DCIT Vs. M/s. ABCI Infrastructure Pvt. Ltd. (ITAT Kolkata)
AO had the knowledge of the assessee taking over the proprietary concern on 01.04.2002 i.e. running business of M/s. Anupam Bricks and Concrete Industries a proprietorship firm of Shri Budhmal Baid, Managing Director of the company in lieu of which the company had issued shares at a premium and the fact that by this process, the assessee acquired the assets including a Hot Mix plant. This fact was in the knowledge of the AO as well as he has considered this fact elaborately as reproduced above in his original assessment order, therefore, right or wrong, the decision taken by him cannot be revisited or reviewed by the AO invoking Sec. 147 of the Act because the AO does not have the power to review his own order. Relying upon the decision of Honorable Supreme Court in the case of Kelvinator of India Ltd. (supra), we do not find any legal infirmity in the order passed by the Ld. CIT(A) and hence, the same is hereby upheld. Appeal of revenue is dismissed.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal filed by the revenue is against the order of Ld. CIT(A)-VIII, Kolkata, dated 18.01.2013 for AY 2006-07.
2. The main grievance of the revenue is against the action of the Ld. CIT(A) in quashing the reopening of the assessment u/s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
3. Brief facts of the case as seen from the statement of facts filed by the assessee before the Ld. CIT(A) are that assessee is a corporate body engaged mainly in the business of infrastructure development and also having a small scale industry (hot mix plant) in the North Eastern Region of India. However, according to the AO, the assessee company is engaged in the business of constructing roads, highways, bridges and railway tracks etc. on contract with various State Govt., Railways, BRTF etc. According to assessee, since the assessee company was in the business of infrastructural development and having a small scale industry in the North East Region it is eligible to claim deductions u/s. 80IA and 80IC of the Act for its business of infrastructure, development and manufacturing respectively and accordingly while filing the return of income the assessee filed the audited accounts, tax audit report and auditor’s certificate certifying the amount eligible for deduction u/s. 80IA and 80IC of the Act. Scrutiny assessment in respect to original assessment was so completed u/s. 143(3) of the Act vide order dated 31.12.2008 and the total income was determined at Rs. 4,99,876/- after partially allowing deduction u/s. 80IA of the Act (without allowing the claim on interest component included in it) and the AO totally denied the assessee’s claim of deduction u/s. 80IC of the Act.
4. Thereafter notice u/s. 148 of the Act was issued by the AO on 10.09.2010 and after recording the reasons which are given below the AO reopened the assessment, which action of AO was set at naught by the Ld. CIT(A), which action of Ld. CIT(A) is under challenge before us. In order to appreciate the reopening of the assessment, the reasons recorded by the AO is very important and it is reproduced below:
“Sub: Reasons for issue of notice under section 148 of the Income Tax Act, 1961 for AY 2006- 07 – reg,
With reference to the above, the reasons for reopening of the assessment for the AY 2006-07 as sought by you are as under. :-
From an examination of the assessment records it is observed that you changed your name to M/s. ABCI Infrastructures (P) Ltd. from M/s. Maxxcom Vyapar (P) Ltd. w.e.f. 01/02/2002 and that your company had taken over M/s Anupam Bricks & Concrete Industries (Hot Mix Plant Unit) w.e.f. 01/0212002 with the intent to change the nature of the existing business and to start a business of construction. Simultaneously, there were also changes in the portfolio of the directors. As per the Tax Audit Report1iled along with the return of income, it is seen that your company was engaged in the business of Civil Construction and Manufacturing of Construction Materials. As per the P&L Ale., the total income for the year ended on 31/03/2005 was Rs.4,69,31,185/- which included income of the company’s Contract Unit as well as the Hot Mix Plant Unit. Deductions under Chapter VIA was claimed as per below –
(a) Deduction of Rs. 2,86,71 ,025/- u/s.801A of Act for the Contract Unit:
During the year the company had undertaken various civil works for the Railways, State Government and other Local Authorities on contract basis.
(b) Deduction of Rs. 68.94,257/- u/s.80IC of Act for the Hot Mix Plant Unit:
The Separate Notes on Accounts for both the units state that raw materials purchased were incurred for Civil Construction and Manufacturing of Hot Mix Products. However, it is observed that Bitumen, Chips, Sands and Earth were procured for the Hot Mix Plant and such materials were transferred to the other unit for construction activity.
2. As per the provisions of the Act, where the gross total income for the year includes profits and gains derived by an undertaking or an enterprise carrying on business of -i) developing, or (ii) operating & maintaining, or (iii) developing, operating and maintaining any infrastructure facility, the assessee shall be entitled to claim deduction u/s.80IA of an amount equal to hundred percent of the profits and gains derived from such business. However, such deduction snail not be allowed if the undertaking was formed by splitting up or reconstruction of a business already in existence or was formed by the transfer to a new business of machinery or plant previously used for any purpose. In the present case, your company was not involved in any developing , maintaining and operating or any infrastructure project and had merely executed the contract work. Moreover, your company was formed by reconstruction of the existing business. For these reasons, deduction us/.80IA of the Act is not allowable to your company.
3. Further, as per the provisions of Section 80IC of the Act, where the gross total income of assessee includes profit and gains derived from the manufacture or production of any article thing, not being any article or thing specified in the Thirteen Schedule, the assessee shall be entitled to a deduction of specified percentage of profits. Other conditions stipulated u/s.80IC for being eligible to claim deduction under this Section include that there must be a substantial expansion of the unit, the undertaking must be situated in specified area of specified States, it must not be formed by splitting up or reconstruction of a business already in existence and it was not formed by the transfer to a new business of machinery or plant previously used for any purpose. Your company does not satisfy these conditions. So, no deduction u/s.80IC of the Act is allowable to you.
4. Thus, I have reason to believe that income chargeable to tax has escaped assessment because your company is not entitled for claim of deduction under section 80IA and under section 80IC of the Act.”
5. Before adverting to analyze the reasons, we would like to point out that though the AO reopened the assessment in respect of Sec. 80IC claim of the assessee that is for its hot mix plant in North Eastern Region, it is to be pointed out that in the original assessment by a reasoned order, the AO had denied 80IC claim made by the assessee. However, the AO has again in his reason to reopen the assessment has brought in the 80IC claim of the assessee and in the reassessment order has granted 80IC deduction to the assessee. It should be remembered that in CIT Vs. Sun Engineering (1992) 198 ITR 297 (SC), the Hon’ble Supreme Court has held that the reopening of assessment is done for the benefit of the revenue and, therefore, since the AO in the original assessment had denied the claim u/s. 80IC of the Act, the AO while reopening the assessment ought not to have reviewed the earlier order passed by the AO in the original assessment, since AO does not enjoy the power of review of his own order. So the order granting 80IC deduction is per-se bad in law.
6. The AO can reopen an assessment only if he has “reason to believe” that income chargeable to tax has escaped assessment. It should be remembered that “reason to believe” postulates a foundation based on information and belief based on reason. After a foundation based on information is made, there still must be some reason, which should warrant holding a belief that income chargeable to tax has escaped assessment. It is well settled that if an original assessment has been completed u/s. 143(3) of the Act, the reopening can be done by AO only if there is tangible material before him and it is equally well settled that AO cannot review his own order. From a perusal of the reasons recorded (supra) it is noticed that the AO gives thrust for reopening the assessment in respect to earlier action of allowing deduction under sec. 80IA of the Act. The AO notes that the assessee was engaged in the business in civil construction and has claimed deduction of Rs.2,86,71,025/- u/s. 80IA of the Act for the contract unit. According to the AO, during the year, the assessee company had undertaken various civil works in Railways, State Govt. and other local authorities on contract basis. He notes that the assessee company was not involved in any developing, maintaining and operating any infrastructure project and had merely executed the contract work and, therefore, is ineligible to claim deduction u/s. 80IA of the Act. Thus the major thrust for reopening the assessment in respect to Sec. 80IA of the Act claimed by the assessee is that assessee is merely a works contractor and not a developer and, therefore, not eligible for deduction u/s. 80IA of the Act. He also notes that the assessee’s business was formed by reconstruction of the existing business and deduction cannot be allowed if the undertaking was formed by splitting up or reconstruction of business already in existence or was formed by the transfer to a new business of machinery or plant previously used for any purpose. On the aforesaid reasoning the AO reopened the assessment. The Ld. Counsel for the assessee drew our attention to the original assessment passed by the AO on 31.12.2008 and drew our attention to para 3.1 to 3.3 wherein the AO has noted as under:
“3.1. As per computation sheet produced by the assessee, he has shown total income of Rs. 2,86,71,025/- as profit from contract after considering depreciation as per I T Act and claimed deduction u/s. 80IA @ 100%. However on going through the Profit & Loss Account, it has been found that assessee has earned interest of Rs. 28,34,024/- and on this interest income deduction u/s. 80IA was claimed by the assessee.
3.2. It is well settled in various cases that interest received from surplus fund will be treated as income from other source. Thus, deduction i/s. 80IA will not be allowed on interest income of Rs. 28,34,024/-.
3.3 Without prejudices to above, deduction will be allowed only on profit & gains from industrial undertaking or enterprises engaged in’ infrastructure development. Interest received is not part of the earning of the infrastructure developments, hence, deduction u/s. 80IA will not be allowed; on said income. It is also well settled in the various cases such as –
i. In the case of Pandian Chemicals Limited Vs. C.I.T (2003) 262(ITR) 278 (Supreme Court) that interest income shall be treated as income from other sources and not under head business & profession.
ii. In the case of CIT; Vs. Menon Impex P Ltd. that interest on deposits was not derived from exports, it could not be said that there was a direct nexus between the interest income and the industrial undertaking. The assessee was therefore not entitled to the exemption u/s. 10A of the Income Tax Act.
iii. Similar decision in: the case of C. I. T Vs. Rane (Madras) Limited (Chennai).
And then in the original assessment order passed on 31.12.2008 he has computed the gross total income at Rs.4,99,77,876/- and gave deduction under Chapter VI of Sec. 80IA of the Act.
