IN INCOME TAX APPELLATE TRIBUNAL BENCH, CHENNAI [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER] I.T.A.No.1223, 3097 & 3098/Mds/2014 Assessment year : 2005-06, 2006-07 and 2007-08 M/s Leo Fasteners Vs. Asstt. Commissioner of Rep. by its Partner Income-tax A-27A, Industrial Estate Circle I Thattanchavadu Pondicherry Pondicherry - 9 [PAN AABFL 0652 J (Appellant) (Respondent) Appellant by : Smt. Pushya Seetharaman, Sr. Advocate & Smt. J. Sreevidya, Advocate Respondent by : Shri Shiva Srinivas, JCIT Date of Hearing : 19-09-2016 Date of Pronouncement : 30-09-2016 O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER These appeals were disposed by Tribunal vide order dated 29.5.2015. Subsequently, assessee filed miscellaneous petitions in M.P.Nos.70, 71 & 72/Mds/2015 and Tribunal vide its order dated 09.12.2015 has recalled order dated 29.5.2015. :-2-: I.T.A.No.1223/14 etc 2. In these appeals, assessee has raised common grounds regarding validity of issue of notice u/s 147 of Act and also separate grounds on merits for deduction u/s 80IB of Act on interest earned on deposits which was kept for margin money, and gain on foreign exchange fluctuation. For sake of convenience and brevity, we dispose of appeals by this common order. 3. First we take up appeals for assessment year 2005-06 and 2006-07. 4. first issue is relating to reopening of assessment. facts of case are that for assessment year 2005-06, assessment was completed originally u/s 143(3) of Act by order dated 31.12.2007. assessee is engaged in manufacture of High tension precision Fasteners and unit is carried on with aid of power and employing more than 10 workers and claimed 100% of deduction u/s 80IB amounting to Rs.13,22,69,090/- relating to Unit-I and Unit-II. In assessment order u/s 143(3) dated 31/12/2007, Assessing Officer has disallowed claim of assessee u/s 80IB of Act. assessee went in appeal before CIT(A) and CIT(A) has passed order holding that profits of assessee-firm for both units will qualify for :-3-: I.T.A.No.1223/14 etc deduction u/s 80IB @ 25% as against claim of 100% made by assessee. 5. On appeal, Tribunal confirmed order of Ld .CIT(A) and assessee filed appeal before Hon'ble Madras High Court in T.C. No.1218 to 1220/2010 for all three assessment years and are pending. Meanwhile, Assessing Officer has noticed that assessee has claimed deduction u/s 80IB on interest income and gain on Foreign Exchange fluctuation and issued notice u/s 148 of Act on 28.3.2012 for exclusion of interest income of ` 41,54,509/- and foreign exchange gain of ` 17,82,318/- for purpose of computing eligible deduction u/s 80IB. In original assessment order of 31.12.2007, Assessing officer has examined issue whether assessee is eligible for deduction u/s 80IB or not but not examined issue whether interest income and gain on foreign exchange are allowable for purpose of computing eligible deduction u/s 80IB of Act. Therefore, notice u/s 148 has been issued for reopening of assessment which was challenged before CIT(A). assessee could not succeed before CIT(A) hence, in appeal before Tribunal. :-4-: I.T.A.No.1223/14 etc 6. Ld. Sr. Counsel appearing for case has stated that in first instance, Assessing Officer disallowed entire deduction claimed u/s 80IB of Act after verifying complete details filed by assessee. She further submitted that during course of assessment proceedings, books of account, financial statements and certificate issued by qualified accountant in Form 10CCB determining deduction u/s 80IB were produced before Assessing Officer and after verifying entire details placed before Assessing Officer, Assessing Officer disallowed entire deduction u/s 80IB. Ld. Sr. Counsel also invited out attention to Profit & Loss Account, computation of income which are placed at pages 9 , 10 and 6 of paper book. At page No.9 of paper book, assessee has furnished details of foreign exchange fluctuation, interest income and also net profit before interest and depreciation. From net profit, assessee computed deduction u/s 80IB which is placed at page 6 of paper book. Ld. Sr. Counsel submitted that information regarding interest and gain on foreign exchange fluctuation was placed before Assessing Officer at time of original assessment, hence there is no fresh material received by Assessing Officer. Accordingly, ld. Sr. Counsel contended that there is no case for reopening assessment u/s 147 of I.T. Act . Further :-5-: I.T.A.No.1223/14 etc she submitted that there is no failure on part of assessee to furnish required details and notice u/s 148 was issued beyond four years from end of relevant assessment year which require failure on part of assessee. She argued that assessment made u/s 148 of Act consequent to issue of notice u/s 148 is bad in law. Ld. Sr. Counsel submitted that Hon'ble ITAT, Chennai, in its order dated 29.5.2015 confirmed order of Assessing Officer in issuing notice u/s 148 under mistaken impression of information regarding inclusion of interest and foreign exchange gain has come to notice of Department consequent to search operation in case of assessee which was not correct. It was argued that there was no search and only survey was conducted u/s 133A of Act on 18/11/2004 before assessment was made u/s 143(3) dated 31.12.2007. 7. On other hand, Ld. DR fairly conceded that there was no search in premises of assessee and there was only survey. ld. DR argued that assessee has furnished Form 10CCB, return of income and Profit & Loss Account but not furnished details regarding interest income and gain on foreign exchange. Assessing officer has examined only issue regarding :-6-: I.T.A.No.1223/14 etc allowability of deduction u/s 80IB but not specific issue relating to interest income and foreign exchange gain. D.R further argued that since, Assessing Officer has not examined issue specifically relating to inclusion of interest income and gain on foreign exchange fluctuation and information has come to notice of AO subsequently, on verification of records, issue of notice u/s 148 of Act is valid and required to be upheld. Further, ld. DR relied on orders of Assessing Officer and CIT(A). 8. We have heard rival submissions and perused material placed on record. In this case, assessment years involved are 2005-06 and 2006-07 and original assessments were completed u/s 143(3) disallowing entire deduction u/s 80IB of Act. assessee has filed return of income and certificate u/s 10CCB. In return of income assessee has furnished details of interest and gain on foreign exchange along with Profit & Loss Account. This fact was not disputed by Revenue. Deduction u/s 80IB was computed and claimed as per Profit & Loss Account. assessment was completed u/s 143(3) after verification of books of account produced by assessee. assessee went in appeal before CIT(A) and :-7-: I.T.A.No.1223/14 etc Assessing Officer has passed consequential order giving effect to CIT(A) s order. Subsequently, assessment was reopened after verification of records and noticed that assessee has claimed excess deduction u/s 80IB by including interest income and gain on foreign exchange. above details were already available with Department in assessment records at time of passing original assessment order u/s 143(3). For ready reference, we reproduce hereunder first proviso to section 147 of Act: Provided that where assessment under sub-section (3) of section 143 or this section has been made for relevant assessment year, no action shall be taken under this sec. after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under section 139 or in response to notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. 9. As per proviso to sec. 147, Assessing Officer is permitted to reopen assessment after expiry of four years from end of relevant assessment year only in case assessee fails to disclose fully and truly all material facts necessary for assessment for that assessment year. In this case, since entire material was placed before Assessing Officer and there was no failure on part of assessee to disclose true and correct :-8-: I.T.A.No.1223/14 etc particulars before Assessing Officer. assessee relied on following decisions. (i) PVP Ventures Ltd vs ACIT [2015] 94 CHH 147(ChenHC) (ii) EI Dupont India Pvt. Ltd vs DCIT [2013] 351 ITR (Del) (iii) Patel Alloy Steel P Ltd vs ACIT, [2013] 1 ITR-OL 9580 [Gujarat HC) (iv) CIT vs Ankit C. Maheshwari [2014] 366 ITR 146(Guj) (v) Nezone Foods P. Ltd vs ACIT, [2015]38 ITR (Trib) 464 (vi) Donaldson India Filters Systems P. Ltd vs Dy. CIT, [2015] 371 ITR 87(Del) Wherein it was held that unless and until it was alleged or established that there was any failure on part of assessee to disclose material facts truly and correctly, it was not permissible to Assessing Officer to reopen assessment u/s 148. 10. Revenue has not established case that assessee has failed to disclose all material facts for disallowing deduction u/s 80IB in relation to interest income and gain on foreign exchange. Therefore, notice issued u/s 148 is bad in law and case law relied upon by assessee are squarely applicable to facts :-9-: I.T.A.No.1223/14 etc of case. notice issued u/s 148 and consequent assessments are quashed. 11. Since we have quashed reopening of assessments for assessment years 2005-06 and 2006-07, we do not consider it necessary to adjudicate upon issues on merits for which assessee has raised grounds separately. 12. In result, assessee s appeals for assessment years 2005-06 and 2006-07 are allowed. 13. Now coming to appeal for assessment year, 2007-08, assessee has raised two issues in its grounds. first issue is on reopening of assessment and the issue of notice u/s 148 of Act and second issue is deduction u/s 80IB of Act on interest income and gain on foreign exchange fluctuation. 14. In this case, assessment was completed on 18.12.2009 and Assessing Officer disallowed deduction claimed u/s 80IB entirely relating to Unit-I Rs.6884622/- and Unit-II Rs.26153597/- aggregating to Rs.33038219/-. assessee filed appeal before CIT(A) and CIT(A) has allowed assessee s appeal partly restricting deduction u/s 80IB to 25%. On appeal, Tribunal confirmed order of Ld .CIT(A) and :-10-: I.T.A.No.1223/14 etc assessee filed appeal before hon ble Madras High Court in T.C. No.1218 to 1220/2010 for all three assessment years and are pending before Hon ble High Court. Meanwhile, Assessing Office has noticed that assessee has claimed deduction u/s 80IB on interest income and gain on Foreign Exchange fluctuation and same is not includible for purpose computing deduction and notice u/s 148 has been issued to disallow claim of deduction u/s 80IB. assessee filed objections before Assessing Officer and Assessing Officer has passed speaking order addressing objections raised by assessee for issue of notice u/s 148 of Act. Subsequently, assessment was completed u/s 143(3) r.w.s 147 of Act on 28.3.2013 excluding amount of interest and gain on Foreign Exchange fluctuation. assessee filed appeal before CIT(A) and CIT(A) confirmed action of Assessing Officer in reopening assessment as well as on merits. While confirming reopening of assessment, CIT(A) relied on judgment of Apex Court in case of CIT vs P.V.S.Beedies P. Ltd 103 taxman 204, decision of Hon ble High Court of Bombay in case of Export Credit Guarantee Corportion of India Ltd vs Addl. CIT, 30 taxmann.com 211, Kalyanji Mavji & Company vs CIT, 102 ITR 287, Gujarat High Court in Praful Chunnilal Patel & Vasanth Chunnilal :-11-: I.T.A.No.1223/14 etc Patel vs ACIT, 236 ITR 832 and decision of Co-ordinate Bench in case of Chennai Petroleum Corporation Ltd dated 8.1.2013. Not being successful before CIT(A), assessee filed appeal before us. 15. Ld. Sr. Counsel argued that assessee has furnished complete particulars before Assessing Officer and there was no failure on part of assessee. Further she argued that Assessing Officer has examined details furnished by assessee and disallowed deduction u/s 80IB and afterwards he cannot relook and take stand that certain incomes are not included which were not entitled for deduction u/s 80IB and resort for reopening of assessment merely because Assessing Officer has not examined details. details and books of accounts were placed before Assessing Officer at time original assessment and Assessing Officer came to conclusion after verification of details that assessee was not entitled for deduction u/s 80IB and accordingly completed assessment. She argued that notice u/s 148 dated 28/03/2013 was mere change of opinion and it should be quashed. 16. On other hand, Ld. DR argued that while framing original assessment, Assessing Officer has disallowed :-12-: I.T.A.No.1223/14 etc entire deduction u/s 80IB and examined issue whether assessee is entitled for deduction u/s 80IB of Act or not and there was no occasion to Assessing Officer to examine whether particular source of income was eligible for deduction u/s 80IB or not . Therefore, D.R contended that there is no error in issue of notice u/s 148 and AO has issued notice after recording reasons . ld. DR relied on orders of lower authorities and defended respondent. 17. We heard rival submissions and perused material on record. In this case, assessment was completed u/s 143(3) of Act by order dated 18.12.2009 and Assessing Officer has decided issue whether assessee is eligible for deduction u/s 80IB or not and taken decision that assessee is not entitled to deduction u/s 80IB. Accordingly, he disallowed entire deduction u/s 80IB in respect of Unit I and Unit II. There was no occasion for Assessing Officer to examine whether particular source of income is eligible for deduction u/s 80IB of Act or not. assessee also did not produce any evidence to show that Assessing Officer has taken conscious decision after verifying income relating to interest and gain on foreign exchange fluctuation is includible or not?. Therefore, it is :-13-: I.T.A.No.1223/14 etc clearly evident from orders of lower authorities that Assessing Officer has never examined issue regarding eligibility of deduction u/s 80IA/80IB in relation to interest income and gain on foreign exchange fluctuation. In this case, assessment year involved is 2007-08 and notice was issued on 28.3.2012 within four years from end of relevant assessment year. assessee relied on following judgments: Donaldson India Filters Systems P. Ltd vs Dy. CIT, [2015] 371 ITR 87(Del) PVP Ventures Ltd vs ACIT [2015] 94 CHH 147(ChenHC) EI Dupont India Pvt. Ltd vs DCIT [2013] 351 ITR 299(Del) Patel Alloy Steel P Ltd vs ACIT, [2013] 1 ITR-OL 9580 [Gujarat HC) CIT vs Ankit C. Maheshwari [2014] 366 ITR 146(Guj) Nezone Foods P. Ltd vs ACIT, [2015]38 ITR (Trib) 464 18. judgments relied upon by assessee were relating to assessment reopened beyond four years and failure on part of assessee to disclose truly and fully material facts. Since in assessee s case assessement was reopened u/s 148 within period of four years case laws relied upon by assessee do not help in any way. CIT(A) has relied on decisions cited supra which are squarely applicable in :-14-: I.T.A.No.1223/14 etc assessee s case. In this case, Assessing Officer has not verified during original assessment proceedings regarding allowability of deduction u/s 80IB in relation to interest income and foreign exchange gain. In such circumstances, Gujarat High Court judgment in case of Praful Chunnilal vs.CIT 236 ITR 832 relied up on by Ld.CIT comes to help of Revenue. Similarly, in case of Kalyanji Mavji & Company (supra) Apex Court held that there is no change of opinion if assessment is reopened on new facts which came to notice subsequently even though they are already on record. Therefore, we hold that Assessing Officer has rightly reopened assessment by issue of notice u/s 148 and grounds raised by assessee on reopening of assessment are dismissed. 19. Coming to merits of issues, Ld. Sr. Counsel contended that assessee has good case. She argued that interest income earned by assessee on margin money was deposited in bank and therefore, there is link between business and interest income received by assessee. Similarly, gain on foreign exchange, according to ld. Sr. Counsel, form part of business income for purpose of deduction u/s 80IB of Act. :-15-: I.T.A.No.1223/14 etc 20. On contrary, ld. DR submitted that income received by industrial undertaking alone is eligible for deduction us 80IB of Act. In this case, assessee earned interest income from deposits made with banks, therefore, assessee is not entitled for deduction u/s 80IB of Act. Referring to gain on foreign exchange, ld. DR submitted that gain on foreign exchange also is not derived from industrial undertaking therefore, not eligible for deduction us 80IB of Act. 21. We heard rival submissions and perused material on record. Admittedly, assessee has deposited money in banks and received interest. Assessee claims that it is margin moey deposits. Irrespective of nature of deposit, source of receipt of interest is not from business but from deposit made from bank. Therefore, we are of opinion that interest received from bank is not eligible for deduction u/s 80IB. 22. Now coming to gain on foreign exchange, claim of assessee before lower authorities was that assessee borrowed FCNR loan for purchase of windmill. claim before lower authorities is that due to foreign exchange fluctuation assessee gained Rs 33,58,735/- in relation to FCNR loan. Since loan was obtained for purchase of windmill gain on foreign :-16-: I.T.A.No.1223/14 etc exchange would reduce cost of windmill as held by Apex Court in case of CIT vs Karnal Sugars Pvt Ltd 243 ITR 2. Therefore, gain on foreign exchange has to be treated as capital receipt. It is not disputed by Revenue that assessee borrowed FCNR loan for purchasing windmill. If gain arose due to foreign exchange fluctuation in relation FCNR loan for purchase of windmill such gain would go to reduce cost of windmill. Therefore, what was received by assessee would go to reduce cost of capital viz. windmill. Therefore, this Tribunal is of considered opinion that to that extent income of assessee would be reduced. However, CIT(A) found that assessee has not produced any evidence in respect of loan taken for purchase of windmill and treatment of gain on foreign exchange. No material was also filed before this Tribunal. Therefore, this Tribunal is of considered opinion that that matter needs to be re-examined by Assessing Officer. Accordingly, issue with regard to claim of deduction u/s 80IB of Act on foreign exchange fluctuation gain is remitted back to file of Assessing Officer. Assessing Officer shall reconsider issue afresh in light of material that may be filed by assessee with regard to purchase of windmill and thereafter decide same in accordance with law. :-17-: I.T.A.No.1223/14 etc 23. In result, appeal of assessee for assessment year 2007-08 is partly allowed for statistical purposes. Order pronounced in open court on 30th September, 2016, at Chennai. Sd/- Sd/- (N.R.S. GANESAN) (D.S. SUNDER SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Chennai Dated: 30th September, 2016 RD Copy to: 1. Appellant 4. CIT 2. Respondent 5. DR 3. CIT(A) 6. GF M/s Leo Fasteners v. Asstt. Commissioner of Income-tax Circle I, Pondicherry