Income Tax Appellate Tribunal - Kolkata
Bengal Export Corporation, Kolkata vs Assessee on 22 October, 2014
आयकर अपीलीय अधीकरण, Ûयायपीठ - "C" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA
(सम¢)Before ौी महावीर िसंह, Ûयायीक सदःय एवं/and ौी शामीम याह
याहया,
या लेखा सदःय)
[Before Shri Mahavir Singh, JM & Shri Shamim Yahya, AM]
आयकर अपील संÉया / I.T.A No.1275/Kol/2012
िनधॉरण वषॅ/Assessment Year: 2004-05
M/s. Bengal Export Corporation Vs. Dy.Commissioner of Income-tax
(PAN:AACFB7508G) Circle-37, Kolkata.
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
Date of hearing: 26.09.2014
Date of pronouncement: 22.10.2014
For the Appellant: Shri S. M. Surana, Advocate
For the Respondent: Shri Niloy Baran Som, JCIT, Sr. DR
आदे श/ORDER
Per Shri Mahavir Singh, JM :
This appeal by assessee is arising out of order of CIT(A)-XXIV, Kolkata in Appeal No. 682/CIT(A)-XXIV/C-37/09-10 dated 29.06.2012. Assessment was framed by DCIT, Circle-37, Kolkata u/s. 147/143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Years 2004-05 vide his order dated 30.12.2009.
2. The first issue in this appeal of assessee is against the order of CIT(A) upholding the action of AO in initiating reassessment proceedings u/s. 147 read with section 148 of the Act. For this, assessee has raised following ground no.2:
"2. For that Ld. CIT(A) erred in upholding the proceedings initiated u/s. 147 which were invalid."
The assessee has also raised the issue on merits i.e. disallowance of claim of bad debts claimed to have been received from export proceeds in AY 2001-02 for foreign exchange on account of export proceeds u/s. 80HHC of the Act. For this, assessee has raised following ground nos. 3 and 4:
"3. For that CIT(A) erred in confirming the disallowance of the bad debt claimed in accordance with law on the basis of the wrong assumption of the AO that the assessee claimed that it had received the export proceeds in the asst year 2001-02 when no such statement was made by the assessee, the amount was due from the debtor which was written of during the year after obtaining the permission of the competent authority.
4. For that on the facts and circumstances of the case the Ld. CIT(A) should have allowed the claim for bad debt of Rs.32,38,978/-. The claim of bad debt cannot be disallowed simply because the assessee was wrongly allowed deduction u/s. in asst. year 2001-02."
2 ITA No.1275/K/2012Bengal Export Corpn. AY 2004-05
3. Briefly stated facts are that the assessee firm is an exporter of cast iron and miscellaneous goods. Assessee filed its return of income u/s. 139(1) of the Act on 15.10.2004 in the relevant AY 2004-05. Original assessment was completed u/s. 143(3) of the act vide order dated 15.12.2008 by ACIT, Circle-37, Kolkata, wherein net loss was allowed to be carried forward at Rs.6,71,087/-. Subsequently, the AO i.e. DCIT, Circle-37 issued notice u/s. 148 of the Act dated 31.03.2009 and for the same he recorded the following reasons:
"31.03.09 The assessee is a partnership firm. In this case scrutiny assessment was completed u/s. 143(3) on 15.12.06 at a loss of Rs.671087. The assessment was revised in pursuance of CIT (Appeal)XXIV, Kolkata's order at a loss of Rs.751470/-. The nature of the business was export of cast iron and miscellaneous goods to foreign country. In the P/L account for the period ending on 31.03.04 the assessee had written off an amount of Rs.3248978 as bad debt. This bad debt was income derived from M/s. Sahar Trading Co. Ltd., Ajman, UAE for exporting cast iron goods during the F.Y 2000-01 relating to the AY 2001-02. It transpires from the assessment record of that the assessee brought to India Rs.8580393/- being sale proceeds of iron goods exported out of India and availed a relief of Rs.8580393 u/s. 80HHC. As the assessee availed of exemption u/s. 80HHC on Rs.3238978 being sale proceeds received from Sahar Trading Co. Ltd. for exporting cast iron goods to them this amount could not be treated as bad debt since it was recovered from the said company in convertible foreign exchange. This mistake led to the underassessment of Rs.2487513/- (Rs.3238978/- less Rs.751470). As income to the tune of Rs.2487513/- has escaped assessment hence, the case is reopened u/s. 147 of the I. T. Act, 1961. Issue notice u/s.148."
The AO framed assessment u/s. 143(3) of the Act read with section 147 of the Act and disallowed the claim of bad debt of Rs. 32,38,978/- for the reason that "In the P&L account for the period ending on 31.03.04 the assessee had written off an amount of Rs.32,48,978/- as bad debt. This bad debt was income derived from M/s. Sahar Trading Co. Ltd., Ajman, UEA for exporting cast iron goods during the FY 2000-01 relating to the AY 2001-02. It transpired from the assessment records of 2001-02 that the assessee brought to India Rs.85,80,393/- being sale proceeds of iron goods exported out of India and availed a relief of Rs. 85,80,293/- u/s. 80HHC. As the assessee availed of exemption u/s. 80HHC but part amount was Rs.32,38,978/- being the sale proceeds received from Sahar Trading Co. Ltd. , for exporting cast iron goods to them, this amount cannot be treated as bad debt since it was recovered from the said company in convertible foreign exchange. These led to the under assessment of Rs.24,87,513/- Rs.32,38,978/- less Rs.7,51,470/-). As the income to the tune of Rs.24,87,513/- has escaped assessment, hence, the case was reopened u/s. 147 and notice u/s. 148 was issued." The AO disallowed the claim of bad debt at Rs.32,38,978/-.
3 ITA No.1275/K/2012Bengal Export Corpn. AY 2004-05
4. Aggrieved, assessee preferred appeal before CIT(A), who confirmed the action of AO in assuming jurisdiction u/s. 147 read with section 148 of the Act by observing in para 2.3 as under:
"2.3. I have considered the above submission of the Ld. A/R. I have also gone through the assessment order as well as the remand report. I find that the AO had the material available on record to reach a subjective satisfaction of the escapement of income at the stage of issue of notice u/s. 148. In the instant case, the notice u/s. 148 has been issued within four years from the end of the AY 2004-05. Considering the facts of the case and also the decision of the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Broker (P) Ltd. reported in 291 ITR 500, the reopening of assessment u/s. 147 by issue of notice u/s. 148 is upheld. Accordingly, this ground of appeal is dismissed."
The CIT(A) also confirmed the issue on merits by noting that the assessee company has availed deduction u/s. 80HHC of the Act on the export proceeds of Rs.32,38,976/- in AY 2001-02 and also brought the proceeds into India but it cannot be allowed to the assessee to change its stand and claimed further deduction u/s. 36(1)(vii) on the same export proceeds on the ground that the said export proceeds could not be realised. Hence, applied doctrine of estoppels he confirmed the action of AO by observing as under:
"By applying the doctrine of estoppels, I hold that the appellant is not eligible to claim the deduction u/s. 36(1)(vii) on the export proceeds of Rs.32,38,976/- in AY 2004-05 as the appellant has already availed the deduction u/s. 80HHC on the same export proceeds in AY 2001-02. Accordingly, the order of the AO rejecting the claim for deduction u/s. 36(1)(vii) in respect to the export proceeds of Rs.32,38,976/- is upheld. These grounds of appeal are dismissed."
Now, aggrieved against the order of CIT(A) upholding the jurisdiction as well as dismissing the issue on merits, assessee came in appeal before Tribunal.
5. We have heard rival submissions and gone through facts and circumstances of the case. Before us Ld. counsel for the assessee Shri S. M. Surana, first of all took us to the reasons recorded, which are noted in para 3 above. He read out the reasons that the entire basis of reopening is arising from the assessment records from AY 2001-02 that the assessee brought into India sale proceeds of iron cast exported at Rs.85,80,393/- and also claimed deduction of bad debts at Rs.32,38,978/- being sale proceeds of Sahar Trading Co. Ltd. treated as bad debt. Ld. counsel for the assessee, first of all, stated that the entire fact was available before the AO and this fact he narrated from the details noted by AO in the order sheet entry dated 11.07.2006 which is enclosed at assessee's paper book page 4 and the relevant entry (2) reads as under:
"2. Detailed documents showing that amount of bad debt was earlier shown as income."
He further drew our attention to the order sheet entry dated 14.09.2006, which is given at page 5 of the assessee's paper book and the relevant paras read as under:
4 ITA No.1275/K/2012Bengal Export Corpn. AY 2004-05 "14.9.06 .......... It is seen that B. Debt write off had bank permission."
........
Party ledger of AY 01-02 and B/sht of that period is seen to ensure that Bad Debt amount was actually taken into consideration at that time."
Ld. counsel for the assessee also drew our attention to page 21 of assessee's paper book wherein the copy of questionnaire issued u/s. 142(1) of the Act dated 19.01.2005 and vide question No. 10 the specific question in respect to this bad debt was raised. And assessee in reply vide letter dated 26.02.2005 has replied to question no. 10 by enclosing the details of Sahar Trading Co. NCCUAE regarding bad debts. Ld. counsel for the assessee also filed copy of UTI Bank Ltd. informing the RBI Circular No. AB/DIR/12 dated 9.9.2000 wherein non- realisation of overdue export bills and write off of export realisation in the case of M/s. Bengal Export Corporation i.e. the assessee on account of export bill of M/s. Sahar Trading Corporation, UAE amounting to Rs.69.790.50 USD was required. The copy of bank letter dated 18.02.2004 vide no. UTIB/IB/243/03-04 dated 18.02.2004, which is enclosed at page 35 of assessee's paper book, the RBI has permitted vide letter of request for write off of overdue export bills from the exporters. The assessee has also enclosed xerox copies of bills of Sahar Trading Co. for an amount of Rs.32,38,978/- and bank's permission to write off bad debts was enclosed in assessee's letter dated 07.08.2006 at assessee's paper book page 36. All these details clearly reveals that the AO has made enquiry and was satisfied with the explanation of the assessee for claim of deduction of bad debt. This bad debt was income derived from Sahar Trading Co. Ltd., UAE for export of cast iron goods during FY 2000-01 relating to AY 2001- 02 but the export proceeds never reached the assessee despite several extensions from RBI and finally RBI has permitted to write off as is evident from the above evidence discussed. In view of all these, Ld. counsel for the assessee stated that the complete material was available before AO during the course of original assessment proceeding u/s. 143(3) of the Act and AO has applied his mind to all the proceedings as is evident from queries raised during the course of assessment proceedings as is evident from queries raised during the course of assessment proceedings and questions raised. The questions raised were duly answered by assessee, which was cross verified by the AO from the parties. In term of the above, Ld. counsel for the assessee stated that the assessee has a case on merits as well as on jurisdiction. On the other hand, Ld. Sr. DR relied on the orders of the lower authorities. When the facts were pointed out to him, he could not answer or could not support the reopening. Particularly when it was pointed out that there is no deduction claimed by assessee u/s. 80HHC of the Act from export proceeds for the reasons that the same were not received by the assessee and no claim u/s. 80HHC of the Act was ever made and moreover, the RBI has permitted the write off of the 5 ITA No.1275/K/2012 Bengal Export Corpn. AY 2004-05 above bad debt at Rs.32,38,978/-. We find from the above facts that the entire facts were considered by the AO as he has made sufficient enquiries as is evident from the order sheet entries which are placed before us in the paper book. Even otherwise on merits also there is no scope of addition because the amount in question was rightly written off by assessee after taking necessary approvals and, therefore, the same was correctly allowed in original assessment framed u/s. 143(3) of the Act. Undoubtedly and admittedly this is a trade debt.
6. For the above reasons, it is clear that nothing new tangible material was available before the AO for reopening the assessment and consequently, the AO acted on the same material, which was available before him at the time of original assessment. We find that this issue is squarely covered in favour of the assessee and against revenue by the judgment of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator India Ltd. (2010) 310 ITR 561 (SC), wherein newly substituted provision of section 147 of the Act with effect from 01.04.1989 is interpreted by observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989 does not postulates conferment of power upon the AO to initiate reassessment proceeding upon his mere change of opinion. Further, if 'reason to believe' of the AO is founded on an information which might have been received by the AO after the completion of assessment, it may be a sound foundation for exercising the power under section 147 r.w.s. 148 of the Act. It cannot be accepted that only because in the assessment order, detailed reasons have not been recorded, an analysis of the materials on the record by itself may be justifying the AO to initiate a proceeding u/s. 147 of the Act. When a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of section 114(e) of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without any thing further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong.
7. Similarly, Hon'ble Supreme Court in the case of CIT Vs. Foramer France (2003) 264 ITR 566 (SC) affirmed the judgment of Hon'ble Allahabad High Court in the case of Foramer Vs. CIT (2001) 247 ITR 436 (All), wherein Hon'ble Allahabad High Court held as under:
"Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed.
It may be mentioned that a new section substituted section 147 of the 6 ITA No.1275/K/2012 Bengal Export Corpn. AY 2004-05 Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new section 147 is as follows:
"147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreci- ation allowance or any other allowance, as the case may be, for the assess- ment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the fai- lure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assess- ment for that assessment year."
This new section has made a radical departure from the original section 147 inasmuch as clauses (a) and (b) of the original section 147 have been deleted and a new proviso added to section 147.
In Rakesh Aggarwal v. Asst. CIT [1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to section 147 notice for reassess- ment under section 147/148 should only be issued in accordance with the new section 147, and where the original assessment had been made under section 143(3) then in view of the proviso to section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612.
In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e., November 20, 1998. Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.
Learned departmental counsel relied on section 153(3)(ii) of the Income- tax Act and submitted that there was no bar of limitation in view of the said provision. We do not agree. Section 153 relates to passing of an order of assessment and it does not relate to issuing of notice under section 147/
148. Moreover, this is not a case where reassessment is sought to be made in consequence of or to give effect to any finding or direction contained in the order of the Tribunal in Boudier Christian's case. As already stated above, Boudier Christian's case related to the employees of the company, whereas the impugned notice has been issued to the company. Hence, it cannot be said that the proposed reassessment in consequence of the 7 ITA No.1275/K/2012 Bengal Export Corpn. AY 2004-05 impugned notice would be in consequence of or to give effect to any find- ings of the Tribunal in Boudier Christian's case.
A direction or finding as contemplated by section 153(3)(ii) must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in relevance to a particular assess- ment year. To be a necessary finding it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3)(ii) it must be an express direction necessary for the disposal of the case before the authority or court vide Rajinder Nath v. CIT [1979] 120 ITR 14 (SC) ; Gupta Traders v. CIT [1982] 135 ITR 504 (All) ; CIT v. Tarajan Tea Co. (P.) Ltd. [1999] 236 ITR 477 (SC) and CIT v. Goel Bros. [1982] 135 ITR 511 (All), etc. The case of an expatriate employee was to be decided on the basis of the provisions of article XIV of the treaty, whereas corporate income was to be decided on the basis of either article III or article XVI of the treaty or section 44BB of the Act. Hence, the observations of the Tribu- nal in Boudier Christian's case was not a direction necessary for the dis- posal of the appeal relating to the petitioner. The exigibility of income of the petitioner from manning and management contracts was never an issue directly or indirectly involved in the case of Boudier Christian.
Moreover, the Tribunal in the appeal relating to the assessment of the petitioner's own case, vide Deputy CIT v. ONGC [1999] 70 ITD 468 (Delhi) has considered the decision of the Tribunal in Boudier Christian's case. It is settled law that an appeal is a continuation of the original proceedings and hence when the Tribunal in the appeal relating to the petitioner has considered the decision of the Tribunal in Boudier Christian's case, the impugned notice under section 147/148 would obviously be on the basis of a mere change of opinion by the income-tax authorities, which would not be valid as held by the Supreme Court in Indian and Eastern News- paper Society v. CIT [1979] 119 ITR 996 ; Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC) and Jindal Photo Films Ltd. v. Deputy CIT [1998] 234 ITR 170 (Delhi), etc. In the decision of the Tribunal in the assessee's own case, Deputy CIT v. ONGC [1999] 70 ITD 468 (Delhi) it has been held that the income from the contract between the parties was business income and not fee for techni- cal services.
Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal's earlier decision in Boudier Christian's case, it will obviously amount to mere change of opinion, and hence the notice under section 147/148 would be illegal."
8. From the above facts of the case and legal position as enunciated by Hon'ble Supreme Court in the above two case laws, we are of the considered view that the reopening u/s. 147 r.w.s. 148 of the Act is bad in law. Hence, reopening is quashed.
8 ITA No.1275/K/2012Bengal Export Corpn. AY 2004-05
9. As we have already quashed the reopening and also discussed the merits of the case in para 5, wherein we have recorded the facts and found that the issue on merits is also in favour of assessee. Since we have quashed the reopening, we need not elaborate the merits of the case.
10. In the result, appeal of assessee is allowed.
11. Order is pronounced in the open court on 22.10.2014.
Sd/- Sd/-
शामीम याहया,
याहया लेखा सदःय महावीर िसंह, Ûयायीक सदःय
(Shamim Yahya ) (Mahavir Singh)
Accountant Member Judicial Member
Dated : 22nd October, 2014
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - M/s. Bengal Export Corporation, 2B, Tarachand Dutta Street, Kolkata-700 073..
2 ू×यथȸ/ Respondent - DCIT, Circle-37, Kolkata.
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/ ACIT Kolkata
5. ǒवभािगय ूितनीधी / DR, Kolkata Benches, Kolkata स×याǒपत ूित/True Copy, आदे शानुसार/ By order, सहायक पंजीकार/Asstt. Registrar.