED THE CONTENTION OF THE ASSESSEE. ACCORDING TO THE A.O. THE DISPUTES IN RESPECT OF THIS ISSUE HAVE STARTED SURFACING EVER S INCE THE YEAR 1998. THIS IS BECAUSE THE TAXATION LAW (AMENDMENT) ACT 2005 HAS AMENDED THE PROVISIONS OF SECTIONS 28 AND 80 HHC WITH RETROSPECTIVE EFFECT FROM 1.4.1998. IT IS NOT POSSIBLE THAT THE ASSESSEE WAS NOT AWARE OF THESE D ISPUTES AND HENCE PRECLUDED FROM TAKING THE NECESSARY PRECAUTION. AC CORDINGLY THE ISSUE MENTIONED IN THE REASONS FOR REOPENING IS A RELEVA NT ISSUE FOR THE PURPOSE OF REOPENING OF THE ASSESSMENT. 3.3 RELYING ON A COUPLE OF DECISIONS THE A.O. JUSTI FIED THE REOPENING OF THE ASSESSMENT. ACCORDING TO THE A.O. THE EXPORT SALE S OF THE ASSESSEE ARE AT `. 23.95 CRORES AND THE ASSESSEE IS ENTITLED TO BOTH D EPB AND DUTY DRAWBACK. BUT THE RATE OF DEPB IS HIGHER THAN THE DUTY DRAWBA CKAND HENCE THE ASSESSEE COMPANY HAS OPTED FOR DEPB. ACCORDINGLY AS PER THE AMENDED PROVISO THE DEPB RECEIVED BY THE ASSESSEE COMPANY WILL NOT BE I NCLUDED IN THE COMPUTATION OF DEDUCTION U/S.80HHC. THE A.O. FURTHE R WAS OF THE OPINION THAT THE ASSESSEES CASE IS SQUARELY COVERED BY THE TAXA TION LAW (AMENDMENT) ACT WHICH MAY NOT HAVE BEEN IN THE STATUTE AT THE TIME OF FILING OF RETURN. HOWEVER IT CANNOT BE DENIED THAT THE ASSESSEE WAS VERY MUCH AWARE OF THE CONTROVERSIES OF THIS ISSUE WHICH LED TO THE AMENDMENT OF THE ACT . 3.4 IN VIEW OF THE ABOVE THE A.O. WITHDREW THE DED UCTION OF ` 61 67 923/- ALREADY ALLOWED TO THE ASSESSEE U/S 80HHC IN THE CA SE OF THE ASSESSEE IN THE ORIGINAL ORDER U/S.143(3) DT. 08.03.2004. ACCORDING LY HE RECOMPUTED THE TOTAL INCOME OF THE ASSESSEE WHICH IS AS UNDER :- TOTAL INCOME AS PER ORDER U/S.143(3) DT. 08.03.2004 37 01 580 ADD : WITHDRAWAL OF DEDUCTION U/S.80HHC (AS DISCUSS ED ABOVE) 61 67 923 TOTAL INCOME 98 69 503 ROUNDED OFF TO 98 69 500 4 ITA 2738/ M/07 PRIYA LIMITED 4. IN APPEAL THE LD. CIT(A) UPHELD THE A.O.S ACTI ON IN REOPENING OF THE ASSESSMENT U/S 147 OF THE INCOME TAX ACT ON THE GRO UND THAT BECAUSE OF THE SUBSTANTIVE AMENDMENT TO PROVISIONS OF SECTION 80 H HC(3) THERE WERE GOOD REASONS FOR RE-OPENING OF THE ASSESSMENT. SO FAR A S THE GROUND RELATING TO WITHDRAWAL OF DEDUCTION U/S 80 HHC OF ` 61 67 923/- GRANTED EARLIER BY THE A.O. HE REJECTED THE CONTENTION OF THE ASSESSEE TH AT DEPB CREDIT EARNED ON EXPORT OF CHEMICALS IS USED FOR IMPORT OF COMPUTER GOODS FOR WHICH NO CUSTOM DUTY WAS PAID AND DEPB CREDIT WAS UTILIZED. ACCORDI NG TO THE LD. CIT(A) WHILE IN DUTY DRAW BACK THE ASSESSEE GETS A REFUND OF THE AMOUNT OF EXCISE DUTY IN CASE OF DEPB THE AMOUNT IS CREDITED IN THE PASS BOO K ADJUSTABLE AGAINST PAYMENTS OF LIABILITY TO CUSTOMS DUTY. THUS DEPB CA N BE UTILIZED TO IMPORT SOMETHING IN FUTURE ALSO. FURTHER IT IS CLEAR FROM THE PROVISIONS OF SECTION 28 THAT THE TWO CLAUSES 28(III C) AND 28 (III D) DEFIN E THE TWO INCENTIVES SEPARATELY AND THERE IS NO OVERLAPPING OF EACH OTHER AND THE T WO ACT IN DIFFERENT FIELDS. HAD THE TWO BEEN THE SAME THERE WOULD HAVE BEEN NO NECESSITY TO PROVIDE FOR THESE TWO SCHEMES SEPARATELY AND FOR PRESCRIBING DI FFERENT CONDITIONS FOR THE OPERATION OF THE TWO. HE ALSO REJECTED THE CONTENTI ON OF THE ASSESSEE THAT ONLY PROFITS ON SALE OF DEPB LICENSES ARE TAXABLE U/S.28 (III D) AND THE AO WAS INCORRECT IN DISALLOWING THE ENTIRE AMOUNT OF DEDUC TION U/S.80HHC. ACCORDING TO LD. CIT(A) THIS ARGUMENT IS MISLEADING BECAUSE D EDUCTION U/S.80HHC HAS BEEN CLAIMED ON THE ENTIRE AMOUNT OF DEPB OF `. 61 67 923/- CREDITED IN THE YEAR. IN THE FIRST PLACE THERE IS NO COST OF THE DE PB. IT IS AN INCENTIVE WHICH IS CREDITED IN THE DEPB ACCOUNT ON EXPORTS BEING MADE AND FOREIGN CURRENCY RECEIVED. IT HAS NO COST OF ITS OWN AND THE ENTIRE AMOUNT OF DEPB IS THEREFORE NOT ENTITLED FOR DEDUCTION U/S.80HHC. HERE THE DEDU CTION ON ACCOUNT OF 80 HHC HAS BEEN DISALLOWED BECAUSE THE REQUIRED CONDIT IONS IN THE THIRD PROVISO TO SEC. 80 HHC(3) HAVE NOT BEEN MET. HE ACCORDINGLY UPHELD THE ACTION OF THE A.O. IN REJECTING THE CLAIM OF DEDUCTION U/S.80 HHH C ON DEPB. 5 ITA 2738/ M/07 PRIYA LIMITED 4.1 AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) TH E ASSESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE ORIGINAL ASSESSMENT MADE U/S 143(3) ON 8.3.04 THE ISSUE OF DEDUCTION U/S 80 HHC WAS ELABORATELY DISCUSSED BY THE A.O. HE SUBMITTED THAT THE ASSESSEE IS REDUCING DEPB CREDIT FROM THE COST OF PURCHASES WHI CH HAS BEEN VERIFIED BY THE A.O. AS PER THE COPIES PRODUCED BY THE LD. D.R. AT THE INSTANCE OF THE HONBLE TRIBUNAL. HE SUBMITTED THAT THE A.O. ISSUED NOTICE U/S 148 ON 30.3.05 WHICH IS WITHIN THE PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. REFERRING TO THE COPY OF REASONS RECORDED (A COPY OF WHICH IS PLACED AT PAGE 12 OF THE PAPER BOOK) HE SUBMITTED THAT THE R E-OPENING WAS DONE ON THE BASIS OF THE TAXATION LAWS (AMENDMENT) ACT 2005 WH ICH AMENDED THE PROVISIONS OF SECTION 28 AND SECTION 80 HHC WITH RE TROSPECTIVE EFFECT FROM 1.4.1998. REFERRING TO PAPER BOOK PAGE 33 TO 36 HE SUBMITTED THAT THE TAXATION LAWS (AMENDMENT) ACT 2005 CAME TO THE STA TUTE W.E.F. 28.12.05. THEREFORE THE ISSUE WAS NOT REOPENED IN VIEW OF TH E AMENDMENT MADE IN SECTION 80HHC. 5.1 SO FAR AS THE DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF ROHAN DYES AND INTERMEDIATES LTD. VS. CIT REPORTED IN 270 ITR 350 (BOM) RELIED ON BY THE A.O. IS CONCERNED WHILE REOPENING THE ASSESSMENT HE SUBMITTED THAT THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE COMPANY SINCE THE ASSESSEE COMPANY IS ONLY A TRADIN G EXPORTER AND THERE IS NO LOSS IN THE TRADING EXPORT AND THERE IS PROFIT FROM THE EXPORT OF GOODS MANUFACTURED. IN THE CASE OF ROHAN DYES AND INTERM EDIATES LTD. (SUPRA) IT HAS BEEN HELD THAT WHILE COMPUTING THE DEDUCTION U/S 80 HHC LOSS SUFFERED IN OTHER EXPORT OF TRADING GOODS HAS TO BE ADJUSTED AG AINST THE PROFIT FROM THE EXPORT OF GOODS MANUFACTURED BY THE ASSESSEE. 6 ITA 2738/ M/07 PRIYA LIMITED 5.2 REFERRING TO THE DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF GERMAN REMEDIES LTD. VS. DCIT REPORTED IN 285 ITR 2 6 (BOM) (COPY OF WHICH IS FILED IN THE PAPER BOOK PAGE 51 TO 56) THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT THE HONBLE COURT IN THE SAID DECISI ON HAS HELD THAT AN ASSESSMENT ORDER PASSED AFTER DETAILED DISCUSSION C ANNOT BE REOPENED WITHIN A PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT ASSE SSMENT YEAR UNLESS THE A.O. HAS REASON TO BELIEVE THAT DUE TO SOME INHERENT DEF ECT IN THE ASSESSMENT INCOME CHARGEABLE TO TAX HAS BEEN UNDER-ASSESSED OR ASSESSED AT TOO LOW A RATE OR EXCESSIVE RELIEF HAS BEEN GRANTED OR DEPREC IATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THE ACT HAS BEEN COMPUTED. IT HAS FURTHER BEEN HELD THAT EVEN AFTER INTRODUCTION OF THE CONCEPT OF DEEMED ES CAPEMENT OF INCOME BY EXPLANATION 2 TO SECTION 147 OF THE ACT WITH EFFECT FROM IST APRIL 1989 THE BELIEF THAT THE INCOME HAS ESCAPED ASSESSMENT ENTER TAINED BY THE A.O. MUST BE A PRUDENT BELIEF AND NOT MERE CHANGE OF OPINION. 5.3 REFERRING TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. REPORTED IN 320 ITR 561 (S C) HE SUBMITTED THAT THE ASSESSMENT CANNOT BE REOPENED ON MERE CHANGE OF OPI NION. REFERRING TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F AVENTIS PHARMA LTD. VS. CIT REPORTED IN 323 ITR 570 (BOM) (A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 79 TO 85) HE SUBMITTED THAT THE HONBLE COURT IN THE SAID DECISION HAS HELD THAT ASSESSEE HAVING MADE A FULL DISCLOSURE OF RELEVANT FACTS IN ITS RETURN AND THE A.O. HAVING ALLOWED DEDUCTION OF THE AMOUNT PAID FOR MEETING THE DEMAND OF STATE GOVERNMENT TOWARDS UNEARNED INCREAS E IN THE VALUE OF LAND IN THE COMPUTATION OF CAPITAL GAINS ON THE SALE OF LAN D IN THE ORIGINAL ASSESSMENT REOPENING OF ASSESSMENT ON THE GROUND THAT THE AMOU NT PAID IS NOT ALLOWABLE AS DEDUCTION WAS BASED ON MERE CHANGE OF OPINION A ND THEREFORE IT IS NOT SUSTAINABLE. 7 ITA 2738/ M/07 PRIYA LIMITED 5.4 REFERRING TO THE DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT VS. JET AIRWAYS (INDIA) LTD. REPORTED IN 331 ITR 23 6 (BOM) (A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 86 TO 97) HE SUBMITTED T HAT THE HONBLE COURT IN THE SAID DECISION HAS HELD THAT IF THE INCOME THE ESCA PEMENT OF WHICH WAS THE BASIS OF THE FORMATION OF THE REASON TO BELIEVE IS NOT ASSESSED OR REASSESSED IT WOULD NOT BE OPEN TO THE AO TO INDEPENDENTLY ASSESS ONLY THAT INCOME WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF T HE PROCEEDINGS UNDER THE SECTION AS HAVING ESCAPED ASSESSMENT. 5.5 THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF HIDELBERGCEMENT INDIA L TD. VS. ACIT REPORTED IN 2011-TIOL-340-ITAT-MUM AND IN THE CASE OF PIROJSHA GODREJ FOUNDATION VS. ADIT (EXEMPTION) REPORTED IN 133 TTJ (MUM) 194. RE FERRING TO THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1999-2 000 AND 2000-01 (COPIES OF WHICH ARE PLACED AT PAPER BOOK PAGE NO. 57 TO 73) HE SUBMITTED THAT THE ASSESSMENT FOR THESE TWO YEARS WERE PASSED U/S 143( 1)(A) AND THE SAME WERE REOPENED U/S 148. THE REASON FOR REOPENING OF THESE ASSESSMENTS WAS THAT THE SET OFF OF CARRIED FORWARD LOSSES SHOULD BE DEDUCTE D FIRST FROM THE TOTAL INCOME AND THEREAFTER THE DEDUCTION U/S 80HHC IS TO BE AL LOWED. HOWEVER AFTER REOPENING THE ASSESSMENT THE A.O. HAS WITHDRAWN TH E DEDUCTION U/S 80 HHC IN VIEW OF THE AMENDMENT MADE BY THE TAXATION LAWS (AMENDMENT) ACT 2005 WITH RETROSPECTIVE EFFECT FROM 1.4.98 THOUGH THE AS SESSMENTS WERE REOPENED BEFORE THE AMENDMENT. THE TRIBUNAL IN THE ORDER FO R A.Y. 1999-2000 HELD THAT THE ASSESSMENT IS VALIDLY RE-OPENED AND ONCE THE RE OPENING IS MADE THE A.O. CAN REASSESS THE OTHER INCOME WHICH ESCAPED ASSESSM ENT. SO FAR AS THE ORDER FOR A.Y. 2000-01 IS CONCERNED THE TRIBUNAL HELD TH AT THE REASON FOR REOPENING OF THE ASSESSMENT DOES NOT AFFECT THE COMPUTATION O F TOTAL INCOME AND HENCE THE REOPENING IS NOT JUSTIFIED. SINCE THE GROUND O N WHICH ASSESSMENT WAS REOPENED DID NOT EXIST THE A.O. HAS NO JURISDICTIO N TO EXAMINE OR MAKE THE ADDITION ON ACCOUNT OF OTHER INCOME WHICH ESCAPED A SSESSMENT BY FOLLOWING 8 ITA 2738/ M/07 PRIYA LIMITED THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF JET AIRWAYS (I) LTD. (SUPRA). THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT IN THE IMPUGNED ASSESSMENT YEAR SINCE THE GROUND ON WHICH THE ASSES SMENT HAS BEEN REOPENED DOES NOT EXIST AS THE A.O. HAS PASSED THE ASSESSMEN T ORDER U/S 143(3) AFTER SCRUTINISING THE DEPB RECEIVED BY THE ASSESSEE COMP ANY AND SINCE THE CLAIM OF DEDUCTION U/S 80 HHC IS DULY DISCUSSED IN THE ASSES SMENT ORDER PASSED U/S 143(3) THEREFORE IN VIEW OF THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) THE REOPE NING OF THE ASSESSMENT IS ON ACCOUNT OF CHANGE OF OPINION AND THEREFORE THE RE ASSESSMENT PROCEEDINGS ARE NULL AND VOID. FURTHER THE DECISION OF THE HONBL E BOMBAY HIGH COURT IN THE CASE OF ROHAN DYES AND INTERMEDIATES LTD. (SUPRA) I S ALSO NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. SINCE THE TWO REASONS G IVEN FOR REOPENING OF THE ASSESSMENT ARE NOT CORRECT THEREFORE IN VIEW OF T HE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF JET AIRWAY S (I) LTD. (SUPRA) AND OTHER CITED CASES THE REOPENING OF THE ASSESSMENT IS NOT JUSTIFIED. 5.6 WITHOUT PREJUDICE TO THE ABOVE THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AFTER AMENDMENT MADE BY THE TAXATION LAWS (AMENDMENT) ACT 2005 SECTION 80 HHC HAS BEEN AMENDED RETROSPECTIVE LY W.E.F. 1.4.98 AND IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF ITAT I N THE CASE OF TOPMAN EXPORTS REPORTED IN 318 ITR (AT) 87 (MUM) [SB] (A) DEPB CAN NOT BE REDUCED FROM THE COST OF PURCHASES (B) DEPB IS INCENTIVE U/S 28(III B) AND 90% OF THAT SHOULD BE INCLUDED IN THE EXPORT PROFIT AS PER THE FIRST PROV ISO TO SEC. 80 HHC(3) AND (C) PROFIT ON SALE OF DEPB AMOUNT IN EXCESS OF THE SALE PROCEEDS OVER AND ABOVE THE FACE VALUE IS COVERED U/S 28(IIID). HE SUBMITT ED THAT IN THIS CASE THE DEPB RECEIVED BY THE ASSESSEE COMPANY HAS BEEN USED FOR ITS OWN IMPORT OF THE GOODS AND IT IS NOT SOLD IN THE MARKET AND HENCE TH ERE IS NO PROFIT ON SALE OF DEPB. ACCORDINGLY FACE VALUE OF DEPB IS INCLUDED U/S 28(IIIB) AND 90% OF THE SAME IS INCLUDED IN THE EXPORT PROFIT AS PER THE FI RST PROVISO TO SEC. 80 HHC(3). 9 ITA 2738/ M/07 PRIYA LIMITED 5.7 THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF THE LD. CIT(A) AND THE A.O. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF A.O. AND THE LD. CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOU S DECISIONS CITED BY BOTH THE PARTIES. THERE IS NO DISPUTE TO THE FACT THAT T HE A.O. IN THE ORIGINAL ASSESSMENT ORDER PASSED U/S 143(3) ON 8.3.2004 HAD ALLOWED THE DEDUCTION U/S 80HHC AT ` 61 67 923/-. THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE A.O. HAS EXAMINED THE DETAILS OF DEPB INCENTIVES RECEIVED WHICH WERE ADJUSTED AGAINST THE PURCHASE AND ALLOWE D THE CLAIM OF DEDUCTION U/S 80HHC AS PER THE VARIOUS DETAILS FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS COULD NOT BE CONTROVERTED BY THE LD. D.R. FROM THE REASONS RECORDED FOR REOPENING THE ASSESSMENT WE F IND THE SAME WAS BASICALLY ON THREE GROUNDS I.E. (I) THE ASSESSEE COMPANY HAS REDUCED THE DEPB CREDITS FROM THE PURCHASES INSTEAD OF CREDITING THE SAME IN THE P&L ACCOUNT (II) THE PROFIT ON DEPB IS NOT ELIGIBLE FOR DEDUCTION U/S 80 HHC(3) AND (III) RELIANCE OF THE A.O. ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ROHAN DYES AND INTERMEDIATES LTD. (SUPRA). 6.1 SO FAR AS THE FIRST 2 ISSUES ARE CONCERNED WE FIND THERE WERE CONFLICTING DECISIONS ON THIS ISSUE. THE TAXATION LAWS (AMENDM ENT) ACT 2005 WHICH AMENDED THE PROVISIONS OF SECTION 28 AND SECTION 80 HHC WITH RETROSPECTIVE EFFECT FROM 1.4.98 CAME TO THE STATUTE BOOK W.E.F. 28 TH DECEMBER 2005 WHICH IS MUCH AFTER 30.3.2005 I.E THE DATE OF REASONS REC ORDED FOR REOPENING. THUS WHEN THE A.O. REOPENED THE ASSESSMENT THE AMENDMEN T WAS NOT THERE IN THE STATUTE BOOK. THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF TOPMAN EXPORTS (SUPRA) LONG AFTER THE NOTICE ISSUED U/S 148 CAME T O THE CONCLUSION THAT DEPB SHOULD NOT BE REDUCED FROM COST OF PURCHASE AND THA T PROFIT ON DEPB IS NOT ELIGIBLE FOR DEDUCTION U/S 80 HHC. THEREFORE WHEN THE ASSESSMENT ORDER WAS 10 ITA 2738/ M/07 PRIYA LIMITED REOPENED BY THE A.O. FOR REDUCING THE DEPB FROM THE COST OF PURCHASES AND FOR NOT CREDITING THE SAME IN THE P&L ACCOUNT IT WAS N OT THERE IN THE STATUTE BOOK. SINCE THE A.O. AFTER DUE APPLICATION OF MIND HAD AL LOWED THE CLAIM OF DEDUCTION U/S 80 HHC IN THE ORIGINAL ORDER PASSED U/S 143(3) THEREFORE THE REOPENING OF ASSESSMENT IN OUR OPINION IS DUE TO MERE CHANGE O F OPINION. 6.2 SO FAR AS THE 3 RD ISSUE I.E. RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ROHAN DYES AND INTERMEDIA TES LTD. (SUPRA) IS CONCERNED WE FIND THE SAME IS NOT APPLICABLE TO TH E FACTS OF THE PRESENT CASE. IN THE SAID CASE IT HAS BEEN HELD THAT WHILE COMPUT ING THE DEDUCTION U/S 80HHC LOSS SUFFERED IN OTHER EXPORT OF TRADING GOO DS HAS TO BE ADJUSTED AGAINST THE PROFIT FROM THE EXPORT OF GOODS MANUFAC TURED BY THE ASSESSEE. HOWEVER IN THE INSTANT CASE THE ASSESSEE COMPANY IS ONLY A TRADING EXPORTER AND THERE IS NO LOSS IN THE TRADING EXPORT. THEREFO RE THE RELIANCE OF THE DECISION BY THE A.O. IN OUR OPINION IS ALSO NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 6.3 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GERMAN REMEDIES LTD. (SUPRA) AT PAGE NO. 29 HAS HELD AS UNDER:- IT IS A SETTLED POSITION OF LAW THAT THOUGH THE PO WER CONFERRED UNDER SECTION 147 OF THE INCOME-TAX ACT FOR REOPENING THE CONCLUDED ASSESSMENT IS VERY WIDE THE SAID POWER CANNOT BE E XERCISED MECHANICALLY OR ARBITRARILY. THE EXPRESSION REASO N TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ME ANS ENTERTAINING A REASONABLE BELIEF THAT A PARTICULAR INCOME WENT UNNOTICED BY THE ASSESSING OFFICER AND HENCE ESCAPE D ASSESSMENT. EVEN AFTER THE INTRODUCTION OF THE CONCEPT OF DEEME D ESCAPEMENT OF INCOME BY EXPLANATION 2 TO SECTION 147 OF THE ACT W ITH EFFECT FROM APRIL 1 1989 THE BELIEF THAT THE INCOME HAS ESCAPED ASS ESSMENT ENTERTAINED BY THE ASSESSING OFFICER MUST BE A PRU DENT BELIEF AND NOT MERE CHANGE OF OPINION. THUS AN ASSESSMENT ORDER P ASSED AFTER DETAILED DISCUSSION CANNOT BE REOPENED WITHIN A PER IOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLES S THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT DUE TO SOME INHE RENT DEFECT IN THE ASSESSMENT THE INCOME CHARGEABLE TO TAX HAS BEEN U NDER ASSESSED OR ASSESSED AT TOO LOW A RATE OR EXCESSIVE RELIEF IS G RANTED OR EXCESSIVE 11 ITA 2738/ M/07 PRIYA LIMITED LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWAN CE UNDER THE ACT HAS BEEN COMPUTED. 6.4 SIMILARLY WE FIND THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) HAS HELD AS UNDER :-( SHORT NOTES) THE CONCEPT OF CHANGE OF OPINION ON THE PART OF THE ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLITERATED AFTER THE SUBSTITUTION OF SECTION 147 OF THE INCOME TAX ACT 1961 BY THE DIRECT TAX LAWS (AMENDMENT) ACTS 1987 AND 1989. AFTER TH E AMENDMENT THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT BUT THIS DOES NOT IMPLY THAT TH E ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON MERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUST BE TREATED AS A N IN-BUILT TEST TO CHECK THE ABUSE OF POWER. HENCE AFTER APRIL 1 19 89 THE ASSESSING OFFICER HAS POWER TO REOPEN AN ASSESSMENT PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASON MUST HAVE A LINK WI TH THE FORMATION OF THE BELIEF. 6.5 WE FIND THE A.O. AT PARA 6 OF THE ASSESSMENT ORDER HAS OBSERVED AS UNDER:- THE DISPUTES IN RESPECT OF THIS ISSUE HAVE STARTED SURFACING EVER SINCE THE YEAR 1998. THIS IS BECAUSE THE TAXA TION LAW (AMENDMENT) ACT 2005 HAS AMENDED THE PROVISIONS OF SECTIONS 28 AND 80 HHC WITH RETROSPECTIVE EFFECT FROM 1.4.1998. IT IS NOT POSSIBLE THAT THE ASSESSEE WAS NOT AWARE OF THESE D ISPUTES AND HENCE PRECLUDED FROM TAKING THE NECESSARY PRECAUTION. AC CORDINGLY THE ISSUE MENTIONED IN THE REASONS FOR REOPENING IS A RELEVANT ISSUE FOR THE PURPOSE OF REOPENING OF THE ASSESSMENT. 6.6 SIMILARLY WE FIND THE A.O. AT PARA NO. 9 OF TH E ASSESSMENT ORDER HAS OBSERVED AS UNDER:- THE ASSESSEES CASE IS SQUARELY COVERED BY THE TAX ATION (AMENDMENT) ACT WHICH MAY NOT HAVE BEEN IN THE STAT UTE AT THE TIME OF FILING OF RETURN. HOWEVER IT CANNOT BE DENIED THAT THE ASSESSEE WAS VERY MUCH AWARE OF THE CONTROVERSIES OF THIS IS SUE WHICH LED TO THE AMENDMENT OF THE ACT. 6.7 FROM THE ABOVE OBSERVATIONS OF THE A.O. IT IS AMPLY CLEAR THAT THE A.O. WANTED THE ASSESSEE TO FOR-SEE SOMETHING WHICH IS L IKELY TO COME IN FUTURE TO THE STATUTE BOOK AND PREPARE ITS RETURN FOR THE PRE SENT YEAR WHICH IS NOT AS PER 12 ITA 2738/ M/07 PRIYA LIMITED THE PROVISIONS OF INCOME TAX ACT. THE A.O. HAD NO T ANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. SINCE THERE WERE FULL DISCLOSURE BY THE ASSESSEE IN THE O RIGINAL RETURN AND THE A.O. AFTER DUE APPLICATION OF HIS MIND HAS ALLOWED THE D EDUCTION U/S 80HHC OF THE ACT AND SINCE THE REOPENING OF THE ASSESSMENT BEING DUE TO MERE CHANGE OF OPINION THEREFORE IN VIEW OF THE DECISIONS CITED ABOVE THE REOPENING OF THE ASSESSMENT IS NOT JUSTIFIED. ACCORDINGLY THE ORDER OF THE LD. CIT(A) IS SET ASIDE AND THE REOPENING OF THE SAME IS QUASHED. THE GROUN DS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 7. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON 9.9.2011. SD/- SD/- (N.V. VASUDEVAN) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 9.9.2011 RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) V MUMBAI 4. THE CIT MC V MUMBAI 5. THE DR BENCH E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 13 ITA 2738/ M/07 PRIYA LIMITED DATE INITIALS 1 DRAFT DICTATED ON 30.8.11 5.9.11 6.9.11 8.9.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 2.9.2011 5.9.11 7.9.11 8.9.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER