Income Tax Appellate Tribunal - Ahmedabad
Rameshchandra S.Patel, Ahmedabad vs Assessee on 5 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALANKAMONY, AM)
ITA No.431 and 647/Ahd/2009:
A. Y.:2000-01 and 2001-02
Shri Rameshchandra S. Patel, 501, Vs The Income Tax Officer, Ward
Shikkhar, Near Navrangpura Rly. 4 (4), Ahmedabad
Crossing, Navrangpura,
Ahmedabad 380 009
PA No. AEHPP 6335 A
(Appellant) (Respondent)
Appellant by Shri S. N. Soparkar, AR
Respondent by Shri Alok Johri, Sr. DR
Date of hearing: 05-01-2012
Date of pronouncement: 30-03-2012
ORDER
PER A. MOHAN ALANKAMONY: These are two appeals of the assessee which are directed against the impugned orders of Ld. CIT (A)- VIII, Ahmedabad in Appeal Nos. CIT(A)-VIII/ITO/4(4)/249/07-08 & CIT(A)-VIII/ITO/4(4)/250/07-08 dated 28.11.2008 and 5.1.2009 for the assessment years 2000-01 and 2001-02 respectively.
-2-I. ITA NO.431/A/09 - A.Y 2000-01:
2. The assessee had raised six grounds in an illustrative and narrative manner. For the sake of convenience and clarity, they are reformulated, in a concise manner, as under:
(1) (Gr. No.1 & 2): that the CIT (A) had erred in holding that there was no infirmity in reopening of the assessment u/s 147 of the Act;
(2) (Gr.No.3): that the CIT (A) erred in confirming the disallowance made u/s 80HHC of the Act on the export sales made as a supporting manufacturer;
(3) (Gr.No.4): that the CIT (A) erred in confirming the disallowance made u/s 80IA of the Act on receipt from DEPB entitlements;
(4) (Gr.No.5): that the CIT (A) erred in confirming the disallowance made u/s 80HHC on receipts from DEPB entitlements; & (5) (Gr.No.6): also erred in confirming he order in computing the deduction u/s 80HHC after reducing the deduction allowed u/s 80-
IA of the Act from the profit of business.
II ITA NO.647/A/09 - A.Y 2001-02:
(1) (Gr. No.1 & 2): that the CIT (A) had erred in holding that there is no infirmity in reopening of the assessment u/s 147 of the Act; (2)(Gr.No.3): that the CIT (A) erred in confirming the disallowance made u/s 80HHC of the Act on the export sales made as a supporting manufacturer;
(3) (Gr.No.4): that the CIT (A) erred in confirming the disallowance made u/s 80IA of the Act on receipt from DEPB entitlements;
(4) (Gr.No.5): also erred in confirming he order in computing the deduction u/s 80HHC after reducing the deduction allowed u/s 80-IA of the Act from the profit of business; & -3- (5)(Gr.No.6): that the CIT (A) erred in confirming the disallowance made u/s 80HHC on receipts from DEPB entitlements.
3. As the issues raised in these appeals being almost similar and inter-linked, for the sake of convenience and clarity, they were heard, considered and disposed off in this common order.
The facts of the issues, in brief, are as under:
4. The assessee, an individual, engaged in the business of manufacturing of dyes, money lending and financing, furnished his returns of income, admitting incomes of Rs.29,60,810/- and Rs.37,81,390/- after claiming deductions under Ch. VIA of Rs.11,56,462/- & Rs.6,82,17,338/- which were, however, determined u/s 143(3) of the Act at Rs.1,37,24,130/- and Rs.1,48,13,767/- for the AYs 2000-01 and 2001-02 respectively. On appeal, the then CIT (A) slashed the incomes of the assessee to Rs.1,31,68,640/- and Rs.1,47,01,738/- respectively. Consequent to giving effect to the order of the Jurisdictional Ld. CIT-III for the AY 2000-01, the income of the assessee was enhanced to Rs.1,36,04,451/-.
4.1. Subsequently, for the identical satisfaction Notes recorded by the AO on 1.3.2007, the assessee was slapped with Notices u/s 148 of the Act for the AYs under dispute. After due consideration of the lengthy, but, identical contentions of the assessee during the course of reassessment proceedings and also for the reasons recorded in the respective assessment orders by extensively quoting the ruling of the Hon'ble Supreme Court in the case of IPCA Laboratories v. DCIT reported in 266 ITR 521 (SC), the AO had observed thus:
-4-"(On Page 10) The information gathered from the assessing officer of M/s. Clariant (India) Ltd as well as the company itself, it is observed that the said export house is not having any positive claim of deduction u/s 80HHC on the export of trading goods. In fact, it is incurring losses and, therefore, it cannot pass on the benefit of claiming of deduction u/s 80HHC to the assessee.
Disallowance (82948420 - 501160934 = Rs.3,27,87,486) (AY 2000-01) Disallowance (45962502 - 22082982 = Rs.2,38,79,520)"
(AY 2001-02)
5. Aggrieved, the assessee took up the issues simultaneously for both the AYs before the CIT (A) for relief. The Ld. CIT (A), after due consideration of the assessee's submissions as recorded in his impugned orders, took an identical stand in his separate findings dated 28.11.2008 and 5.1.2009. The relevant portion of his observations for appreciation of facts, are extracted as under:
Reopening of assessments u/s 147 of the Act:
"5.5..................................The re-opening of assessment by the AO shall be judged in back drop of judicial pronouncement made by the Hon'ble Supreme Court in the case of IPCA Laboratories v. DCIT 266 ITR 521 (SC) and the amendment made in the Act by the Taxation Law Amendment Act 2005 with regard to profit on transfer of DEPB entitlements. The amendment in the Act which has been made effective from 1.4.1998 and the decision of Hon'ble Supreme Court provide sufficient ground to the AO in the given circumstances to form a belief that income chargeable to tax has escaped assessment on account of excessive relief allowed to the appellant under the provisions of sec.80HHC of the Act. Hon'ble Punjab & Haryana High Court in the case of Punjab State Co-operative Agricultural Development Bank Ltd v. CIT 207 CTR 352 (P&H) relying on decisions in the case of Swaraj Engine Ltd v. ACIT 260 ITR 202 (P&H) has held that ' An ITO acquires jurisdiction to reopen an assessment under s. 147(a) r.w.s.148 of the I.T. Act, 1961 only if on the basis of specific reliable and relevant information coming to his possession subsequently he has reasons which he much record to believe that by a reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for each assessment during the concluded assessment proceedings any part of its income profits or gains chargeable to income-tax had escaped assessment he may start -5- reassessment proceedings either because some fresh facts had come to light which were not previously disclosed comes into his possession which tends to expose the untruthfulness of those facts.". the Hon'ble court held that 'coming to the present case, the notice for reassessment is not based merely on change of opinion but on subsequent judgment of the Hon'ble Supreme Court in U.P. Co-operative's case (supra)."
5.6. Further, Hon'ble Rajasthan High Court in the case of Chandiram v. ITO 225 ITR 611 has held that any exposition of law by the Supreme Court is not enactment of law and is only exposition of correct position of laws. In other words, the Supreme Court only interprets the law and, therefore, the legal position as explained by the Supreme Court has to be considered as always in existence. The relevant extracts of the decision are as under:
"The jurisdiction...........................................in existence."
5.7. In view of the above, I do not find any legal infirmity so far as reopening of assessment u/s 147 of the Act is concerned. Therefore, the ground taken by the appellant against the same is hereby rejected."
5.1. With regard to (i) the claim for deduction u/s 80HHC of the Act on the sales of a supporting manufacturer to the export house and on DEPB entitlements; (ii) allowing deduction u/s 80HHC after reducing the deduction u/s 80IA of the Act; (iii) AO's action for reducing the profit on sale from DEPB entitlements from the income eligible for deduction u/s 80IA of the Act etc., for the detailed reasons recorded in his impugned orders, the Ld. CIT (A) had dismissed the assessee's both the appeals in toto.
6. Agitated, the assessee has come up with the present appeals. The wide-ranging submissions put-forth by the Ld. Senior Counsel for the assessee are summarized as under:
(i) that the assessee was an exporter of goods directly and also through export house; that an exporter who exports goods through an export house and claims deduction u/s 80HHC (1A) was required to furnish along with returns --6-
(a) a certificate in Form 10CCAC from the CA that the amount of deduction to be claimed u/s 80HHC including in respect of sale of his goods or merchandise to export house; &
(b) a certificate from the Export house in 10CCAB verifying that in respect of turnover mentioned in the said certificate that the export house had not claimed deduction u/s 80HHC, the particular of which were certified by a CA/Auditor of the Export House.
(ii) that while furnishing his returns of income for the AYs under consideration, the assessee had furnished both the certificates and the AO concluded the assessments, but, did not allow full claim of deduction u/s 80HHC of the Act. the assessee preferred appeals for both the AYs, among others, claiming full deduction u/s 80HHC, however, he met with a partial relief;
(iii) that after the expiry of four years from the end of both the AYs, the AO issued notices u/s 148 reasoning that the assessee's income had escaped assessments to the extent of excess claim of deduction u/s 80HHC of the Act; and that it was the case of the assessee that the notices were illegal and subsequent reassessment proceedings were invalid;
(iv) that to invoke the provisions of s.147, the Revenue have to satisfy two conditions simultaneously which are the conditions precedent and if either of them is not satisfied, the proceedings fail, namely;
(a) that the AO must have reason to believe that the income chargeable to tax has escaped assessment; &
(b) the escapement of assessment is on account of failure on the part of the assessee to disclosure fully and truly all material facts necessary for assessment of that year;
(v) that the condition - failure of the assessee - was not satisfied since nowhere in the reasons recorded, the AO had recorded his satisfaction that income chargeable to tax had escaped; and that unless reasons recorded that the income had escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of that year, then the re-opening was bad.-7-
Relies on case laws:
(a) Kanak Fabrics v. ITO - Spl. Civil Appln. No.335 of 2001 dated: 3.3.2011 (Guj);
(b) Sayaji Industries Ltd. JCIT (Asst) - (2011) 336 ITR 360 (Guj); &
(c) Gackward Investment Corporation (P) Ltd v. ACIT (2010) 129 TTJ 379 (Ahd).
(vi) That even glimpse at the reasons recorded clearly shows that so such satisfaction was reached by the AO that a deduction was wrongly granted to the assessee and that even assuming that the claim was wrongly granted does not mean that after the expiry of four years, the original assessment which was framed u/s 143(3) can be reopened.
Relies on case laws:
(a) Calcutta Discount Co. Ltd v. ITO 41 ITR 191 (SC); &
(b) Parashuram Pottery Works Co. Ltd v. ITO 106 ITR 1 (SC);
(vii) that when the assessee makes a claim of his deduction which was depending on legal position and that duly supported by the certificates as required in law, merely because the revenue at a later date takes a different interpretation of law on the facts placed on record, the assessee cannot be subjected to re-
opening of the assessment under the proviso to s.147;
(viii) rebutting the CIT (A)'s reasoning that the law has been amended which would justify the reopening as was noted in para (d) of the satisfactory note, it was contended that the amendment even a retrospective can never vest jurisdiction in the AO to reopen the assessment in a case covered by proviso to s.147;
Relies on case laws:
(a) Sadbhav Engg. Ltd v. DICT (2011) 333 ITR 483 (Guj); &
(b) Denish Industries Ltd v. ITO 271 ITR 340 (Guj) -8-
(ix) Refuting the CIT(A)'s stand in justifying the re-opening in lieu of the ruling of the Hon'ble Supreme Court in IPCA Laboratory Ltd v. DCIT (2004) 266 ITR 521 (SC) that the law is well settled that a subsequent judgment of the Supreme Court cannot permit the reopening of assessment under the proviso to s.147.
Relies on case laws:
(a) Austin Engg. Co. Ltd v. JCIT (2009) 312 ITR 70 (Guj);
(b) B J Service Co. Middle East Ltd v. DDIT (Intl. Taxation) (2011) 201 Taxman 188 (Uttarkhand); &
(c) Rasiklal Mardia and Others v. DCIT in ITA NO.2382/Ahd/2009 (AY 1997-98) dated 23.12.2011.
(x) Countering the Ld. D R argument that the assessee was supplied reasons for reopening on requisition, but, he did not object to the reopening and eventually participated in the reassessment proceedings and, thus, he was debarred from challenging assessments etc., it was contending that if an assessee does not object to reopening of the assessee before the AO, he doesn't lose the right to challenge such re-opening before the higher authorities;
Relies on P V Doshi v. CIT 113 ITR 22 (Guj)
(xi) Terming the case laws quoted by the Ld. D R reported in 238 ITR 1008 (MP) and 125 Taxman 291 (Cal) cannot come to the rescue of the Revenue, it was contended that they deal with the issue as to whether proceedings which were validly initiated but suffer technical lapse of a defective notice can be challenged by the assessee at the appellate stage where he had not raised that issue before the lower authority;
(xii) With regard to strong reliance placed by the Ld D R in the ruling of the jurisdictional Hon'ble High Court in the case of Dishman Pharmaceuticals & Chemicals Ltd v. DCIT in Special Civil Application No.15304 of 010 dated 1.3.2011 to drive home his point that 'excess deduction can always result in subject matter of reopening etc., it was countered that the issue was held against the assessee on the pretext that the assessee made no claim of deduction; nor was such a claim processed by the AO -9- in the original assessment; that this is a case where the assessee had received certain loan which by virtue of the provisions of section 2(22)(e) of the Act should have been offered as dividend income but the assessee did not do that. It was contended that as found by the High Court, neither in the return of income or document connected therewith, the same was stated or ascertainable and, therefore, the High Court found that the assessee had failed to fulfill its duty to truly and fully disclose all material facts necessary for assessment. Thus, the judgment has no bearing in the present issue where the allegation was not non-disclosure of facts, but, it was incorrect calculation of deduction by the AO himself on the basis of facts supplied by the assessee which were not found to be incorrect or incomplete;
(xiii) Taking cue from the ruling in the case of IPCA Laboratory (supra) the Ld. D R argued that for the purpose of showing that in law the calculation made by the assessee was incorrect etc., it was argued against by the assessee that while examining the validity of reassessment under proviso to s. 147, the correctness or otherwise of deduction in law was irrelevant and what was relevant was the failure on the part of the assessee to disclose a fully and truly all material facts. Stretching further that this judgment has no bearing because when the assessment for AY 2004-05 in the case of the assessee was remanded back by the Tribunal to the AO to examine the matter afresh while giving effect to the said order, the AO himself had held in his order dt.2.12.2011 that "it is seen that the facts of the case IPCA Laboratory Ltd (supra) are distinguishable from the facts of the assessee's case..............Therefore, the decision of Hon'ble Supreme Court in the case of IPCA Laboratory Ltd (supra) is not applicable to the assessee's case...." Therefore, the Ld. A R contended that reliance on this judgment is without any basis; &
(xiv) Finally, with regard to the Ld DR'S reference to the issue of merger by submit that though the computation of deduction u/s 80HHC may have been subject matter of appeal before the CIT (A), the issues raised by the assessee for reopening were not the subject matter of CIT (A) and, therefore, the principle of merger doesn't apply etc., the Ld. AR submitted that firstly this contention was factually incorrect and that the first basis for
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reopening as recorded in the satisfacftion note in both the AYs was 'sales-tax and excise duty are to be considered as part of total turnover while computing deduction u/s 80HHC'. This issue was subject matter of adjustment in the original assessment order and the same was also adjudicated by the CIT (A) in the first round in the respective years before the assessments were reopened;
- secondly the principle of merger was in relation to 'issue' and not the different facets of an issue. The issue before the AO in the original assessment was deduction u/s 80HHC. He did not grant it fully to the assessee and when it was carried in appeal, the CIT (A) looked into the claim of deduction u/s 80HHC and granted relief partially. The assessee's claim of deduction u/s 80HHC therefore got processed before the AO and was a subject matter of appeal before the CIT (A) who had decided the matter before the case was reopened and the order therefore was in relation to quantification of deduction u/s 80HHC of the Act. However, it was argued, the reopening was done in the instant case only on the ground that claim of deduction u/s 80HHC was wrongly granted and that the issue got merged from the original assessment order to the order of the CIT (A). the same cannot now be a subject matter of reopening as held by the Hon'ble Gujarat High Court (supra). Extensively quoting the ruling of the Hon'ble jurisdictional High Court in the case of CIT v. Nirma Chemicals Works (P) Ltd. 309 ITR 67 (Guj), it was contended that in view of the above ruling, the argument of the Ld. D R requires to be rejected;
6.1. In conclusion, it was fervently submitted that the Ld. DR had very fairly conceded that 'it is not the case where the assessee made a wrong claim of deduction', but, 'it is an incorrect claim of deduction allowed by the AO'. It was, further, submitted that assuming but not admitting, this to be true even if a claim is incorrectly allowed by the AO in an assessment u/s143(3) the same cannot be subject matter of reopening under the proviso to s. 147 because there was no finding that the AO
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granted incorrect claim because the assessee did not supply fully and truly all material facts. Since in the present case, there were no such allegations, the appeals of the assessee require to be allowed.
6.1.1. On the other hand, the Ld. D R had very elaborately agued the case by extensively quoting various judicial pronouncements in support of his arguments and also justified the stand of the Ld. AO in reopening of the assessments under consideration and subsequent findings of the Ld. CIT (A) in sustaining the AO's reasoning. The detailed submissions of the Ld. D R coupled with various case laws are already finding a place along with the point-by-point rebuttal made by the Ld. A R (supra).
6.2. We have very carefully considered the rival submissions coupled with a number of case laws in their stride, diligently perused the relevant case records and also documentary evidences advanced in the shape of voluminous paper books during the course of hearing by the Ld. A R. 6.2.1. The crux of the issue, chiefly, is as to whether the AO was within dominion to issue notices u/s 148 of the Act to reopen the assessments for the AYs under consideration.
(i) Initially, the Ld. AO had framed the original assessments u/s 143(3) of the Act wherein he had turned down the assessee's full claim for deduction u/s 80HHC of the Act and, accordingly, reworked out and reduced the said claims. On appeals, the then Ld. CIT (A) had partially acceded to the claim for deduction u/s 80HHC for both the AYs. In essence, the orders of the AO in relation to deduction u/s 80HHC of the Act therefore got merged with the findings of the CIT (A). For record, an order u/s 263 of the Act was passed by the jurisdictional Ld. CIT -III, Ahmedabad and, consequently, the AO on 31.3.2005 also passed an order giving effect to the said order.
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(ii) After the expiry of four years period from the end of both the assessment years, the AO had slapped notices on the assessee u/s 148 of the Act on 20.3.2007 by recording satisfactory notes for re-opening of assessments of the assessee for both the AYs under challenge. In essence, the assessments have originally been framed u/s 143(3) of the Act and, subsequently, the assessments were sought to be reopened after the expiry of four years from the end of the relevant assessment years. Therefore, the assessee had raised a bogey that the validity of the reopening of the assessments will have to be examined in lieu of the requirements of proviso to s. 147 of the Act. It was the vehement argument of the Ld. Senior Counsel for the assessee that in order to attract the proviso to s. 147 of the Act, the Ld. AO was to be obliged to satisfy twin conditions precedent, namely (at the cost repetition):
(i) the escapement of assessment is on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of that year;
(ii) that the AO must have been reason to believe that the income chargeable to tax has escaped assessment.
6.2.2. On a careful reading/scrutiny of the reasons recorded by the AO [courtesy: Page 2 of the Asst. order], it has been significantly observed that neither the AO had reason to believe that the income chargeable to tax had escaped assessments nor the escapement of assessments were on account of failure on the part of the assessee to discharge fully, truly all material facts necessary for assessments.
6.2.3. At this point of time, we shall have a look at the judicial view on a similar issue.
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1. Kanak Fabrics v. ITO - Special Civil Application 335/2001 dated: 3.3.2011 - Hon'ble Gujarat High Court:
Briefly, the assessee filed its return of income for AY 1989-90 and the assessment came to be framed u/s 143(3) of the Act on 22.1.1991 in an enhanced income. Later on, on a query from the Revenue that its Audit Wing required certain clarification, the assessee was obliged to clarify as required on 13.2.2000. Subsequently, the assessee was served with a Notice u/s 148 of the Act which was objected to by the assessee, however, the Revenue rejected its objection.
On being approached the Hon'ble Court with a plea that the original assessment for the AY 1989-90 was framed u/s 143(3) and that the same was sought to be re-opened beyond a period of four years from the end of the said AY; and that the assessment framed u/s 143(3) can be reopened beyond a period of four years if and only an income chargeable to tax had escaped assessment by reason of failure on the part of the assessee etc., the Hon'ble Court, had, after considering the rival submissions, observed:
"6. As noted earlier, in the present case notice under section 148 of the Act has been issued on 30.3.2000 in relation to assessment year 1989-90, admittedly the same has been issued after the expiry of a period of four years from the end of the relevant assessment year. In the circumstances, in the light of the proviso to section 147 of the Act, in case where assessment has been framed under section 143(3) of the Act, no action can be taken under section 147, unless income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts, necessary for its assessment for the assessment year.
7. Examining the facts of the present case in the light of the aforesaid legal position, a perusal of the reasons recorded shows that there is not even a whisper to the effect that income has escaped assessment on account of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. Even in the affidavit in reply filed by the
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respondent, there is no allegation of any such failure on the part of the petitioner. In the circumstances, it is apparent that the requirements of the proviso to section 147 of the Act are not satisfied. Consequently, in the absence of any satisfaction having been recorded by the assessing officer that income has escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration, the assumption of jurisdiction under section 147 of the Act is invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained."
2. Sayaji Industries Ltd v. JCIT (Asst) (2011) 336 ITR 360 (Guj) On an identical issue, the Hon'ble jurisdictional High Court had, after analyzing the issue in depth, ruled thus:
"7. (on page 364) Examining the facts of the present case, in the light of the aforesaid statutory requirement, a perusal of the reasons recoded indicates that the assessing officer has recorded as many as three grounds in relation to which he has recorded the belief that the income has escaped assessment. In so far as the satisfaction regarding failure to disclose fully and truly all material facts necessary for the assessment is concerned, in the concluding paragraph of the reasons recorded, the assessing officer has merely recorded that, 'In view of the above facts, I have reason to believe that the income chargeable to tax has escaped assessment for the assessment year 1994-95 due to the omission on the part of the assessee to furnish the true and correct affairs of the company within the meaning of the provisions section 147 of the Income-tax Act."
However, though in the concluding paragraph, it has been recorded that there is omission on the part of the assessee to furnish the true and correct affairs of the company, in the preceding paragraphs wherein the assessing officer has extensively recorded reasons as regards his belief that the income has escaped assessment, there is nothing whatsoever to indicate any omission on the part of the petitioner to disclose fully and truly all material facts. Thus, from the reasons recorded, it appears that in effect and substance, no satisfaction has been recorded by the assessing officer as regards failure on the part of the petitioner to disclose fully and truly all material facts. Thus, from the reasons recorded, it appears that in effect and substance, no satisfaction has been recorded by the assessing officer as regards failure on the part of the petitioner to disclose fully and truly all material facts. What is recorded in the concluding paragraph of the reasons as regards omission on the part of the petitioner to furnish true and correct affairs of the company, does not find any support in the preceding paragraphs. Thus, except for the bald statement that there is
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omission on the part of the petitioner to furnish true and correct affairs of the company, there is nothing whatsoever in the reasons recorded to indicate the nature of the omission and as to which facts had not been truly and fully disclosed. Hence, on a plain reading of the reasons recorded, it is apparent that there is no material on record on the basis of which the assessing officer could have recorded the satisfaction as regards income having escaped assessment by reason of failure on the part of the petitioner to furnish true and correct affairs of the company.
.......................................................................................................................................... ..........................................................................................................................................
In the circumstances, in the absence of any foundation having been laid in the reasons recorded to indicate any omission on the part of the petitioner in disclosing fully and truly all material facts, the assumption of jurisdiction under section 147 of the Act by issuing notice under section 148 of the Act, is without jurisdiction and as such, the impugned notice cannot be sustained."
3. Yet similar ruling, the Hon'ble High Court of Bombay at Panaji, Goa in Writ Petition No.71 of 2005 dated 9.6.2011 in the case of Titanor Components Ltd v. ACIT, C 2(1), Panaji after extensively quoting the conditions prescribed by the proviso to s.147 of the Act and analyzing the issue had observed:
"4. According to the learned Counsel, the Revenue is entitled to issue such a notice if the assessing officer has reason to believe that income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee
(a) to make a return under section 139 or (b) in response to a notice issued under sub-section (1) of section 142 or section 148 or (c) to disclose fully and truly all material facts necessary for that assessment year. Since the first two conditions are not pleaded by the respondents, it is the submission of the petitioner that the noticed is wholly unwarranted and invalid since there is no allegation whatsoever that the petitioner has failed to disclose all material facts necessary for assessment. This submission can be considered only with reference to the reasons put forth by the respondents for issuing the notice. The letter dated 27.1.2005, inter alia, states that the assessing officer has reasons to believe that income has escaped assessment because the petitioner has wrongly claimed deduction under section 80IA in respect of incomer which was not derived from the income of the petitioner's Unit of Kundaim. Further, that long
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term capital gains have been wrongly claimed by the assessee which have been wrongly considered for the set off of the Unit of Kundaim which has resulted in escapement of income. Nowhere has the assessing officer stated that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Having regard to the purpose of the section, we are of the view that the power conferred by section 147 does not provide fresh opportunity to the assessing officer to correct an incorrect assessment made earlier unless the mistake in the assessment so made is the result of a failure of the assessee to fully and truly disclose all material facts necessary for assessment. Indeed, where the assessee has fully disclosed all the material facts, it is not open for the assessing officer to re-open the assessment on the ground that there is mistake in assessment. Moreover, it is necessary for the assessing officer to first observe whether there is a failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such a failure to proceed under section 147. it must follow that where the assessing officer does not record such a failure he would not be entitled to proceed under section 147. It must follow that where the assessing officer does not record such a failure he would not be entitled to proceed under section 147. As observed earlier, the assessing officer has not recorded the failure on the part of the petitioner to fully and truly disclose all material facts necessary for the assessment year 1997-98. what is recorded is that the petitioner has wrongly claimed certain deductions which he was not entitled to. There is well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. It is only in the latter case that the assessing officer would be entitled to proceed under section 147. we are supported in this view by a decision of a Division Bench of this Court in Hindustan Level Ltd v. R.B. Wadkar, Assistant Commissioner of Income-tax (2004) 268 ITR 0332 wherein a similar case, the Division Bench held that there was a failure to disclose fully and truly that all material facts must be read as recorded by the assessing officer and it would not be permissible to delete or add to those reasons and that the assessing officer must be bale to justify the same based on material record. The Division Bench observed as follows:
'He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence.'
5. We find in the circumstances that the impugned notice is not sustainable and is liable to be quashed and set-aside............"
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6.2.4. With regard to the Ld D R's argument that the issue of merger, though computation of deduction u/s 80HHC of the Act may have been the subject matter of appeal before the CIT (A), the issue raised by the assessee for reopening of assessments were not the subject matter before the CIT (A) and, therefore, the principle of merger would not apply etc., this argument of the Ld. D R was rebutted by the Ld. Senior Counsel for the assessee that (at the cost of petition) the issue before the AO in the original assessment was deduction u/s 80HHC, but, he did not grant it fully and when the assessee took up the issue with the CIT (A) who partially conceded to the assessee's claim. Thus, according to the Ld. Counsel, the issue got processed before the AO and was the subject matter of appeal before the CIT (A) who had decided the matter before the case was reopened and, therefore, the order was in relation to quantification of deduction u/s 80HHC which was subject matter of appeal. In the present case, according to the Ld. Counsel, reopening was done only on the ground that the claim of deduction u/s 80HHC was wrongly granted and, thus, the issue got merged from the original assessment order to the order of CIT (A). The same cannot now be a subject matter of reopening.
6.2.5. At this point of time, we would like to recall the ruling of the jurisdictional Hon'ble High Court in the case of United Phosphorus Ltd v. Addl. CIT in Special Civil Application 3352 of 2001 dated 8.3.2011; the Hon'ble Division Bench has observed that -
"13. In the light of the reasons recorded, it may be germane to refer to the assessment order framed under section 143(3) of the Act in relation to the year under consideration which indicates that insofar as deduction under section 80HHC of the Act is concerned, the assessing officer after due application of mind as per the separate working enclosed as Annexure A with the assessment order giving reasons as per the note computed the allowable deduction. As regards, the deduction under section 80I and 80IA of the Act, the assessing
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officer has placed reliance upon the certificate issue by the Chartered Accountants and allowed deduction of Rs.1,25,603,453/-. Thus, both the issues have been specifically considered by the assessing officer while framing the original assessment. Against the order of the assessing officer, the assessee had preferred appeal before the Commissioner (Appeals) on various grounds wherein addition of excise duty refund receivable, duty draw back receivable and cash assistance receivable, the reduction of claim of deduction under section 80HHC of the Act as well as deduction under section 80I and 80IA of the Act were also subject matter of appeal. The Commissioner by an order dated 15.3.2000 allowed some of the grounds of appeal. Thus, the order of the assessing officer stood merged with the order of Commissioner (Appeals) and had no independent existence of its own and as such the assessment could not have been reopened in respect of the said items.
14. Apart from the aforesaid position, a perusal of the statement showing allocation of income and expenses to eligible units and non-eligible units for deduction under section 80I and 80IA of the Act (Annexure 'F' to the rejoinder affidavit) clearly shows that the other income to the tune of Rs.10,03,36,210/- had not been taken into consideration while computing deduction under section 80I and 80IA of the Act. Thus, the reasons recorded proceed on an erroneous factual premise that the other income had been included while allowing deduction under section 80I of the Act. the third ground for reopening viz., that deduction under section 80IA of the Act is not allowable on 'income from other sources' also proceeds on a factually erroneous basis as aforesaid. As regards the second ground for reopening viz., excise duty refund, duty drawback and cash assistance receivable have been charged to tax vide section 28(11)(c) and were required to be excluded while working out deduction under section 80I/80IA, the said issue had been duly considered at the time of framing the original assessment and was also subject matter of appeal before the Commissioner (Appeals).
15. In the light of the aforesaid discussion, it is apparent that the assessment order in respect of the items for which assessment is sought to be reopened has merged with the order of commissioner (Appeals) and as such has no independent existence and, therefore, the assessment could not be reopened in respect of the said items. Moreover, the reopening of assessment apart from being based on a factually erroneous premise, is also based upon a mere change of opinion without there being any tangible material to come to the conclusion that therefore is escapement of income from assessment. Hence, in view of the law laid down by the Supreme Court in the case of Commissioner of Income-tax v. Kelvinator of India Ltd (2010) 320 ITR 561 (SC), the condition precedent for reopening of assessment has not been fulfilled and as such, the assumption of
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jurisdiction under section 147 of the Act is not valid. The impugned notice issued under section 148 of the Act, therefore, cannot be sustained."
6.2.6. Taking into account all the factors and also the circumstances as deliberated upon in the fore-going paragraphs and in conformity with the judiciary view (supra), we are of the considered view that Ld. AO was not justified in assuming of jurisdiction under section 147 of the Act. The impugned notices under section 148 of the Act for the assessment years 2000-01 and 2001-02 in the case of the present assessee cannot, therefore, be sustained. It is ordered accordingly.
6.2.7. Before parting with, we would like to reiterate with due regards that we have duly perused the various case laws on which the Ld D.R had placed his unstinted confidence, namely:
(i) CIT v. Safetag International India Pvt. Ltd. - ITA NOs. 355 & 412 of 2010 dated: 3.2.2011 - Hon'ble High Court of Delhi:
The issue before the Hon'ble High Court was entirely on a different issue which has no relevance to the issue on hand.
(ii) Smt.Kaushalyabai v. CIT - (1999) 238 ITR 1008 (MP):
The issue before the Hon'ble High Court was clearly distinguishable in the sense that the issue was - Whether the proceedings were validly initiated but disabled from a technical lapse of a defective notice can be challenged by the assessee on the ground of defective notice at the appellate stage whereas she had not raised that issue before the lower authority? However, in the case on hand, the validity of reassessment is in dispute and not the technical objection as to any defect in the notice.
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(iii) In the case of Mulchand Rampuria v. ITO - (2002) 125 Taxman 291 (Cal), the Hon'ble High Court had ruled that after the enactment of s.
292B, no notice shall be deemed to be invalid merely by reason of any mistake defect or omission therein, if notice is in substance and effect in conformity with or according to intent and purpose of Act etc., Therefore, we are of the firm view that the issue raised before the Hon'ble Court doesn't fit into the issue on hand as it is clearly distinguishable.
(iv) Dishman Pharmaceuticals & Chemicals Ltd v. DCIT - Spl. Civil Appln. No.15304 of 2010 dated 1.3.2011 (Hon. Gujarat H.C) The Hon'ble Division Bench has observed thus:
"15. We have taken note of reasons recorded by the assessing officer for reopening of the assessment. The assessing officer may not have stated in so many words that 'income escaped assessment on account of the assessee not truly and fully disclosing all material facts'. Suffice it to say, the reasons recorded clearly envisages escapement of income on account of non-disclosure by the assessee; its holding in SDBL for the relevant assessment year. Such discrepancy came to light only while framing the assessment of the subsequent year i.e., 2006-07, while during the course of inquiry, the assessee was asked to submit such details, through which, it was found that the assessee holds 22.3% of the shares of SDBL."
With highest regards, we would like to point out that the observation of the Hon'ble Court has no bearing in the instant case where the allegation was not non-disclosure of facts, but, incorrect calculation of deduction made by the AO himself on the basis of facts furnished by the assessee which were not classified/pointed out to be incorrect/incomplete, prompting the AO to invoke the provisions of s.147 of the Act unceremoniously.
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We have also perused with due care the other case laws mentioned by the Ld. D R during the course of his lengthy arguments and of the considered view that they were on the different context/pretext which have no direct relevance to the issue which we have debated supra.
7. We have since taken a view that the impugned notices u/s 148 of the Act issued on 20.3.2007 were invalid and, consequently became in- operational; and, therefore the other grounds raised in both the appeals have become academic and redundant and, thus, they have not been addressed to.
8. In the result, the assessee's appeals for the assessment years 2000-01 and 2001-02 are allowed.
Order pronounced in the open Court on 30th -3-2012.
Sd/- Sd/-
(D. K. TYAGI) (A. MOHAN ALANKAMONY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Lakshmikant Deka/-
Deka/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad