The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) quashed the reassessment initiated under an invalid notice issued under Section 148 of the Income Tax Act,1961 and deleted additions amounting to ₹6.93 crore.
Regalia Laminates MCD Buliding,the appellant-assessee, was engaged in manufacturing laminated sheets and had claimed a deduction under Section 80IC of the Act. For Assessment Year(AY) 2009-10, it filed its e-return declaring an income of ₹561,231. The case was scrutinized to verify the claimed deductions, and the assessee submitted the required documents.
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A deduction of ₹7,404,771 was claimed, but certain additions were made to the income. Later, a rectification notice under Section 154 was issued, but no changes were made by Assessing Officer(AO) after the assessee’s response.
A notice under Section 148 of the Act was issued on March 30, 2016, as the AO believed the assessee failed to disclose all material facts necessary under Section 80IC. The AO found manipulation of facts and reduced the deduction by ₹5,000,000 for export incentives and ₹1,931,555 for foreign exchange fluctuation income, totaling ₹6,931,555.
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Penalty proceedings under Section 271(1)(c) were initiated. The assessee reported an income of ₹7,492,786, resulting in a demand notice and challan, along with interest charged under Section 234B.
Dissatisfied with the AO’s order, the assessee appealed to the Commissioner of Income Tax(Appeals) [CIT(A)], who dismissed the appeal on January 12, 2024. The assessee subsequently filed an appeal before the tribunal.
The Tribunal reviewed the case and noted that the CIT(A) found sufficient grounds for the AO’s belief that income had escaped assessment due to the assessee’s failure to disclose essential material facts. The appellant, engaged in manufacturing laminated sheets, mistakenly claimed export incentives and foreign exchange fluctuations as deductions under Section 80IC, despite these amounts being classified as “Other Income” in the P&L account.
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The bench observed that the assessee did not fully disclose relevant facts, leading to an understatement of taxable income. It referred to the Supreme Court ruling in M/s Liberty India Vs. CIT, which clarified that such incentives did not qualify as net profit for eligible industrial undertakings.
In response to the appellant’s arguments against the reassessment, the tribunal confirmed that adequate reasons had been provided for reopening the case. Since the original assessment was completed under Section 143(3) on October 19, 2011, and no new evidence had surfaced after four years, the Tribunal deemed the AO’s notice invalid. Consequently, it set aside the assessment made by the AO.
The two member bench comprising Sudhir Kumar (Judicial Member) and S.Rifaur Rahman( Accountant Member) allowed the appeal, concluding that the AO incorrectly assessed under Section 148, leading to the deletion of the additions upheld by the CIT(A).
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