Income Tax Appellate Tribunal - Mumbai
Hussain Ghulam Mohd. Machkal, Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI `H' BENCH
BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER &
SHRI T.R.SOOD, ACCOUNTANT MEMBER
I.T.A.NOS.6362 & 6363/Mum/2009
A.Yrs. 2002-03 and 2004-05
Mohd. Hussain Ghulam Mohd. Vs. Income Tax Officer 16(2)-4,
Machkal, Mumbai
54, B.C.Rehmat Villa, Shop No.4,
Kharsetjee Rama Street, Grant Rd.,
Mumbai 400 007
PAN NO.AFGPM 7745 H
(Appellant) (Respondent)
Appellant by : Shri Rakesh Milwani.
Respondent by : Shri R.M.Tiwari, Sr. DR
ORDER
Per T.R.SOOD, AM:
The appeals of the assessee are directed against CIT[A]'s separate orders dated 9-10-2009 for the assessment years 2002-03 and 2003-04 respectively. They are heard together and disposed of by this common order.
2. I.T.A.No.6362/M/09 - A.Y 2002-03: In this appeal the assessee has raised the following grounds-
1. Considering the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax [Appeals] -27, Mumbai [hereinafter, for the sake of brevity, referred to as "CIT[A]" erred in confirming the reopening the assessment of the appellant u/s.147 of the Income Tax Act, 1961 [hereinafter, for the sake of brevity, referred to as "the Act"] and the same ought to be declared as non-est and bad in law.
2. Considering the facts and circumstances of the case and in law, the CIT[A] erred in not declaring that the reopening proceedings ought to have been dropped since the reason for 2 ITA NOS.6362-6363 OF 09 which the same was reopened ceased to survive on the date when the assessment order was passed.
3. After hearing both the parties, we find that in this case return was filed on 31st October, 2002 which was processed u/s.143[1] on 28-3-2003. Later on assessment was reopened and notice u/s.148 was issued on 21st October, 2004. It was noticed that assessee had declared gross loss and claimed deduction u/s.80HHC on duty draw backs and, therefore, in view of the decision of the Hon'ble Supreme Court in the case of Ipca Laboratories Ltd. Vs. CIT.CIT [266 CIT 521], the assessment was reopened.
4. On appeal, action of the AO was confirmed by the ld. CIT(A) by observing that originally return was processed only u/s.143[1] and, therefore, the same could be reopened.
5. Before us, the Ld.counsel of the assessee filed a copy of the decision of the Hon'ble Supreme Court in the case of in the case of Ipca Laboratories Ltd. Vs. CIT.CIT [supra] and submitted that in whole of the decision the issue regarding proviso to sub-sec.[3] was never considered by the Hon'ble Supreme Court. He submitted that even the decision of the Hon'ble Bombay High Court was available at that point of time when the intimation was processed and, therefore, assessment could not have been reopened. He also relied on the decision of the Mumbai Bench of the Tribunal in the case of Aipita Marketing Pvt. Ltd. Vs. CIT in I.T.A.Nos.672 & 673/M/2004 [copy of the decision filed on record], wherein the Bench after distinguishing the decision of Hon'ble 3 ITA NOS.6362-6363 OF 09 Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Broker Pvt. Ltd. [291 CIT 500] held that reopening of the assessment against an intimation u/s.143[1] is not automatic and without sufficient reasons such reopening is not valid. He also pointed out that ultimately addition has not been made on the basis of the point on which assessment was reopened and, therefore, even on considering from that angle, the reopening was not valid and in this regard he relied on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. M. M. Kumar and Rajesh Bindal [copy of the judgment is filed on record].
6. On the other hand, Ld.DR, submitted that originally return was processed u/s.143[1] in which excessive deduction has been claimed u/s.80HHC because assessee had returned loss and, therefore, reopening was valid. He argued that Hon'ble Supreme Court in the case of IPCA Laboratories Ltd's case [supra] has clearly held that deduction u/s.80HHC would be available only when the net result of computation is positive income or profit. He also submitted that sufficiency of the reason cannot be looked into by the court and in this regard he relied on the decision of the Hon'ble Punjab & Harayna High Court in the case of Smt. Usha Rani vs. CIT [301 ITR 121] to point out that similar view was taken by the Hon'ble Rajasthan High Court in the case of CIT vs. Uttamchand Nahar [295 ITR 403].
7. He also submitted that as per the new provision after 1-4-1989 once an assessment is reopened, then the AO has power to reassess all the income which has escaped the assessment even if they are not 4 ITA NOS.6362-6363 OF 09 incorporated in the reasons recorded for reopening. He argued that, in any case, once an assessment is reopened then whole of such assessment gets reopened and in this regard he relied on the decision of the Hon'ble Supreme Court in the case of D.Jaganmohan Rao & Others. Vs. CIT [75 ITR 373] and CIT vs. Sun Engg. Works Pvt. Ltd. [198 ITR 297].
8. We have considered the rival submissions and find that sec.147 reads as under-
"147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Explanation:
[a] ------------
[b]--------------
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed ; 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.] The plain reading of Explanation 2[c] makes it clear that if income has been made subject of excessive relief, then same would be construed as income escaping the assessment. As pointed out by the Ld.counsel of the assessee the decision of the Hon'ble Bombay High Court in the 5 ITA NOS.6362-6363 OF 09 case of Ipca Laboratories Ltd. Vs. DCIT [supra] was available even on the date of filing of the return as well as processing of the return because this decision was rendered on July 2, 2001. In this decision it was clearly held that for claiming deduction u/s.80HHC , the net result should be profit, whereas in the case of the assessee there was a gross loss and, therefore, no deduction was possible. The Hon'ble Supreme Court in the case of ALA Firm vs. CIT [189 ITR 285] has held that if a decision of the jurisdictional High Court was not looked into at the time of original proceedings, then same would constitute 'information' and the assessment would be valid. In that decision, in fact, it was held as under-
"Held, dismissing the appeal (i) that though the Income-tax Officer at the time of the original assessment had looked at the facts and accepted the assessee's contention that the surplus was not taxable, in doing so, he had bviously missed to take note of the law laid down in G. R. Ramachari & Co. (1961) 41 ITR 143 (Mad) and there was nothing to show, that the case had been brought to his notice. When he subsequently, became aware of the decision, he initiated proceedings under s. 147(b). The material which constituted information and on the basis of which the assessment was reopened was the decision in G.R. Ramachari & Co. (1961) 41 ITR 143 (Mad). This material was not considered at the time of the original assessment. Though it was a decision of 1961 and the Income-tax Officer could have known of it had he been diligent, the obvious fact is that he was not ware of the existence of that decision then and, when he came to know about it, he rightly initiated proceedings for assessment.
Thus, it is clear that if the AO has originally ignored the decision of the jurisdictional High Court and the same was not brought to the knowledge of the AO by the assessee, then same would constitute a valid reason for reopening of the assessment particularly in view of Explanation 2[c] to sec.147 in the mandate.6 ITA NOS.6362-6363 OF 09
9. In any case, originally return was processed u/s.143[1][a] and Hon'ble Supreme Court has very clearly held that once a return is processed u/s.143[1], then it cannot be said that any opinion has been expressed and, therefore, it cannot be said that during re-assessment proceedings the same is on the basis of change of opinion. In fact, the following head-note would make it clear-
"Taxing income escaping assessment in the case of an intimation under section 143(1)(a) is covered by the main provision of section 147 as substituted with effect from April 1, 1989, and initiating reassessment proceedings in the case of intimation would be covered by the main provision of section 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to take steps under section 143[3] will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation under section 143[1][a] has been issued."
The above discussion very clearly shows that there was a binding precedent available in the form of decision of Hon'ble Bombay High Court in the case of Ipca Labs Ltd. [supra] still assessee chose to claim a wrong deduction and the decision was not brought to the notice of the AO, therefore, the reopening of the assessment is valid particularly in view o the decision of the Hon'ble Supreme Court in the case of ALA Firm [supra] as well as ACIT vs. Rajesh Jhaveri Stock Broker Pvt. Ltd. [supra].
10. As far as the issue whether the whole assessment gets reopening or not the Hon'ble Supreme Court in the case of D. Jaganmohan Rao l& Ors. Has clearly held as under-
"Once proceedings under section 34 are validly initiated the jurisdiction of the Income-tax Officer is not restried to the portion of the income that escapes assessment. Section 34 in terms says that that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person 7 ITA NOS.6362-6363 OF 09 liable to pay tax a notice containing all or any of the requirements which may be included in a notice under s. 22(2) and may proceed to assess or reassess such income, profits or gains. Therefore, once assessment is reopened by issuing a notice under sub-s. (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. once valid proceedings are started under section 34(1)(b) the Income-tax Officer not only had the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year."
In any case, here again, if we look at the new sec.147 after the amendment made w.e.f. 1-4-1989 it becomes clear that the new provision itself mandate assessment of any other item of income which comes to the notice subsequently in the course of the proceedings under this section. In fact, the new sec.147 reads as under-
"147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
The highlighted portion clearly shows that items of income which comes to light subsequently to the issue of notice are also required to be assessed if they have escaped assessment. In view of this, we find no force in the contention that re-assessment could be restricted only to the items of income which have been made part of the reasons for reopening of the assessment. In view of the above legal position, we confirm the order of the ld. CIT(A).\
11. In the result, assessee's appeal in I.T.A.No.6362/M/09 is dismissed.
8 ITA NOS.6362-6363 OF 09
12. I.T.A.No.6363/M/09 A.Y 2002-03: In this appeal, assessee has raised the following ground-
"Considering the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax [Appeals] -27, Mumbai [hereinafter, for the sake of brevity, referred to as "CIT[A]" erred in estimating the income at Rs.250000 against net profit of Rs.71326 declared by the appellant before considering deduction u/s.80HHC and the same ought to be reduced to reduce to Rs.35663 considering 80HHC deduction being restricted to 50% of export income."
13. After hearing both the parties, we find that during assessment proceedings various opportunities were given. Ultimately one Mr.Ahmed Katal attended on 23-11-2005 and filed certain invoices. The case was adjourned to 28-11-2005 for remaining details, but nobody attended on that date. Fresh opportunities were given on 15-12-2005 and 24-3-2006 but nobody attended. Ultimately the income was assessed u/s.144 by estimation of profits as under-
" The assessee is an exporter and shown sale of Rs.5630532/- and declared gross loss of Rs.3826. Assessee has received duty drawback and DEPB Rs.464497/- and DEPB Rs.145247 respectively. Assessee has claimed expenses, purchases Rs.4009324, job work 1477105, salary 162100. For want of verification all these expenses as books of account and bills vouchers are not produced, the assessee's income is estimated at Rs.609700/-."
14. Action of the AO has been confirmed by the CIT(A).
15. Before us, the Ld.counsel of the assessee submitted that the books of accounts of the assessee were destroyed during the floods in 2005 and that is why the same could not be produced. He submitted that however certain copies of invoices were filed. He also referred to page 4 of the paper book which gives chart of income for various years and submitted that the turn over of the assessee has gone down quite substantially whereas over-head remained same, and that is why net 9 ITA NOS.6362-6363 OF 09 profit has gone down. In any case, the estimation has been made on the very high side.
16. On the other hand, Ld.DR, submitted that no proof of destroyed of books has been filed. In any case, during the year the assessee had brought a sum of Rs.6,09,747/- by way of DEPB itself and, therefore, estimation of income at Rs.6,09,700/- was justified.
17. We have considered the rival submissions carefully and find that despite various opportunities, books of accounts were not produced. However, it is a common knowledge that there were un-preceded floods in Mumbai in 2005 and may be books of accounts were lost. The chart of income filed by the assessee reads as under"
Assessment sales Gross Duty Net Percentage of
Year profit Drawback profit G.P N.P.
+ DEPB
2001-2002 18959956 [450329] 2920506 1322051 -2.38% 6.97%
2002-2003 18545397 [845452] 2690700 1244687 -4.56% 6.71%
2003-04 5630532 [3826] 609744 71326 -0.07% 1.27%
The above chart makes it clear that GP as well as NP has gone down substantially in the current year. When the assessee has shown DEPB receipts itself at Rs.6,09,744/-, then it is not clear why the net profit is so low. However, looking at the over all circumstances of the case particularly reduction in the turnover, we are of the view and ends of justice would be met if the net profit is estimated at Rs.5 lakhs. Therefore, we set aside the order of the ld. CIT(A) and direct the AO to estimate the profit at Rs.5,00,000/-.
10 ITA NOS.6362-6363 OF 09
18. In the result, assessee's appeal in I.T.A.No.6363/M/09 is partly allowed.
Order pronounced in the open Court on this 23rd day of July, 2010.
Sd/- Sd/-
(D.K.AGARWAL) (T.R.SOOD)
Judicial Member Accountant Member
Mumbai: 23rd July, 2010.
P/-*