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08-03-2019, TCG Lifesciences, Section 10B, 147, 148, Tribunal Kolkata

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2 months 1 week ago #8770 by amit
Section - 10B, 147, 148, 153, 139
Order Date - 08-03-2019
Favouring - Assessee
Court - Tribunal Kolkata
Appellant - TCG Lifesciences Pvt. Ltd.
Respondent - ACIT
Justice - A. T. Varkey, JM & Dr. A. L. Saini, AM
Citation - 319Taxpundit219
Appeal No. - I.T.A. No. 2261/Kol/2017
Asstt. Year - 2008-09


PER : A.T.Varkey, JM

This appeal preferred by the assessee is against the order of the Ld. CIT(A)-16, Kolkata dated 07.09.2017 for AY 2008-09.

2. By raising the first four grounds, the assessee has challenged the legal issue of validity of re-opening carried out by the AO in respect to original assessment u/s 143(3) of the Act which according to assessee is nothing but a change of opinion.

3. The brief facts of the case are that the assessee company filed its original return of income on 30.09.2008 declaring a total income of Rs.9,98,63,964/-. Later on, the assessee filed the revised return on 30.03.2010 declaring total income at nil. In the computation, the assessee claimed deduction u/s. 10B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) of Rs.8,09,38,342/- which was accepted by the department which is placed at pages 5 to 7 of the paper book, wherein we note that the AO while passing the original assessment u/s. 143(3) of the Act on 29.12.2011 has stated that “the assessee company was engaged in the business ‘analysis and synthesis of chemical compounds and data processing’ during the previous year.” The AO has also noted “in support of assessee’s claim of expenditure and on various queries raised in course of hearing, the Ld. AR submitted various details, list and photo copies of documents. After examining the Balance sheet, P&L Account along with schedules, tax audit report, report u/s. 10B, revised computation (filed at the time of hearing) and other details and documents submitted during the course of hearing” and thereafter he went to discuss on three issues and then in the computation page he computes deduction u/s. 10B (allowable at Rs.17,33,68,059/-). However, restricted the same at gross total income at Rs.9,74,10,652/- of the assessee by order framed u/s. 143(3) on 29.12.2011. Thereafter, the AO issued notice u/s. 148 of the Act for reopening on 04.03.2013 and copy of the reasons recorded was furnished vide department’s letter dated 07.02.2014 wherein the reasons recorded to reopen is as under:

"It was noticed that gross total income was arrived at for Rs. 9,74,10,652/- and deduction u/s 10B was allowed to the extent of full amount. Though allowable amount of deduction was computed at Rs.17,33,68,059/-.

In terms of provisions of clause 2 to sec 10b this section applies to a undertaking only when it manufactures or produces any articles or things or computer software. In the column 8 of the 3CD report nature of business of the assess e was shown as 'analysis & synthesis of chemical compounds and data processing . In th Form No. 56G Export Turnover as well as domestic turnover of the assessee was shown in respect of article or things. However, in the 'Notes on Accounts' (vide pt. 23 of Sch 12 of balance sheet), it was noted that 'the company is engaged in the business of providing contract research arising out of the contracts predominantly outside India .... It was further n ted in the 'Details of sales' vide pt 9 to notes on accounts that whole income from sale was from 'Contract research operation '.

In the col. 28 b & c of the Tax Audit Report in respect of quantitative details of raw materials and finished goods note 8 to Sch 12 was only referred. In the said note no details of finished goods and raw material was furnished. Contract research operation in no stretch of Imagination be held as manufacturing which generally involves definite raw material and finished goods. As such the assessee Co. was not entitled to deduction u/s. 10B.”

4. The above said reasons recorded by AO, to believe escapement of income was objected to by the assessee before the reassessment proceedings itself. However, the AO was of the opinion that the objection is not tenable and he repelled the assessee’s said objection to reopen by observing that assessee was mainly engaged in the business of contract research services i.e. inventing chemical methods and formulae as per the requirements of the clients. Income from selling of chemicals, that incidental output of the main operation, did not constitute substantial part of the income of the assessee. Further, the “details of sales” vide point 9 to notes on accounts indicates that the whole income from sale was from “Contract Research Operation”. Hence, the business of assessee did not qualify as manufacture and thus not entitled to deduction u/s. 10B of the Act which was wrongly allowed to the assessee for the AY 2008-09 and hence, according to AO, the assessment was rightly reopened by issuing notice u/s. 148 of the Act. Aggrieved, the assessee preferred an appeal on this legal issue before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, the assessee is before us raising the legal issue.

5. Assailing the action of the Ld. CIT(A), the Ld. AR drew our attention to the fact that in the original assessment order dated 29.12.2011, the AO has acknowledged in the assessment order that he has gone through all the documents and the report u/s. 10B before framing the assessment u/s. 143(3) of the Act and took a conscious decision while restricting the deduction u/s. 10B from Rs.17,33,68,059/- to Rs.9,74,10,652/-. The Ld. AR also drew our attention to the query raised by the AO during the original assessment vide notes dated 25.10.2010 issued by the AO in respect of scrutiny proceedings wherein the questionnaire is as under:

“8.7. We find from the questionnaire issued along with notice u/s 142(1) of the Act dated 25.10.2010 for the Asst Year 2008-09, the Ld. AO had raised separate queries with regard to claim of deduction u/s. 10B of the Act as follows:-

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