TII Instant Update - 2017-TII-INSTANT-ALL-483

CASE LAW

2017-TII-50-HC-DEL-INTL

SWAROVSKI INDIA PVT LTD Vs DCIT: DELHI HIGH COURT (Dated: August 30, 2017)

Income Tax - Writ - Sections 10B, 143 (3), 144C, 147, 148, 154 & 155.

Keywords - Manufacture - Reason to believe & time-barring.

The Assessee company is engaged in the business of manufacturing, production of imitation pearls and also import and sale of crystals and crystal related items in India. It had two units, one in Pune and another in Delhi. The Assessee had filed its return declaring a loss of Rs.5,36,96,344/- after claiming benefit of Rs.4,67,89,966/- as deduction u/s 10B in respect of the Pune unit, which was a 100% export oriented unit, set up for coating of raw beads and producing commercially usable goods. Its return was referred by the AO to the TPO u/s 92CA. Post the TPO's report, a draft assessment order was passed by AO wherein the Assessee was given the benefit of deduction u/s 10B. Thereafter, a final assessment order was also passed by the AO. The further proceedings arising from the final assessment order continue to be pending before the ITAT.

Thereafter, a notice under Ss 154 & 155 was also issued on the ground that the computation of income under Section 143 (3) of the Act dated 28th January, 2011 was required to be amended due to a mistake apparent on the face of the record. In the said notice, the AO captured the particulars of the mistake proposed to be rectified. Since the gross total income in respect of both the units at Pune and Delhi was in the negative, the Assessee was not entitled to exemption separately for the Pune unit. The Assessee replied to the said notice, but, no order was passed.

Thereafter, a notice u/s 148 came to be issued and the 'reasons to believe' as recorded by the AO, and as communicated to the Assessee upon request, were with respect to the deduction of Rs.4,67,89,966/- u/s 10B. The AO proposed to re-assess the taxable income of the Assessee. The Assessee filed its objections and contended that the notice u/s 148 was barred as it had been issued beyond the period of four years. It was also contended by the Assessee that the proceedings u/s 143 (3) were completed on the very same facts. Lastly, the Assessee submitted that there was no ground for reopening the assessment. The objections were disposed of by the AO and subsequently, upheld the validity of the initiation of the re-assessment proceedings.

In writ, the High Court held that,

Whether if the AO is free to take a different view on the same set of facts in a subsequent year, it is also free to reopen assessments finalised in the previous years - NO: HC

+ while the proceedings u/s 143(2) had culminated into an order u/s 143(3), the issuance of the notice u/s 148 after a period of four years requires that there ought to be a failure to disclose fully and truly all material facts. This is the settled principle;

+ this Court does not accept the proposition that in every case it would be permissible for the assessing authority to reopen the assessment of an earlier year on the basis of assessment of a subsequent year. While it is possible that on the same set of facts, the AO could, in a subsequent year, form a different opinion, that by itself would not justify the reopening of an assessment of the previous year made u/s 143(3). However, if fresh material is discovered or facts are discovered later on in respect of the said earlier assessment year, in a subsequent year, depending on the facts of each case, the validity of the reopening of assessment would have to be adjudicated. In the present case, there is no fresh fact or fresh material which forms the reasons to believe for reopening of the assessment except the order passed by the AO for the subsequent AY 2008-09;

Whether when a 100% export oriented unit is held to be entitled to Sec 10B benefits, on the same set of facts, the AO cannot take a different view in a subsequent year - YES: HC

+ the Pune unit of the Assessee being an eligible undertaking by itself, as held by the Supreme Court in Yokogawa, is entitled to the benefit of Sec. 10B. It is also held that the activities conducted by the Pune unit constitute 'manufacture' and in the subsequent year, on a similar set of facts, the issue of benefit u/s 10B having attained finality, the impugned order deserves to be quashed. Accordingly, notice dated 25th March, 2014 issued u/s 148 is quashed and the order dated 11th June, 2014 passed by the Revenue, disposing of the objections of the Assessee for AY 2007-08, is set aside.

Assessee's writ allowed