Income Tax Appellate Tribunal - Kolkata
Asstt. Cit vs Champdany Industries Ltd. on 28 January, 2005
Equivalent citations: [2005]95ITD169(KOL)
ORDER
Shri CL. Sethi, JM The revenue is in appeal against the Id. CIT (A)'s order dated 20-11-2002 passed in the matter of an assessment made under section 147/143(3) dated 30-3-2001 pertaining to the assessment year 1994-95.
2. Various grounds of appeal raised by the revenue revolve around the issue relating to the validity of re-assessment proceedings initiated under section 147 of the Act by the assessing officer, which were cancelled by the Id. CIT (A) by holding that the re-opening of assessment by the assessing officer was bad in law as it was based on change of opinion on the same set of facts and law which were in existence at the time of the original assessment.
3. Material facts, in brief, related to the issue in hand are as under:
In this case, the assessee had filed return of income on 30-11-1994 for the assessment year under consideration disclosing a total income of Rs. 1,71,21,790. The return was duly processed under section 143(1)(a) on a returned income. The case was taken up for scrutiny, and assessment was ultimately made under section 143(3) on 3-3-1997 determining the total income at Rs. 3,33,94,470. The total income was subsequently reduced to Rs. 1,96,61,037 in pursuance to the Id. CIT (A)'s order passed in an appeal filed against the original assessment order. In the return of income, the assessee claimed deduction under section 80HHC at Rs. 3,54,97,167 as per certificate given by the Chartered Accountant in Form No. 1OCCAC. The assessing officer allowed the deduction under section 80HHC at the same amount as per certificate attached to the return of income. The deduction under section 80HHC originally allowed of Rs. 3,54,97,167 in the original assessment made under section 143(3) was subsequently increased to Rs. 4,60,93,747 vide assessing officer's order under section 154/143(3) dated 19-9-1997 passed in pursuance to assessee's petition dated 11 -4-1997 filed under section 154 of the Act requesting the assessing officer to allow deduction under section 80HHC on the basis of income assessed by the assessing officer in his assessment order completed under section 143(3) on 3-3-1997. The enhanced deduction allowed under section 80HHC by assessing officer by his order under section 154 dated 19-9-1997 is thus consequent to assessed income determined on assessment and not for any other reason. In other words, the deduction under section 80HHC was revised due to the difference between returned profit and assessed profit. The revised amount as allowed as per computation filed by the assessee vide its letter dated 10-5-1997. After giving appeal effect to the ld. CIT (A)'s order passed in the matter of regular assessment completed under section 143(3), the deduction under section 80HHC was consequently determined at Rs. 4,02,37,624. Subsequently, the assessing officer issued a notice under section 154 dated 11-12-1997 stating therein that the computation of deduction under section 80HHC was done' without adjusting loss of trading exports with the profits earned on exports from manufactured goods. The assessing officer then passed an order under section 154 dated 11-6-1999/24-6-1999 withdrawing deduction under section 80HHC allowed in the original assessment order by saying that the deduction available under section 80HHC after setting off the loss from trading goods was a negative one, and as such no deduction under section 80HHC of the Act was available to the assessee. The assessing officer's order under section 154 was ultimately set aside and cancelled by the ITAT by observing that provisions of section 154 can be invoked only in respect of the matter which does not involve any debate and on which two views are not possible; and, in the instant case, the issue involved, namely, whether the loss suffered on export of trading goods is to be ignored and could not be adjusted against the profits on the export of manufactured goods and export incentives while computing the deduction under section 80HHC, involves investigation into facts, interpretation of the statutory provisions, arguments and debates and on the issue different views are possible, and has, in fact, therefore, provisions of section 154 could not be invoked. The order of the Tribunal is dated 20-8-2002. However, in the meantime before making his order under section 154 on 11-6-1999/24-6-1999 the assessing officer had already issued notice under section 148 on 18-11-1998. In response to the notice issued under section 148, the assessee filed return of income on 31-12-1998 disclosing the total income at the same figure as originally disclosed. The re-assessment proceedings were ultimately completed on 30-3-2001, wherein the following additions were made:-
(i) On account of suppression of production and closing stock Rs. 1,69,02,362;
(ii) On account of disclosing lower value then the value disclosed before the bank Rs. 92,76,827;
(iii) On account of disallowance of deduction under section 80HHC Rs. 4,02,37,624.
4. Being aggrieved with the re-assessment order made under section 147, the assessee preferred an appeal-before the ld. CIT (A).
5. The Id. CIT (A), after discussing the matter in detail and by making reference to the decisions of the various Courts, has held that re-opening by the assessing officer was bad in law as it was based on change of opinion on the same set of facts and law which was in existence at the time of original assessment. The operative part of CIT (A)'s order is as under:-
"In view of the above, it is held that:
It was in case by mere changes of opinion which is not permitted under para 7.2 of Circular No. 549 issued by CBDT which is binding on assessing officer. The assessing officer is not entitled to change his opinion, as held by Supreme Court and several High Courts in catena of cases, discussion above, on the basis of interpretation of law made by audit. He cannot plead ignorance of law for the purpose of re-opening. The decision which were referred to in his reasons recorded were available at the time of original assessment and he could have done in original assessment what he had done in re-assessment order on the basis of those decisions.
In conclusion it is held that in view of binding nature of Board's Circular, re-opening by assessing officer was bad in law as it was based on change of opinion on the same set of facts and law which were in existence at the time of original assessment. Therefore, the reassessment order is cancelled."
6. Being aggrieved with the order of the ld. CIT (A), the department has preferred this appeal before us.
7. The ld. DR has submitted that the re-opening of assessment was not done on a mere change of opinion but was done as it was found that the original assessment was completed without application of mind as to the allowability of deduction under section 80HHC. It was further contended that the re-opening was done on finding the erroneous nature of original assessment after detecting a mistake in allowing the deduction available under section 80HHC. He further contended that the present case falls clearly under Explanation (2) sub-clause (c)(iii) of section 147 and, therefore, it constituted a case of income escaping assessment. It was further argued that the test (reason to believe as required under section 147 of the Act) was fully satisfied, inasmuch as, the assessing officer, on the facts found by him, had every reason to believe that the income had escaped assessment -by the reason of granting more deduction under section 80HHC than it was permitted under the law. It was further argued that the Id. CIT (A) has erred in presuming and holding that the re-opening of assessment was done only on the basis of audit objection when the reasons recorded for re-opening the assessment did not indicate anything in this regard. It was submitted that re-opening of assessment by the assessing officer in the present case was not done on the basis of audit objection but after evaluation of facts and law related to the admissibility of deduction under section 80HHC(3) of the Act. He further contended that there was no change of opinion as to the allowability of deduction under section 80HHC, and as such the proceeding initiated under section 147 before the expiry of four years from the end of the relevant assessment year was as per law contained in section 147 of the Act. He further pointed out that the deduction under section 80HHC in the original assessment was allowed in routine manner without examining and verifying the same and without applying the mind by the assessing officer as would be evident from the assessment order itself wherein deduction under section 80HHC was allowed merely as per the certificate annexed to the return of income. The various interpretation given by the assessee as to the computation of deduction provided under section 80HHC(3) was not considered or placed before the assessing officer nor this was examined or looked into in the course of assessment proceedings completed under section 143(3) of the Act. Therefore, the question of forming an opinion by the assessing officer in the original assessment did or could not arise at all. The deduction under section 80HHC claimed by the assessee was allowed by the assessing officer without applying his mind and, therefore, a discovery of a mistake in the certificate granted by the Chartered Accountant on the basis of which deduction was allowed constitutes sufficient reason to believe on the part of the assessing officer that income had escaped assessment by the reason of allowing excessive deduction under section 80HHC of the Act. The Id. DR also pointed out that the facts and circumstances of the case are quite similar and identical to the case of IPCA Laboratories Ltd. v. Gajanand Meena, Dy. CIT (2001) 251 ITR 420 (Bom.) where under the similar sets of circumstances the Hon'ble Bombay High Court has held that it was a case of income escaping assessment on account of excessive relief allowed under section 80HHC,ignoring the loss incurred by the assessee in respect of export of trading goods.
8. The Id. Senior counsel for the assessee, Shri R.N. Bajoria, has supported the order of the Id. CIT (A) in cancelling the assessing officer's order made under section 147 of the Act. It was strongly contended by the Id. Counsel for the assessee that the present case is a case of change of opinion on the part of the assessing officer, inasmuch as the assessing officer had allowed the assessee's claim under section 80HHC after verifying and examining the certificate granted by the Chartered Accountant in Statutory Form No. 1OCCAC. He further stated that a mere change of opinion with regard to an inference cannot justify re-assessment under section 147 of the Act. He further submitted that the amended provisions of section 147 as effective from 1-4-1989 should not be interpreted as empowering an assessing officer to re-open an assessment merely because he happens to change his opinion on the same set of facts. He drew our notice to the controlling words used in section 147, namely, "the assessing officer has reason to believe" which should be given their full effect so as not to allow the assessing officer to re-open the assessment under section 147 of the Act on mere change of opinion. He further submitted that the assessing officer does not have a power of review on the same set of facts and law. To summarise, even under the amended law, in all cases, the Id. Counsel for the assessee submitted, that there must exist reason to believe that income has escaped assessment and a mere change of opinion on the same facts and law does not justify a re-assessment. He further submitted that the validity of initiation of a proceeding or assumption of jurisdiction in the initiation of a proceeding has to be judged on the basis of reasons as recorded on the date of assumption of jurisdiction. He, therefore, contended that subsequent decision dated 2-7-2001 of Hon'ble Bombay High Court in the case of IPCA Laboratories Ltd. v. Dy. CIT (No. 1) (2001) 251 ITR 401 holding that the loss in trading activity should not be ignored for the purpose of determining amount of deduction admissible under section 80HHC cannot be a basis to justify the initiation of proceedings under section 147 of the Act, which were already initiated on 18-11-1998. He further contended that at the time when the order passed by the assessing officer under section 143(3) of the Act, the contention that the loss in trading items in the instant case can be ignored for the purpose of determining deduction under section 80HHC(l) when there were profit from the manufactured items, was supported by the following decisions:-
(i) Assistant Commissioner v. Pratibha Syntex Ltd. (1999) 106 Taxman 32 (Ahd -Mag.);
(ii) AM Moosa v. Assistant Commissioner(1996) 86 Taxman 161 (Coch.- Mag.);
(iii) Avon Cycles Ltd. v. Assistant Commissioner(1997) 59 TTJ (Chd.) 75.
(iv) Hindustan Fashions Ltd. v. Assistant Commissioner(1998) 61 TTJ (Ahd.) 734.
It was clarified by the Id. Counsel for the assessee that on the basis of the aforesaid decisions, the deduction under section 80HHC as claimed by the assessee on the basis of certificate granted by the Chartered Accountant ignoring the loss incurred in trading activities was correct and in accordance with law and there was no reason for forming an opinion that deduction has been allowed excessively. It was also submitted that when two views with regard to the particular issue are possible and one view has been adopted by the assessing officer, it is not a case of escapement of assessment within the meaning of section 147 of the Act. He further contended that the Board's Circular No. 549 dated 31-10-1989 explaining the scope and effect of amended section 147 as substituted with effect from 1-4-1989 may be referred to, wherein it has been clarified by the Board that a mere change of opinion cannot form the basis of reopening a completed assessment. He further submitted that Board's Circular is binding on the revenue Authorities. The following decisions were relied on by the Id. Counsel for the assessee in support of the assessee's case:-
(i) CIT v. Kelvinator of India Ltd. (2003) 256 ITR 1 (Delhi) (FB);
(ii) Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC);
(iii) CCE v. Dhiren Chemical Industries (2002) 254 ITR 554 (SC);
(iv) CIT v. Foramer France (2003) 264 ITR 566, where the decision of the Hon'ble Allahabad High Court in Foramer v. CIT (2001) 247 ITR 436 has been confirmed;
(v) Income Tax Officer v. Electro Steel Castings Ltd (2003) 264 ITR 410 (Cal.); a Special Leave Petition filed against the said judgment was dismissed by the Hon'ble Supreme Court in Electro Steel Castings Ltd. v. CIT [SLP (C) No. 21348 of 2003 266 ITR 104 (St.)].
(vi) Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83
(vii) CCE v. Steelco Gujarat Ltd. (2004) (163) ELT 403 (SC);
(viii) Decision of ITAT, 'A' Bench, Kolkata in the case of Jagatdal Jute & Industrial Ltd v. Dy. CIT (IT Appeal No. 2004 (Kol.) of 2003, dated 21-7-2004).
9. We have considered the rival contentions of both the parties and have gone through the orders of the authorities below. We have carefully perused the materials on record. It is well known that the Direct Tax Laws (Amendment) Act, 1987 has substituted then section 147 of the Act with effect from 1-4-1989. The scope or powers for re-assessment has now been widened and the conditions precedent to be fulfilled under clauses (a) and (b) of old section 147 effective up to 31-3-1989 are made less strict. It is significant to note that the amended law, after the merger of clauses (a) and (b) of old section 147, does not employ the phraseology: "the assessing officer has in consequence of information in his possession reason to believe". But the use of the expression: "if the assessing officer has reason to believe" should be enough to include also cases where "in consequence of information in his possession", he has reason to believe that income has escaped assessment. Such reason need not be in consequence of information received after the original assessment, which was a requirement of the clause (b) of old section 147. Even the use of the wider words "if the assessing officer has reason to believe", without the words "in consequence of information in his possession" cannot be construed so widely as to allow an assessing officer to reopen assessments on a mere change of opinion. In order to preserve the finality of an assessment, the amended law should be construed perceptively. The provisions of amended section 147 should not be interpreted as empowering an assessing officer to re-open an assessment merely because he happens to change his opinion on the same set of facts. The words "the assessing officer has reason to believe" are still applicable and should be given their full effect. The law contemplates the belief of a reasonable man familiar with the basic value of justice and fairness. The position of law that the assessing officer is not empowered to re-open an assessment under section 147 merely because he happens to change his opinion is accepted by the Board in its Circular No. 549 dated 31-10-1989, which explains the amendments made in section 147 by the Direct Tax Laws (Amendment) Act, 1989. In other words, even after the amendment, the assessing officer must have reason to believe that income has escaped assessment, a mere change of opinion does not justify a re-assessment and the assessing officer does not have the power of review on the same set of facts and law. In support of this proposition, the ratio of the decision of Hon'ble Bombay High Court in the case of IPCA Laboratories (supra); Hon'ble Allahabad High Court in the case of Foramer France (supra), affirmed by Hon'ble Supreme Court in the case of Foramer France (supra) Hon'ble Gujarat High Court in the case of Garden Silk Mills (P.) Ltd. v. Dy. CIT (1999) 237 ITR 668 the Full Bench of the Hon'ble Delhi High Court in Kelvinator of India Ltd.'s case (supra), United Electrical Co. (P.) Ltd. v. CIT(2002) 258 ITR 317 and Vishnu Borwell v. Income Tax Officer(2002) 257 ITR 512 (Ori.) may be referred to. However, if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, then that would empower the assessing officer to re-open an assessment. To summarise even under the amended law, in all cases, the assessing officer must be in possession of a definite and relevant information or material which may lead him to have reasons to believe that income has escaped assessment and a mere change of opinion on the same facts and law does not justify a re-assessment, and for an action initiated after expiry of the four years from the end of the relevant assessment year where the original assessment was completed under section 143(3) or 147 of the Act, it must further be established that the escapement of income was by reason of assessee's failure to disclose fully and truly all material facts. We further see that if there is a failure on the part of the assessee to disclose fully and truly all material facts relating to the assessment, the assessing officer shall be empowered to initiate action under section 147 even before or after the expiry of the four years from the end of the relevant assessment year subject to the limitation provided in section 149 of the Act for issuing notice under section 148 of the Act. Under the amended provisions of section 147 of the Act, the Legislature has specified certain cases, for the purpose of section 147, where income chargeable to tax can be said to have escaped assessment, as would appear from Explanation 2 to section 147 of the Act, which reads as under:-
s"Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return,
(c) where an assessment has been made, but-
(i) income chargeable to tax has been under-assessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed."
10. On reading section 148 of the Act, it is further seen that no notice under section 148 shall be issued before recording reasons for issuing notice under section 148 of the Act. It is also not in doubt that the validity of initiation of a proceeding or assumption of jurisdiction in the initiation of a proceeding has to be judged on the basis of reasons as recorded on the date of assumption of jurisdiction as held by the Jurisdictional Hon'ble Calcutta High Court in the case of Electro Steel Castings Ltd. (2003) 264 ITR 410 (Cal.) (supra), a Special Leave Petition filed against the said judgment was dismissed by the Hon'ble Supreme Court in Electro Steel Castings Ltd. SLP (C) No. 21348 of 2003 (2004) 266 ITR 104 (St.) (supra) . The subsequent decision rendered on 2-7-2001 by the Hon'ble Bombay High Court in the case of IPCA Laboratories Ltd. (2001) 251 ITR 401 affirmed by Hon'ble Supreme Court by its decision dated 11-3-2004 in IPCA Laboratory Ltd. v. Dy. CIT (2004) 266 ITR 521 holding that the loss in respect of export of trading goods could not be ignored while computing deduction under section 80HHC(3)(c) and net result should be profits for purpose of claiming deduction under section 80HHC cannot be taken aid of at this stage to decide the preliminary issue as to whether the initiation of proceedings under section 147 on 18-11-1998 was valid or justified. It is, therefore, necessary to see as to whether the reasons recorded in writing by the assessing officer for initiation of proceedings under section 147 are sufficient or justified to initiate proceedings under section 147 of the Act.
The reasons recorded by the assessing officer for assuming jurisdiction by him under section 147 on 18-11-1998 as reproduced by the Id. CIT (A) in his order are as under:-
"In the return of income assessee has claimed deduction under section 80HHC at Rs. 3,54,97,167. In the assessment order dated 3-3-1997 deduction under section 80HHC has been allowed at Rs. 3,54,97,167 vide under section 154 dated 19-9-1997 the assessee has been allowed deduction under section 80HHC at Rs. 4,60,93,747.
In the report under section 80HHC(4) of the Income Tax Act, 1961 in Form No. 10CCAC submitted along with the return of income, the assessee has shown profit from export of trading goods at nil and profit from export of manufactured goods at Rs. 3,54,97,167. Though the profit from export of trading goods has been shown as nil, there is loss of Rs. 22,08,86,222 and its calculations are as under:-
1. Export turnover in respect of trading goods Rs. 26,97,49,503
2. Direct cost of trading goods exported Rs. 25,47,60,102
3. Indirect cost attributable to trading goods exported Rs. 23,58,75,623
4. Total of (2 + 3) Rs. 48,06,35,725
5. Loss from export trading goods (I - 4) Rs. 22,08,86,222 From the above it is apparent that the amount of Rs. 22,08,86,222 is the loss from the export of trading goods. The aforesaid loss has not been adjusted against the profit of Rs. 3,54,97,167 being profit from export of manufactured goods.
Section 80HHC(3) prescribes the mode of calculation of profit for export of trading goods and manufactured goods. These are three clauses in sub-section (3) of section 80HHC of the Act. Sub-clause (a) gives a formula for computing the profits in case the assessee deals with the export of goods or merchandise manufactured or processed by him. Clause (b) gives a formula or computing the profit in case the assessee deals in export of trading goods and clause (c) gives a formula for computing the profit when the assessee deals in export of goods or merchandise manufactured or processed by it and of trading goods.
In clause (c) through the formula for calculating the profit from both the activities are separate, but the net profit is to be calculated by clubbing the profits from both the activities of the assessee irrespective of the nature of the profit. The profit may be a positive or negative from either of the activities, the profit is to be computed for the purpose of allowability of deduction under section 80HHC(3).
In emphasis has to be laid on the word 'and' which is used as a conjecture between both the sub-clauses (i) and (ii) of sub-section (c) of section 80HHC(3). The main intention of the legislation for inserting the section is to find out the net profit from both the activities of the assessee. For ascertaining the net profit, both the profits, though it may be positive or negative, are to be clubbed, for the purpose of allowability of deduction under section 80HHC(3). Emphasis has also to be laid on the word 'profit' used in sub-clause (c) of sub-section (3) and word 'profit' means the net profit arising out of both of the activities of the assessee. After ascertaining the net profit, a deduction is to be given as per sub-section (1) of the section 80HHC.
After careful perusal of section 80HHC of the Act, it is apparent that this section is self explanatory and there is no ambiguity in section 80HHC(3). The language adopted in its sub-clause (c) is very clear and by its plain reading. It is apparent that for ascertaining the net profits derived from the export business of goods or merchandise manufactured or processed by him and of trading goods, the individual profit from both the activities of the assessee is to be computed in accordance with the formula applicable to respective activities and clubbed with each other.
If this interpretation is applied in this case, it is apparent that the assessee did not make proper calculation of profit export of manufacturing goods and of trading goods and deduction under section 80HHC has not been properly claimed by him.
It is further stated that Apex court has held in the cases of Karam Chand Prem Chand (40 ITR 306) and Har Prasad & Co. Pvt. Ltd. (99 ITR 118) that from the charging provisions of Income Tax Act, it is discernible that the words 'income' or 'profit & gains' should be understood as including losses also so that in one sense, 'profit & gains' represent 'plus income' losses represent 'minus income' In other words, loss is negative profit, both positive and negative profits are of a revenue character, both must enter into computation, wherever it become material in the same mode of the taxable income of the assessee in the light of this definition of 'profit' explained by the Hon'ble Supreme Court, individual profit derived from both the activities of the assessee, i.e., manufacturing and trading activities calculated in accordance with sub-clauses (i) and (ii) of clause (c) of section 80HHC(3), though it may be positive or negative, should be clubbed for arriving at the resultant profit as contemplated in sub-clause (c). By not clubbing the loss from export of trading goods at Rs. 22,08,86,222 with the profit from export of manufactured goods at Rs. 3,54,97,167, the assessee has made excessive claim of deduction under section 80HHC. In the case of assessee deduction under section 80HHC is allowable as under:-
Profit from export of manufactured goods Rs. 3,S4,97,167 Loss from export of trading goods Rs. 22,08,86,222 Net Loss Rs. 18,53,89,055 Since there is a loss, no deduction under section 80HHC is allowable to the assessee.
Thus, I have reason to believe that income chargeable to tax has escaped assessment for assessment year 1994-95, on account of under-assessment of the income due to excessive relief under section 80HHC allowed to the assessee. Income escaping assessment is estimated at Rs. 4,60,93,747. Issue notice under section 148 of the L T. Act, 1961 for A. Y 1994-95.
11. On perusing the reasons so recorded by the assessing officer for issuing the notice under section 148 of the Act we find that the assessing officer has pointed out that the profit from export of trading goods has been shown by the assessee at Nil though there was actually a loss of Rs. 22,08,86,222 as would be evident from the calculations given as under:
1. Export turnover in respect of trading goods Rs. 26,97,49,503
2. Direct cost of trading goods exported Rs. 25,47,60,102
3. Indirect cost attributable to trading goods exported Rs. 23,58,75,623
4. Total of (2 + 3) Rs. 48,06,35,725
5. Loss from export trading goods (1 - 4) Rs. 22,08,86,222 In this connection, the certificate given by the Chartered Accountant in Form No. 1 OCCAC submitted along with the return of income, on the basis of which the assessee had claimed deduction under section 80HHC and the Assessing Officer also allowed the same, is required to be taken note of. The calculation given by the Chartered Accountant in Form No. 1OCCAC submitted along with the return of income is as under:
Annexure 'A' annexed to Form No. 10CCAC is re-produced below:
"Details relating to the claim by the Exporter for deduction under section 80HHC of the Income Tax Act, 1961
1. Name of the assessee The Champdany Industries Limited
2. Assessment year 1994-95
3. Total turnover of the business Rs. 1,14,99,20,547
4. Total export turnover Rs. 84,29,06,726
5. Total profits of the business Rs. 2,19,39,082
6. Export turnover in respect of trading goods Rs. 26,97,49,503
7. Direct cost of trading goods exported Rs. 25,47,60,102
8. Indirect cost attributable to trading goods exported Rs. 23,58,75,623
9. Total of 7 + 8 Rs. 49,06,35,725
10. Profit from export of trading goods (6 - 9) Nil
11. Adjusted total turnover (3 - 6) Rs. 88,01,71,044
12. Adjusted export turnover (4 - 6) Rs. 57,31,57,223
13. Adjusted profits of the business (5-10) Rs. 2,19,39,082
14. Profits derived by assessee from export of goods or merchandise to which section 80HHC applies, computed under sub-section (3) of section 80HHC Rs. 3,54,97,167
15. Export turnover, deduction in respect of which will be claimed by a supporting manufacturer in accordance with proviso to sub-section (1) of section 80HHC Nil
16. Profit from the export turnover mentioned in item 15 above, calculated in accordance with proviso to sub-section (1) of section 80HHC Nil
17. Deduction under section 80HHC to which the assessee is entitled (item 14 minus item 16) Rs. 3,54,97,167
18. Remarks, if any The assessee is engaged in export of own manufactured and also trading goods which has also been received in India in convertible foreign exchange. Exports through London Branch has not been considered."
12. On perusing the aforesaid details contained in Annexure-'A' annexed to Form No. I OCCAC, we find that the assessee had shown export turnover in respect of trading goods at Rs. 26,97,49,503 vide Column No. 6 thereof. The direct and indirect cost of trading goods exported is shown at Rs. 25,47,60,102 and Rs. 23,58,75,623 aggregating to Rs. 49,06,35,725 which are reflected at Column Nos. 7, 8 and 9 respectively of the said Annexure. The profit from export of trading goods by deducting aggregate of direct cost and indirect cost of trading goods from export turnover of trading goods is to be calculated and to be shown against Item No. 10 of the said Annexure. Item No. 10 clearly indicates that the resultant figure of difference between the amount of Item No. 6 (export turnover in respect of goods) and Item No. 9 (aggregate of Item Nos. 7 and 8 i.e., aggregate of direct cost and indirect cost of trading goods) would be the profit from the export of trading goods. In the case on hand, the export turnover is of Rs. 26,97,49,503 (Item No. 6) and aggregate of direct cost and indirect cost is of Rs. 49,06,35,725 (Item No. 9) being total of Item Nos. 7 and 8, and thus the resultant figure (6 minus 9) would be of (-) Rs. 22,08,86,222, though in the certificate it has been shown as Nil. In this situation, the assessing officer has, therefore, stated in the reasons recorded for initiating the proceedings under section 147 that in the report in Form Nos. 1OCCAC the assessee has shown profit from export of trading goods at Nil though there is a loss of Rs. 22,08,86,222, and the assessee has not adjusted the said loss of Rs. 22,08,86,222 incurred from the export of trading goods against the profit from export of manufactured goods. We find that there is no explanation or clarification whatsoever given in the said certificate as to why the figure 'Nil" has been taken against Item No. 10 though as per calculation the, figure against Item No. 10 would prima facie (-) Rs. 22,08,86,222. Also against Item No. 18 under the head 'remarks, if any', no explanation has been given as to why the amount of 'Nil' has been taken against Item No. 10, though as per calculation the figure comes to (-) Rs. 22,08,86,222 as calculated above. Had the assessee been disclosed or shown the loss of Rs. 22,08,86,222 being negative profit of trading goods against Item No. 10 of the Annexure to the Certificate in Form No. IOCCAC and had given an explanation or clarification showing the reason for ignoring the said negative profit in computing the deduction to be claimed under section 80HHC, and then such claim of the assessee were allowed or accepted by the assessing officer in original assessment proceedings in the light of explanation or clarification so given by the assessee, the matter would have stood on a quite different footing. In the present case, the assessee has simply shown the Nil amount against Item No. 10 of Annexure-'A' to Form No. 10CCAC without giving any explanation and clarification though in Item No. 10 it has been specifically prescribed that the resultant figure of Item No. 6 minus Item No. 9 has to be shown against Item No. 10. The assessee has not shown the resultant figure of Item No. 6 minus Item No. 9 against Item No. 10, which amounts to suppression or non-disclosure of all material facts fully and truly. The disclosure of facts by the assessee is not complete, true and accurate. It is further seen that assessing officer had allowed the assessee's claim under section 80HHC as per the said certificate given in Form No. 1OCCAC without making any deliberation or enquiry as to why the figure "Nil" was taken against Item No. 10 in the report submitted in Form No. I OCCAC. The assessment order as well as other documents available on record do not indicate in any manner that this aspect of the matter as to why Nil amount was taken against Item No. 10 in Annexure-'A' to Form No. 1OCCAC was ever examined by the assessing officer or was ever explained or brought on record by the assessee in the course of the original assessment proceedings completed under section 143(3) on 3-3-1997. It is also pertinent to note that in the revised computation of deduction under section 80HHC filed by the assessee on 10-5-1997, subsequent to the assessment completed under section 143(3) on 3-3-1997, in support of its claim to increase the deduction under section 80HHC on the basis of income assessed by the assessing officer, the assessee has shown Nil as profit of trading goods instead of negative figure of Rs. 22,08,86,222 (Rs. 26,97,49,503 -Rs. 49,06,35,725) without giving any clarification or explanation as is evident from assessee's calculations as given under:-
"Profit of Trading Goods.-Export Turnover of Trading goods - Direct Cost of Trading Goods - Indirect Cost of Trading Goods
(a) Export Turnover of Trading Goods Rs. 26,97,49,503
(b) Direct Cost of Trading Goods Rs. 25,47,60,102
(c) Indirect Cost of Trading Goods - All cost (other than Direct Cost) X Export Turnover of Trading Goods Total Turnover Total Expenditure as per Profit & Loss A/c Rs.
1,28,30,35,261 Deduct Depreciation (-) Rs.
2,27,56,251 Rs.
1,26,02,79,102 Deduct Direct Cost of Trading Goods (-) Rs.
25,47,60,102 Rs.
1,00,55,18,908 Indirect Cost of Trading Goods = 100,55,18,908 X 26,97,49,503 114,99,20,547 = 23,58,75,623 = 26,97,49,503 - (25,47,60,102 - 23,58.,75,623) = 26,97,49,503 - 49,06,35,725 = Nil".
Under the head "Adjusted profit of business" the calculation is consequently shown by the assessee as under:-
"Adjusted profit of business = Profit of business - Profit derived from Trading Goods = 3,82,11,760 - Nil = 3,82,11,760".
The assessee clarified the position only after the assessment was completed vide its reply dated 17-2-1998 given in the course of rectification proceedings initiated by the assessing officer under section 154 on 19-9-1997, stating that the loss from export of trading goods has been considered at Nil citing in support thereof, the CBDT Circular Nos. 559 and 564 dated 4-5-1990 and 5-7-1990 and the decision of Delhi Branch of the Tribunal in International Research Park Laboratories Ltd v. Assistant Commissioner (1995) 212 ITR (AT) Page 1. No such explanation as given by the assessee for the first time vide its letter dated 17-2-1998 in response to the assessing officer's notice issued under section 154 of the Act on 19-9-1997 was ever given by the assessee during the assessment proceedings originally completed under section 143(3) of the Act. The Id. Counsel for the assessee in the course of the hearing of this appeal invited our attention to the assessee's letter dated 17-2-1997 filed during the course of the assessment proceedings annexing thereto details of F.O.B. Sales (Exports) in support of the contention that full details as to the claim under section 80HHC were submitted or furnished during the assessment proceedings. We have carefully gone through the assessee's letter dated 17-2-1997 and find that the assessee had submitted only the details of export sales (F.O.B.) giving name and address of the various parties with corresponding amount related thereto (pages 7 to 13 of the paper book filed by the assessee). These details are not in connection with the issue as to why the figure 'Nil' was taken against Item No. 10, though as per calculation the figure was a negative figure of Rs. 22,08,86,222 and as to why the said negative figure of Rs. 22,08,86,222 was ignored in computing adjusted profits of the business (Item No. 13) where adjusted profits of the business was to be calculated by deducting the amount of Item No. 10 from amount of Item No. 5. No other evidences or materials were brought to our notice to show and establish that at the original stage, the assessee had ever submitted any explanation as to why the 'Nil' amount against Item No. 10 of Annexure-1 to Form No. 1OCCAC instead of a negative figure of Rs. 22,08,86,222 was taken, and consequently as to how the amount of Rs. 3,54,97,167 was calculated against Item Nos. 14 and 16 of the said Annexure. A perusal of the assessment order originally made under section 143(3) clearly indicates that (i) this particular aspect of the matter had not brought or came to the attention of the assessing officer when he was finalizing the assessment, (ii) he has not applied his mind as to the plea that loss in trading goods could justifiably be ignored in computing deduction admissible under section 80HHC, and (iii) no such contention supported by alleged decisions of Tribunals that ignoring the loss in trading goods while computing deduction under section 80HHC was justified were ever raised or explained by the assessee at the original stage. The assessment order or material available on record do not indicate that the attention of the assessing officer was focused to this very issue of ignoring the loss in trading goods while computing the deduction admissible under section 80HHC and that despite this attention having been focused the assessing officer has upheld and accepted the contention of the assessee that the loss in trading goods could be ignored while computing deduction admissible under section 80HHC.
13. in the light of these facts and circumstances of the case and discussion made above, we are of the considered view that there was failure on the part of the assessee to disclose fully and truly all primary or material facts necessary for computation of deduction under section 80HHC. The material facts were prima facie suppressed by the assessee. The assessee has not disclosed complete facts which could enable it to claim deduction under section 80HHC to the extent as computed in the certificate. The very fact noted by the assessing officer in the reasons for initiating proceedings under section 147 of the Act that the assessee has shown the 'Nil' figure instead of the negative figure of Rs. 22,08,86,222 in Form No. I0CCAC and wrongly calculated the amount of deduction admissible under section 80HHC are relevant and sufficient material for the assessing officer to have reasons to believe that income chargeable to tax had escaped assessment by reason of excessive deduction under section 80HHC allowed wrongly in the original assessment. The information with regard to the facts and materials previously disclosed by the assessee, coming into assessing officer's possession or knowledge which tends to expose the untruthfulness of those facts is sufficient and relevant to have reason to belief that income had escaped assessment within the meaning of section 147 of the Act. In such a situation, it is not a case of a mere change of opinion or the drawing of a different inference from the same facts as were earlier available.
14. In this connection, reference may be made to the following decisions:-
(i) Every disclosure is not and cannot be treated to be a true and full disclosure. A disclosure may be a false one or true one. It may be a full disclosure or it may not be. A partial disclosure may very often be a misleading one. What is required is a full and true disclosure of all material facts necessary for making assessment for that year- Sri Krishna (P.) Ltd. v. Income Tax Officer ( 1996) 221 ITR 53 8 (SC).
(ii) The words 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year' postulate a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts are material and necessary for assessment will differ from case to case. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision on the question before the assessing authority lies on the assessee - Calcutta Discount Co. Ltd. v. Income Tax Officer (1961) 41 ITR 191 (SC); Indian Oil Corpn. v. Income Tax Officer (1986) 159 ITR 956 (SC); Parashuram Pottery Works Co. Ltd. v. Income Tax Officer (1977) 106 ITR 1 (SC); Income Tax Officer v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC).
(iii) The material should not only be full, but also be true K.P Arthanariswamy Chettiar v.. Income Tax Officer (1972) 84 ITR 51 (Mad.); Sujir Ganesh Nayak & Co. v. Income Tax Officer ( 1974) 97 ITR 372 (Ker.).
(iv) After the insertion of Explanation to section 147 the position remains that so far as primary facts are concerned, it is assessee's duty to disclose all of them, including particular entries in account books, particular portions of document as well as documents and other evidences which could have been discovered by the assessing authority from the documents and other evidence disclosed. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of fact can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences, whether of fact or of law, should be drawn. Indeed when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences -whether or of fact of law - he would draw from the primary facts -Calcutta Discount Co. Ltd. case (supra).
(v) Mere production of evidence before the Income Tax Officer is not enough. There may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the assessee could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts the assessing authority may not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose the material facts, then subject to the other conditions jurisdiction to reopen is attracted - Indo Aden Salt Mfg. & Trading Co. (P.) Ltd. v. CIT(1986) 159 ITR 624 (SC). This was a case where assets consisting of reservoirs, salt pans, piers and condensers and channels, the assessee had not disclosed in the original assessment proceedings for the assessment years 1955-56 to 1962-63 either by a valuation report or by a statement before the Income Tax Officer as to what portion consisted of earth work and what portion or proportion consisted of masonry work.. In respect of the entire assets the Income Tax Officer allowed depreciation of six per cent. If the facts fully and truly had been disclosed then the assessee could not have got such depreciation. The Apex court in turn relied upon its earlier judgment in Calcutta Discount Co. Ltd.'s case (supra) and quoted with approval the observation of Hidayatullah, J. (the learned Chief Justice of India as he then was) to the effect that mere production of evidence before the Income Tax Officer was not enough, that there may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. It was observed that the assessee knows all the material and relevant facts the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That was immaterial. But if there is omission to disclose material facts, then, subject to the other conditions, jurisdiction to reopen is attracted. In Calcutta Discount Co. Ltd.'s case (supra), it had been held that if there are some primary facts from which a reasonable belief could be formed that there was some non-disclosure or failure to disclose fully and truly all material facts, the Income Tax Officer has jurisdiction to reopen the assessment. It was held that there was non-disclosure of primary facts which had caused escapement of income.
(vi) Mere fact that Income Tax Officer could have found out factual affairs is no reason for exonerating assessee from making full and true disclosure - The assessee cannot be exonerated from the duty to make a full and true disclosure of material facts merely because the Income Tax Officer could have in the original assessment proceedings found out correct factual affairs by probing into the material or evidence placed before him but he failed to do so - Ram Prasad v. Income Tax Officer (1995) 82 Taxman 199 (All.).
(vii) The assessee must disclose fully and truly all material primary facts; if any such fact is suppressed, misrepresented or falsified, re-assessment proceedings under section 147 may justified. Phool Chand Bajrang Lal v. CIT(1993) 203 ITR 456 (SC); Sri Krishna (P.) Ltd.'s case (supra), Hanuman Trading Co. v. CIT (2001) 250 ITR 365' (Delhi); Gurera Gas Cylinders (P.) Ltd. v. CIT (2002) 258 ITR 170 (Punj). & Har.); Citi Bank NA. v. S.K. Ojha (2002) 257 ITR 663 (Bom.).
(viii) In Phool Chand Bajrang Lal's case (supra), their Lordships of the Hon'ble Supreme Court has held and observed as under (page 477):-
"From a combined review of the judgments of this Court, it follows that an Income Tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income Tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income Tax Officer and further whether that material had any rational connection or a live-link for the formation of the requisite belief. It would be immaterial whether the Income Tax Officer, at the time of making the original assessment, could or could not have found by further enquiry or investigation, whether the transaction was genuine or not if, on the basis of subsequent information, the Income Tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment... One of the purposes of section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be a travesty of justice to allow the assessee that latitude." (Emphasis supplied).
(ix) Relying on the decision of the Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. (supra) and in the case of Indo-Aden Salt Mfg. & Trading Co. (P) Ltd. (supra), the Hon'ble Bombay High Court in the case of Citi Bank N.A. (supra) has held that-
"Head Notes.-Mere production of evidence before the Income tax Officer is not enough. There may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. If there are some primary facts from which a reasonable belief could be formed that there was some non-disclosure or failure to disclose fully and truly all material facts, the Income Tax Officer has jurisdiction to reopen the assessment."
(x) Relying on the decision of the Hon'ble Supreme Court in the case of Phool Chand Bairang Lal (supra), the Hon'ble Punjab & Haryana High Court in the case of Gurera Gas Cylinders (P) Ltd. (supra) dismissed the assessee's Writ Petition by observing that a perusal of the reasons recorded showed that the assessing officer had applied his mind to the relevant material and formed a belief that the petitioner had not disclosed the complete facts which could enable it to claim deduction under section 80-I, and, therefore its income had not been properly assessed. It was further observed by the court that at this stage, the court could neither go into the sufficiency or adequacy of the reasons recorded nor could it interfere with the notice simply because on an overall reappraisal of material, a different opinion may be formed.
(xi) Following the decision of Their Lordship of Hon'ble Supreme Court in Phool Chand Bajrang Lal's case (supra) the Hon'ble Jurisdictional Kolkata High Court in-the case of Hindustan Aluminum Corpn. Ltd. v. Income Tax Officer (2002) 254 ITR 370 has held that Income Tax Officer acquires jurisdiction to re-open an assessment under section 147(a) when he has reasons to believe that by reason of omission or failure on the part of the assessee to make full and true disclosures necessary for its assessment during the concluded assessment proceedings, any part of its income, profits or gains chargeable to income-tax has escaped assessment. He may start assessment proceedings either on the basis of some fresh facts, which had come to light, which were not previously disclosed or some information with regard to the facts previously disclosed come into his possession which tends to expose the untruthfulness of those facts. (Emphasis supplied)
(xii) The Hon'ble Bombay High Court in the case of Dr. Amin's Pathology Laboratory v. P.N. Prasad (2001) 252 ITR 673, has held that mere production of the balance-sheet, P & L A/c or account books will not necessarily amount to disclosure within the meaning of the proviso to section 147; in that case, the facts showed that the assessing officer overlooked the unpaid amount of purchases; That, assessing officer noticed the same subsequently; That, at the time of passing the original order of assessment, he could not be said to have opined on the above item of unpaid purchases; Therefore, there was no change of opinion. Therefore, the impugned notice under section 148 was sustained as the department was justified in issuing notice under section 148 on ground of underassessment within the meaning of section 147.
(xiii) In the light of the facts that assessee having put forth its claim for deduction under section 80HH in entirety supporting the same on the basis of Circular No. 484, dated 1st May, 1987 which formed part of written submissions made before the assessing officer during the course of assessment proceedings and assessing officer having taken note of such written submissions in his assessment order, the assessing officer could not assume jurisdiction under section 147 after a period of four years on the ground that the claim was wrongly allowed as held by Hon'ble Gujarat High Court in the case of Sheth Bros. v. Joint CIT(2001) 251 ITR 270.
Here, it is pertinent to note that the facts of the present case before us are just opposite to the facts of the said case before the Hon'ble Gujarat High Court.
(xiv) Fresh material discovered in the assessment of next year. Merely because the case of assessee was accepted as correct in the original assessment, the assessing officer is not precluded from re-opening the assessment on the basis of his findings of facts made on the basis of fresh materials in the course of assessment of next year. It is not a case of mere change of opinion.- Ess Ess Kay Engg. (P.) Ltd v. CIT(2001) 247 ITR 818 (SC).
(xv) In the case of Peerless General Finance & Investment Co. Ltd. v. Dy. CIT (2002) 258 ITR 160 (Cal.), it was held by Hon'ble jurisdictional Calcutta High Court as under:-
"Head Notes.-The assessee used to collect deposits on contracts. The contracts envisaged the depositors getting back the deposits along with certain interest by way of bonus. The contracts used to provide that the deposits would be required to deposit an equal amount mentioned in the respective contracts for a certain period. They also used to provide that unless the deposits deposited the money as mentioned in the contracts for a certain period, the deposits would stand lapsed and the monies lying to the credit of the deposits would stand forfeited and become the property of the petitioner. During the relevant years the petitioner used to treat a substantial portion of the first year's deposit by an individual depositor as its income and used to show the same in the profit and loss account. The balance used to be shown in the Social Welfare Scheme Fund in the liabilities side of the balance sheet. The money representing the liability on account of the Social Welfare Scheme Fund used to be invested by the petitioner and the earnings thereon used to be apportioned by the petitioner, towards its income and the balance towards liability on account of the Social Welfare Scheme Fund. The report of the auditors of the assessee stated that the amount lying in the Social Welfare Scheme Fund of the petitioner was more than the liability of the petitioner towards its depositors. Reassessment proceedings were therefore started for the assessment years 1973-74, 1980-81 and 1981-82. On writ petitions to quash the notices of reassessment:
Held, dismissing the petitions, that the auditors' report was more than sufficient to form a prima facie reason to believe that income had escaped assessment. It had been admitted that income accrued in a particular year was not shown either in the balance sheet or in the returns for that particular year as the forfeiture was delayed by the petitioner. It was not the case of the petitioner 'that either at the time of furnishing the returns or in the balance-sheet submitted along with the returns or while supplying information and producing books of account at the time of assessments, the petitioner had disclosed to the assessing officer that any income arising out of forfeiture accrued in the assessment year and was for commercial wisdom taken over to the next year. Hence, there was failure on the part of the petitioner to disclose fully and truly all the material facts necessary for assessment during the relevant assessment years. The notices of reassessment were valid."
15. We are in full agreement with the contention advanced by the Id. Counsel for the assessee that no action under section 147 can be initiated on a mere change of opinion. We are also inclined to be in agreement with the Id. Counsel's contention that the Board's Circular No. 549, dated 31-10-1989 makes it clear that section 147 of the Act does not give arbitrary powers to the assessing officer to re-open past assessments on a mere change of opinion. It is also equally true that the Board's Circular are binding on the revenue as held in the following decisions, on which the Id. Counsel has placed heavy reliance:-
(i) Kelvinator of India Ltd.'s case (supra);
(ii) Azadi Bachao Andolan case (supra);
(iii) Dhiren Chemical Industries case (supra);
(iv) Steelco Gujarat Ltd.'s case (supra).
But, the word "change of opinion pre-supposes that an opinion must have been formed by the assessing officer at original stage being based on all and true material facts necessary for forming an opinion on a certain issue. There should be something positive to show that there was in fact such formation of opinion at the original assessment stage. If initially no opinion was formed, the question of change thereof could not be said to take place. It is only when all the primary facts necessary for assessment are fully and truly disclosed and assessing officer has formed an opinion on that basis, the assessing officer will not be entitled on change of opinion to commence proceedings for re-assessment on similar set of facts already disclosed fully and truly by the assessee at the original stage. In the case on hand, full and true particulars with regard to the claim of deduction under section 80HHC were not furnished by the assessee as discussed, above; and no deliberation or enquiry as to the point as to why the negative profit arising from trading goods has been taken at Nil while determining the amount of deduction claimed under section 80HHC were made during the assessment proceedings nor the assessee offered any explanation thereto in the return of income or in course of assessment proceedings, and the assessing officer has allowed the deduction on the basis of said certificate filed by the assessee without anything more. We are, therefore, of the opinion that it is not the case where it can be said that a conscious opinion was formed by the assessing officer at the original stage while allowing the deduction under section 80HHC as claimed by the assessee in the certificate given by the Chartered Accountant in Form No. 1OCCAC. It is, therefore, not a case of mere change of opinion, but it is a case where all material facts or particulars were not fully and truly furnished by the assessee in the course of original assessment proceedings with regard to the claim under section 80HHC and consequently the assessee's claim was allowed without examining and deliberating upon all the material and complete facts necessary for that purpose. It is not a case of reviewing one's own order on same facts. It is also not the case where the assessing officer can be said to have drawn a wrong conclusion based on all the material facts fully and truly disclosed by the assessee at the original stage and has now changed his opinion on same set of facts disclosed fully and truly by the assessee at the original stage, which were necessary for assessment.
16. On reading the true intent and meaning of the reasons as a whole given by the assessing officer for re-opening the assessment under section 147 of the Act, we find that the assessing officer has pointed out the factual as well as legal omission on the part of the assessee in making the claim of deduction under section 80HHC. In other words, the interpretation given by the assessing officer as to the meaning of section 80HHC(3)(c) was in the context of and based on the factual as well as legal mistake/ omission pointed out by the assessing officer in Form No. 1OCCAC submitted by the assessee along with the return of income by the assessee. Therefore, it is a case where the assessing officer has also proceeded to re-open the case on the basis of assessee's mistake and omission to disclose fully and truly all material facts and particulars necessary for calculating the deduction under section 80HHC as already pointed and discussed by us in foregoing paras.
17. Further, reading and perusing the reasons as a whole given by the assessing officer in initiating proceedings under section 147 of the Act and giving the true meaning thereto, and in the light of foregoing discussions, we find that the reasons given by the assessing officer are prima facie relevant, sufficient and reasonable on the basis of which an honest and reasonable person in good faith can form a reasonable belief that income had escaped assessment within the meaning of section 147 of the Act. We, therefore, cannot say that in the present case, the assessing officer has assumed his jurisdiction under section 147 of the Act on imaginary, unfounded and irrelevant facts and on a mere change of opinion. The assessing officer's belief that the income had escaped assessment is to be held as having been made in good faith based on reasonable, relevant and sufficient materials.
18. At this stage, it is pertinent to note that an identical case had come for consideration before the Hon'ble Bombay High Court in the case of IPCA Laboratories Ltd. (supra) on which a heavy reliance was placed by the department, where it was held that the concerned case was not a case of change of opinion. In that case, the assessee's claim of deduction under section 80HHC(1) by ignoring the losses from trading activities was allowed by the assessing officer vide assessment order completed under section 143(3) of the Act, and thereafter a notice was issued under section 148 for the reason that the net result after aggregating the losses from trading activity and profit from manufacturing activity was a loss and relief under section 80HHC(1) was not allowable. The notice was issued within four years from the end of the relevant assessment year. The Hon'ble High Court found the case as the case of income escaping assessment on account of excessive relief allowed. The notice issued under section 148 was held as valid. The relevant portion of the said decision is quoted as under:-
"Findings.-We find merit in the case of the department. The impugned notice has been issued within four years. In the present case, it is the case of the department that the assessee has obtained excessive relief in the order dated 26-3-1997; that the assessee was not entitled to ignore the losses in computing the net profits under section 80HHC(3)(c); that by virtue of ignoring the losses, the assessee as well as the supporting manufacturer claimed benefits despite 100 per cent export turnover being disclaimed. In the reasons given at exhibit K to the affidavit-in-reply, the officer has clearly stated that as per the provisions of section 80HHC(3)(c), profit from exports was required to be calculated in a composite manner. That in the present case, on aggregation, there was loss of Rs. 3.55 crores from the export of trading goods and the resultant amount was a net loss and since the resultant amount was a loss, the assessee was not entitled to claim the relief under section 80HHC(1). That, in order to become eligible for deduction under section 80HHC(1), the resultant amount calculated under section 80HHC(3)(c) cannot be a figure of loss. That, an ingenious method for claiming deduction was adopted by the assessee which has gone unnoticed by the assessing officer who passed the order of assessment on 26-3-1997, under section 143(3) of the Act. In view of the said reasons, we are of the view that the assessing officer respondent No. 1 herein was right in giving the impugned notice. In the present case, the impugned notice has been given within a period of four years. The present case falls clearly under Explanation 2(c)(iii). Therefore, the present case is one of those cases which the Legislature, by a deeming section, has said that such cases would constitute cases of income escaping assessment. This is demonstrated by the reasons given by the assessing officer. Hence, the aforesaid judgments cited on behalf of the assessee do not apply to the facts of the present case. We may also mention that the expression 'reason to believe" refers to the belief which prompts the assessing officer to apply section 147 to a particular case; that it will depend on the facts of each case; that the belief must be of an honest and reasonable person, based on reasonable grounds' that the assessing officer is required to act, not on mere suspicion, but on direct or circumstantial evidence; that the expression' reason to believe' does not mean a subjective satisfaction on the part of the assessing officer. In the present case, we are satisfied that the reasons for the belief have a national connection with the formation of the belief. Hence, the validity of the impugned notice is sustained. In the case of Garden Silk Mills (P) Ltd. (1999) 237 ITR 668 (Guj.), the assessee sought adjustment in the valuation of the closing stock as disclosed in the audited books of account on the ground of applicability of section 43B. On that basis, the inquiry was made and the claim was allowed. In those set of circumstances, the Gujarat High Court came to the conclusion that the assessing officer was not justified in initiating proceedings under section 147. The Gujarat High Court examined the reasons given by the assessing officer on the ground that the said reasons were based on mere change of opinion. It was a case of under assessment. It was not a case falling under Explanation 2. This has been noted even by the aforestated judgment of the Gujarat High Court. In the said judgment, the Gujarat High Court found on the facts that the assessing officer, while passing the original order of assessment, did not exercise due diligence. The Gujarat High Court further laid down that had it been a case of lack of application of mind or a mistake, the matter would have stood on a different footing. Therefore, the judgment of the Gujarat High Court, on the facts, has no application to the present case. The present case is similar to the case reported in the case of Praful Chunilal Patel v. Assistant Commissioner (1999) 236 ITR 832. In that matter, it has been laid down that where the assessing officer has overlooked something at the time of the original assessment, which he ought to have looked into and which has resulted in the income escaping assessment, then reassessment within four years was permissible. The ratio of the said judgment applies to the facts of the present case. The present case is not based on change of opinion. It is based on the assessing officer overlooking the meaning of the word 'profit' in section 80HHC(3)(c).
Before concluding, we may mention that in the case of the same assessee in respect of the assessment year 1996-97 in Income-tax Appeal No. 131 of 2001 (IPCA Laboratories Ltd v. Dy. CIT (No. 1) (2001) 251 ITR 401), this court has come to the conclusion that in calculating the profits under section 80HHC(3)(c), the assessee was not entitled to ignore the losses in respect of the export of trading goods and that if the net result of the computation under the section is a loss, then the assessee is not entitled to claim the relief under section 80HHC(1). For the aforestated reasons, the following order is passed.
There is no merit in this writ petition. The writ petition falls. The same is dismissed. No order as to costs."
19. The facts of the present case are quite similar and identical to the case of IPCA Laboratories (supra). The facts and circumstances of the present case being identical to the case of IPCA Laboratories (supra), by respectfully following this decision also, we hold that the notice issued by the Assessing Officer, in the case before us, under section 147 of the Act on 18-11-1998 within the four years from the end of the assessment year was valid and within jurisdiction inasmuch as an excessive relief were allowed to the assessee by way of excessive deduction under section 80HHC on the basis of claim made by the assessee as per certificate in Form No. 10CCAC, where full and true particulars and materials were not furnished by the assessee. We further hold that the present initiation of proceedings under section 147 of the Act by the assessing officer cannot be said to be based on change of opinion as discussed above. The present case before us is on more sound footing as it is not merely a case where assessing officer failed to apply his mind or to examine and verify the assessee's claim made under section 80HHC or where there was under-assessment by reason of granting excessive deduction, but it is also a case where relevant material facts and particulars were not fully and truly furnished by the assessee at the original stage leading to excessive deduction under section 80HHC having been allowed. When the assessee has taken the loss from trading goods at Nil without categorically explaining the reason in support thereof, as against the actual loss worked out at Rs. 22,08,86,222 on the basis of accounts of the assessee, the computation of deduction under section 80HHC in the manner as dope by the assessee as per certificate could never have been accepted by any Officer without deliberating or examining the same and commenting upon the same in the assessment order. Thus, it is a case where no conscious opinion could be said to have ever been formed by the assessing officer on the question of allowability of deduction under section 80HHC claimed by the assessee.
20. Further, a similar issue had come for consideration before the ITAT, 'C' Bench, Kolkata in the case of Assistant Commissioner v. Delta Industries Ltd. vide (IT Appeal No. 678 (Kol.) of 2003, dated 20-2-2004), where the proceedings initiated under section 148 for the reason that excessive deduction under section 80HHC was allowed in the original assessment order completed under section 143(3) was held valid by giving the following reasons:-
"7. We have carefully considered the rival submissions and perused the materials placed before us. There are certain undisputed facts of the case. One, the impugned notice under section 147/148 was issued well within four years from the end of the assessment year in question and hence the case of the assessee would fall under the main provisions of section 147 and not under the proviso to section 147. Therefore, the validity of the impugned notice is required to be examined with reference to the statutory requirements of the main provisions of section 147. Under the substituted section 147, existence of only one condition, i.e., the assessing officer must have reason to believe that income, profits or gains chargeable to income-tax has escaped assessment, suffices. Two, the assessing officer has, at the original assessment stage, neither considered nor dealt with the claim of the assessee under section 80HHC in the original assessment order as there is no reference in the said order to show that this aspect was at all considered/ examined by the said assessing officer. From this, it is clear that there was no conscious consideration of the aforesaid issue at the original assessment stage. May. be the assessing officer placed too much faith on the audit report which too did not point out that the calculation of deduction was not in accordance with the statutory provisions of section 80HHC. Be whatever it may, the fact remains that the assessing officer, while completing the original assessment, overlooked to examine the claim of the assessee with reference to the statutory provisions of section 80HHC. In this connection, it may be pertinent to refer to Explanation I (earlier, i.e., before 1-4-1989, it was Explanation 2) according to which mere production of evidence before .the assessing officer would not per se be enough. Three, it is not the case of the assessee that the reasons recorded by the assessee were irrelevant or were not germane to the formation of the requisite belief that the income chargeable to tax had escaped assessment. In the face of such clear facts on record, we are unable to support the order of the Id. CIT (A) declaring the impugned notice as illegal.
9. As again rightly pointed out by the Id. D.R., the CIT (A) was not right in declaring the impugned notice as illegal on the ground that the issue of the impugned notice was based on the change of opinion. In our view also, it was a case where deduction was wrongly allowed by overlooking the statutory provisions of section 80HHC. When the assessing officer has neither given any conscious thought to the aforesaid claim of the assessee nor considered nor commented upon the same in the assessment order, it is difficult for us to support the decision of the CIT (A) that it was a case of change of opinion as such change of opinion is possible only where the assessing officer, while completing the original assessment, had formed a conscious opinion about the admissibility of the claim. In the present case before us, the assessing officer simply overlooked the matter without expressing any definite opinion about the admissibility or inadmissibility of the claim under section 80HHC. To our mind, it cannot be said in the present case that the impugned notice was issued as a result of the change of opinion by the assessing officer.
10. The reasons recorded by the assessing officer do not refer to any audit report. However, the Id. CIT (A) has observed in paragraph 9 of his order that an audit objection was received from the revenue Audit on 5-10-1999 in which the Audit Party had opined that the assessing officer had given irregular deduction under section 80HHC. He has also reproduced the said audit objection in his order. Perusal of the said audit observation shows that the audit party has not interpreted any law or provision of the Income Tax Act. It has simply invited the attention of the assessing officer to a factual error, i.e., irregular deduction allowed to the assessee which is not consistent with the mode of calculation provided under section 80HHC for quantification of deduction. However, mere receipt of audit report does not by itself mean that the assessing officer has acted upon the same mechanically. It is also not true to say that audit report pointed out factual errors cannot form the basis for re-opening the assessment. In CIT v. RVS. Beedies Pvt. Ltd (1999) 237 ITR 13 (SC), the Hon'ble Supreme Court has held that there could be no dispute that the audit party is entitled to point out a factual error or omission in the assessment and the re-opening of a case on the basis of a factual error pointed out by the audit party was permissible under law. The case before us is squarely covered by the ratio laid down in the said judgment. As already mentioned above, it is not the case of the assessee that the reasons recorded by the assessing officer were irrelevant or not germane to the formation of his belief that the income chargeable to tax has escaped assessment or that the factual error pointed out by the audit was incorrect or that the assessment has been re-opened on the basis of interpretation of law given by the audit. In this view of the matter, we are unable to support the order of the learned CIT (A) on this point also.
18. The facts of the case before us are altogether different. First, it is not the case before us that the assessing officer had examined the claim of the assessee for deduction under section 80HHC and then allowed the same. There is no finding to that effect in the original assessment order. The assessment order shows that the assessing officer simply overlooked to examine the claim of the assessee under section 80HHC and that is the reason why there is no discussion in the original assessment order about the admissibility or inadmissibility of the claim. In the case of IMC v. JCIT (supplied by us in ITA No. 548/ Kol./2003), two assessing officers had specifically examined and allowed the claim in the assessment order. This is a significant material difference between the aforesaid case before the Hon'ble High Court and the present case before us. Secondly, the case of the assessing officer before us is that the assessee was granted excessive relief over and above what the statutory provisions of section 80HHC provided for. Thus the assessing officer has simply sought to re-calculate the relief under section 80HHC and not taxability of any income by interpreting any law or provision. This is again a material difference between the case before us and the one before the Hon'ble High Court. Thirdly, the Audit had interpreted the law and given a legal opinion in the case before the Hon'ble High Court whereas in the case before us, the Audit has neither interpreted any provisions of law nor given any legal opinion nor has the assessee raised any such contention before us. The Audit has simply pointed out calculation errors in the claim of the assessee under section 80HHC which was overlooked by the assessing officer at the original assessment stage as the assessing officer had not applied his mind to examine the claim of the assessee for deduction with reference to the statutory provisions of section 80HHC and this is how he granted excessive relief. Please see Explanation 2(c)(iii) to section 147. The assessment in the case before the Hon'ble High Court was re-opened on the basis of audit report whereas the assessing officer, in the case before us, has not made any reference to any audit report in the reasons recorded by him. Besides, it is not the case of the assessee before us that (i) the reasons recorded by the assessing officer were irrelevant or not germane to the formation of the requisite belief, or (ii) excessive relief was not allowed to it with reference to the statutory mode of calculation provided under section 80HHC at the original assessment stage; or (iii) the re-opening was based on interpretation of law as given by the Audit; or (iv) the assessing officer had considered or examined the claim of the assessee on merits in the original assessment order on the basis of which it could be inferred that the re-assessment was guided by mere change of opinion. Thus all the facts in the case before us are materially difference from those before the Hon'ble High Court in IMC v. JCIT (supplied by us in ITA No. 548/Kol./2003) and hence that judgment, in our view, would not apply on the facts and in the circumstances of the case before us".
21. Also in the light of the decision of Coordinate Bench in the aforesaid case of ITAT 'C' Bench, Kolkata in the case of Delta Industries Ltd. (supra), we are unable to support the order of the Id. CIT (A), in the instant case, in cancelling the reassessment proceedings initiated under section 147 of the Act.
22. With regard to the Id. CIT (A)'s observation in his order that re-opening of assessment made by the assessing officer was based on the interpretation of law given by the Audit Party as to the meaning of section 80HHC(3), we find, on perusal of the reasons recorded by the assessing officer in writing for initiating proceedings under section 147, that the assessing officer has examined the case himself and come to an independent conclusion that there was escapement of income by reason of the fact that the assessee had shown the profit from export of trading goods at Nil though the profit from export of trading goods was loss of Rs. 22,08,86,222 as per the calculations and consequently there was an escapement of income by reason of excessive deduction allowed under section 80HHC at the original stage. Even there is no whisper about the Audit Party's opinion or interpretations in the reasons recorded by the assessing officer for initiating re-assessment proceedings under section 147 of the Act. However, mere receipt of Audit Report as mentioned by the Id. CIT (A) in his order does not by itself mean that assessing officer has acted upon the same mechanically while initiating proceedings under section 147 of the Act. In the case of CIT v. P. V S. Beedies (P.) Ltd. ( 1999) 237 ITR 13, the Hon'ble Supreme Court has held that there can be no dispute that the audit party entitled to point out the factual error or omission in the assessment and the re-opening of a case on a basis of factual error pointed out by the Audit Party was permissible under the law. In the case on hand, it is not the case of the assessee that the reasons recorded by assessing officer were in any way irrelevant or not germane to the formation of his belief that the income chargeable to tax has escaped assessment or that the factual error pointed out by the assessing officer was incorrect or that the assessment has been re-opened on the basis of interpretation of law given by the Audit Party. In this view of the matter, we are, therefore, unable to support the order of the Id. CIT (A) on this point also.
23. Further, the assessing officer's subsequent order under section 154 made on 11-6-1999/24-6-1999 and consequent appellate orders thereupon does not invalidate the assessing officer's action already taken by him under section 147 on 18-11-1998 for the reasons recorded on that date for assuming the jurisdiction under section 147. The subsequent event cannot validate or invalidate the action already initiated under section 147 on the basis of reasons/materials which were before the assessing officer at the time of assuming jurisdiction under section 147. When the reassessment proceedings has been validly started, subsequent event cannot invalidate the earlier proceedings already initiated under section 147 of the Act. Therefore, the assessing officer's order under section 154 made on 11 -6-1999/24-6-1999 subsequent to the issuing of notice under section 148 on 18-11-1998 and also subsequent to the filing the return of income by the assessee on 31-12-1998 in response to assessing officer's notice issued under section 148 of the Act, cannot be held to be a basis to hold that the reassessment proceedings are bad being based on change of opinion on the question of allowability of deduction under section 80HHC.
24. Having regard to the foregoing discussion and for the reasons given above in the light of the facts and circumstances of the case so found by us, we may summarise our conclusions as under:-
(i) The assessing officer has initiated reassessment proceedings under section 147 of the Act within four years of the end of the relevant assessment year.
(ii) There was prima facie a failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for determining the amount of deduction under section 80HHC at the original stage.
(iii) The assessee never explained before the assessing officer that how he was claiming deduction under section 80HHC by ignoring the loss incurred in trading goods.
(iv) The assessee has not been able to prove and establish that either at the time of furnishing the return of income or in the Chartered Accountant's certificate given in Form No. 1OCCAC filed along with the return of income in support of assessee's claim under section 80HHC or while supplying information at the time of original assessment, the assessee had disclosed or clarified or contended before the assessing officer that any loss in trading goods is to be ignored for the purpose of computing the deduction under section 80HHC.
(v) Any decision or any circular supporting the assessee's contention that any loss in trading goods is to be ignored for the purpose of computing the deduction under section 80HHC were never placed by the assessee before the assessing officer or were never considered by the assessing officer in the course of original proceedings.
(vi) It is the case where the assessee had not disclosed complete facts truly which could enable him to claim the deduction under section 80HHC to that extent of amount as claimed in the certificate enclosed with the return of income.
(vii) On the facts of the present case as discussed above, the assessing officer could not be said to have opined on the issue as to whether any loss in trading goods is to be ignored or not while computing the amount of deduction in the manner as laid down under section 80HHC(3)(c) of the Act.
(viii) It is also not the case where after examining and perusing all necessary material facts the assessing officer had considered or examined the claim of the assessee under section 80HHC on merits in the original assessment so that on the basis of which it could be said that the reassessment proceedings are based on a mere change of opinion.
(ix) It is also thus clear that there was no conscious consideration of the assessee's claim under section 80HHC at the original assessment stage.
(x) Showing the amount Nil against Item No. 10 of the Annexure annexed to the Certificate enclosed with the return of income as against actual amount of loss of Rs. 22,08,86,222 and consequently computing the amount of deduction under section 80HHC on that basis without giving any reason in support thereof as clearly pointed out in foregoing paras of this order, tends to expose untruthfulness of the facts disclosed by the assessee.
(xi) It is a case where deduction under section 80HHC was allowed without any application of mind based on incomplete material, significant and relevant facts necessary for the said purpose.
(xii) It is a case where income had escapement by reason of allowing excessive deduction under section 80HHC.
(xiii) It is not a case where the re-opening under section 147 is based on interpretation of law as suggested by the Audit Party. The assessing officer has examined the case himself and came to an independent conclusion that income had escaped assessment within the meaning of section 147 of the Act for the reasons recorded by him in writing.
(xiv) It is not the case of the assessee that the reasons recorded by the assessing officer were irrelevant or imaginary or not germane to the formation of the requisite belief, or the factual error or omission pointed out by the assessing officer were incorrect.
(xv) The belief formed by the assessing officer that he has reason to believe that income had escaped assessment within the meaning of section 147 of the Act is found to be based on relevant, sufficient and adequate materials on record having sufficient and rational nexus or connection with the formation of belief. The assessing officer having reason to believe are honest and are not based on suspicion, gossip, rumour or conjecture. The assessing officer has recorded the reasons on application of his mind.
(xvi) The subsequent order passed under section 154 on 11-6-1999/ 24-6-1999 and consequent appellate orders arising therefrom does not by itself in any way invalidate the assessing officer's jurisdiction already assumed by him under section 147 of the Act, on 18-11-1998 for the reasons recorded by him in writing.
25. That being the position, we are not inclined to support the order of the Id. CIT (A), which is not sustainable on the facts and circumstances of the present case. We, therefore, reverse CIT (A)'s order and hold that the assessing officer had validly initiated the proceedings under section 147 of the Act, and the notice issued under section 148 by the assessing officer is legal and valid. Since the Id. CIT (A) did not decide the additions or disallowances as raised by the assessee in Ground Nos. II and III in the appeal filed before him, on merit, we restore the matter to him with a direction to dispose the same on merit after giving reasonable opportunity of being heard to the assessee as well to the assessing officer.
26. In the result, the appeal filed by the revenue is allowed.