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2026 Supreme(Online)(ITAT) 6223
INCOME TAX APPELLATE TRIBUNAL (HYDERABAD BENCH)
VIJAY PAL RAO, Vice-President, MANJUNATHA G., Accountant Member
Granules India Limited – Appellant
Versus
DCIT- Circle -2(1) – Respondent
ITA No.1289/HYD/2025
For the Appellants/Petitioners: Shri Y.V. Bhanu Narayan Rao, CA
For the Respondents: Dr. Narendra Kumar Naik, CIT(DR)
Reopening beyond 4 years valid for lack of full disclosure despite audit report; foreign exchange gain on ECB capital loans ineligible for s.10B deduction as capital receipt without export nexus.
Headnote:(A) Income Tax Act, 1961 - Sections 10B, 143(3), 147, proviso, 148 - Reopening of assessment beyond 4 years - Original assessment u/s 143(3) completed after scrutiny - Mere filing of audit report in Form 56G without detailed notes or explanation on computation of deduction does not constitute full and true disclosure of material facts - Reopening valid if AO forms belief of escapement due to such failure - Information from audit party, if AO independently applies mind without reference in reasons, does not invalidate reopening - Non-filing of written objections after supply of reasons or non-disposal by separate order not fatal to proceedings. (Paras 18, 19, 20)
(B) Section 10B - Deduction for 100% export-oriented undertaking - Foreign exchange gain on restatement of ECB loan for acquiring plant & machinery is capital in nature, adjusted to asset cost, not eligible as profit derived from export business - No direct nexus proved for income from sale of scrap or insurance claim with export activity - Gain/loss on capital account not treated as revenue receipt/expenditure. (Paras 21, 22)
(C) Additional grounds - Purely legal grounds on merits arising from same facts as original grounds, involving no new facts, admissible even at appellate stage before Tribunal. (Para 6)
Facts of the case:
Assessee engaged in manufacturing and export of pharmaceutical products claimed deduction u/s 10B including foreign exchange gain on ECB loan restatement, sale of scrap and insurance claim. Original assessment u/s 143(3) completed allowing claim. Reopened beyond 4 years alleging excess allowance due to non-disclosure. AO disallowed deduction; CIT(A) upheld.
Findings of Court:
Reopening valid due to failure in full disclosure; deduction u/s 10B rightly disallowed as incomes not derived from export business.
Issues: Validity of reopening beyond 4 years without full disclosure; eligibility of foreign exchange gain on capital loans, scrap sale and insurance claim for deduction u/s 10B; admissibility of additional grounds.
Ratio Decidendi: Full disclosure requires detailed computation notes, not mere audit report; capital foreign exchange gains ineligible for s.10B; reopening upheld where AO independently forms belief; non-disposal of objections not fatal.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. factual background of assessment and reopening. (Para 1 , 7 , 8) |
| 2. assessee challenges reopening and section 10b disallowance. (Para 2 , 3 , 4 , 5 , 9 , 12 , 13 , 14) |
| 3. revenue defends reopening validity and disallowance. (Para 6 , 15 , 16) |
| 4. appeal dismissed; disallowance upheld. (Para 10 , 23) |
| 5. reopening valid due to incomplete material disclosure. (Para 17 , 18 , 19 , 20) |
| 6. foreign exchange gains on ecb capital; no section 10b deduction. (Para 21 , 22) |
ORDER
PER MANJUNATHA G., A.M:
This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad [in short “Ld.CIT(A)”], dated 24.06.2025, pertaining to the Assessment Year 2010-11.
2. The grounds raised by the assessee read as under:
“1. On the facts and in the case, the order passed by the learned Commissioner of Income-tax (Appeals)-12, Hyderabad is bad in law.
2. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals)-12, Hyderabad erred by dismissing the appeal without considering the objections raised/made by the assessee that the learned AO was not correct in issuing notice u/s 148 of the Income Tax Act, 1961 after the expiry of a period of 4 years from the end of the relevant assessment year 2010-11, especially when the original assessment was already completed under the provisions of section 143(3) on 24.03.2014 after duly considering all the information furnished.
3. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals)-12, Hyderabad erred by dismissing the appeal without considering the fact that the assessee's objections were not disposed of by the learned Assessing Officer by way of a separate order; and a consolidated re-assessment order dated 29.12.2017 was passed wherein the objections filed by the assessee were also disposed, which is not as per laid down law.
4. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals)-12, Hyderabad erred by confirming the assessment order passed by the learned Assessing Officer who erroneously reopened the assessment based on information received by him from the audit party (RAP), which constitutes a mere change in opinion and not "new material" which is very much essential for reopening of an assessment already completed u/s 143(3).
5. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals)-12, Hyderabad erred by confirming the assessment order passed by the learned Assessing Officer [being the Dy. Commissioner of Income-tax, Circle-2(2), Hyderabad] u/s 143(3) r.w.s 147 of the Act which was erroneous on facts and in law as the deduction/exemption exemption u/s 10B of the Act to the tune of Rs.8,16,29,962/- was disallowed without considering the objections and submissions made during re- assessment proceedings.
6. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals)-12, Hyderabad erred by confirming penalty proceedings u/s 271(1)(c) initiated by the learned Assessing Officer on the addition.
7. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) -12, Hyderabad erred by confirming the erroneous calculation of interest made by the learned Assessing officer.
8. The Appellant craves your honors leave to add/ alter/ withdraw the above grounds at the time of hearing.”
3. Further, assessee has raised following additional grounds of appeal: -
“1. Whether on the facts and in the circumstances of the case, the revenue is right in denying the benefit of deduction u/s 10B of the Act for an amount of Rs. 8,16,29,962/- (since rectified by order u/s 154 dt. 20/02/2018 to Rs. 6,06,08,866/-) being gain on Foreign Exchange fluctuation on ECB loan used for purchase of Plant & Machinery used exclusively for manufacturing export oriented good?
2. On the facts and in the circumstances of the case, the assessee ha
