Income Tax Appellate Tribunal - Kolkata
Magnum Exprort, Kolkata vs Assessee on 17 July, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH: KOLKATA
[Before Hon'ble Shri Mahavir Singh, J.M. & Hon'ble Shri Shamim Yahya, A.M.]
I.T.A. No.1706 to 1709/Kol/2012
Assessment Years 1999-2000 to 2002-03
A.C.I.T., Circle-35, Kolkata -Vs- M/s. Magnum Export, Kolkata
(Appellant) PAN :AAEFM 5108M .. (Respondent)
C.O. No.154 to 157/Kol/2012
(arising out of ITA Nos. 1706 to 1709/Kol/2012)
Assessment Years 1999-2000 to 2002-03
M/s. Magnum Export, Kolkata -Vs- A.C.I.T., Circle-35, Kolkata
(Cross Objector) (Respondent)
Date of concluding the hearing : 07.07.2014
Date of pronouncing the Order : 17.07.2014
Appearances : For the Department : Shri Vivek Verma, JCIT, Sr.DR
: For the Assessee : Shri Ishwer Prakash Rathi, C.A.
ORDER
Per Bench :
All these appeals by Revenue and Cross-Objections by Assessee are arising out of separate orders of CIT(A)-XX, Kolkata all dated 08.08.2012 for the assessment years 1999- 2000 to 2002-03 respectively.
2. The first common issue in the Cross-Objections of the assessee is with regard to the order of CIT(A) confirming the reopening of assessment under section 147 of the Act. For this, assessee has raised common ground in all the four years and the relevant ground as raised in C.O. No.154/Kol/2012 for the assessment year 1999-2000 reads as under:
"1. That the Learned Commissioner of Income Tax (appeals) has erred in confirming the re-opening the assessment u/s 147, whereas under the facts and circumstances of the case the assessing officer acted merely on suspicion for re- opening of assessment u/s 147."
3. At the outset, the ld. Counsel for the assessee stated that for the assessment years 1999- 2000, 2000-01 and 2002-03, the returns were processed under section 143(3) of the Act before reopening under section 147 was done. In assessment year 2001-02, the assessment 2 I.T.A. Nos.1706 to 1709 & C.O. Nos.154 to 157/Kol/2012 M/s.Magnum Export A.Y. 1999-2000 to 2002-03 was completed under section 143(3) by the AO vide his order dated 08.03.2004. In all the four years, the AO recorded the identically worded reasons. First the reopening was done for assessment year 1999-2000 and the ld. Counsel for the assessee produced copy of reasons recorded which reads as under:
"On going through the assessment records for A.Y. 2000-01 to 2003-04, it found that the "a" firm is an exporter and had claimed deduction u/s 80HHC. It is pertinent to mentioned here that during these periods, it was in receipt of export incentive in the form of DEPB and the same was treated as export receipt for calculating deduction u/s 80HHC. Now, in view of the amendment in Sec 80HHC/ Sec 28 vide the Taxation Laws (Amendment) Act, 2005, the deduction claimed and allowed u/s 80HHC was not correct; i.e. excess deduction was allowed. Since the "a" is having the same nature of business also for the A.Y. 1999-2000, it is assumed that excess deduction is allowed for this year too. Accordingly, I have reason to believe income in excess of Rs.1 lac has escaped assessment. Hence, proposal for reopening of the assessment is sent to the JCIT, R-35 for his kind approval."
Subsequently on 28/03/2007, for the assessment year 2000-01, the Revenue recorded the following reasons:
"Assessee's return for the year was processed /assessed u/s.143(1) on 12.10.2001 by ITO, Wd.46(4), Kol. On going through the assessment records for A.Y.2000-01, it is found that the assessee firm is an exporter and had claimed deduction u/s.80HHC Rs.95,44,702. During this year, its business turn Over was Rs.23,88,50,143 and received export incentive Rs.2,65,84,656.
Section 80HHC read with Sec.28 of the Income tax Act, 1961 has been amended by the Taxation Laws (Amendment) Act, 2005. The section 80HHC so amended, inter alia, provides that:
Profits on sale of duty Entitlement Pass Book Scheme (DEPB) credits or Duty Free Replenishment Certificate (DFRC) will be treated at par with duty drawback for the purposes of proportionate increase of profits derived from exports computed under clause (a) or clause (b) or clause (c) of sub-section (3) of section 80HHC.
Same issue has been covered by CBDT Circular No.2 of 2006 dated 17-01-2006. This amendment relating to Duty Entitlement Pass Book Scheme and Duty Free Replenishment Certificate have been brought into the statute with retrosp0ective effect.
Since, the assessee is engaged in export activities and had income from DEPB Licence Sale, it appears that assessee's claim of deduction u/s.80HHC was not correct; in fact excess deduction was claimed and was also allowed.
The assessee's return for A.Y.1999-2000 was reopened and it was found that its entire export incentive Rs.1,65,59,062 were nothing but DEPB Licence process. On reassessment a demand of Rs.46,65,574 was raised in that year and entire deduction u/s 80HHC was disallowed as per assessee's own computation.
3 I.T.A. Nos.1706 to 1709 & C.O. Nos.154 to 157/Kol/2012 M/s.Magnum Export A.Y. 1999-2000 to 2002-03 Therefore, it is quite natural that this year's export incentive also reflects the same nature of income like DEPB license sell.
I therefore, have reason to believe that the income chargeable to tax has escaped assessment in A.Y. 2000-01 by way of allowing excess deduction/ allowances u/s.80HHC.
The escaped income involved in this case appears to be much higher than the minimum limit of Rs.1 lacs.
Assessee's original assessment record is not available right now and so a duplicate return is constructed. We are not sure whether income for that year was duly processed or assessed.
To be on the safer side case should be reopened with the approval of CIT only. Matter is going to be barred by limitation on 31/03/2007.
Proposal for reopening the case sent to CIT, Kol XV."
4. The only issue in the above reasons recorded by the Revenue in all the four years is whether the profit element or the entire sale consideration will fall under clause (iiib) of section 28 of the Act. According to reasons recorded by AO, the entire sale consideration is to be assessed under section 28(iiib) of the Act. Another issue is regarding recomputation of deduction under section 80HHC of the Act of the sale consideration of the DEPB licence.
5. At the outset, ld. Counsel for the assessee has taken us to the reasons recorded, which are reproduced above and stated that relying on the assessment records for the assessment years 2000-01 to 2003-04, the AO has presumed that the assessee may have similar nature of business in these years also and must have received DEPB as export incentive. According to ld. Counsel for the assessee, this is only presumption of the AO and nothing else. No belief is formed at all. The ld. Counsel for the assessee further stated that all the material facts including computation of DEPB profit (including sale consideration) and computation of deduction under section 80HHC were available in the return of income and tax audit report, at the time of processing of returns under section 143(1) in all the three assessment years except in assessment year 2001-02 where assessment was completed under section 143(1) of the Act and complete details were also available during the course of assessment proceedings. For assessment year 2001-02, wherein assessment was completed under section 143(3) of the Act, after due application of mind by AO on all the relevant facts relating to assessed income of DEPB under section 28(iiib) and claimed deduction under section 80HHC of the Act. In view 4 I.T.A. Nos.1706 to 1709 & C.O. Nos.154 to 157/Kol/2012 M/s.Magnum Export A.Y. 1999-2000 to 2002-03 of these facts, ld. Counsel for the assessee stated that there is merely a change of opinion in assessment year 2001-02 and in other assessment years also. There is no belief whatever was formed by the AO for reopening of assessment. He has taken us to the order of CIT(A), wherein reopening was confirmed and the relevant observation from assessment year 1999- 2000 reads as under:
"2.2 I have carefully considered the aforesaid submissions, the fact remains that the deduction u/s 80HHC was not allowable to the appellant as per the Taxation Law Amendment Act 2005 on profit on transfer of DEPB as per the provisions as applicable as on that date of re-opening of the assessment and as such certain income of the appellant has escaped assessment, since excessive deduction u/s 80HHC was allowed to the appellant which was not in conformity with the Taxation Law Amendment Act 2005 read with section 28(iiid) and 3rd proviso to section 80 HHC(3). Thus, this Ground of appeal challenging the re-opening of assessment as per cross objection is dismissed."
6. In view of this, ld. Counsel for the assessee stated that this issue is clearly covered in favour of assessee and against Revenue by the decision of Hon'ble Delhi High Court in the case of CIT-vs- Orient Craft Ltd. 354 ITR 536(Delhi), wherein it is observed as under:
"Held, dismissing the appeal, that the reasons disclosed that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This was nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. The reasons recorded by the Assessing Officer did confirm the apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-à-vis, an intimation issued under section 143(1) could cause to the tax regime. There was nothing in the reasons recorded to show that any tangible material had come into the possession of the Assessing Officer subsequent to the issue of the intimation. The notice reflected an arbitrary exercise of the power conferred under section 147."
7. Ld. Counsel for the assessee also relied on the decision of the Coordinate Bench in the case of GC Exports -vs- DCIT in ITA No.7662/Mum/2007 for assessment year 2000-01, wherein exactly similar identical issue was decided by the Coordinate Bench by observing in paragraphs 9 and 10 of the order as under:
"9. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record and the orders of authorities below as well as the case laws cited, we hold as follows:
10. A perusal of the reasons for reopening reveals the following facts:
(i) The Assessing Officer was not in possession of any record for the assessment year 2000-01. He was not having the return of income or any of the accompanying documents nor was any other information pertaining to that assessment year.
5 I.T.A. Nos.1706 to 1709 & C.O. Nos.154 to 157/Kol/2012 M/s.Magnum Export A.Y. 1999-2000 to 2002-03
(ii) The entire reopening is based on the return of income filed for the assessment year 2003-04 on 21-11-2003. In fact, the quantum of income which is said to have been escaped, i.e. Rs.46,00,901 pertains to the assessment year 2003-04 and not to the assessment year 2000-01. Based on the return of income for the assessment year 2003- 04, the assessing officer came to the conclusion that the assessee has claimed deduction u/s 80HHC on Rs.88,96,136 being incentives shares.
10.1 The Hon'ble Supreme Court in the case of ITO vs Lakhmani Mewal Das (supra) relied upon by the learned counsel for the assessee held that reason to believe is not reason to suspect and the powers of the ITO are not plenary, though wide. The reason to believe in this case is merely based on the facts for the assessment year 2003-04 and there is no information or material in possession of the assessing officer to come to even a prima facie conclusion that the assessee has in fact claimed excessive deduction in the year 2000-01. It is well settled that there should be some material in the possession of the assessing officer and that the material should have live link and nexus with the conclusion of fact that the assessing officer would arrive at. In this case when there are no records on hand, for whatever reason the assessing officer chose to pick up the assessment record of another year and based on the figures and claims therein, has come to a conclusion that the assessment of the impugned assessment year had escaped assessment. This, in our considered opinion, is bad in law. The return of income for the assessment year 2003-04 and the material connected with it cannot form the basis for reopening the assessment for the assessment year 2000-01. Thus, for the above cited reasons, we do not agree with the first appellate authority that the reopening in this case is valid in law.
10.2 As we have disposed of the appeal on reopening itself we do not go into the merits of the case. The appeal filed by the assessee succeeds."
8. We have heard rival contentions and gone through facts and circumstances of the case. We find from the reasons recorded by the AO for reopening by issuing notice u/s. 148 of the Act that the entire belief of the AO was based on the material available before him at the time of processing of return u/s. 143(1) of the Act. The relevant portion of the reasons recorded i.e. the para 1 is being again reproduced for the sake of clarity, which reads as under:
"Assessee's return for the year was processed /assessed u/s.143(1) on 12.10.2001 by ITO, Wd.46(4), Kol. On going through the assessment records for A.Y.2000-01, it is found that the assessee firm is an exporter and had claimed deduction /s.80HHC Rs.95,44,702. During this year, its business turn Over was Rs.23,88,50,143 and received export incentive Rs.2,65,84,656."
From the above reasons recorded, it is clear that the Assessing Officer reached the belief that there was escapement of income, on the basis of return filed by the assessee, after he accepted the return under section 143(1) without scrutiny, and nothing more. This was nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer. There was nothing in the reasons recorded to show that any tangible material had come into the 6 I.T.A. Nos.1706 to 1709 & C.O. Nos.154 to 157/Kol/2012 M/s.Magnum Export A.Y. 1999-2000 to 2002-03 possession of the Assessing Officer subsequent to the issue of the intimation. The notice reflected an arbitrary exercise of the power conferred under section 147 of the Act. We quash reassessment proceedings initiated u/s. 147 of the Act by issuing notice u/s. 148 of the Act. This issue of assessee's appeals is allowed.
9. Coming to Revenue's appeals, the only common issue in these appeals of Revenue against the order of CIT(A) is as regards to holding that the profit from sales of DEPB is taxable under section 28(iiib) instead of entire sale consideration of DEPB.
10. We have heard rival contentions and gone through facts and circumstances of the case. We find that only the net of sale consideration and face value of DEPB will be taxable under section 28(iiib) of the Act and further in view of the decision of Hon'ble Gujarat High Court in the case of Avani Exports Vs. CIT (2012) 348 ITR 391 (Guj) the assessee is eligible for deduction under section 80HHC of the Act irrespective of any restriction of the export turnover. The CIT(A) allowed the claim of assessee by observing as under:-
"3.1 I have carefully considered the aforesaid submissions and the decision of the Honourable Supreme court in the case of Topman Exports reported in 342 ITR 49 and the decision of Gujarat High Court in the case of Avani Export & Others dt. 02-07-2012. The Honourable Supreme Court in the case of Topman Exports has held that the face value of the DEPB will fall under clause (iiib) of Section 28 of the Act and hence the same are eligible for deduction u/s 80 HHC irrespective of any restriction of the export turnover. In view of the aforesaid decision the appellant is eligible for deduction u/s 80 HHC on the face value of the DEPB i.e. Rs.1,63,78,101/-. And further as per the decision of the Gujarat High Court in the case of Avani Export & Others dt. 02-07-2012, which was decided in pursuant to the order of the Supreme Court of India, by which all the matters pending before various High Courts on this issue on the 3rd and 4th proviso to section 80HHC (3) of the Income Tax Act, 1961. The Hon'ble Gujarat High Court in this case has quashed the impugned amendment to this extent that the operation of the said section could be given effect from the date of amendment and not in respect of earlier assessment years whose export turnover is above Rs.10 Crore. And further held that this retrospective amendment should not be detrimental to the appellant's, In view of the aforesaid decision the appellant now need not required to comply with two conditions attached with the 3rd proviso to section 80 HHC(3). Hence, the appellant is further liable for deduction u/s 80 HHC on the profit on transfer of DEPB i.e, Rs.1,80,961/-."
The computation is not required to be reproduced here again for the sake of repetition, as the same is given in the order of CIT(A).
7 I.T.A. Nos.1706 to 1709 & C.O. Nos.154 to 157/Kol/2012 M/s.Magnum Export A.Y. 1999-2000 to 2002-03
11. We find that the issue of profit element from sale of DEPB licence to be assessed is clearly covered by the decision of the Hon'ble Supreme Court in the case of Topman Exports Vs. CIT (2012) 342 ITR 49 (SC), wherein it is held that the face value of DEPB will fall under clause (iiib) of Section 28 of the Act and hence, the same is eligible for deduction u/s 80 HHC of the Act irrespective of any restriction of export turnover. Further, the Hon'ble Gujarat High Court has already quashed the amendment brought in the provision of section 80HHC(3) of the Act i.e. the 3rd proviso, which was brought by legislature with retrospective effect and the same is declared as ultra vires by Hon'ble Gujarat High Court in the case of Avani Exports & Others, supra. Since the issues are covered, we are of the considered view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the same. Therefore, the appeals of the Revenue are dismissed.
12. In the result all the four appeals of the Revenue are dismissed whereas the Cross Objections of Assessee are allowed.
This Order is pronounced in the Court on 17th July, 2014.
Sd/- Sd/-
(Shamim Yahya) (Mahavir Singh)
Accountant Member Judicial Member
Dated : 17th July, 2014
Copy of the order forwarded to:
1. M/s. Magnum Export, 1st floor, R.No.9, 16, Mangoe Lane, Kolkata- 700 001
2. ACIT, Circle-35, Kolkata
3. The CIT(A), Kolkata
4. CIT, Kolkata
5. DR, Kolkata Benches, Kolkata True Copy, By order, Asstt. Registrar, ITAT, Kolkata Talukdar(Sr.P.S.)