Income Tax Appellate Tribunal - Chandigarh
Jt. Cit vs Groz Backert Asia Ltd. on 28 August, 2002
Equivalent citations: [2003]86ITD291(CHD)
ORDER
Per Vimal Gandhi, Vice President These two appeals by the revenue for the assessment years 1991-92 & 1992-93 are directed against orders of the Commissioner (Appeals) cancelling re-assessment proceedings initiated against the assessee under section 148 of the Income Tax Act. The learned Commissioner (Appeals) also accepted the claim of the assessee under section 80HHC of the Income Tax Act. (hereinafter referred to as the "Act").
2. Both these appeals were heard together and are being disposed of through this consolidated order for the sake of convenience.
3. The main controversy raised in these appeals relates to validity of reassessment proceedings initiated to re-compute the deduction under section 80HHC of the Income Tax Act. The provisions of the Act applied in these appeals may first be noted. The provision of section 147 providing for bringing to charge the income escaping assessment is as under :
"147. Income escaping assessment.If the assessing officer has reason to believe that any income 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 recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment 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 failure 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 assessment, for that assessment year,"
(Explanations 1 & 2 are not relevant and, therefore, are not produced).
4. The deduction under section 80HHC is allowed as per sub-section (3) and the same is as under :
"(3) For the purposes of sub-section (1), profits derived from the export of goods or merchandise out of India shall be the amount which bears to the profits of the business (as computed under the head "Profits and gains of business or profession"), the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee"
There were some change in sub-section (3) for the assessment year 1992-93 but these changes are not relevant in these appeals.
5. The other relevant facts of the case briefly stated are that the assessee submitted returns declaring income of Rs. 2,20,70,340 and Rs. 4,06,90,146 for the assessment years 1991-92 and 1992-93 respectively. The assessments were made under section 143(3) on 22-1-1993 and on 29-11-1994 on total income of Rs. 3,67,61,110 and Rs. 5,66,59,678 respectively. Subsequently, the assessing officer had reason to believe that income escaped assessment and accordingly, notices under section 148 of the Income Tax Act were issued to the assessee on 9-10-1997 and 6-10-1997 respectively for the two years under appeal. The assessing officer recorded the following reasons under section 148 for re-opening the assessment for assessment year 1991-92 :
"Brief reasons for re-opening the case.Return of income declaring total income of Rs. 2,20,70,340 was filed on 30-12-1991. Assessment was completed under section 143(3) on 22-1-1993 on total income of Rs. 3,67,61,110. While completing the assessment, the assessee was allowed deduction under section 80HHC of Rs. 89,19,592. As per order under section 154 dated 5-8-1993, deduction under section 80HHC reduced to Rs. 72,86,383 and after giving appeal effect to Commissioner (Appeals)'s order dated 30-1-1995, deduction under section 80HHC further reduced to Rs. 53,26,932. Perusal of assessment record revealed that the assessee did not include the amount of Central Excise of Rs. 1,03,99,415, in the total sales of Rs. 12,67,72,677 for the purpose of computing deduction under section 80HHC. The ratio of judgment of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. v. CIT West Bengal (1973) 87 ITR 542 (SC) is clearly applicable in the instant case. It has been held by the Hon'ble Apex Court that the taxes forming part of the sale consideration of goods sold in the course of business constitutes trading receipt and is to be included in the total turnover. Thus, for the purpose of computing deduction under section 80HHC, the total turnover was required to be taken at Rs. 13,75,63,456 instead of Rs. 12,67,72,677 taken tinder section 143(3) and revised to Rs. 12,71,64,041. While giving appeal effect under section 250(6) on 28-2-1995. In this way, the deduction actually allowable to the assessee tinder section 80HHC works out to Rs. 49,24,200 instead of Rs. 53,26,932, allowed while giving appeal effect. Thus, deduction under section 80HHC of Rs. 4,02,732 (5326932-4924200) has been allowed in excess. Thus, I have reasons to believe that income of Rs. 4,02,732 chargeable to tax has escaped assessment for the year. Hence, sanction as required under section 151(1) of the Act to re-open the case is solicited."
Similar reasons were recorded for assessment year 1992-93.
6. The assessee objected to initiation of re-assessment proceedings and submitted returns under protest in response to notices under section 148.
In the fresh assessments, the Income Tax Officer held that excise duty was to be treated as part of turnover and, therefore, the same was taken at Rs. 13,75,63,456 against Rs. 12,71,64,041 disclosed by the assessee in the assessment year 1991-92 for computing deduction under section 80HHC of the Act. The computation is attached with the re-assessment made on 30-8-1999. In view of increased denominator, the deduction under section 80HHC was reduced to Rs. 49,24,230 against Rs. 53,26,932 allowed in the original assessment. The total income for assessment year 1991-92 was assessed at Rs. 2,25,76,910. In a similar fashion, deduction under section 80HHC was reduced in assessment year 1992-93 and income was assessed at Rs. 4,32,65,550. The assessing officer did not accept the decisions cited on behalf of the assessee which have held that the excise duty was not part of "total turnover". He also rejected assessee's objection that initiation of re-assessment proceedings was bad in law.
7. The assessee contested re-assessment in appeal before the Commissioner (Appeals). It was contended that there was no failure on the part of the assessee to disclose material facts and, therefore, proceedings taken under section 147/148 against the assessee were without jurisdiction.
8. The learned Commissioner (Appeals) took into account the condition required to be satisfied for valid initiation of re-assessment proceedings under section 147 of the Act. He also noted various decisions of Hon'ble Supreme Court and High Courts cited before him. The assessee contended that the initiation of proceedings under section 147/148 was based on "mere change of opinion" of the assessing officer and there was no failure on the part of the assessee to disclose all material facts necessary for assessment at the time of original proceedings. In this connection, reference was invited to the P & L accounts and balance-sheets as also to reports filed by the assessee under section 80HHC(4) of the Income Tax Act. These documents fully disclosed that the assessee did not treat Excise Duty as part of "total turnover". The Excise Duty was credited and debited in the separate account. The Commissioner (Appeals) further noted assessee's contention that the deduction under section 80HHC was rightly claimed in the original assessment and there was no escapement of income on facts and circumstances of the case.
9. The learned Commissioner (Appeals) held that initiation of re-assessment proceedings for assessment year 1991-92 was illegal and invalid with the following remarks :
"2.3 I have carefully considered the facts of the case and the rival submissions. In a sequence of the filing of the return, the assessment under section 143(3) of the Income Tax Act, 1961 was framed in this case vide order dated 22-1-1993 where number of additions were made by the assessing officer. The deduction under section 80HHC has been discussed at length in para-9 of the assessment order at page 12. The assessing officer after examination, of the claim of the appellant and after having sought certain clarification and additional details which the appellant furnished from time to time allowed the deduction under section 80HHC after making certain adjustment. The appellant alongwith the return of income had filed the audited copies of the trading account, profit and loss account, balance sheet etc. alongwith the salient features of the accounting policies. At pages 20 & 21 of the printed balance sheet, the sales/turnover has been declared at Rs. 12,67,62,667 and excise duty has been shown as recovered at Rs. 1,03,99,415. The turnover as reported at page 21 of this printed balance sheet figures as it is in the certificate recorded by the Chartered Accountant under section 80HHC(4) of the Income Tax Act, 1961. The perusal of the original assessment order and the appellate order would reveal that the assessing officer had duly scrutinized these two facts of the printed balance sheet and had made certain adjustments on the basis of information of these pages namely Interest received, Rent received, Miscellaneous receipts, profit on sale of fixed assets and dividend received and on this very page the information pertaining to the excise duty recovered was also available which he chose not to include while making the adjustments under section 80HHC of the Income Tax Act, 1961. It is an admitted fact that the notice under section 148 was issued on 6-10-1997 i.e., after the expiry of period of 4 years from the end of the relevant assessment year. The appellant's case could therefore be reopened only if one of the conditions and situation precedent and set forth in the proviso to section 147 were present. As already discussed above, the appellant had voluntarily filed their return and, therefore, there was no failure on the part of the appellant company to make a return under section 139 or in response to notice issued under section 142(1)/148. We, therefore, left only one condition i.e., failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In this respect, the appellant's submissions and arguments have considerable force. The Hon'ble Supreme Court in the case of VDM, R.M. M.R.M. Muthian Chettiar v. CIT (1969) 74 ITR 183 (SC) has held that the assessee is under no obligation to disclose any information other than what is required under the Act and Rules. The Hon'ble Allahabad High Court in the case of Modi Spinning & Weaving Industry v. ITO (1975) 101 ITR 637 (All) has held that at any particular stage of the assessment proceedings the assessee would be bound to disclose only such facts and furnish complete particulars of the information that the provisions of the Income Tax Act oblige him to disclose or furnish at that stage and once the assessee has provided information as required at each of the above stages, he cannot at a later stage be accuse of any failure to disclose fully and truly all material facts necessary for assessment. The appellant company had disclosed all the particulars which were required to be disclosed in the return of income and other accompanying documents. In particular the report under section 8HHC(4) of the Income Tax Act, 1961 and also provided all information which was subsequently sought by the assessing officer at various stages. It cannot, therefore, be said that there has been any violation on the part of the appellant company to disclose fully and truly all material facts necessary for the reassessment. The assessing officer no where alleged that the appellant company violated to provide any information that was required during the assessment proceedings. The fact that the disputed amount of excise duty recovered by the appellant company stands disclosed in the audited accounts submitted by the appellant company alongwith the return of income. Pages 20 & 21 of the printed balance sheet needs to be examined. As already stated above, the fact that the excise duty recovered has been separately shown on the debit side of the Profit and Loss Account and the turnover figure has shown in the credit side as have been admitted in the certificate under section 80HHC(4) of the Income Tax Act, 1961. Thus, appellant that it did not require any obligation, the learned assessing officer to come to the conclusion that the amount of sale on the credit side of the Profit and Loss account did not include the excise duty at all. Therefore, the question of its inclusion does not arise and accordingly the allegation made by the learned assessing officer of no disclosure of exclusion of excise duty is totally misplaced and baseless. Especially when we see that the assessing officer at the time of original assessment pick-up a lot of information namely, interest received, rent received, misc. receipts, profit received on the sale of fixed assets, dividend received appearing on the same page of audited accounts on which information relating to the excise duty recovered was available but chose not to include the amount of excise duty in the total turnover while recomputing the deduction under section 80HHC of the Income Tax Act, 1961. The two decisions of the Hon'ble Supreme Court of India, in the case of Malegaon Electricity Co. (P) Ltd. v. CIT (1970) 78 ITR 466 (SC) and CIT v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC) relied upon by the assessing officer in the reassessment proceedings do not apply to the facts of the appellant's case as in those cases the appellant had not disclosed the transactions which they were statutory required to disclose. Where as in this case, the appellant has complied with the statutory requirements and all material facts are already on record. In the reasons recorded by the assessing officer, there is not even whisper that the appellant company had failed to disclose fully and truly all material facts necessary for the assessment. The appellant's case is covered by the decisions of the Hon'ble Gujarat High Court in the case of Caira District Co-operative Milk Products Union Ltd. v. ACIT (I995) 216 ITR 371 (Guj) and also by the decision of Madras High Court in the case of Fanner (India) Ltd. v. DCIT (1999) 107 Taxman 53 (Mad) and the decision of the Hon'ble Jurisdictional Bench of the I.T.A.T., in the case of ITO v. Smt. Suinitra Devi (1983) 15 TTJ (Chd.) 357. In view of the above factual and legal position, since there has been no violation on the part of the appellant company to disclose fully and truly all material facts necessary for the assessment, the initiation of the reassessment proceedings under section 147 and the issue of notice under section 148 after more than 4 years from the end of the relevant assessment year is illegal, invalid and the consequential reassessment order under section 143(3) of the Income Tax Act, 1961 is a void order and is nullity as held by the Gujarat High Court in the case of P. V. Doshi v. CIT (1978) 113 ITR 22 (Guj) and also by the Calcutta High Court in the case of Rawat Mal Harak Chand v. CIT (1981) 129 ITR 346 (Cal)."
10. The learned Commissioner (Appeals) also decided the appeal in favour of the assessee on merit. He held that Excise Duty was not to be included in the "total turnover" while computing relief under section 80HHC of the Income Tax Act.
11. A similar order was passed for assessment year 1992-93. The proceedings initiated under section 147/148 were held to be illegal and without jurisdiction and relief even on merit was allowed to the assessee.
12. The revenue is aggrieved and has come up in appeal. We have heard. Smt. Rachna Singh on behalf of the revenue and Sh. C.S. Aggarwal for the assessee. Smt. Rachna Singh submitted that as per decision of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT (1973) 87 ITR 542 (SC), Excise Duty was part of turnover and by excluding the same for computing deduction under section 80HHC of Income Tax Act, the assessee failed to disclose material and primary facts to assessment. The assessee was further duty bound to highlight this fact of non-inclusion which was not done. The assessing officer, therefore, was fully justified in initiating re-assessment proceedings under section 147/148 of the Income Tax Act. The assessing officer was further justified in drawing support from the decision of Apex Court in the case of Malegaon Electricity Co. (P) Ltd. v. CIT (1970) 78 ITR 466 (SC) and in the case of CIT v. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC). She contended that as per Explanation (ba) to section 80HHC, the legislature excluded items mentioned in the clause and all other items were to form part of turnover. The above clause did not exclude Excise Duty from the definition of the turnover. Further Mumbai Bench of I.T.A.T. in the case of Ponds India Ltd. v. Dy. CIT (1998) 64 ITD 33 has held that Excise Duty is to be included in the turnover for the purpose of section 80HHC of the Income Tax Act. It was accordingly contended that there was material on record to have a reasonable belief that income escaped assessment on account of failure on the part of the assessee to disclose material and primary facts. It was contended that the Commissioner (Appeals) committed an error in not taking into account well-settled proposition of law. It was contended that duty to disclose material and primary facts lies upon the assessee and the fact that I.T.O. with due diligence could have discovered assessee's true income does not absolve the assessee from discharging the primary facts. The learned Commissioner (Appeals), on facts of the case, failed to take into account the well-settled proposition of law. Smt. Rachna Singh relied upon the following decisions:
Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. (P) Ltd. v. CIT (I986) 159 ITR 624 (SC).
The Apex Court in this case has held that failure to make a true and full disclosure if some material for assessment lay embedded in the evidence which the revenue could have uncovered but did not, then it is duty of the assessee to bring it to the notice of the Assessing Authority ............. if there is omission to disclose material facts, then subject to the other conditions jurisdiction to reopen is attracted, 91 ITR 450 (Cal.) (sic) Calcutta High Court has held that profit and loss account should clearly disclose the result of the working and disclose every material feature included credits or receipts.... thus reassessment was justified.
In the case of Oriental Carpet India Ltd. v. CIT (1987) 168 ITR 296 (P&H) The jurisdictional High Court in this case has held that material facts used in clause (a) of section 147 refer only to primary facts which have been disclosed by the assessee showing the sale purchase and profit supported by the Account Books. (is not sufficient).
In the case of Malegaon Electricity Co. (P) Ltd. (supra) The Apex Court held that if a material primary facts is suppressed the reassessment is justified.
Smt. Rachna Singh further submitted that from all the aforementioned judgments, it is clear that if disclosure of primary facts is suppressed by the assessee, provisions of section 147 would be attracted. Furthermore, in line with Explanation to section 147, it has also been held that the onus cast on the assessee is not that of mere production of account books or other material from which material evidence with due diligence could have been discovered by the assessing officer, it is the duty of the assessee to bring it to the notice of the assessing officer. In this case, an examination of Form No. 10CCAC refers to total turnover in column 3 at 12,71,64,041 but it makes no mention of the fact that this turnover excludes Excise Duty. The assessee's claim that excise duty has been debited to the Profit & Loss Account, from which an inference of exclusion of excise duty can be drawn is incorrect. This material fact cannot be inferred prima facie from a perusal of accounts. The Apex Court requires that in such a case this information is to be brought to the notice of the assessing officer by the assessee. This has not been done so. Hence, provisions of section 147 are clearly attracted.
The learned Commissioner (Appeals) has also not taken cognizance of the judgment of Supreme Court in ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) which delineates certain cumulative conditions for initiation of proceedings under section 147. It is the submission of the revenue that all cumulative conditions have been fulfilled by the assessing officer i.e.
(i) The assessing officer had reasons to believe that Income chargeable to tax has escaped assessment.
(ii) The income has escaped assessment by reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
(iii) The reasons have been recorded by the assessing officer.
(iv) Sanction of the Commissioner has been obtained.
(v) Notice under section 148 has been issued within the limit prescribed by section 149 read with section 150.
The learned Commissioner (Appeals) has also observed that the assessing officer initiated reassessment proceedings on the observation of the Audit Party and did not have a belief of his own. In this regard, it is submitted that the Commissioner (Appeals) has not considered the well-settled position of law as laid down by the Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC). Our attention was drawn to the following observations of the Supreme Court recorded on pages 1003 and 1004 of the report :
"Although an Audit Party does not possess the power to so pronounce on the law it nevertheless may draw the attention of the Income Tax Officer to it.... while the law may be in acted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be in acted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by any one .... that part alone of the note of an Audit Party which mentions the law which escaped the notice of the Income Tax Officer constitute information In every case the Income Tax Officer must determine what is the effect and consequence of the law mentioned in the audit note .... the basis of his belief must be the law of which he has now become aware."
In the light of the above it was clear that although the awareness of law as enshrined in Chowringhee Sales Bureau (P) Ltd.'s case (supra) was communicated by the Audit Party, the assessing officer had arrived at a belief that income had escaped assessment and had determined the effect and consequence of the law mentioned in the audit note.
In the written note, the learned Departmental Representative has further contended:
"During the course of appellate proceedings before the learned Commissioner (Appeals), the assessee has relied on the certain judgments which have not been construed in the right perspective. These are discussed as under :
In the case of ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) This judgment is of no help to the assessee since it simply refers to a rational connection or a direct nexus between material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of income of the assessee. In the instant case, the information of belief has a material bearing on the question of escapement of income from assessment. This belief would be sufficient to clothe him which jurisdiction to issue notice.
In the case of Ganga Saran & Sons (P) Ltd. v. ITO (1981) 130 ITR 1 (SC) This judgment is also of no help to the assessee because the Apex Court has held that the belief entertained by the Income Tax Officer must not be arbitrary or irrational but must be reasonable and based on reasons which are relevant and material. In the instant case, there was a rational and intelligible belief, In the case of CIT v. Orissa State Fin. Corp. (1992) 196 ITR 466 This judgment is of no help to the assessee and in fact favours the stand of revenue inasmuch as it holds that "part of the note of the audit party that mentions law constitutes information".
In the case of Rajath Leasing & Financing Ltd. v. Asstt. CIT (1996) 217 ITR 115 (Guj) In this case, it has been held that issue of notice under section 148 on the basis of audit report without there being a satisfaction and application of mind on the part of the assessing officer is wrong. In the instant case, satisfaction has been recorded by the assessing officer after due application of mind.
In the light of the above discussion, it is clear that reliance of the assessee on the aforementioned judgments is totally misplaced and without basis. The Commissioner (Appeals) has also grossly erred in relying on these judgments and holding the proceedings under section 147 to be null and void.
It is further submitted that at the time of issuance of notice under section 148, it is not incumbent on assessing officer to come to a conclusive finding. At the stage of issuance of notice, a tentative belief is sufficient. In this regard reliance is placed on 222 ITR 450 (Punj,).
At the initiation stage only question is whether there was relevant material on which a reasonable person could form a reasonable belief. Reliance in this regard is drawn from the Apex Court in 217 ITR 597 (SC).
The revenue also draws support from the following:
Central Provinces Manganese Ore Co. Ltd. v. ITO (1991) 191 ITR 662 (SC), Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT (2000) 246 ITR 173 (Del), Rakesh Aggarwal v. Asstt. CIT (1997) 225 ITR 496 (Delhi), Dhanraj Singh & Co. v. CIT (1996) 218 ITR 312 (Pat), Dr. Indra Chand Jain v. Dy. CIT (1997) 59 TTJ (Del) 699, Indo Marine Agencies (Kerala) (P) Ltd. v. Asstt. CIT (1995) 51 TTJ (Coch) 18, CIT v. Jindal Bros. Rice Mills(1989) 179 ITR 470 (P&H), Upcom Cable Ltd. v. Dy. CIT (1997) 63 ITD 404 (All).
She accordingly, submitted that initiation of proceedings under section. 147 was valid.
13. On merit, Smt. Rachna Singh submitted that the decision of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. (supra) and clause (ba) clearly laid down that Excise Duty was part of total turnover. Only freight or insurance attributable to transport of goods is required to be excluded. Everything else is to be treated as part of turnover. She accordingly, supported the order of the assessing officer.
14. Sh. C.S. Aggarwal, learned counsel for the assessee drew our attention to the reasons recorded by the assessing officer for initiation of reassessment proceedings. It is stated that "perusal of assessment record reveals that the assessee did not include the amount of central excise of Rs. 1,03,99,415 in the total sales of Rs. 12,67,72,677 for purposes of computation of deduction under section 80HHC." The observations clearly show that initiation of re-assessment proceedings was based on material already on record. The assessing officer did not get information from any external source. Thus, inference of the assessing officer relating to failure of the assessee to furnish material and primary facts relating to assessment of the assessee was merely change of opinion on consideration of material which was already considered during the course of assessment. Whether the opinion was changed at the behest of audit or on his own by the assessing officer, was immaterial. Sh. Aggarwal further drew our attention to the prescribed Form 10CCAC under section 80HHC(4)/80HHC(4A) read with rule 80BBA(3) of Income Tax Rules and argued that there was no column, nor there was any requirement to include "Excise Duty" in the "total turnover". The Excise Duty was separately debited in the account and not included in the total turnover. There was no statutory obligation to include Excise Duty in total turnover and, therefore, the assessee cannot be held to be guilty of such failure as is envisaged under proviso to section 147. He drew our attention to the relevant page of P&L account where figures of turnover are shown as under for the year 31-3-1991:
"Sales Turnover Rs.
Home Sales 10,24,59,759 Export Sales 2,43,02,918 Cash Assistance 11,16,715 Duty drawback claims 52,57,456"
15. It was contended that the assessing officer was fully conscious of factual position that Excise Duty was not included in "total turnover" and had allowed relief under section 80HHC in accordance with law. assessing officer's subsequent belief that income had escaped assessment on account of failure of the assessee to furnish primary and material facts relating to computation of income was merely a change of opinion which was not legally justified. In this connection, Sh. Aggrawal drew our attention of following decision of Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society (supra).
"In the present case, an internal audit party of the Income Tax Department expressed the view that the receipts from the occupation of the conference hall and rooms did not attract section 10 of the Act and that the assessment should have been made under section 9. While sections 9 and 10 can be described as law, the opinion of the audit party in regard to their application is not law. It is not a declaration by a body authorised to declare the law. That part alone of the note of an audit party which mentions the law which escaped the notice of the Income Tax Officer constitutes 'information' within the meaning of section 147(b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income Tax Officer. In every case, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer."
16. Sh. Aggarwal also drew our attention to Full Bench decision of Delhi High Court in the case of CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) wherein it has been observed as under:
"The scope and effect of section 147. As substituted with effect from 1-4-1989, by the Direct Tax Laws (Amendment) Act, 1987, and subsequently amended by the Direct Tax Laws (Amendment) Act, 1989, with effect from 1-4-1989, as also of sections 148 to 152 have been elaborated in Circular No. 549, dated 31-10-1989. A perusal of clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears that the omission of the expression 'reason to believe' from section 147 would give arbitrary powers to the assessing officer to reopen past assessments on a mere change of opinion. It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment."
17. Sh. Aggarwal further submitted that failure has to be with reference to some statutory requirements or obligations. In the present case, no such legal requirement to include Excise Duty in the total turnover was shown. He relied upon decision of Allahabad High Court in the case of Modi Spg. & Wvg. Mills v. ITO (1975) 101 ITR 637 (All). It was contended that proceedings for reassessment were initiated on the ground that the assessing officer at the time of original assessment was ignorant of decision of Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. (supra). But ignorance of law of land (decision of SC) is no justification to initiate re-assessment proceedings. In this connection, Sh. Aggarwal relied upon the decision of Hon'ble Supreme Court in the case of Indian Oil Corpn. v. ITO (1986) 159 ITR 956 (SC) and also on decision of Delhi High Court in the case of Jindal Photo Films Ltd. v. Dy. CIT (1999) 234 ITR 170 (Del). It was further contended that the assessee had been claiming deduction under section 80HHC without including Excise Duty in the past and said deduction was duly allowed till assessment year 1990-91. Thus, there was no mis-representation on the part of the assessee as far as furnishing of material information was concerned. There was no failure to justify re-assessment proceedings. Sh. Aggarwal supported the order of learned Commissioner (Appeals) in both the assessment years. On merit, he submitted that only Bombay High Court in the case of CIT v. Sudarshan Chemicals Industries Ltd. (2000) 245 ITR 769 (Bom) has held that Excise Duty and other levies are not part of the total turnover for computing relief under section 80HHC of the Income Tax Act.
18. We have given careful thought to the rival submissions of the parties. The controversy involved before us is whether Excise Duty is to be treated as part of "turnover" for computing relief under section 80HHC (3) of the Income Tax Act. It is the contention of the revenue that Excise Duty is part of total turnover of business and is to be taken into account. It is further contended that the assessee failed to include Excise Duty in the total turnover while claiming relief under section 80HHC of the Income Tax Act in the returns, and on account of above failure to disclose fully and truly all material facts necessary for the assessment, the income escaped assessment. The assessee, on the other hand, contended that Excise Duty was never included in total turnover for computing deduction under section 80HHC of the Income Tax Act and, therefore, there was no failure on the part of the assessee to disclose any material fact necessary for his assessment. The re-assessments were based on mere change of opinion and were, therefore invalid. It is also contended on behalf of the assessee that re-assessment proceedings were initiated at the behest of the audit party and were, therefore, invalid. The contention advanced on behalf of' the assessee found favour with the learned Commissioner (Appeals) and re-assessment proceedings were cancelled in both the assessment years. The learned Commissioner (Appeals) accepted the claim on merit also. This is how the revenue has come up in appeal before the Appellate Tribunal.
19. In order to appreciate the controversy on merits, we would like to state the cases wherein the similar issue has already been considered by Hon'ble High Court or by different Benches of the Appellate Tribunal.
20. In the case of Sudarshan Chemicals Industries Ltd. (supra) Their Lordships of Bombay High Court, after considering in detail relevant provisions of section 80HHC held that Excise Duty and sale-tax are not includible In total turnover" for purposes of computing the special deduction under section 80HHC of the Income Tax Act. This is the only decision available of a High Court which is direct on the issue involved before us and has to be followed and applied.
21. The learned Departmental Representative conceded that there was no direct decision of any High Court in favour of the revenue. But she placed strong reliance on the case of CIT v. Jose Thomas (2002) 253 ITR 553, wherein Their Lordships of the Hon'ble Kerala High Court have held that in the case of business of work contract total turnover should include cost of construction of flats received by the assessee from flat owners for computing deduction under section 80HHC of the Act. The aforesaid decision is based on definition of "total turnover" given in KGST Act. It is clear from the authority that decision is based on peculiar facts of that case where KGST Act was applicable and had a definition of total "turnover" which was held to be applicable to the facts of the case decided by the Hon'ble High Court. From the above decisions, no inference can be drawn that Excise Duty should form part of total turnover for purposes of section 80HHC of the Income Tax Act. We are, therefore, inclined to follow and apply the only decision of a High Court available on the issue.
22. Turning to the various decisions of Tribunal, we may refer to decision of Calcutta Bench in the case of Chloride India Ltd. v. Dy. CIT (1995) 53 ITD 180 (Cal), wherein the Bench held that Excise Duty was not to form part of total turnover, the reason being that excise and sale-tax was not included in the export turnover. In case the above levies were included in the total turnover, the relief permissible under section 80HHC would become negligible and the very purpose of statutory provisions would be defeated. The aforesaid decision has been followed by the other Benches of Tribunal in several cases, some of them being the following:
1 . Dy. CIT v. Stone India Ltd. (2000) 69 TTJ (Cal) 569.
2. Sudarshan Chemical Industries Ltd. v. Dy. CIT (1997) 60 ITD 629 (Pune)
3. Wolkem India Ltd. v. Dy. CIT (I999) 65 TTJ (Jp) 59
4. Avon Cycles Ltd. v. Asstt. CIT (1997) 59 TTJ (Chd) 75
5. Shri Dinesh Milis Ltd. v. Asstt. CIT (2000) 72 ITD 110.
All these decisions of various Benches are in favour of the assessee and in some decisions, the case of Chowringhee Sales Bureau (P) Ltd. (supra) has been taken into account.
23. The learned Departmental Representative, however, relied upon two decisions of the Tribunal in the case of Pond's India Ltd. (supra) wherein ITAT ('A' Bench) of Tribunal wherein it has been held that the sale-tax and Excise Duty were held the part of total turnover. The Bench did not take into account various decisions of the Tribunal referred to above except case of Chloride India Ltd. (supra), which was stated to be pertained to assessment year 1986-87 when expression "total turnover" was not defined. The other decisions referred to by the learned Departmental Representative in the case of Patel Cotton Co. Ltd. v. Asstt. CIT (1998) 64 ITD 273 (Mum) wherein another Bench of Bombay Tribunal cancelled the order of Commissioner under section 263 holding the assessment as erroneous because the assessing officer while computing eligible deduction under section 80HHC, did not include certain receipts in the "total turnover". The Bench cancelled the order under Section 263 by observing that two views of the matter regarding "total turnover" were possible and, therefore, the assessing officer by taking one view did not commit any error. His order may be prejudicial to the interest of the revenue but was not erroneous. The appeal of the assessee was allowed. There are certain observations in the order favouring the view taken by the revenue, but the decision is in favour of the assessee. At any rate, having regard, the decision of Hon'ble Bombay High Court, the above view of the Bombay Benches must be treated as not good law. Therefore, no benefit can be derived by the revenue from above two decisions.
24. There is no dispute that provisions of section 80HHC were introduced and are being retained in the Income Tax Act, to encourage export of goods and mercantile out of India to earn foreign exchange needed for the country. These are beneficial provisions and are required to be construed in a liberal manner. Having regard to the text and context, we are to interpret the expression "turnover' as would achieve the purpose of the legislature. In fact, there is ample evidence in the statute itself to show that the quantum of deduction provided by sub-section (3) for several years was not considered sufficient and through amendment made by Finance Act, 1992, it has been thought proper by legislature to increase the amount of deduction by 90 per cent of sums referred to in clauses (iiia), (iiib) & (iiic) of section 28 of the Income Tax Act. Therefore, any interpretation of the provision which seeks to reduce the deduction has to be rejected. Now referring to the text, it is clear that the amount of deduction is the profit" derived from export forming part of the total income. So the purpose of section 80HHC is to find out portion of the profit out of the total profit (income) of the assessee. The 'total turnover", therefore, should include such receipts only which have something to do with the "profit" of the business. It is difficult to argue that statutory levies imposed on a businessman has any element of profit. The assessee cannot recover more than what is authorised by the statute. There is no question of earning any profit out of statutory levies like sale-tax or excise and, therefore, these levies cannot form part of "total turnover" if purpose stated above namely to find out position of the total profit is kept in mind. Further it is seen that the relevant provision uses expression "total turnover of the business". The word "business" is important and is to be given its natural meaning. The expression, therefore, cannot be considered in a technical sense. When natural meaning is given as would be done by a businessman, there is no question of treating statutory levies as part of total turnover of business. The statutory levies are recovered on behalf of the state to be deposited with the state as per the statutory provisions. Even when these levies are not paid, these are retained in trust for payment and not as profit. Therefore, no businessman can treat the statutory levies as part of his total turnover. There is nothing in the statutory provisions to suggest that above natural meaning to "turnover" is not intended to be given and some dictionary or technical meaning is to be applied. Clause (ba) was added to dispel any doubt about including freight or insurance in the total turnover. The definition does not suggest that the Excise Duty is to form part of turnover.
It is true that sale-tax, excise etc. recovered and not paid can be treated as part of income in the light of specific provisions or general scheme of the Income Tax Act. Similar is the position to include various levies while computing the amount payable under the sales-tax, Excise Duty Act etc. This is done to achieve the purpose of the statutes. However, sub-section (3) of section 80HHC does not suggest that the above principles are to be applied for determining total turnover. There is a further reason for not taking excise duty as part of total turnover. In a case where the recovered excise duty is duly deposited by the assessee before the close of the year, there is no provision under which such paid Excise Duty can be added to the total turnover for computing total income of the assessee. But on similar facts where recovered Excise Duty is not paid, it cannot be added while computing the total income. But on account of above, the expression "turnover" cannot have different meaning in two situations.
25. Accordingly, besides relying upon decision of the Bombay High Court and various Benches of the Tribunal, we decide the issue in favour of the assessee for the reasons stated above. We hold that Excise Duty is not to be taken into account for determining total turnover of the assessee under section 80HHC(3) of the Act. We uphold orders of the Commissioner (Appeals) impugned before us in both the assessment years.
26. Both the pat-ties addressed us long arguments on the validity of the reassessment proceedings initiated under section 147/148 of the Income Tax Act. There is no dispute that notices under section 148 of Income Tax Act were issued in both the assessment years after the expiry of four years from the end of the relevant assessment year. There is further no disprite that the original assessments in both the assessment years were made under sub-section (3) of section 143 and, therefore, conditions as per proviso to section 147 are also to be satisfied. As per the revenue, there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment in the two assessment year's under consideration. To be specific, the revenue has contended that assessee failed to include Excise Duty recovered in the total turnover, while claiming relief under section 80HHC of the Income Tax Act in the returns. It is further claimed by the revenue that assessee failed to highlight in the return that Excise Duty was not included in the "total turnover". The deduction was allowed on the basis of claim in both the assessment years and thus, income escaped assessment.
27. After considering submissions of both the parties in the light of material available on record, we are unable to agree with the contention advanced on behalf of the revenue. We have already reproduced reasons recorded by the assessing officer for initiating proceedings under section 147/148 of the Income Tax Act. From the perusal of above reasons more particularly the observations, "perusal of assessment record revealed that the assessee did not include the amount of Central Excise of Rs. 1,03,99,415 in the total sales of Rs. 12,67,72,677 for the purpose of computing deduction under section 80HHC". 'It is evident that alleged failure on the part of assessee is admittedly discovered from the material placed by the assessee during the course of the assessment proceedings and on reexamination of the aforesaid material. It is the claim of the assessee that the re-assessment proceedings were initiated at the behest of the audit party by the assessing officer. This claim has been accepted by learned Commissioner (Appeals) in the impugned order. The revenue did contest above finding of the Commissioner (Appeals) by arguing that audit party merely made the assessing officer aware of the legal position. The assessing officer acted or this own and had reasons to believe that income had escaped assessment. The revenue relied upon certain portion of decision of Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society (supra). The assessee also placed reliance on other portion of the same judgment. However, the parties did not place before us copies of information communicated by the audit party to the assessing officer. In the absence of above evidence, we are not in a position to hold that action of the audit party in asking the assessing officer to initiate the re-assessment proceedings involved misapplication of the decision of the Supreme Court in the case of Indian & Eastern Newspaper Society (supra). The learned Commissioner (Appeals) had the advantage of the relevant record while considering question of validity of the initiation of the assessment proceedings. In the circumstances of the case, we are unable to interfere with the impugned orders of the learned Commissioner (Appeals) on this aspect of the issue.
28. Reverting again to the question of failure on the part of the assessee to disclose material facts, we are unable to agree with the revenue that in the present case the assessee should have disclosed and highlighted in the return that in the "total turnover" taken for purposes of section 80HHC(3) of the Act, the Excise Duty recovered has not been included. There is no statutory obligation on the part of the assessee to highlight above fact. Neither in the Form prescribed, nor in the statutory provisions there is any specific obligation to treat Excise Duty as part of turnover under section 80HHC(3) of the Act. In this connection, reference is invited to the decision of Hon'ble Allahabad High Court in the case of Modi Spg. & Wvg. Mills (supra) wherein it has been laid down that duty of the assessee to disclose fully and truly primary and relevant facts would depend on the nature of information that the assessee is enjoined upon by the statute to furnish at the time of filing of return or when is asked by the assessing officer. The assessee has no obligation to disclose or provide information on the points neither required by statute nor prescribed by the Form of return, nor required by the assessing officer in the course of assessment proceedings.
29. The present case of failure on the part of the assessee to furnish material information relating to assessment is being made out by the revenue on the basis of its interpretation of expression "total turnover of the business" in section 80HHC(3) of the Act. According to revenue, the total turnover must necessarily include the Excise Duty recovered by the assessee and as above was not included in the deduction claimed by the assessee, there was failure on the part of the assessee as envisaged by proviso to section 147 of the Income Tax Act. The failure is thus, based on revenue's view point of "turnover". To justify the legal stand, reliance has been placed on the reasons recorded in the decision of Hon'ble Supreme Court in the case of Chowringee Sales Bureau (P) Ltd. (supra). In the said decision given on 10-10- 1972, which is land mark decision and is well known, Their Lordships of Hon'ble Supreme Court held as under :
'The appellant, a private company dealing in furniture, also acted as an auctioneer. In respect of the sales effected by it as auctioneer, the appellant realized during the relevant period, in addition to the commission, Rs. 32,986 as sales tax. This amount was credited separately in its account books under the head "sales tax collection account". The appellant did not pay the amount of sales tax to the actual owner of the goods. Nor did it deposit the amount realized by it as sales tax in the State Exchequer, because it took, the position that the statutory provision creating that liability upon it was not valid, or refund it to the persons from whom it had been collected. In the cash memos issued by the appellant to the purchasers in the auction sales the appellant was shown as the seller:
Held, (i) that the sum of Rs. 32,986 realised as sales tax by the appellant in its character as an auctioneer formed part of its trading or business receipts;
(ii) that the fact that the appellant credited the amount received as sales tax under the head 'sales tax collection account' did not make any material difference."
The court further observed :
"The appellant would, of course, be entitled to claim deduction of the amount as and when it pays it to the State Government."
When reasons recorded by the assessing officer under section 148 of the Income Tax Act are read in the light of above decision, it is evident that legal inference drawn by assessing officer from the decision of the Hon'ble Supreme Court is slightly twisted as he has observed in the reasons "it has been held by the Hon'ble Apex Court that the taxes forming part of the sale consideration of goods sold in the course of business constitutes trading receipt and is to be included in the total turnover."
It is evident from above that the Supreme Court treated sale tax collected from buyers and not paid either to sale tax department or to the actual owner of goods, as trading receipt in the hands of an auctioneer. According to the assessing officer, the Apex Court held that the taxes forming part of sale consideration - constitutes trading receipt and is to be included in the total turnover. The Supreme Court was dealing with sale tax and not with the Excise Duty. The question as to what should be turnover or total turnover was never considered and decided by the Hon'ble Supreme Court. The unpaid sales-tax could be added as business receipt for it was not paid by the assessee in that case. The assessing officer twisted the judgment to suit his purpose. It has already been discussed that having regard to purpose of levy, text and context of the provision levies may or may not be trading receipts subject to taxation under the income-tax and other statutes. The legal inference drawn by the assessing officer of a statutory provision which is open to doubt and debate cannot cast obligation on the assessee to perform a legal duty not clearly spelt out. In other words, in the present case, it could not be held that assessee was obliged to include Excise Duty in the total turnover under section 80HHC(3) of the Act and his failure to do so would attract provision of section 147 of the Act read with proviso thereto. In our considered opinion, there was no failure on the part of the assessee to disclose material facts and above provision was wrongly applied to initiate reassessment proceedings which were, otherwise not justified.
30. There is sufficient material on record including the reasons recorded by the assessing officer to show that the present case is of mere change of opinion on the part of the assessing officer regarding non-inclusion of Excise duty in the total turnover under section 80HHC(3) of the Act. The balance-sheet and other documents placed by the assessee during the course of regular assessment proceedings clearly show that Excise Duty was not treated as part of the total turnover. The assessing offiecr accepted above stand. However, on mere change of the opinion that Excise Duty should be included in the "turnover", he initiated the reassessment proceedings. But such course of action cannot be termed as valid and justified. In this connection, we may refer to decision of full Bench of Hon'ble Delhi High Court in the case of Kelvinator of India Ltd. (supra). The relevant observations from the decision has already been reproduced in the earlier part of the decision, are fully applicable to the case in hand. We, therefore, hold that re-assessment proceedings were rightly held to be invalid by learned Commissioner (Appeals).
31. The learned representative of the assessee and the learned Departmental Representative cited large number of decisions on the question of validity of initiation of the re-assessment proceedings. We have considered these cases. In the present case, after appraisal of evidence, we have held that there was no failure on the part of the assessee to furnish primary and material facts necessary for assessee's assessment and therefore, re-assessment was invalid. In other cases, there may be failure on the part of the assessee and the re-assessment may be valid. The question largely depends upon the facts and the circumstances of the case. The cases cited by the revenue in particular were given on peculiar facts involved in those cases which in our opinion, do not advance the case of the revenue before us. These cases are distinguishable on facts and no useful purpose would be served in discussing all the cases.
32. For the aforesaid reasons, we do not find any error in the approach of the learned Commissioner (Appeals) and confirm his action in both the assessment years.
33. In the result, both the appeals of the revenue are dismissed.