ITAT JODHPUR BENCH
Income-tax Officer-1(3), Jodhpur
IT Appeal No. 37 (Ju.) of 2011
[ASSESSMENT YEAR 2003-04]
SEPTEMBER 21, 2012
N.K. Saini, Accountant Member
This is an appeal filed by the assessee against the order dated 22.01.2010 of CIT(A), Jodhpur.
2. Following grounds have been raised in this appeal:-
1. The proceedings u/s 148 initiated in the case of the appellant is bad in law and bad on facts, and without proper jurisdiction and is also barred by limitation of time.
2. The proceeding initiated u/s 148 is also bad in law in view of original assessment being completed u/s 143(3) after detailed examination of issues on which the proceedings has been initiated.
3. The conditions precedent to initiation of proceedings u/s 148 being absent such order deserves to be quashed.
4. The approval granted by Ld. CIT for initiation of proceedings is also bad in law and bad on facts.
5. The Ld. CIT(A) has erred in sustaining dis allowance of Rs. 3,95,733/- made u/s 80IB. The dis allowance so made is bad in law and bad on facts.
6. The interest charged u/s.234B and 234C is bad in law and bad on facts.
7. The appellant pray for suitable costs.
8. The appellant crasves liberty to add, amend, alter and modify any of the ground of appeal on or before its hearing before your honor.
3. In ground Nos. 1 to 3, the assessee has challenged the proceedings initiated u/s 148 of the Income-tax Act, 1961 [hereinafter referred to as “the Act” in short”] for reopening of the original assessment already completed u/s 143(3) of the Act.
4. The facts relating to this issue in brief are that the assessee vide his original return of income filed on 11.9.2003 disclosed total income of Rs. 70,77,021/- after claiming the deduction u/s 80HHC, 80IB and 80G of the Act. The assessment was completed u/s 143(3) of the Act on 30.3.2005 determining the total income at Rs. 82,33,173/-. Subsequently, the Assessing Officer recorded the reasons after taking the approval from the CIT-II, Jodhpur as required u/s 147 of the Act and issued the notice dated 23.9.2008 u/s 148 of the Act. The reasons recorded u/s 147 of the Act for taking action u/s 148 of the Act has been mentioned by the ld CIT(A) in para 3 of the impugned order, which reads as under:-
“Reasons recorded u/s 147 for taking action u/s 148 of the Income-tax Act, in the case of M/s. Bothra International A. Y. 2003-04”
In this case ROI declaring income of Rs. 70,77,021 was filed by the Assessee. Assessment u/s 143 (3) was completed by the A.O on 30-03-2005 assessing Total Income at Rs. 82,33,173/-. On perusal of the computation sheet furnished by the assessee it was seen that the assessee had claimed deduction u/s 80G @ 50% on the donation amount of Rs. 9,30,600/-. The assessee had also claimed deduction u/s 80HHC and 80IB on this amount because this donation was added to the Net profit declared & on which deduction u/s 80HHC & 80IB were claimed by the assessee. This claim of assessee is in violation of provisions of S.80G(5A) of the IT Act. As per provisions of S. 80G(5A) of the IT Act it is stipulated that “where a deduction under this section is claimed and allowed for any A.Y in respect of any sum specified in sub-section (2), the sum in respect of which deduction is so allowed shall not qualify for deduction under any other provision of this Act for the same or any other Assessment Year. The assessee by doing in the computation sheet has failed to disclose fully and truly all-material facts necessary for its assessment. Thus, I have reason to believe that income of the assessee has escaped assessment in view of excessive claim of deduction taken by the assessee within the meaning of clause C of explanation 2 appended to section 147.
Further in this case A.O. had not treated the income from sale of DEPB license as income derived from export business of the assessee and had also not allowed deduction u/s 80HHC on the same. Later on, proviso was inserted in sub-section 3 of S. 80HHC vide Taxation Laws (Amendment) act 2005, with retrospective effect from 1.04.1998 whereas the assessment in question was completed by the A.O on 30.03.2005. So the A.O had already passed the order when this amendment was brought on the statute. The amended provisions stipulated that in the cases having Turn-Over more than 10 Cr, the profit on sale of DEPB could not qualify business income for the purpose of deduction u/s 80HHC unless conditions laid down in this regard are fulfilled. In this case, the Turn Over of the assessee is to the tune of Rs. 10,84,37,280/- and a sum of Rs. 15,82,933/- has been shown to have received on account of sale DEPB. Instant case is a case where the assessee did not fulfill these conditions at the time of assessment though he was required to do so in the light of said amendment, so the profit on sale of DEPB cannot be treated as business income either for the purpose of 80HHC or even section 80IB. Thus, I hold that on a/c of failure on the part of the assessee in fulfilling statutory conditions for treating profit on sale of DEPB as business income, assessee was allowed excessive claim u/s 80IB within the meaning of clause C of explanation 2 appended to ‘ section 147.
Since the matter pertains to A.Y. 2003-04 & Four years have already elapsed, necessary permission to issue notice u/s 148 of the IT Act has been sought from CIT – II, Jodhpur, who has accorded permission vide letter No. 1859 dated 22-9-2008. Accordingly notice u/s 148 issued.”
5. The Assessing Officer completed the assessment u/s 143(3) of the Act read with section 147 of the Act on 24.12.2009 determining the total income at Rs. 86,09,120/- wherein excess claim of deduction u/s 80IB of the Act amounting to Rs. 3,95,733/- was not allowed on sale value of DEPB amounting to Rs. 15,82,933/- considering the same as profit not derived from the undertaking.
6. The assessee challenged the proceedings initiated u/s 147 r.w. sec.148 of the Income-tax Act, 1961 before the ld CIT(A) and submitted that the Assessing Officer issued notice u/s 148 of the Act on 23.9.2008 and that the case of Liberty India v. CIT  183 Taxman 349 (SC) was decided on 31.8.2009 by the Hon’ble Supreme Court, therefore, the matter had attained finality after appreciating the facts and no appeal related to the above matter was pending before any authority. It was submitted that reasons recorded at the time of issuance of notice were crucial and on the basis of those reasons alone, validity of notice has to be decided. Reliance was placed on the judgment of the Honorable Bombay High Court in the case of Purity Techtextiles (P.) Ltd v. Asst. CIT  189 Taxman 21. It was contended that the assessment u/s 143(3) of the Act was completed on 30.8.2005 after a detailed scrutiny and no additional material was in possession of the Assessing Officer to form a belief that the income had escaped assessment. Therefore, reopening of assessment was not justified. Reliance was placed on the judgment of the Honorable Allahabad High Court in the case of CIT v. Pradeshiya Industrial and Investment Corpn. of U.P. Ltd. 186 Taxman 131. It was contended that no proceedings on account of change of opinion could have been initiated and a request was made for quashing the proceedings u/s 147 of the Act.
7. The ld CIT(A) after considering the submissions of the assessee observed that as per the requirement of section 147 of the Act, the Assessing Officer should record his reason for the belief that the income had escaped assessment and the reasons shall prima-facie justify escapement. He also observed that the notice u/s 148 of the Act was issued beyond four years but within 6 years from the end of the Assessment Year after taking the permission of CIT u/s 151(1) of the Act. Ld CIT(A) pointed out that in the reasons recorded, it was clearly stated the DEPB amounting to Rs. 15,82,933/- was considered by the Assessing Officer as profit not derived from the activity of undertaking, therefore, the assessee was not entitled to deduction u/s 80IB of the Act in addition to dis allowance of deduction u/s 80HHC. The ld CIT(A) was of the view that Assessing Officer was justified in issuing the notice u/s 148 even beyond the period of four years from the end of Assessment Year. Ld CIT(A) relied upon the judgment of the Honorable Punjab & Haryana in the case of Jawand Sons v. CIT  195 Taxman 144. The ld CIT(A) further observed that the Assessing Officer had passed the order u/s 143(3) of the Act on 30.3.2005 ignoring the proposition laid down by the Honorable Supreme Court in respect of incentive received from the Govt. for the purpose of eligibility of deduction by the undertaking u/s 80HH of the Income Tax Act and that the provisions of section 80HH are similar to the provisions of section 80IB of the Act. A reference was made to the judgment of the Honorable Supreme Court in the case of CIT v. Sterling Foods  237 ITR 579. The ld CIT(A) also pointed out that the Assessing Officer had passed the order u/s 143(3) read with section 147 of the Act on 24.12.2009 by applying the decision of Honorable Supreme Court delivered on 31.8.2009 in the case of Liberty India (supra). The ld CIT(A) also referred to the Circular No. 68 issued by the CBDT wherein it was mentioned that the Board are advised that a mistake arising as a result of subsequent interpretation of law by Supreme Court would constitute a mistake apparent from record and rectificatory action u/s 35 / 154 of the 1922 Act / 1961, I.T. Act would be in order. The ld CIT(A) opined that the Assessing Officer was justified in reopening the proceedings u/s 147 in respect of legally wrong claim made u/s 80IB on account of DEPB amounting to Rs. 15,82,933/- because it amounted to be failure on the part of the assessee to discuss fully and truly all material facts necessary for assessment. The ld CIT(A) also referred to the judgment of the Honorable Andhra Pradesh in the case of CIT v. Novapon India Ltd.  236 ITR 746 and observed that if a judgment of the Honorable High Court was relevant and if it was not considered by the ITO at the time when he made original assessment, the judgment would constitute information within the meaning of section 147(b) of the Act. The ld CIT(A) pointed out that the Assessing Officer though had considered the purpose of dis allowance of the claim u/s 80HHC, but it had not considered the decision of the Honorable Supreme Court in the case of Sterling Foods (supra) while allowing deduction u/s 80IB, hence non-consideration of the decision of Honorable Supreme Court constitutes a reasonable belief that income escaped assessment. The ld CIT(A) further observed that any exposition of law by the Honorable Apex Court was not enactment of law and was only exposition of correct position of law and therefore, even if the notice for re-assessment had been issued before the decision of the Honorable Apex Court, it would not make any difference and the decision of the Honorable Apex Court could not be ignored. Reliance was placed on the judgment of the Honorable Rajasthan High Court in the case of Chandi Ram v. ITO  225 ITR 611. The ld CIT(A) distinguished the cases relied upon by stating that in the case of Purity Techtextiles Pvt Ltd (supra), the Honorable Bombay High Court laid down the proposition that the reasons recorded for reopening of assessment were crucial and it was on the basis of those reasons alone that validity of an order of reopening of an assessment has to be decided. But in the present case, the facts are different because the Assessing Officer had not considered the proposition laid down by the Honorable Supreme Court in the case of Sterling Foods (supra). The ld CIT(A) also distinguished another decision of the Honorable Allahabad High Court relied upon by the assessee in the case of Pradeshiya Industrial & Investment Corporation (supra) and stated that in the said case the proposition lad down was that no notice u/s 148 of the Act could be issued after expiry of four years where there was no failure on the part of the assessee in disclosure of all material facts fully and truly but in the present case, issue related to provisions of section 80IB in respect of claim of value of DEPB which was received by the assessee on account of incentive declared by the government and it was considered as profit not derived form the activity of industrial undertaking. The Ld CIT(A) accordingly held that the Assessing Officer was correct in initiation of proceedings u/s 147 and rejected the ground raised by the assessee that notice u/s 148 was issued on change of opinion. Now the assessee is in appeal.
8. The ld. counsel for the assessee reiterated the submissions made before the authorities below. He further submitted that the Assessing Officer while framing the assessment u/s 143(3) of the Act on 30.3.2005 examined the claim of the assessee u/s 80IB and 80HHC with reference to the DEPB at great length. It was further stated that the opening part of the original assessment order clearly reveals that the assessee had submitted Audited report in form No.3CB, Form No. 3 CD, Form No.10CCB, 10CCAC in support of claim for deduction u/s 80HHC and 80IB of the Act. He also referred to the page No.5 of the original assessment order copy of which is placed at Page No.10 to 35 of the assessee’s compilation and submitted that the original assessment order clearly shows that a specific show cause notice was issued to the assessee on 17.3.2005 with regard to the allow ability of computation of deduction u/s 80HHC and 80 IB. The assessee submitted a detailed reply vide letter dated 23.3.2005 and extract of the same have been reproduced at para 5.1 of the assessment order dated 30.3.2005. The ld counsel for the assessee emphasized that the Assessing Officer mentioned in para 5.2 of the original assessment order that after careful consideration and the detailed submissions of the assessee and keeping in view of the judgment in the light of the provisions of deduction u/s 80HHC and 80IB of the Act, it may be considerably be construed that though income earned on sale of DEPB license becomes part of the income from the business activity of the assessee for the purpose of deduction u/s 80IB of the Act. It is, therefore, clear that the Assessing Officer has applied his mind, made detailed discussion and examined, only thereafter he allowed the claim of the assessee so there was a change of opinion while reopening the assessment framed u/s 143(3) of the Act. It was pointed out that the Assessing Officer issued the notice u/s 148 of the Income Tax Act on 23.9.2008 while judgment of the Hon’ble Supreme Court in the case of Liberty India (supra) was dated 31.8.2009, therefore, the judgment of the Honorable Supreme Court was not available to the Assessing Officer when the notice u/s 148 was issued so it cannot be said that reopening was done on the basis of the judgment of the Honorable Supreme Court. It was further stated that the notice u/s 148 of the Act was issued after a period of more than 4 years so it was patently invalid, barred by limitation of time prescribed under the provisions of section 147 of the Act which provides that no action u/s 147 shall be taken after the expiry of four years from the end of the relevant Assessment Year, in a case where original assessment had been made after scrutiny u/s 143(3) of the Act. It was contended that there was no omission or failure on the part of the assessee to disclose fully or truly all relevant material facts, therefore, the reopening of the assessment was only a change of opinion which is not maintainable and the ld CIT(A) was not justified in confirming the action of the Assessing Officer. It was further stated that the view taken by the Assessing Officer while framing the assessment was supported by the view taken by the Honorable Rajasthan High Court in the case of Saraf Seasoning Udyog v. ITO  174 Taxman 594 and CIT v. Sharda Gum & Chemicals  288 ITR 116. Thus, at the time when the original assessment was framed u/s 143(3) of the Act, the view taken by the Assessing Officer was legally possible view and was supported by the various decisions of the Tribunal and the Honorable High Courts. Reliance was placed on the following case laws:-
(a) Vishwanath Engineers v. ACIT  72 DTR (Guj.)113
(b) CIT v. Kelvinator India Ltd.  320 ITR 561
(c) CIT v. Kelvinator of India Ltd.  256 ITR 1
(d) ITO v. Lakhmani Mewal Das  103 ITR 437 (SC).
(e) Shriram Foundry Ltd. v. Dy. CIT  250 CTR (Bom.)116
(f) Sound Casting (P.) Ltd v. Dy. CIT  250 CTR (Bom) 119
(g) Indian Oil Corpn. Ltd. v. Dy. CIT  327 ITR 272
(h) CIT v. Steel Tubes of India Ltd.  326 ITR 46 (MP)
(i) Prasant Projects Ltd. v. Asstt. CIT  333 ITR 368
(j) Babu Lal Jag Raj & Co v. ITO  289 ITR 115
(k) Eagle Fashion (P) Ltd. v Dy. CIT  40 DTR (Guj.)1
(l) Cartini India Ltd. v. Addl. CIT  314 ITR 275
(m) 3i InfoTech Ltd v. Asst. CIT  329 ITR 527
(n) Hindustan Petroleum Corporation Ltd. v Dy. CIT  328 ITR 534
(o) Atma Ram Properties (P.) Ltd v. Dy. CIT  343 ITR 141
(p) CIT v. Shiv Ratan Soni  279 ITR 261
(q) Chhugamal Rajpal v. S.P. Chaliha  79 ITR 603 (SC).
(r) Central India Electric Supply Co Ltd. v. ITO  333 ITR 237
(s) Topman Exports v. CIT  205 Taxman 119
(t) ACG Associated Capsules (P.) Ltd v. CIT  205 Taxman 136 (Mag.)
(u) Saraf Seasoning Udyog (supra)
9. In his rival submissions, the ld. DR strongly supported the orders of the authorities below and further submitted that the assessee did not disclose full particulars of income and Assessing Officer after recording the reasons issued the notice u/s 148 of the Act, as the income escaped assessment, therefore, reopening was valid.
10. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is noticed that Assessing Officer framed the original assessment u/s 143(3) of the Act on 30.3.2005. the Assessing Officer in the opening para of the said assessment order clearly stated that the assessee filed the return of income on 11.11.2003 along with Audited report in form No. 3CB, 3CD, 10CCB 10CCAC and claimed deduction u/s 80HHC, 80IB and 80G of the Income Tax Act. He also mentioned that the assessee had furnished the requisite details, produced cash book, ledger, journal, sales book, purchase book, salary & wages payment register, bank pass book, purchases, sales & expenses bills / vouchers, export invoices, packing lists, bills of lading, shipping bills, advises of bank realization for export sale proceeds and the same had been examined on test check basis. He also mentioned in page 2 of the assessment order that the assessee was manufacturing and exported handicraft articles and had fulfilled all the conditions required for allow ability of deduction u/s 80IB of the Act. The Assessing Officer discussed the admissibility of deduction u/s 80HHC and 80IB in para 5 and 5.3 of the assessment order dated 30.3.2005. The Assessing Officer raised specific query regarding the deduction u/s 80IB and reply of the assessee dated 23.3.2005 has been reproduced in para 5.1 of the assessment order which at the cost of repetition is not reproduced herein. The Assessing Officer after considering the submissions of the assessee and examining the issue in detail allowed the claim of the assessee for deduction u/s 80IB on account of DEPB allowance and the relevant observation have been made in para 5.2 of the assessment order, which reads as under:-
“5.2 After carefully considering the detailed submissions of the ld AR and keeping in view the judgment in the light of the provisions of deduction u/s 80HHC and u/s 80IB of the Act, I am of the view that it may considerably be construed that though the income earned on sale of DEBP license becomes part of the income from the business activities of the assessee but as far as its consideration for the purposes of deduction u/s 80HHC of the Act is concerned, it does not form part of the eligible business profit. Moreover, the above contention of the AR is considerably taken into account as far as the income from sale of DEPB license forms part of business income for the propose of deduction u/s 80IB of the Act.”
11. The aforesaid view taken by the Assessing Officer was in consonance with the view taken by the Honorable jurisdictional High Court in the case of Saraf Seasoning Udyog (supra) wherein it is held as under:- (Head Note)
“Deduction under s. 80-IB – Profits and gains derived from the industrial undertaking – Sale of DEPB Licenses – In view of insertion of cl.(iiid) in s.28 by the Taxation Laws (Amendment ) Act, 2005 retrospectively w.e.f. 1st April, 1998, profit from sale of DEPB licenses are profit derived from eligible business for purpose of deduction u/s 80IB.”
12. Now the question arises as to whether reopening was valid when there is a change of opinion. In this regard, the Honorable jurisdictional High Court in the case of Babu Lal Jug. Raj Co. (supra) has held as under:-
“Assessing Officer having nowhere alleged that income chargeable to tax for the relevant Assessment Year has escaped assessment on account of failure or omission on the part of the assessee to disclose truly and fully all material facts necessary for assessment, the impugned notice u/s 148 issued after expiry of period of four years from the end of the relevant Assessment Year is liable to be quashed.”
13. A similar view has been taken by the Honorable Bombay High Court in the case of Prashant Projects Ltd. (supra), wherein it has been held as under:-
“in the original assessment order the Assessing Officer had specifically held that the assessee was carrying on manufacturing activity and having exported manufactured goods could claim a deduction under section 80HHC only as a manufacturer. During the course of the appellate proceedings before the Commissioner (Appeals), a remand report was called for and the Assessing Officer, after considering the material which was produced by the assessee, concluded that goods had been purchased by the assessee which were then exported and that the case of the assessee fall within the purview of sub-section (3)(b) of section 80HHC. The Commissioner (Appeals) accepted the contention of the assessee. This showed that there was a full and true disclosure of the facts by the assessee; and that there was a due application of mind by the Assessing Officer. The second proviso to section 147 provides that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. The very issue on which the assessment was sought to be reopened was canvassed in appeal and was determined in the appellate proceedings by the Commissioner (Appeals). The same issue could not lawfully formed the basis of the notice for reopening the assessment. The reassessment proceedings were not valid.”
14. Similarly, the Honorable Madhya Pradesh High Court in the case of Steel Tubes of India Ltd. (supra) held as under:-
“Under section 147 the Assessing Officer can reopen an assessment if he has reason to believe that any income chargeable to tax has escaped assessment for any Assessment Year. In terms of the proviso to section 147 of the Act, action under section 147 of the Act cannot be taken after the expiry of four years from the end of the relevant Assessment Year unless any income chargeable to tax has escaped assessment by reason to failure on the part of the assessee to make a return under section 139 or in response to a notice under section 142(1) or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that Assessment Year.”
15. The Honorable Bombay High Court also in the case of Indian Oil Corporation Ltd. (supra) held as under:-
“the assessee had disclosed fully and truly all the material facts necessary for the assessment insofar as it had a bearing on the issue in question. The Assessing Officer specifically applied his mind to the question as to whether the entire dividend income could be claimed as exempt without a dis allowance for expenditure. As a matter of fact, even during the course of the assessment year 2000-01, the Assessing Officer had applied his mind to the same issue while passing the order of assessment under section 143(3). The condition precedent to the exercise of the statutory power to reopen an assessment after the expiry of four years was not fulfilled in the present case. The reassessment proceedings were not valid.”
16. In the instant case also, the assessee furnished all the details relating to its claim for deduction u/s 80IB of the Act and the Assessing Officer thoroughly examined the claim while framing the assessment u/s 143(3) and on being satisfied the claim was allowed. Therefore, in the present case, reopening of the assessment by issuing notice u/s 148 of the Act is definitely a change of opinion which is not maintainable and therefore, the re-assessment framed by the Assessing Officer u/s 147 of by issuing notice u/s 148 of the Act after completing the assessment u/s 143(3) of the Act by taking a view which was in consonance with the judgment of the Honorable jurisdictional High Court was not valid.
17. Since we have held that re-assessment u/s 147 of the Act as invalid, no finding has been given on other issues raised by the assessee in this appeal.
18. In the result, appeal is allowed.