Punjab-Haryana High Court
Venus Industrial Corporation vs Assistant Commissioner Of Income Tax on 6 October, 1998
Equivalent citations: [1999]236ITR742(P&H)
Author: N.K. Agarwal
Bench: N.K. Agarwal
ORDER N.K. Agrawal, J.
1. This is a petition by M/s. Venus Industrial Corporation, a partnership firm, under Arts. 226/227 of the Constitution, for quashing the notice dt. 16th July, 1996 issued to the petitioner by the Asstt. CIT, Central Circle II, Ludhiana, under s. 148 of the IT Act, 1961 ("the Act") on the ground that income of the petitioner has escaped assessment for the asst. yr. 1992-93.
2. Petitioner-firm is engaged in the business of manufacturing and export of hand tools (spanners). The return of income, declaring net income, at Rs. 22,650 for asst. yr. 1992-93, was filed by the petitioner after claiming deduction under s. 80 HHC of the Act at Rs. 64,34,244. Subsequently, revised return was filed, declaring the same net income but claiming deduction under s. 80HHC at Rs. 69,35,182. The AO, however, allowed deduction under s. 80HHC at Rs. 54,78,739 in the assessment order dt. 20th December, 1994. Petitioner filed an application under s. 154 of the Act on 29th December, 1994, pointing out that deduction under s. 80HHC should have been allowed at Rs. 69,49,555 instead of Rs. 54,78,739. The petitioner also filed, on 5th July, 1995, an appeal before the CIT(A) as certain expenditure had also been disallowed by the AO.
The AO decided on 13th January, 1995 petitioner's application filed under s. 154 and allowed deduction under s. 80HHC at Rs. 57,66,165 in place of Rs. 54,78,739. Petitioner, on 3rd February, 1995, filed another appeal before the CIT(A) against the order passed under s. 154, whereby deduction under s. 80HHC was not allowed at the amount as claimed by the petitioner.
The CIT(A), by order dt. 4th July, 1995, directed the AO to redetermine the deduction under s. 80HHC after holding that the amount received by the petitioner, as an incentive under International Price Reimbursement Scheme (IPRS), formed part of the petitioner's income under s. 28 of the Act. The Department went in appeal against the order of the CIT before Tribunal but a ground was raised to deduction under s. 80HHC and the said order was challenged on the view taken by the CIT(A) in respect of bogus purchases of furnace oil.
3. The AO sent a notice dt. 16th July, 1996, to the petitioner under s. 148 of the Act relating to the asst. yr. 1992-93. The AO wanted to re-examine the deduction under s. 80HHC on the ground that the petitioner-firm had wrongly claimed the deduction in the next asst. yr. 1993-94 and it was necessary to again examine the deduction in respect of the asst. yr. 1992-93.
4. Shri A. K. Mittal, learned counsel for the petitioner, has argued that the notice sent by the AO under s. 148 is wholly without jurisdiction because the matter regarding deduction under s. 80HHC had already been examination by the CIT (A). The AO had, therefore, no jurisdiction or authority to bypass the appellate order by way of reassessment. The CIT(A) had already held that petitioner was entitled to the benefit of s. 80HHC and it was only to be quantified again by the AO. The Revenue did not challenge the first appellate order before the Tribunal. Therefore, the AO had no power in law to nullify the effect of the appellate order of the CIT(A). The AO could not take recourse to the action under s. 148 and reopen the assessment on change of opinion. Deduction had earlier been allowed by the AO, though quantification was not correctly done by him. The matter had been adjudicated upon by the appellate authority and had reached finality.
5. Shri R. P. Sawhney, learned senior counsel for the respondents has, on the other hand, contended that the taxability of the amount received by way of incentive under the IPRS was not in dispute any more. The incentive was given by the Government to an exporter so as to bring down the cost of raw material (steel) purchased from a foreign country. The AO, while issuing notice under s. 147, had recorded reasons which make out a case of the income having escaped assessment. Para 5 of Annexure P-12 containing reasons is as under :
"After completion of assessment in this case, as per information received from EEPC and that brought on record in the asst. yr. 1993-94, it was noticed that the assessee firm had wrongly claimed IPRS in respect of usage of EN-8 Steel in the manufacturing of spanners. In the asst. yr. 1993-94 the assessee has specifically stated that no spanners have ever been manufactured out of EN-8. The actual raw material used is a lower costing material called C-38. In view of this and the fact that the cost price paid by the assessee is much less than that claimed in the IPRS statement furnished to EEPC, the price differential claimed by the assessee for purposes of IPRS in the claim statement to EEPC is not legally admissible to the assessee. The IPRS claimed by misrepresentation of facts to concerned authorities is, therefore, assessable only as income from other sources and the deduction under s. 80HHC, which has been allowed to the assessee in respect of this is not admissible as per law and needs to be corrected. Consequently, the income to this extent has escaped assessment". Shri Sawhney has argued that the reasons recorded by the AO before issuing notice under s. 148 are explicit and also clear so as to make out a case for re-opening of the assessment. If certain income has escaped on account of a deduction wrongly allowed, the AO was within his jurisdiction, to ask the assessee to explain the same, since the AO wanted to look into the utilisation of the raw material imported by the assessee, on which amount incentive had been received by the assessee from the Government, and this aspect was neither considered by the AO nor by the appellate authority. There was a suspicion that the assessee had received incentive money on the cost of raw material imported from a foreign country for manufacturing export item but had actually not utilised the imported raw material for the manufacture of the spanners meant to be exported.
6. On a consideration of the matter, it is found that the reasons recorded by the AO, while issuing notice to the petitioner under s. 148, are entirely in a different context. The AO has developed certain suspicion on the non-utilisation of the imported raw material, though the assessee had received incentive money from the Government, claiming the use of the raw material in the manufacture of export item. This aspect was never under examination before the assessing authority and was altogether a new material available now. This new material came to the notice of the AO while examining the case of the petitioner for the subsequent asst. yr. 1993-94. In these circumstances, the notice issued under s. 148. of the Act cannot be faulted. The petitioner has only been asked to appear before the AO and to show cause as to why assessment be not reponded. It is for the assessee to explain that the material imported under the incentive scheme had been duly utilised for the manufacture of the export item and the deduction under s. 80HHC, in respect of the incentive amount, had been correctly claimed from the Government.
In the result, the writ petition is found to be devoid of merit. It is, therefore, dismissed.