Income Tax Appellate Tribunal - Delhi
Shivnath Rai Harnarain (India) Limited vs Dcit on 15 February, 2008
Equivalent citations: [2008]304ITR271(DELHI), (2008)117TTJ(DELHI)480
ORDER
D.R. Singh, Judicial Member
1. These three appeals arising from the consolidated order of the CIT (A), New Delhi, passed in Appeal Nos. 115-117/06-07, dated 21.9.2006, were heard together and are being disposed off by this common order for the sake of convenience as the facts and issues involved in all these appeals are identical except variation in amounts.
2. Before the Tribunal, the assessee raised two additional grounds and the same being legal in nature, so considering the decision of the Apex Court in the case of NTPC Ltd., 229 ITR 383, the same were admitted by the Tribunal.
3. Now, the identical effective grounds of appeals, including the additional grounds taken by the assessee required to be decided by the Tribunal, are stated as under:
1. That the assessment Under Section 153A is without jurisdiction as same is not based on any seized material or a case of any undisclosed income and as such same is not sustainable under the law.
2. That the provisions of Section 153 A does not provide and contemplate assessment or reassessment in respect of any income which has already been considered at the time of original assessment.
3. It is contented that addition due to retrospective amendment in the provision of section SO HHC of the Income Tax Act, 1961 as wrong, incorrect, erroneous, immoral, bad in law and is against the natural justice.
4. Briefly stated, the facts relating to the issue involved in the grounds of appeal of the assessee are that a search and seizure operation Under Section 132 of the Income Tax Act, 1961 was conducted at the business premises of the assessee on 18.06.2003. Since, this search was initiated under Section 132 of the Act after 31st of day of May 2003, notice Under Section 153A was issued to the assessee on 31.05.2005 wherein the assessee was required to file the returns for the assessment years 1999-2000, 2002-03 and 2003-04 in the prescribed proforma for the purpose of proceeding Under Section 153A of the Act. During the assessment proceedings, the AO noticed that the assessee has claimed deduction Under Section 80 HHC at Rs. 11,17,71,086/- for assessment year 1999-2000, Rs. 1,15,10,183/- for assessment year 2002-03 and Rs. 27,88,403/- for assessment year 2003-04. However, keeping in view the retrospective amendments to Section 28 and Section 80HHC, the assessing officer asked the assessee to furnish necessary evidence to prove that during these assessment years, the assessee company has fulfilled both the conditions as laid down in third proviso to Section 80HHC of the Act in order to show that the assessee was eligible to claim deduction under the amended provision of Section 80HHC of the Act. Further, according to the AO, the assessee company did not fulfill these conditions, therefore, as per amended provisions of Section 80HHC, the assessing officer has reduced the allowable deduction Under Section 80HHC of the Act to Rs. 5,31,80,520/- for assessment year 1999-2000 and a nil deduction for assessment year 2002-03 and 2003-04.
5. Aggrieved with the orders of the AO, the assessee filed an appeal before the CIT (A) and the CIT (A), after considering the submissions of the assessee, upheld the impugned orders of the AO by making following observations in his order:
It is undisputed fact that as per amended provisions, the appellant did not fulfill necessary conditions mentioned in the provisos to Section 80HHC(3) and, therefore, the Assessing Officer has correctly and as per law reduced the deduction claimed Under Section 80HHC of the I.T. Act. As far as challenging the retrospective amendment and request of appellant, for not disposing the appeal till the decision of Hon'ble Court is concerned with due respect it may be stated that it has been now settled legal position that legislature is empowered to make retrospective amendments and recently Hon'ble Supreme Court in the case of CIT v. Varas International Pvt. Ltd. 283 ITR 484 has held that if in the amended provisions, the operation is stated to be with retrospective effect then it is perfectly valid and shall be operative with retrospective effect itself. The said decision was a Constitutional Bench decision given by the Bench of five judges of Hon'ble Supreme Court. Moreover, the appellant has not filed any petition before High Court on this issue and no material is also made available that the appellant is a party to any of such writ petition before any high court. Considering this and clarity of legal provisions, the request not to dispose the appeal is not acceptable. Since the assessing officer has correctly worked out the allowable deduction Under Section 80HHC of I.T. Act for A.Y. 1999-2000 and nil deduction for A.Y. 2002-03 as well as for A.Y. 2003-04. Therefore, the same is hereby confirmed by rejecting the only ground of appeal taken by the appellant.
6. We have considered the rival contentions of both the parties, perused the records and carefully gone through the orders of the tax authorities below as well as the relevant case law relied upon by both the parties.
Before us, the learned Counsel for the assessee in support of Ground No. 1 and 2 of its appeal relating to the issue of framing of assessment Under Section 153A of the Act submitted that as there was no seized material based on which the assessment was completed by the assessing officer in the case of the assessee and, therefore, the assessment framed by the Assessing Officer should be held to be null and void. He further submitted before us that the provisions of Section 153A of the Act could not be invoked to make an assessment or reassessment of income just because a search had taken place in the case of an assessee.
7. He further contended that as per provisions of Section 153A of the Act, the already completed assessments could not be reopened to reassess the income. In support of his contention, the learned AR for the assessee has placed reliance on CIT v. Max India Ltd. 295 ITR 282 (SC); CIT v. G.M. Mitral Stainless Steel Pvt. Ltd. 263 ITR 255 (SC); SGS India Pvt. Ltd. v. ACIT and Ors. 292 ITR 93 (Bom); Sesa Goa Ltd. v. JCIT and Ors. 294 ITR 101 (Bom); and Siemens Information System Ltd. v. ACIT and Ors. 293 ITR 548 (Bom). He also referred to an article of Shri V.S. Mani appearing in Volume 132 of the Taxman Magazine placed at Page 15 of the Paper Book.
8. At the outset, we may mention that the case law relied upon by the learned AR for the assessee, in the cases of Max India Ltd. & G.M. Mittal Stainless Steel Pvt. Ltd. (supra) pertain to the issue of exercising powers by the CIT Under Section 263 of the Act and in the cases of SGS India Pvt. Ltd., Sesa Goa Ltd. & Seimens Information System Ltd. (supra), pertain to validity of assessment framed Under Section 147, 148 & 149 of the Act, on the proposition that the completed assessments cannot be reopened in view of the retrospective amendment or in view of the subsequent decision of jurisdictional High Court or Supreme Court does not apply to the issue under consideration before us which relates to provision of Section 153A of the Act which has been introduced by the Legislature after omitting the Chapter XIV B relating to block assessments for undisclosed income in the case of searches conducted Under Section 132 of the Act whereas the above case law relates to provision of Sections 263, 147, 148 and 149 of the Act wherein for invoking these sections, the ingredients of those sections are required to be looked into and it has to be examined whether before invoking those sections, the ingredients of those sections have been fulfilled or not.
9. Hence, in this view of the matter, this case law, relied upon by the learned AR for the assessee, does not help the assessee in resolving the issue under consideration before us. On the contrary, there are two recent decisions, relied upon by the learned DR for the revenue, in the cases of Abhay Kumar Shroff v. Commissioner of Income Tax and Ramballabh Gupta v. Assistant Commissioner of Income Tax (Madhya Pradesh High Court] which provided assistance to the Tribunal in understanding the validity of the provisions of Section 153A of the Act.
10. For better appreciation of Section 153 A of the Income Tax Act, 1961, the same is reproduced herein below:
153A. Assessment in case of search or requisition.-Notwithstanding anything contained in Section 139, Section 147, Section 148, Section 149, Section 151 and Section 153, in the case of a person where a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under Section 132A after the 31st day of May, 2003, the Assessing Officer shall:
(a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in Clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as, may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139 ;
(b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made:
Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:
Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this section pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate.
Explanation.-For the removal of doubts, it is hereby declared that,:
(i) save as otherwise provided in this section, Section 153B and Section 153C, all other provisions of this Act shall apply to the assessment made under this section;
(ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
11. From the Budget Speech of Minister of Finance for 2003-2004, explaining the provisions in the Finance Bill 2003 at Page 219, it was mentioned that:
It is proposed to discontinue the scheme of scrutiny assessment on limited issues by inserting a proviso in Clause (i) of Sub-section (2) of the said section so as to provide that no notice under Clause (i) of the said sub-section shall be served on the assessee on or after the 1st June, 2003.
The amendment will take effect from 1st June, 2003.
Assessment in search cases - Abolition of the special procedure in Chapter XIV-B and introduction of new provisions The existing provisions of the Chapter XIV-B provide for a single assessment of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and lay down the manner in which such income is to be computed. The main objectives for the introduction of the Chapter XIV-B were avoidance of disputes, early finalization of search assessments and reduction in multiplicity of proceedings. The idea was to have a cost-effective, efficient and meaningful search assessment procedure.
However, the experience on implementation of the special procedure for search assessments (block assessment) contained in chapter XIV-B, has shown that the new scheme has failed in its objective of early resolution of search assessments. The new procedure postulates two parallel streams of assessment, i.e., one of regular assessment and the other for block assessment during the same period, i.e., during the block period. Controversies have sprung up questioning the treatment of a particular income as "undisclosed" and whether it is relatable to the material found during the course of search, etc. Even where the facts are clear, litigation on procedural maters continue to persist. The new procedure has thus spawned a fresh stream of litigation.
It is proposed to provide that the provisions of this Chapter shall not apply where a search is initiated under Section 132, or books of account, other documents or any assets are requisitioned under Section 132A after 31st May, 2003 by inserting a new Section 158B1 in the Income-tax Act.
It is also proposed to insert three new Sections 153A, 153B and 153C in the Income-tax Act to provide for assessment in case of search or making requisition.
The proposed new Section 153A provides the procedure for completion of assessment where a search is initiated under Section 132 or books of account, or other documents or any assets are requisitioned under Section 132A after 31st May, 2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under Section 132 or requisition was made under Section 132A. The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or requisition under Section 132A, as the case may be, shall abate. Save as otherwise provided in the proposed Section 153A, Section 153B and Section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under Section 153A. In the assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment years.
12. We further find that the scope and effect of Sections 153 A, 153B, 153C and 153-B1 have been explained elaborately by a Departmental Circular No. 7 of 2003, dated September 5, 2003 (see [2003] 263 ITR (St.) 62), which is reproduced herein below:
The existing provisions of the Chapter XIV-B provide for a single assessment of undisclosed income of a block period, which means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted and also includes the period up to the date of the commencement of such search, and lay down the manner in which such income is to be computed.
The Finance Act, 2003, has provided that the provisions of this Chapter shall not apply where a search is initiated under Section 132, or books of account, other documents or any assets are requisitioned under Section 132A after May 31, 2003, by inserting a new Section 158B1 in the Income-tax Act.
Further three new Sections 153A, 153B and 153C have been inserted in the Income-tax Act to provide for assessment in case of search or making requisition.
The new Section 153A provides the procedure for completion of assessment where a search is initiated under Section 132 or books of account, or other documents or any assets are requisitioned under Section 132A after May 31, 2003. In such cases, the Assessing Officer shall issue notice to such person requiring him to furnish, within such period as may be specified in the notice, return of income in respect of six assessment years immediately preceding the assessment year relevant to the previous year in which the search was conducted under Section 132 or requisition was made under Section 132A.
The Assessing Officer shall assess or reassess the total income of each of these six assessment years. Assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or requisition under Section 132 A, as the case may be, shall abate. It is clarified that the appeal, revision or rectification proceedings pending on the date of initiation of search under Section 132 or requisition shall not abate. Save as otherwise provided in the proposed Section 153A, Section 153B and Section 153C, all other provisions of this Act shall apply to the assessment or reassessment made under Section 153A. It is also clarified that assessment or reassessment made under Section 153A shall be subject to interest, penalty and prosecution, if applicable. In the assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year.
13. From a bare reading of the provisions of Sections 153A, 153B of the Act, Budget Speech of Minister of Finance for 2003-2004 and the Departmental Circular dated September 5, 2003 (see 12003] 263 ITR (St.) 62), it is manifestly clear that after May 31,2003, the earlier provision of block assessment in the case of search initiated against the assessee (contained in Chapter XIV B) shall not apply, as the special procedure for assessment in search cases contained in Chapter XIV B stands abolished and a new provision of Section 153 A has been introduced w.e.f. 1st June, 2003 which provides procedure for a single assessment comprising previous years relating to six assessment years preceding in which the search was conducted shall apply.
14. It means that after 31st May 2003 special procedure for assessment in the case of searches shall apply.
It further provides that the Assessing Officer shall issue notice to such person requiring him to furnish return of income in respect of six assessment years immediately preceding the assessment year relating to the previous year in which the search was conducted under Section 132 or requisition was made under Section 132A of the Act. The Assessing Officer shall assess or reassess the total income of each of these six assessment years.
15. Further, the second proviso to Section 153A makes it clear that assessment or reassessment relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or requisition under Section 132A shall abate. In other words, if on the date of initiation of search or requisition under Section 132 or Section 132A any assessment or reassessment proceeding is initiated relating to any assessment year falling within the period of six assessment years, it shall stand abated and the assessing authority cannot and shall not proceed with such pending assessment after initiation of search or requisition as contemplated hereinabove. These amendments will take effect from June 1, 2003.
16. From reading Section 153A and second proviso to Section 153A, it is further clear that on the date of initiation of search or requisition Under Section 132 or Section 132A the pending assessment or reassessments relating to any assessment year falling within a period of six assessment years shall stand abated but assessment or reassessments can be done Under Section 153 A of the Act in cases of completed assessments or in cases where assessments have not been framed due to non filing of returns etc. for the above mentioned assessment years even if such assessment made Under Section 153A is not based on material found during course of search.
The word "abate" or "abatement" has not been defined in the Act or in the circular. According to Chambers Dictionary the word "abate" means demolition or to put an end to.
17. In view of our above analysis of the provisions of sections, the contention of the learned Counsel for the assessee have no force because there is no requirement for an assessment made Under Section 153A of the Act being based on any material seized in the course of search. Further, under the second proviso to Section 153A pending assessment or reassessment proceedings in relation to any assessment year falling within the period of six assessment years referred to in Section 153A(b) of the Act shall come to an end (abate), which means that the Assessing Officer gets jurisdiction for six assessment years referred to in Section 153A(b) of the Act for making an assessment or reassessment.
18. Further, it is not the contention of the assessee before us that any income, which was already subjected to assessment Under Section 143(3) or Under Section 143(3)/147 of the Act completed prior to search in respect of six assessment years referred to in Section 153A(b) of the Act and in the second proviso to Section 153A, has also been included in the assessment framed Under Section 153A of the Act. Hence, in these circumstances, the contention of the assessee in support of Ground Nos. 1 and 2 of its appeal are liable to be rejected and the same are rejected accordingly. Consequent upon our findings given hereinabove, we hold that in the existing facts and circumstances of the case the Assessing Officer was perfectly justified in framing assessment Under Section 153 A of the Act for the assessment years under consideration and accordingly the Ground Nos. 1 and 2 of the appeal of the assessee are rejected.
19. Now, we shall deal with Ground No. 3 of the appeal of the assessee relating to the issue of deduction allowable to the assessee under the amended provisions of Section 80HHC of the Act.
Having recorded a finding, hereinabove that the Assessing Officer validly assumed jurisdiction to make assessments/reassessments in assessment years under consideration, we now proceed to consider the issue regarding eligibility of deduction claimed by the assessee on the receipts of sale of DEPB licenses under the amended provisions of Section 80HHC of the Act.
20. Undisputedly, in all the assessment years under consideration i.e. 1999-2000, 2002-03 and 2003-04, the total turnover of the assessee in each assessment year is more than Rs. 10 crores. The assessee has shown impugned receipts on sale of DEPB and special import license in each of the above mentioned assessment years, respectively and claimed deduction Under Section 80HHC of the Act thereon. It is also not in dispute that after the insertion of Section 28(iiid) and provisos under Sub-section (3) of Section 80HHC of the Act through the Taxation Laws (Amendment) Act, 2005, it is inserted that any profit on transfer of the DEPB License is also an export incentive and 90% of the same has to be deducted from the profit calculated as per the provision of Section 28 to arrive at the profit of the business. The profits so computed shall be further increased by the amount which bears to 90% of any sum referred to Clause (iiid) of Section 28, if the assessee has export turnover exceeding Rs. 10.0 crores during the previous year and fulfills the following two conditions:
(a) the assessee had an option to choose either the duty draw back or the DEPB Scheme, being the Duty Remission Scheme; and
(b) the rate of draw back credit attributable to the custom duty was higher than the rate of credit allowable under the DEPB Scheme, being the Duty Remission Scheme.
21. From the provisions, it is further clear that in such cases, if the assessee company has fulfilled both the conditions as laid down in third proviso Under Section 80HHC (3) of the Act, the profits so computed shall be further increased by an amount which bears to 90% of any sum referred to in Clause (iiid) in Section 28, if the assessee's export turnover has exceeded Rs. 10 Crores during the previous year.
22. Learned AR for the assessee contended before us that since in all these assessment years the assessee has not received any amount of duty drawback, the assessee company has no option to choose between the benefit of duty drawback or duty entitlement pass book scheme as contained in first condition laid down in the amended provisions of Section 80HHC of the Act, as referred to Clause (iiid) of Section 28, and consequently, there was no question of second condition being also fulfilled by the assessee. Further, that in the circumstances, it is clear that the two conditions as laid down for entitling the assessee to claim deduction Under Section 80HHC of the Act was not within the powers of the assessee company under the circumstances explained above and the tax authorities below were not justified in refusing the claim to the assessee in respect of receipts from the sale of DEPB licenses.
23. On the other hand, learned DR for the Revenue submitted that eligibility of deduction on the sale of DCPB under the amended provisions of Section 80HHC of the Act has been clearly demarcated by the legislature, first, if the assessee has export turnover upto Rs. 10 Crores, it is entitled to claim the deduction and in case the export turnover exceeds Rs. 10 Crores the assessee shall be entitled to claim deduction in case it fulfills the above two statutory conditions laid down in the amended provisions. It means that the two conditions laid down that if the assessee has receipts from duty drawback and DEPB Scheme then under the first condition the assessee is mandatorily required to give an option to choose either duty drawback or DEPB Scheme and in case the assessee fulfills the first condition, then the assessee would be required to fulfill the second condition mandatorily.
24. Therefore, it is immaterial whether in the existing circumstances, the assessee was not able to fulfill both the conditions as the assessee has not received any duty drawback as the legislature clearly laid dawn that in case the total turnover of the assessee is exceeding Rs. 10 Crores and the assessee has receipts of duty drawback and from sale of DEPB license then the assessee has to choose one out of the two i.e. either duty drawback or DEPB Scheme and thereafter also fulfill the second condition.
25. Admittedly, in the instant case, the assessee has not fulfilled either of the above-mentioned two conditions because in the assessment years under consideration the assessee has no receipts from duty drawback. Therefore, finding force in the arguments of learned DR for the Revenue and agreeing with same, we hold that since in the instant case, in the facts and circumstances, it is clear that the assessee during the financial years relevant to assessment years under consideration has no option for choosing duty drawback or DEPB, the assessee has not fulfilled the above two mandatory conditions, though its turnover in each of the assessment years exceeded Rs. 10 Crores, the tax authorities below were fully justified in coming to a conclusion that the assessee company did not qualify for further increase by an amount which bears to 90% of any sum referred to Clause (iiid) of Section 28 in the proportion as the export turnover bears to the total turnover of the business carried on by the assessee, hence, disentitling the assessee for deduction of the profits on the receipts of DEPB licenses under the amended provisions of Section 80HHC of the Act as claimed by the assessee.
26. Accordingly, the impugned order of tax authorities below, in this regard are upheld and Ground No. 3 of respective appeals taken by the assessee in the instant appeals is rejected.
In the result, the instant three appeals filed by the assessee are dismissed.
Order pronounced in the open court today i.e. on 15.02.2008.