Income Tax Appellate Tribunal - Hyderabad
M/S The Andhra Pradesh Mineral ... vs Department Of Income Tax on 8 July, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 419/Hyd/2013
Assessment Year : 2003-04
Dy Commissioner of Income-tax, ... Appellant
Circle - 2(3), Hyderabad.
Vs.
M/s The Andhra Pradesh Mineral Development
Corporation Ltd., ... Respondent
Hyderabad.
(PAN - AAACT7391N)
Appellant by : Shri P. Somasekhar Reddy
Respondent by : Shri V. Shiv Kumr
Date of Hearing : 08/07/2013
Date of Pronouncement : 12/07/2013
ORDER
PER SAKTIJIT DEY, J.M.:
This appeal preferred by the Revenue is directed against the order of CIT(A)-III, Hyderabad, dated 17/01/2013, for the assessment year 2003-04 wherein the department has raised the following effective ground:
"2. The CIT(A) erred in law in holding that reopening u/s 147 is invalid though there is failure on the part of the assessee to make wrong claim of deduction u/s 80HHC on royalty which is not derived from export business."
2. Briefly the facts are, the assessee is a state government undertaking engaged in the activity of development of mineral resources including exploration, exploitation and beneficiation. For the impugned assessment year the assessee filed its return of 2 ITA No 419/Hyd/2013 M/s AP Mineral Development Corporation Ltd.
income on 30/11/2003 declaring total income of Rs. 2,98,70,250/- and the same was initially processed u/s 143(1) and a refund of Rs. 72,59,187/- was granted to the assessee. Subsequently, the assessee's case was selected for scrutiny. During the scrutiny assessment proceeding the assessee filed a revised return of income declaring income of Rs. 3,08,14,059/- which was accompanied by audited accounts and tax audit report. Assessment order was passed u/s 143(3) of the Act vie order dated 18/01/2006 by determining the total income at Rs. 7,44,50,534/- after allowing deduction u/s 80HHC of the Act of an amount of Rs. 2,18,66,693/-. Long after on 23/03/2010, the AO issued notice u/s 148 of the Act, reopening the assessment u/s 147 of the Act. The reason for reopening of the assessment, as can be culled out from the reassessment order passed u/s 143(3) read with section 147, is "while completing the assessment u/s 143(3), the AO has disallowed claim of mining franchise fees of Rs. 3,44,03,000/- and subsequently it was observed that for calculation of 80HHC, the AO omitted to deduct 90% of mining franchise fees of which were upheld by the CIT(A) and also ITAT i.e. Rs. 3,09,62,700/- as per explanation '(baa) of section 80HHC". Though the assessee appeared in the reassessment proceedings and objected to the initiation of proceeding u/s 147 of the Act, the AO nevertheless passed the order u/s 143(3) read with section 147 of the Act, by re-computing the deduction u/s 80HHC by reducing 90% of mining franchise fees of Rs. 3,44,03,000/- and in the process determining the total income at Rs. 8,01,10,690/- after allowing a deduction of Rs. 69,22,603/- u/s 80HHC of the Act.
3. The assessee being aggrieved of the assessment order passed u/s 143(3) read with section 147 of the Act, preferred an appeal before the CIT(A).
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4. In course of hearing before the CIT(A), the assessee objecting to the initiation of proceeding u/s 147 of the Act, after expiry of 4 years from the end of the relevant FY, submitted that during the assessment proceedings u/s 143(3) of the Act, the AO after examining the claim u/s 80HHC proceeded to recompute the deduction after considering all the facts and materials submitted in course of assessment proceeding. It was submitted that, while computing deduction in the original assessment u/s 80HHC, the AO has also excluded sales tax recoveries/excess recoveries from the total turnover, which were later on allowed in the appellate proceedings, hence, the deduction u/s 80HHC received substantial attention and verification during the original assessment proceedings. It was submitted that after completion of original assessment, the issue whether mining franchise fees accrued to the assessee in the year under consideration was considered threadbare by the CIT(A) & ITAT. Both the CIT(A) as well as ITAT held that the mining franchise fees accrued to the assessee notwithstanding the fact that liability to pay the same, was an obligation of the various joint venture companies by contract. It was, thus, submitted that entire gamut of the circumstances relating to origin and progression of the nature of mining franchise fees, its accrual and receipt have been the subject matter of assessment, appeal and further appeal. Hence, no fresh facts have been brought on record on this issue subsequent to the assessment which could have enabled the AO to reopen the assessment u/s 147 of the Act. It was submitted that there being no failure on the part of the assessee to disclose all material facts necessary for assessment fully and truly and in absence of fresh information to the department subsequent to the original assessment, the reassessment made u/s 147 of the Act after expiry of 4 years is without jurisdiction.
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5. The CIT(A) after considering the submissions of the assessee in the light of various judicial precedents, held that the reassessment proceeding u/s 147 of the Act is null and void. The finding of the CIT(A) in this regard is extracted hereunder:
"4.10 I find that during the original proceedings u/s 143(3) of the Act, the very deduction u/s 80 HHC was recomputed. The AO considered all the relevant documents and evidence and made a disallowance on the issue, thus recomputing the deduction. This very issue was the subject matter of appeal before the Hon'ble CIT(A) and the Hon'ble ITAT who adjudicated on the matter. The AO duly gave effect to the orders of the higher authorities.
4.11 It is clear from above that in view of the documents filed by the appellant and facts disclosed by the appellant, deduction u/s 80HHC was considered and recomputed. The AO recorded the reasons for issue of notice u/s 148 as given in the remand report reproduced above.
4.12 A plain reading of the above reasons in this case indicates that there was no failure on the part of the appellant to fully and truly disclose all material facts necessary for the assessment. Firstly, more than 4 years had elapsed from the end of the financial year in which the original return was filed. Secondly, no new information had come forth after completion of the assessment u/s 143(3) dated 27/12/2010. The reasons recorded show that the AO merely wanted to recomputed deduction u/s 80HHC on the basis of information provided by the appellant in the file. As already stated by me, deduction u/s 80HHC was the subject matter of scrutiny u/s 143(3). Recomputing of the same deduction on the basis of existing information is only a change of opinion. Moreover, there was no failure on the part of the appellant to fully and truly disclose all the material facts.
4.13 In view of the above facts and legal position, I hold that the issuance of notice u/s 148 was not in order. Accordingly, the assessment based on invalid notice is null and void. Thus being the case, I am not going into the merits of the grounds because the assessment itself stands annulled."
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6. Aggrieved by the order of the CIT(A), the revenue is in appeal before us.
7. The learned DR supporting the action of the AO in initiating proceedings u/s 147 of the Act, submitted that the AO while completing original assessment having wrongly calculated the deduction claimed u/s 80HHC of the Act by not reducing the mining franchise fees, initiation of proceeding u/s 147 of the Act is valid.
8. The learned AR, on the other hand, strongly supporting the order of the CIT(A) submitted that the assessee having disclosed truly and fully all material facts necessary for its assessment in the return of income as well as in course of original assessment proceeding u/s 143(3) of the Act, reopening of the assessment after expiry of 4 years from the end of the AY is invalid in law. The learned AR further inviting our attention to the discussion made by the AO in his order passed on 18/01/2006 u/s 143(3) of the Act submitted that the AO has discussed in great deal with regard to accrual of income in respect of mining franchise fees and thereafter has added it to the total income by coming to a conclusion that the mining franchise fees has accrued as income to the assessee during the year under dispute. It was further submitted that the AO has also applied his mind to the deduction claimed u/s 80HHC of the Act after taking into consideration clause (baa) to Explanation u/s 80HHC and has computed the deduction u/s 80HHC after reducing 90% on certain income from the profits or business. It was, therefore, submitted that the AO having computed the deduction u/s 80HHC being conscious of the income on account of mining franchise fees and also taking into account the provision contained u/s 80HHC of the Act, it cannot be said that there was failure on the part of the assessee to 6 ITA No 419/Hyd/2013 M/s AP Mineral Development Corporation Ltd.
disclose fully and truly all material facts before the AO. It was submitted that there was no material before the AO except materials, which were considered at the time of original assessment proceeding while initiating proceeding u/s 147 of the Act. It was, therefore, contended that the CIT(A) was justified in annulling the assessment order passed u/s 143(3) read with section 147 of the Act.
9. We have heard the contentions of the parties and perused the materials available on record. Before dealing with this issue, it is necessary to look into the provision as contained u/s 147 of the Act. Section 147 of the Act empowers the AO to reopen an assessment for any assessment year if he has reason to believe that income chargeable to tax has escaped assessment. However, proviso to section 147 provides that in a case where an assessment u/s 143(3) has been made no action can be taken after expiry of 4 years from the end of the AY unless the escapement of income is attributable to failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. In the facts of the present case, there is no dispute to the fact that the assessment proceeding u/s 147 of the Act was initiated much after expiry of 4 years from the end of the AY under consideration. Therefore, it is necessary to see whether there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. As can be seen from the observation made by the AO in the order passed u/s 143(3) read with section 147 of the Act, the assessment was reopened for the reason that the AO while calculating deduction u/s 80HHC of the Act, has omitted to deduct 90% of mining franchise fees.
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10. On perusal of the assessment order passed u/s 143(3) of the Act on 18/01/2006, a copy of which has been submitted by the learned AR before us, it is very much clear that at the time of original assessment proceeding all facts relating to the mining franchise fees was available on record before the AO and the AO after considering all the facts and materials on record in the light of the ratio laid down in various judicial precedents ultimately came to a conclusion that it accrues as income to the assessee during the assessment year under dispute and added it to the total income of the assessee. This fact is very much clear from the discussion made by the AO in para 11 to para 11.7 of the original assessment order. Similarly, on going through the discussion made by the AO in para 12 & 12.1 of the original assessment order it becomes clear that the AO has thoroughly applied his mind while considering the assessee's claim of deduction u/s 80HHC of the Act and taking into note the ratio laid down in various judicial precedents as well as the provision contained u/s 80HHC of the Act and specifically clause (baa) to Explanation of 80HHC of the Act [though wrongly mentioned as 'clause [bba]'].
11. Thus, a perusal of the original assessment order makes it clear that all the facts relating to the mining franchise fees and deduction claimed u/s 80HHC of the Act were before the AO at the time of original assessment proceeding and the AO after applying his mind to the facts and materials on record has taken conscious decision while calculating deduction u/s 80HHC. Hence, considering the aforesaid facts & circumstances, it cannot be said that there is any failure on the part of the assessee to disclose truly and fully all the material facts necessary for its assessment. Even otherwise also there is nothing on record to suggest that escapement of income, if at all, there is any, was on account of 8 ITA No 419/Hyd/2013 M/s AP Mineral Development Corporation Ltd.
failure on the part of the assessee to disclose fully and truly all material facts. At least, we do not find any such allegation against the assessee. Therefore, when all facts relating to mining franchise fee and claim of deduction u/s 80HHC was brought on record by the assessee during the assessment proceeding there cannot be any failure on the part of the assessee to disclose truly and fully all material facts. Furthermore, the order passed u/s 143(3) read with section 147 of the Act gives an impression that the AO has no fresh tangible material before him for having a reason to believe that income has escaped assessment. The entire reassessment proceeding has been initiated only for the reason that, according to the AO the computation of deduction u/s 80HHC at the time of completion of original assessment is not correct. In our view, it cannot be a valid reason for reassessment when there is no fresh tangible material before the AO to come to a conclusion that income has escaped assessment. Reopening of assessment on the basis of the self-same material, which were considered by the AO while completing original assessment would amount to change of opinion and, therefore, the assessment order passed in consequence thereon has to be held as invalid in law. Thus, in the facts of the present case, initiation of proceeding u/s 147 of the Act and the assessment order passed in consequence thereupon cannot be considered to be valid firstly for the reason that there being no failure on the part of the assessee to disclose fully and truly all material facts, no reopening could have been made after expiry of 4 years from the end of the assessment year and secondly, there being no fresh and tangible material before the AO for initiating proceeding u/s 147 of the Act, initiation of proceeding on a mere change of opinion is invalid and bad in law. In the aforesaid view of the matter, we do not find any reason to interfere with the order of the CIT(A), which is accordingly 9 ITA No 419/Hyd/2013 M/s AP Mineral Development Corporation Ltd.
confirmed. The ground raised by the revenue on this count is dismissed.
12. In the result, appeal of the revenue is dismissed.
Pronounced in the open court on 12/07/2013.
Sd/- Sd/-
(CHANDRA POOJARI) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 12 th July, 2013.
kv
Copy to:-
1) DCIT, Circle - 2(3), Hyderabad.
2) M/s AP Mineral Development Corporation Ltd., 6-2-915, Metro Water Works, HMWSSB Rear Bloc, 3 rd Floor, Khairathabad, Hyderabad - 500 004.
3) CIT(A)-III, Hyderabad.
4) CIT-II, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.