By TIOL News Service

ERNAKULAM, MARCH 30, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether accidental allowance of deduction u/s 80HHC to a manufacturer in absence of any certificate from export house, if brought to notice of ITO by Appellate Court, can be rectified by means of reopening. YES IS THE VERDICT.

Facts of the case:

The Assessee, one of the leading global producers in seafood industry with the towering presence of prolific factories situated along the Indian Coast line. Its original assessment for AYs 1987-88 & 1988-89 was completed by the AO, wherein deduction claimed u/s 80HHC was allowed despite there being no certificate produced from the export house. Since the said allowance was contrary to the CBDT's Circular No. 466, dated 14.08.1986. After completion of assessment, the AO was served with an appellate order of the CIT(A) for the AYs 1985-86 and 1986-87, wherein dis-allowance of deduction u/s 80-HHC, in the absence of production of certificate of export house, in contravention of the mandate as prescribed by the Circular, was affirmed. The said order in appeal was received by the AO on 09.03.1990. The said appellate order in the earlier AYs, was taken as an information as contemplated u/s 147 to proceed with there opening. Thus, this appeal had been preferred challenging the reopening as a mere change of opinion.

the High Court held that,

++ the questions to be answered are whether the AO had initiated proceedings u/s 147 merely on change of opinion and whether the appellate order could be taken as an information as contemplated u/s 147. The Kelvinator of India Ltd. case as decided by the Full Bench of Delhi High Court and affirmed by the Supreme Court set aside the re-assessment made u/s 147 on the ground of a mere change of opinion. However, in case of Kerala State Industrial Development Corporation Limited, a deduction was allowed by the ITO in a particular year and the same was dis-allowed in a subsequent year by another officer. On an appeal filed by the assessee for the subsequent year, the appellate authority confirmed the dis-allowance made by ITO. On the basis of the appellate order of the subsequent year, the assessment by which deduction was allowed, was reopened, which was upheld by the Division Bench of this Court;

++ in the context of the declaration made by the Supreme Court and this Court, it cannot be said that the re-assessment was merely based on a change of opinion. The appellate authority had for the other years affirmed the findings of AO that a deduction u/s 80-HHC could be claimed successfully only if there were produced certificate of the export house. Admittedly, no certificates were produced by the assessee and inadvertently the AO had allowed the deduction for the two impugned years. On receipt of information by way of the appellate order, the AO realised the escapement of assessment in the A.Ys 1987-88 and 1988-89. The appellate order has already been held to be coming within the ambit of information as contemplated u/s 147. Hence there could be no vitiating factor found in the re-assessment having been carried out.

(See 2018-TIOL-547-HC-KERALA-IT)