By TIOL News Service

MUMBAI, DEC 12, 2017: THE issue before the Bench is - Whether since the Apex Court categorically held that export benefits such as duty drawback and DEPB are not profits eligible for tax holiday under the provisions of section 80IB of the Act, any opinion formed by the AO contrary to Apex Court decision is bad in law and is non-est and therefore, reopening u/s 147 will not fall under the ambit of change of opinion. And the ITAT verdict is YES.

Facts of the case

The Assessee-company, engaged in the business of manufacturing of Textile, Cement, Chemicals, Power Generation etc., filed its return for the AY under consideration. The Assessee claimed deduction u/s. 80IC with respect to Century Pulp and Paper division engaged in manufacturing of paper w.r.t. substantial expansion undertaken by the industrial unit situated in State of Uttarakhand during eligible period and while computing deduction u/s 80IC , the Assessee had included export benefits such as duty draw back/ DEPB amounting to Rs. 2,36,32,653/- to compute profits eligible for deduction u/s 80IC being derived from the such industrial undertaking. The assessment was completed and such deductions was allowed by the A.O in the original assessment order framed u/s. 143(3) of the Act. The AO excluded certain other heads of other income such as rent, sale of scrap, insurance claim, provisions no longer required etc. On Assessee's appeal, the CIT(A) allowed the appeal and accordingly, the income of the Assessee was revised by the AO giving effect to order of the CIT(A).

Thereafter, the AO observed that he had reason to believe that income chargeable to tax had escaped assessment due to failure on the part of the Assessee to disclose truly and fully all material facts necessary for the assessment. Accordingly, the AO issued notice u/s 148 of the Act and proceeded for reopening of assessment of the Assessee and the Assessee was asked to file the return of income. The Assessee challenged the reopening of the assessment by the AO and submitted that the decision was merely a change of opinion by the AO as the AO has duly applied his mind while granting deduction u/s 80IC in the original assessment proceedings u/s 143(3) r.w.s. 143(2) , wherein export benefits were considered by the AO to be eligible for computing deduction u/s 80IC and now by reopening the concluded assessment, was merely a change of opinion by the AO which was not permissible under law . It was also submitted by the Assessee that reopening of the concluded assessment u/s 147 was done by the AO without any new tangible material coming into possession of the AO , which was not in accordance with law. It was also claimed by the Assessee that the reopening of the concluded assessment u/s 147 was done based on audit objections which is not permissible.

However, the AO rejected the contentions of the Assessee and passed the re-assessment order. Aggrieved by the re-assessment order, the Assessee filed first appeal before the CIT(A) who rejected the contentions of the Assessee by dismissing the appeal of the Assessee which was later rectified by CIT(A) vide rectification orders where the appeal of the Assessee was allowed by holding that reopening could not be done u/s 147 keeping in view of the tribunal decision in the case of Assessee for A.Y 2007-08 wherein tribunal quashed reopening u/s 147 and hence appeal of the Assessee was allowed.

On hearing the parties, the Tribunal held that,

++ the assessee is engaged in the business of manufacturing of textile, cement, chemical, power generation etc. The dispute between rival parties is in very narrow compass . The assessee has claimed deduction u/s. 80IC with respect to Century Pulp and Paper division engaged in manufacturing of paper w.r.t. substantial expansion undertaken by the industrial unit situated in State of Uttarakhand during eligible period and while computing deduction u/s 80IC , the assessee has included export benefits such as duty draw back/ DEPB amounting to Rs. 2,36,32,653/- to compute profits eligible for deduction u/s 80IC being derived from the such industrial undertaking , which was allowed by the A.O in the original assessment order dated 26-12-2011 framed u/s. 143(3) of the Act. The AO excluded certain other heads of other income such as rent, sale of scrap, insurance claim , provisions no longer required etc but export benefits were not excluded while computing profits eligible for deduction u/s 80IC being derived from the such industrial undertaking, while framing original assessment u/s 143(3). In-fact, the AO query during the original assessment proceedings were never directed towards the exclusion of export benefits while computing eligible profits for computing deduction u/s 80IC while the query itself was directed towards exclusion of other incomes such as rent, sale of scrap, insurance claim , provisions no longer required etc. This claim of deduction u/s. 80IC by inclusion of export benefits for computing profits eligible for deduction u/s 80IC is ex-facie wrong claim setup by the assessee in the return of income filed with the revenue on 30.09.2009, while Supreme Court decision in the case of Liberty India Ltd. was pronounced on 31.08.2009 which is date prior to the date of filing of return of income by the assessee on 30-09-2009, wherein Supreme Court vide judgment dated 31-08-2009 has categorically held that export benefits such as duty drawback and DEPB arise from the schemes framed by GOI and are not profits derived from the industrial undertaking eligible for tax holiday under the provisions of Section 80IB of the 1961 Act. The law declared by Supreme Court is binding on all authorities in the territory of Union of India and the assessee as well the AO was bound to follow the decision of Supreme Court in the case of Liberty India Limited which was very much operative in force on the date of filing of the return of income on 30-09-2009. The tax-auditors could not have given any opinion in tax-audit report vide form no 10CCB on 29-09-2009 which is contrary to the binding decision of the Supreme Court in the case of Liberty India Limited pronounced on 31-08-2009. The AO could not have formed any opinion while framing assessment u/s 143(3) against the decision of Supreme Court in the case of Liberty India Limited and any such opinion if at all formed contrary to Supreme Court decision is bad in law and is non-est. Thus in the teeth of Supreme Court judgement in Liberty India Limited pronounced on 31-08-2009 which was existing on the date of filing of return of income by the assessee on 30-09-2009, the claim of the assessee in the return of income filed with the revenue for claiming 80IC deduction wherein export benefits were included for computing eligible profits for computing deduction u/s 80IC , was ex-facie wrong claim qua export benefits having no force of law as the same was contrary to the decision of the Supreme Court. We are equally bound by the law declared by Supreme Court and we are not entitled to form any opinion which is contrary to the decision of the Supreme Court and any such opinion if at all formed is bad in law having no force of law. Any such opinion formed against the decision of Supreme Court decision will be bad in law, non-est opinion having no force of law and question of change of opinion does not arise in such situation . Thus, the contention of the assessee that there is a change of opinion by the AO vide reopening of the concluded assessment by invoking provision of Section 147 in the instant case will not fall under the ambit of change of opinion as the AO did not and could not have formed any opinion contrary to the binding decision of Supreme Court and any such opinion even if formed by the AO is non-est, bad in law having no force of law, hence reopening of the concluded assessment by the AO in the instant case u/s. 147 is perfectly valid being in accordance with law and is therefore upheld as income having escaped assessment due to claim of deduction u/s 80IC qua export benefits was wrongly allowed by the AO in the original assessment framed u/s 143(3) directly in contravention of the binding ratio of law laid down by Supreme Court in the case of Liberty India Limited. On merits, the Supreme Court has already decided the issue in Liberty India Limited and the issue is no more res-integra as decision of the Supreme court in case of Liberty India Limited is binding and export incentives in the instant case to the tune of 2.36 crores cannot be included under any circumstances for computing eligible profits derived from industrial undertaking for computing deduction u/s. 80IC.

(See 2017-TIOL-1722-ITAT-MUM)