Facts of the Case:

  • Petitioner Moser Baer India Limited filed income tax return for AY 2004-05 declaring a loss under normal provisions and book profit under Section 115JB.
  • Petitioner had three 100% Export Oriented Units (EOUs):
    1. 66 NSEZ, Noida – Profit claimed under Section 10A
    2. A-164, Sector-80, Noida – Profit claimed under Section 10B
    3. 66 Udyog Vihar, Greater Noida – Loss, no deduction claimed
  • Petitioner filed revised return to correct previously omitted deductions.
  • Assessment under Section 143(3) was completed with partial disallowance for scrap sales.
  • On 23.07.2010, notice under Section 148 was issued for reassessment citing escaped income. Petitioner objected citing full disclosure and limitation period.

 

Issues Involved:

  1. Validity of reopening assessment beyond four years under Section 147.
  2. Whether failure to set off loss of third EOU against profits of other units constitutes non-disclosure.
  3. Applicability of Sections 10A/10B in computing deductions for multiple EOUs.
  4. Whether reassessment is based on “change of opinion” or tangible material.

 

Petitioner’s Arguments:

  • All material facts were fully disclosed, including NIL deduction for the loss-making third unit.
  • Original assessment scrutinized the same issues, including EOUs’ deductions under Sections 10A/10B.
  • Reassessment notice issued more than 5 years after assessment year; beyond statutory limit without non-disclosure.
  • Cited Calcutta Discount Company Ltd v ITO (AIR 1961 SC 372), Lakhmani Mewal Das (AIR 1976 SC 1753), and Kelvinator of India Ltd (2010 2 SCC 723) – disclosure duty only extends to primary facts, not inferences.
  • Reassessment is based solely on change of opinion, which is impermissible under Section 147.

 

Respondent’s Arguments:

  • Petitioner did not reduce the loss of the third unit from profits of other units, resulting in excess exemption under Sections 10A/10B.
  • Reassessment justified under Section 147 due to failure to fully disclose material facts.
  • Relied on CIT vs. Himatasingike Seide Ltd (286 ITR 255) and Sword Global (I) P Ltd vs. ITO (306 ITR AT 286) – unit losses to be set off against profits of eligible EOUs.

 

Court Order / Findings:

  • Court examined the statutory provisions, original assessment, forms submitted, and prior disclosure.
  • Noted reassessment was beyond four-year limitation without non-disclosure.
  • Observed no tangible material existed linking reassessment to escaped income.
  • Court held reassessment is based on mere change of opinion; cannot constitute valid Section 147 action.
  • Reopened assessment and notice under Section 148 are quashed.
  • Writ petition allowed; no order as to costs.

 

Important Clarification:

  • Disclosure requirement under Section 147 is limited to primary facts; petitioner need not advise AO on inferences.
  • Loss of an eligible EOU cannot be arbitrarily set off against other units unless required by law.
  • Tangible material linking failure of disclosure to escaped income is necessary for valid reassessment.
  • Cited landmark authorities: Kelvinator of India Ltd, Lakhmani Mewal Das, Calcutta Discount Company Ltd.

 

Link to download the order:
https://delhihighcourt.nic.in/app/case_number_pdf/2012:DHC:7276-DB/SRB06122012CW76772011.pdf

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