Income Tax Appellate Tribunal - Delhi
Orient Crafts Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "E" DELHI)
BEFORE SHRI G.D. AGRAWAL,
HON'BLE VICE PRESIDENT
AND SHRI A.D. JAIN, JUDICIAL MEMBER
ITA Nos. 3461(Del)08 & 1415(Del)2009
Assessment year: 2002-03
M/s. Orient Craft Limited, v. Dy.Commissioner of Income
F-8, Okhla Indl.Area, Phase I, Tax, Circle 13(1), New Delhi.
New Delhi.
ITA Nos. 1941(Del)09 & 3604(Del)10
Assessment year: 2002-03
Dy.Commissioner of Income M/s.Orient Craft Limited,
Tax, Cir. 13(1), New Delhi. V. F-8, Okhla Indl.Area, Phase I,
New Delhi.
(Appellant) (Respondent)
Assessee by: S/Shri Salil Aggarwal & Sailesh Gupta, Adv.
Department by: Shri Raj Tandon, CIT/DR
ORDER
PER A.D. JAIN, J.M.
These are cross appeals for assessment year 2002-03. ITA No.1415 is the assessee's appeal whereas ITA No. 1941 is the Department's appeal. In the assessee's appeal, the following grounds have been taken:-
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"1. That the order passed by Learned Commissioner of Income Tax (Appeals) is bad in law and against the facts & circumstances of the case.
2, That the Learned CIT (Appeals) erred in law and on facts in not accepting the contention of the Appellant regarding reopening of assessment under section 147.
It is contended that the proceedings initiated u/s 147 of the Income Tax Act are without jurisdiction, void, not based on evidences and are non-est in law.
3.That the Learned CIT (Appeals) has erred in law and on facts in holding that interest on FDR amounting to Rs. 9,98,245/- has rightly been treated by the AO as income from other sources.
The contention of the learned CIT (Appeals) and AO that surplus funds are parked in FDR and it has no nexus with the export business of the appellant is wrong and misconceived of the facts.
4.The learned CIT (Appeals) erred in law and on facts in holding that interest on FDR is not eligible for deduction u/s 80HHC of the Income Tax Act, 1961."
2. In the Department's appeal, the revenue has raised the following grounds:-
(i) "On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law in directing the AO to treat the premium on sale of quota amounting to `.
17,54,174/- as other receipts under explanation (baa) to section 80HHC of I. Tax Act.
(ii) On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law and facts in directing the AO to treat DEPB income amounting to `. 2,55,74,491/- as other receipts under explanation (baa) to section 80HHC of I.Tax Act."
ITA No. 1415:
3. Ground No. 1 is general.
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4. Ground Nos. 2&3 are against the reopening of the completed assessment.
5. The facts are that the assessee filed its return of income for the year under consideration on 30.10.2002, declaring an income of ` 4,45,35,395/-. The return was processed u/s 143(1) on 27.2.2003. Notice u/s 148 of the I.T. Act was issued on 15.7.2005. For the reason that while deducting 90% of other income from the profit of business, premium on sale of quota of ` 17,54,174/- included in the sales, was not considered, which resulted in excess allowance of deduction u/s 80 HHC of the Act. In response, the assessee filed its return of income on 22.8.2005, again declaring a total income of ` 4,45,35,395/-. Thereafter, the assessee filed a revised return of income on 20.8.2006, reducing the taxable income to the extent of ` 71,471/- and increased the claim of deduction u/s 80 HHC of the Act. The assessee objected to the reopening of the completed assessment. Vide order dated 31.10.2006, passed under sections 147/143(3) of the Act, the AO recomputed the deduction u/s 80 HHC of the Act.
6. As noted, in the assessment proceedings itself, the assessee had questioned the reopening . The AO, however, rejected this 4 challenge, observing, inter alia, that the reasons recorded for reopening the completed assessment clearly established beyond doubt that the assessee's case was covered in clause (c) of Explanation 2 below the first proviso to Section 147 of the Act, the assessee having claimed excess deduction u/s 80 HHC on export quota premium; and that the notice u/s 148 of the Act was within the period of 4 years and no assessment u/s 143(3) of the Act had been made earlier in the case.
7. Before the ld. CIT(A), the assessee again took up the challenge against the reopening. It was contended that the proceedings initiated u/s 147 of the Act were without jurisdiction and void and not based on any evidence; that there was no material before the AO or any reason to believe the escapement of income; that along with the return of income filed on 31.10.02, all the required documents including claims for deduction u/s 80 HHC of the Act in the form of report u/s 10 CCAC with calculation details in respect of working of deduction u/s 80 HHC were also filed; that after the processing of the return, such completed assessment was wrongly reopened; that the assessee's objection against the said reopening, however, was wrongly 5 rejected by the AO; that the reasons to believe escapement of income were never provided to the assessee in the assessment proceedings, but were only reproduced in the assessment order passed under sections 147/143(3) of the Act on 31.10.2006; that the case of the AO was therefore hit by the decision of the Hon'ble Supreme Court in "G.K.N. Driveshaft (I)Ltd. v. ITO", 259 ITR 19(SC), where-under, the AO is bound to furnish the reasons to the assessee within a reasonable time so as to enable the assessee to file objections thereon; that further, the provisions of section 147 of the Act can be invoked only if the AO has reason to believe escapement of income; that the reasons recorded by the AO must disclose the process of reasoning for arriving at such a belief; that merely saying that excess loss of depreciation had been computed, without disclosing the reasons or wrong interpretation leading the AO to hold such belief does not confer jurisdiction on the AO to reassess the income; that also, a mere change of opinion on the interpretation of a particular provision from that adopted by the earlier Assessing Authority also does not confer jurisdiction to reassess income; that in the present case, the AO's contention that while deducting 6 90% of other income from the profit of business, premium on sale of quota of ` 17,54,174/- included in the sales, was not considered, was factually incorrect, rendering the reopening of the completed assessment bad in law; that premium on sale of quota of ` 17,54,174/- was never included in the sale for the purpose of computation of income u/s 80 HHC of the Act; that this view of the AO was also incorrect in view of the Instruction No. 133/137/97/TCC dated 23.2.98 issued by the CBDT relying on various judicial decisions including the CIT(A)'s orders in the assessee's own case for assessment years 2000-01 and 2001-02; that moreover, it has been held in various judicial decisions that when the primary facts necessary for the assessment are fully and truly disclosed to the AO at the stage of the original assessment, he is not, on a mere change of opinion, entitled to commence reassessment proceedings.
8. While rejecting the said contentions of the assessee, the ld. CIT(A) observed as follows:-
"I have gone through the observations made by the AO in the assessment order and the submissions filed by the appellant on this issue. It is seen that the AO has recorded reasons before reopening the assessment proceedings. The 7 assessment was reopened on the basis of certain discrepancies noticed with regard to deductions claimed u/s 80HHC of the I.T. Act, 1961 and the same has been reopened within four years from the end of the relevant assessment year. Therefore, the provisions of proviso to sec. 147 do not apply to the facts of the present case. It is a settled law that if notice u/s 148 is issued within four years from the end of the relevant assessment year, the assessment can be reopened in spite of the complete disclosure of material facts made by the appellant. It is seen objection of the appellant for reopening of assessment has been dealt in para 4,5,6 of the assessment order. There was no separate objections raised by the appellant before starting of the proceedings, therefore, no separate order was passed by the AO as required by the decision of the Hon'ble Supreme Court in the case of G.K.N. Driveshaft (I) Ltd. vs. ITO and others. The case laws relied upon by the appellant are not identical to the facts of the appellant's case. There is no procedural or legal lacuna in the reopening made by the AO. Therefore, the contention of the appellant cannot be accepted. Reliance is placed on the judgment of Praful Chunni Lal Patel Vasant Chunni Lal Patel Vs. ACIT (1999) 236 ITR 832 (Guj.).
As such there is no force in the above ground of appeal raised vide ground no. 2 of appeal, accordingly the same is rejected."
9. Aggrieved by the aforesaid action of the ld. CIT(A), the assessee has raised ground Nos. 2&3 before us.
10. Before us, the learned counsel for the assessee has broadly reiterated the stand taken before the Authorities below. It has been contended that the initiation of the reopening of the completed assessment was brought about within 4 years of the 8 relevant assessment year; that the reason for reopening was only one, i.e., that while deducting 90% of the income from profit of business, the assessee had allegedly not considered premium on sale of quota of ` 17,54,174/- resulting in excess allowance of deduction u/s 80 HHC of the Act to the assessee; that in fact, there has been no escapement of income; and that the reason recorded by the AO for reopening the completed assessment is not at all a valid reason, since it was incorrect inasmuch as premium sale of quota of ` 17,54,174/- was never included in the sale for the purpose of computation of deduction u/s 80 HHC of the Act. Attention in this regard has been drawn to the Tribunal order dated 7.9.05 passed in ITA Nos. 2210 and 2211, in the assessee's own case for assessment years 2000-01 and 2001-02 [copy at pages 65 to 71 of the Assessee's Paper Book ("APB", for short)] , wherein, while dealing with the assessee's challenge to the CIT's order u/s 263 of the Act, the Tribunal held that the income resulting to the assessee from the sale of quota rights is exigible for the benefits envisaged u/s 80 HHC of the Act, in line with the decision in "Anil L. Shah v. ACIT", 95 TTJ 206(Mumbai) and CBDT Instruction No. 133/139/97 - TCL 9 dated 23.2.98. Attention has also been drawn to the Tribunal order dated 21.11.08, in the assessee's own case for assessment years 1999-00 and 2003-04(copy at APB 74 to 82), wherein, the aforesaid Tribunal decision for assessment years 2000-01 and 2001-02 was followed. It has also been pointed out that for assessment years 2000-01 and 2001-02, the quantum first appellate orders of the CIT(A), holding that the premium on sale of quota could be taken to be covered u/s 28(iia) for the purpose of calculating profit on business as per the proviso to section 80 HHC(3) of the Act, was upheld by the Tribunal vide its order dated 15.10.2007 (copy at APB 72 -73), taking cognizance of the fact that vide its order (supra) dated 7.9.05, orders passed by the CIT u/s 263 of the Act had been quashed. The learned counsel for the assessee has sought to place reliance on "CIT v. Kelvinator of India Ltd.", 320 ITR 561(SC) and "ACIT v. Rajesh Jhaveri Stock Brokers Pvt.Ltd.", 291 ITR 500(SC) to contend that no tangible material having been available before the AO after the processing of the return filed by the assessee, the reopening of the completed assessment was bad in law. 10
11. The ld. DR, on the other hand, has strongly relied on the impugned order. It has been contended that as correctly observed by the ld. CIT(A), the assessment was reopened on the basis of certain discrepancies noted with regard to the deductions claimed u/s 80 HHC of the Act; that the proviso to section 147 of the Act does not apply, the reopening of the completed assessment having been brought about within 4 years from the end of the relevant assessment year; that as such, the assessment could be reopened despite complete disclosure of material facts by the assessee; and that the reasons recorded are to be read as a whole. The ld. DR has filed a Synopsis/Compilation of judicial decisions.
12. The compilation of judicial decisions filed by the ld. DR, it is seen, has been filed in the Department's appeal in ITA No. 1941(Del)09 in which, the issues, as seen from the Grounds of Appeal above, pertain to the treatment to be accorded to the premium on the sale of quota and DEPB income. 14 out of the 17 decisions discussed in this compilation are regarding reopening of the completed assessment. The remaining 3 decisions deal with the issues involved in the Department's 11 appeal. The learned Counsel for the assessee has also filed a Synopsis in Rebuttal.
13. We have heard the parties on ground Nos. 2&3 in the assessee's appeal. The issue is as to whether the ld. CIT(A) has rightly upheld the reopening of the completed assessment of the assessee, even though, as per the assessee, such reopening was bad in law.
14. The following are the reasons recorded for reopening of the completed assessment of the assessee:-
"On going through the return of income filed by the assessee, it is revealed that while deducting 90% of other income from the profit of business, premium on sale of quota of Rs. 17,54,174/- included in the sales was not considered. Therefore omission to deduction 90% of Rs. 17,54,174/- from the profit of business resulted in excess allowance of deduction u/s 80HHC of the Income Tax Act, 1961. In view of these facts there is reason of believe that the income chargeable to tax has escaped assessment."
15. The assessee's contention, on the other hand, is that this reason is wrong inasmuch as the premium on sale of quota of ` 17,54,174/- was never included in the sale for computation of deduction u/s 80 HHC of the Act. In its reply dated 28.8.06 (copy at APB 30 to 39), the assessee had submitted that a 12 clarification has been sought by the Apparel Export Promotion Council (AEPC) as to whether the premium received for the transfer of export quotas would be treated as a part of export profit eligible for deduction under section 80HHC of the I.T. Act; that the CBDT, in this regard, vide Instruction No. 133/137/97- TCL, dated 23.02.1998, has clarified that the premium on sale of export quotas statutorily receives the same treatment as profits on sale of import licences, cash assistance and duty draw back; that as per the said Instruction, premium on sale of quota should get the same treatment as that accorded to export incentives; that more-over, for assessment years 2000-01 and 2001-02, in the assessee's own case, vide order dated 31.7.2006, the ld. CIT(A) had held that premium on sale of quota should get the same treatment as for the export incentives; and that accordingly, the deduction u/s 80HHC of the Act had been got revised by the assessee company as per the said CBDT Instruction and the CIT(A)'s order for assessment years 2000-01 and 2001-02, and according to the revised computation of income, the assessee Company would be entitled for a refund of ` 32,026/-. Vide its written submission dated 20.2.07 (copy at APB 45 to 53), filed 13 before the CIT(A), the assessee, inter alia, contended that along with the return of income, all the required documents including the claim of deduction u/s 80HHC in the form of report u/s 10 CCAC for calculation details in respect of working of deductions u/s 80 HHC of the Act had been filed, after which, the return filed was processed; that the reasons recorded for reopening the completed assessment had not been supplied to the assessee and were delineated only in the assessment order; that the reasons recorded by the AO are wrong since the premium on sale of quota of ` 17,54,174/- had never been included for sale of computation of income u/s 80 HHC of the Act; that the reason of the AO was also incorrect in view of the CBDT Instruction dated 23.2.98 (supra), relied on by the ld. CIT(A) himself in the assessee's own case for assessment years 2000-01 and 2001-02 (supra); and that it was legally settled that when the primary facts necessary for the assessment are fully and truly disclosed to the AO in the original assessment, the AO is not entitled, on a change of opinion to commence reassessment proceedings.
16. In its written submissions dated 20.1.09 (copy at APB 61 to 64) filed by the assessee before the ld. CIT(A), the assessee 14 reiterated its aforesaid stand and it was stated that the claim of the assessee was allowable and had been allowed in the past also, due to which, on the same set of facts, reopening of the assessment was bad in law.
17. The ld. CIT(A), however, did not favourably consider the above contention on behalf of the assessee.
18. In the assessee's own case, the Tribunal, vide its order dated 7.9.05(supra), for assessment years 2000-01 and 2001-02, has decided the issue of treatment of premium on sale of quota for the purpose of section 80 HHC of the Act. It has been held as follows:-
"5. In the above background, we have considered the pleas of the assessee as well as the stand of the revenue manifested by the order of the Commissioner. We have also perused the order of assessment framed by the Assessing Officer under section 143(3) of the Act as well as the other material placed on record, to which our attention was drawn during the course of the hearing. The crux of the dispute before us relates to the efficacy of the exercise of jurisdiction by the Commissioner u/s 263 of the Act whereby the order of assessment dated 28.02.2003 passed by the AO u/s 143(3) of the Act has been held as erroneous in so far as it was pre-judicial to the interest of the revenue with regard to an element of deduction allowable u/s 80HHC of the Act to the assessee. The first and the foremost grievance of the assessee is that the assumption of jurisdiction by the Commissioner u/s 263 itself if flawed for the reason that the twin conditions 15 required to satisfy the invocation of section 263 have not been complied with. The Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd. (supra) held that the Commissioner, u/s 263 has to be satisfied of twin conditions, namely, that the order of the AO sought to be revised is erroneous and that it is prejudicial to the interest of the Revenue. The twin conditions have to be cumulatively satisfied. Even if one of them is absent i.e. if the order of the Assessing Officer is erroneous but not prejudicial to the interest of Revenue or if the order of the AO is not erroneous but is prejudicial to the interest of Revenue, no recourse can be made to the provisions of sec. 263 of the Act. With this short discussion, we proceed to examine the factual contours of the present controversy.
6. In the instant case, we may first examine as to the manner in which the assessee has claimed deduction u/s 80HHC of the Act. Evidently, the assessee claimed deduction u/s 80HHC of Rs. 19,13,58,168/- in the return of income which was also accompanied by the report of an accountant in terms of sec. 80HHC(4) of the Act. A copy of the requisite report was also being placed in the Paper Book filed before the Tribunal. It is observed that the receipt by way of sale of quota rights have been shown as a part of total turnover. Secondly, the said gross receipts were taken as part of local turnover and consequently it constituted a part of the "profits of the business". It was on this basis the assesee has thereafter computed its claim u/s 80HHC at Rs. 19,13,15,168/- which has since been accepted by the AO in the course of assessment u/s 143(3) of the Act. The first and the foremost aspect that we find expedient to examine is as to whether the claim so made by the assessee and also allowed by the AO in the assessment finalized u/s 143(3) could be said to be prejudicial to the interest of Revenue in the context of the stand of the Commissioner that the claim of the assessee had been allowed in a manner not admissible under the Act in respect of the profit on sale of quota rights. In this context a reference is necessary to the Instruction dated 23.02.1998 (supra) by the CBDT regarding the treatment 16 of premium received on the transfer of quotas for the purposes of computing deduction u/s 80HHC of the Act, as copy of which has been placed in the Paper Book. We find it convenient to reproduce herein paras 3 and 4 of said Instruction which reads as under: -
"3. Technically export premium can be equated with the items mentioned in section 28(iiia) (profit on sale of import licenses), section 28(iiib) (Cash assistance) and Section 28(iiic) (duty drawback).
4. Therefore the present item, viz. the premium on sale of export quotas statutorily receive the same treatment as profits on sale of import licenses, cash assistance and duty drawback."
In terms of the said Instructions, it is clarified that the profit on sale of quota rights are to be equated with the items mentioned in sec. 28(iiia) (profits on sale of import licenses), 28(iiib) (Cash Assistance) and sec. 28(iiic) (duty drawback). This would imply that the treatment meted under section 80HHC to the items specified in sec. 28(iiia),28(iiib) and 28(iiic) is also to be accorded to the income earned by the assessee as profit on sale of quota rights. Therefore, the proviso to sec. 80HHC(3) comes into play whereby the assessee is eligible to further deduction of the amount which bears to 90% of any sum referred to in sec. 28(iia), 28(iiib) and 28(iiic), the same proportion as the export turnover bears to the total turnover of the assessee. At this stage, it would also be appropriate to refer to the Mumbai Bench decision of the Tribunal in the case of Anil L. Shah (supra) wherein an identical situation has been considered by the Tribunal. The Tribunal held that the quota premium was not includible in computing total turnover but the same was liable to be excluded to the extent of 90% in terms of Explanation (baa) to sec. 80HHC of the Act. Thereupon, in terms of CBDT Circular (supra) such income is liable for the deduction in terms of the proviso below sec. 80HHC(3) of the Act. Now, once the deduction in this manner is reworked and held to be admissible to the 17 assessee as per alw, there does not remain any prejudice to the Revenue because of the manner in which the AO has finalized the assessment u/s 143(3) of the Act for the reason that the deduction claimed and allowed by the AO stands on a lower footing. Indeed the Commissioner was correct to say that the AO was wrong in not excluding 90% of the income from sale of quota rights from the "profits of business" in terms of Explanation (baa) to section 80HHC but he failed to notice further that such amount is required to be again subjected to relief u/s 80HHC in terms of the proviso to sec. 80HHC(3) as mandated by the CBDT circular dated 23.02.1998 (supra). It is therefore, abundantly clear that the income resulting to the assessee from sale of quota rights is exigible for the benefits envisaged u/s 80HHC and such position has been upheld by the Tribunal in the case of Anil L. Shah (supra) and also in the line with the Instruction issued by the CBDT (supra). Thus, in principle, the assessee is entitled to seek relief u/s 80HHC even in respect of the impugned income. However, coming back to the present controversy, on the basis of the aforesaid decision, even if we are to uphold the charge of the Commissioner that the AO erred in not applying the correct law to compute the deduction u/s 80HHC yet after the application of the correct legal position, there does not remain any prejudice to the Revenue in the order of assessment with respect to computation of deduction u/s 80HHC of the Act. There does not remain any prejudice to the Revenue. Therefore, the twin conditions required to be satisfied by the Commissioner before invoking sec. 263 under the present circumstances, does not stand satisfied. Hence, on this preliminary aspect itself, we find that the assumption of jurisdiction by the Commissioner to interfere in the order of the assessment made by the AO u/s 143(3) by resorting to sec. 263 stands vitiated. As a result, the order of the Commissioner dated 1.02.2005 is liable to be quashed. We hold so.
7. In the result, both the appeals are allowed." 18
19. The aforesaid Tribunal order in the assessee's case for assessment years 2000-01 and 2001-02 has been followed by the Tribunal in the assessee's case for assessment years 1999-00 and 2003-04, vide its order dated 21.11.08(supra). The issue of treatment of premium of sale of quota, which was the only issue tried to be made out by the AO in the reasons recorded for reopening the completed assessment, thus, stands decided in favour of the assessee by the aforesaid Tribunal decisions.
20. Apropos the challenge to the reopening of the completed assessment, in "CIT v. Kelvinator of India Ltd."(supra), the Hon'ble Supreme Court has held that for reopening of a completed assessment, opinion and reason to believe that income has escaped assessment has to be recorded by the AO; that there must be tangible material for the formation of such belief; that the AO has to have reason to believe that income has escaped assessment, but this does not imply that the AO can reopen an assessment on a mere change of opinion; that the concept of change of opinion must be treated as an in-built test to check the abuse of power; that hence, after the amendment brought about in section 147 after 1.4.89 the AO has power to reopen an 19 assessment, provided there is "tangible material" to come to the conclusion that there is escapement of income for assessment; and that the reason must have a link with the formation of belief.
21. In "Rajesh Jhaveri"(supra), the Hon'ble Supreme Court has held, inter alia, that the expression "reason to believe" in Section 147 of the Act would mean cause of justification; that if the AO has cause of justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment; and that at the stage of issue of notice, the only question is whether there was relevant material on which reasonable person could have formed the requisite belief.
22. In the present case, as is evident from the above, no fresh material has come to the notice of the AO after the original return filed by the assessee was processed. The issue on merits stands covered by the Tribunal decision supra and CBDT Instruction supra. Therefore, even as such, no addition could be made. There is, therefore, no escapement of income.
23. Apropos the case laws sought to be relied on by the Department, in "Rajesh Jhaveri" (supra), the Supreme Court laid down a test, i.e., at the stage of issuance of notice of 20 reassessment, what is to be considered is only whether there was a relevant material before the AO, based on which a reasonable person could have formed such belief. In the assessee's case, as above, no material whatsoever, much less tangible material came to the notice of the AO after the processing of the return filed by the assessee. Further, the AO wrongly sought to apply Explanation to Section 80 HHC of the Act. If he had considered the first proviso to Section 80 HHC, it would have been apparent to him that there was no escapement of income. "Rajesh Jhaveri"(supra), moreover, stands now considered by the Hon'ble Supreme Court in "Kelvinator of India"(supra), wherein, as discussed, it has been observed, inter alia, that after the amendment w.e.f. 1.4.89, the AO has power to reopen an assessment, provided there is "tangible material"
to conclude that there was escapement of income from assessment, which is not the case herein, as discussed.
24. The Department has, then relied on "Little Angels Educational Society v. ITO", 336 ITR 413 (AP). However, the facts therein are entirely at a tangent from the ones present herein. In that case, there was a clear tangent material 21 suggesting escapement of income. The order of the ITAT in "Priyadarshini Educational Academy v. ACIT",123 TTJ(Vizag) 195, showed that income had escaped assessment. In the assessee's case, on the other hand, there was no such information with the AO. He based the reasons for reopening the completed assessment on the assessee's return of income which, as considered, did not show any escapement of income, in view of the CBDT Instruction. In "Dalmia P. Ltd. v. CIT & Another", 202 Taxman 372(Del), full and true material facts had not been disclosed by the assessee during the assessment u/s 143(3) of the Act. It was for this reason that the Hon'ble High Court held the reopening to be valid. This is not so, evidently, in the assessee's case. In fact, in the assessee's case, there has been no scrutiny assessment u/s 143(3) of the Act. Moreover, significantly, in that case, even though there had been a scrutiny assessment u/s 143(3) of the Act, the Hon'ble High Court still held that there has to be sufficient material to reopen the assessment. Then, "Dalmia P. Ltd." (supra), involve issue of change of opinion. In the case before us, on the other hand, to reiterate no tangible material or opinion has been 22 shown to have existed before the AO at the time of formation of a reason to believe escapement of income so as to enable the AO to initiate reassessment proceedings.
25. "ACIT & DCIT v, Mahendra Holidays & Resorts India Ltd.", 39 SOT 438(Chennai) is the next case on which reliance has been sought to be placed on behalf of the Department. We are unable to construe as to how this case acts adversely to the cause of the assessee. Therein too, the test of "tangible material" was reiterated, in cases of processing of the return u/s 143(1) of the Act. Further, again, the issue of change of opinion was involved therein, which is present here.
26. The next decision relied on by the Department is "ACIT v. T.N. Gopal", 121 ITD 352(Chennai). In that case, tangible material did exist for the formation of the rectification order u/s 154 of the Act. In the assessee's case, not only there is no such tangible material but also there is no escapement of income, as discussed. The ld. DR has also relied on "Ankita Deposits & Advances P. Ltd. v. CIT", 193 Taxman 36(HP). Therein too, the issue was of change of opinion, which is absent in the appeal at hand. Moreover, "Kelvinator of India"(supra), was not 23 adverted to in that case. Significantly, however, in that case also, it was held that in case no opinion has been expressed, would have the reason to be, as long as it prima facie specifies the conscience of the court, the court would not interfere in the issuance of a notice for reassessment. Herein, as discussed, since there is no escapement of income, as discussed, the opinion expressed by the AO in the reasons does not persuade us to hold the initiation of reassessment proceedings as valid.
27. In "CIT v. Chandra Sekhar Bala Gopal", 328 ITR 619(Ker), it is seen, is the decision rendered prior to "Kelvinator of India"(supra). "Kelvinator of India"(supra) to reiterate, specifically lays down the pre-requisite of tangible material to reopen the assessment. Further-more, even in "Chandra Sekhar Bala Gopal"(supra), the requirement of escapement of income has not been done away with and in the case of the present assessee, it cannot be gain-said, there is no such escapement of income.
28. "CIT v. National Tyre & Rubber Co. of India Ltd.", 15 Taxman.Com 3(Ker) again, does not take into consideration "Kelvinator of India" (supra). Then, in that case, there was 24 tangible material, i.e., Audit Objection. In the assessee's case, no tangible material existed. Then also, even in "National Tyre & Rubber Co. of India Ltd."(supra), escapement of income did exist, which is not so herein.
29. "Jagan Lamps v. ITO", 26 ITD 111(Del) involved, specifically, the issue of change of opinion which is not present herein. Further, therein, there was, again, escapement of income. "Kelvinator of India"(supra) was referred to with reference to existence of tangible material.
30. In "ITO v. Neetee Clothing P. Ltd.", 129 TTJ 342(Del), once more, there was existence of tangible material, i.e., the show cause notice issued u/s 263 of the Act. "Neetee Clothing P. Ltd." (supra), then, involved nothing other than the issue of change of opinion which is absent in the assessee's case. Too, there was escapement of income there. Moreover, the assessment in that case was a scrutiny assessment, whereas in the present case, there has been no scrutiny assessment.
31. Also, in "Frozen Food Exports Ltd. v. ITO", 126 ITD 1(Del), here tangible material existed in the shape of the first appellate orders for other years and the issue involved was 25 change of opinion. There was also escapement of income in that case.
32. "Raymond Woollen Mills Ltd. v. ITO & Others",324 ITR 154(Bom) supports the assessee's case rather than that of the Department inasmuch as it speaks of prima facie material for reopening of the proceedings and in the assessee's case, there was no such material.
33. The Department has, lastly, sought to seek support from "India Exports v. ACIT" 2010-TIOL-621 - ITAT - Mumbai and "DCIT v. Calico Trends" -2011-TIOL-39-ITAT-LKW. In both these matters, the assessment was a scrutiny assessment, subsequent whereto, there had been an amendment in the law, which the AO noticed, in it, the reopening of the completed assessment was held to be valid. The facts of the present case, as deliberated upon, are entirely different, there being no scrutiny assessment and there being no existence of tangible material before the AO after processing of the return of income.
34. The three decisions cited by the Department on merits are-
1. "Santex Fashions Ltd. v. ACIT", 92 ITD 535(Del);
2. "CIT v. Kalpataru", 328 ITR 451(Bom); and
3. "CIT v. Purolator", 2011-TIOL-176-HC-DEL-IT. 26
35. However, in view of the discussion on the validity or otherwise of the initiation of the reassessment proceedings, the merits of the case have not been discussed.
36. For the above discussion, we hold that since there was no tangible material available with the AO to form the requisite belief of escapement of income, the reopening of the completed assessment is unsustainable in the eye of law. The same is, therefore, cancelled.
37. The ld. DR has contended that this being a curable defect, the matter be sent back for fresh adjudication. However, we find that the flaw in the reopening of the completed assessment goes to the very root of the matter and it is a jurisdictional defect. In the absence of tangible material to form a belief of escapement of income and there, in fact, being no escapement of income whatsoever, it is not a curable defect and this contention of the ld. DR is rejected.
38. Since the very reopening of the completed assessment stands cancelled, as above, nothing else remains and the remaining grounds of the assessee's appeal have neither been 27 discussed as they no longer survive and they are not being gone into.
39. Therefore, the appeal of the assessee is partly allowed, as indicated.
ITA No. 1941(Del)2009
40. Since the reopening of the completed assessment has been cancelled as bad in law, as per the discussion in ITA No. 1415(Del)2009 above, the grounds of the Department's appeal, which are on merits, do not survive.
41. Therefore, the appeal of the Department is dismissed ITA Nos. 3461(Del)08 & 3604(Del)10
42. These are cross appeals for assessment year 2002-03 against the order passed by the CIT u/s 263 of the I.T. Act. ITA No.3461(Del)08 has been filed by the assessee whereas ITA No. 3604(Del)10 has been preferred by the Department. The Department in its appeal has taken the following effective grounds:-
1. "That on the facts and circumstances of the case and in law the ld. CIT(A) erred in directing the AO to allow the deduction of Rs. 13,35,65,316/- u/s 10B of the Act after verification.28
The ld. CIT(A) ignored the fact the assessee had not filed the Form No. 56G neither with the return nor at the time of assessment proceeding u/s 143(3)/147 of the IT Act. In view of the above mentioned facts of the case and provisions of sec. 10B(5) of the IT Act, the assessee is not entitled to claim deduction u/s 10B of the IT Act.
2. That on the facts and circumstances of the case and in law the ld. CIT(A) erred in deleting the addition of Rs. 2,80,39,760/- made by AO u/s 40(a)(i) of the Act. The CIT(A) erred in deciding the issue in favour of the assessee as at the time of assessment u/s 143(3)/147, the assessee could not produce any documentary evidence to show that the services were provided by the agents outside India which is requirement of the Circular No. 786 dated 07.02.2000 of the CBDT."
43. The grounds taken by the assessee in its appeal No. 3461(Del)08 are as follows:-
"1. That the impugned order passed by Commissioner of Income Tax u/s 263 is bad in law and against the facts and circumstances of the case.
2. That the Commissioner of Income Tax has erroneously assumed jurisdiction thus the order u/s 263 is invalid and without the authority of law.
That the proposal to cancel the assessment order vide show cause notice dated 18.07.2008 and order cancelled/revised for assessment year as per order u/s 263 is different and therefore, bad in law.
3. That the Commissioner of Income Tax has erred in law and on facts in stating that the order passed u/s 143(3)/147 is erroneous and prejudicial to the interest of revenue without recording finding and therefore, 29 cancellation of the assessment order u/s 143(3)/147 is without any justification.
4. It is contended that the provisions of sec. 263 are not applicable at all as the order passed u/s 143(3)/147 should have been both erroneous and prejudicial to the interest of the revenue and therefore, action u/s 263 is tantamount to imposing another view than that of the Assessing Officer on the issue.
5. It is contended that the report in form no. 56G was enclosed with the original return of income filed on 31.10.2002 and the fact was mentioned in the Acknowledgement - No. of documents/ statements attached under the head 'Description' as Audit report/Tax audit-2(Two). Moreover, the copy of the certificate was also filed before the Assessing Officer in reply to objection raised by revenue audit party vide letter dated 03.10.2007.
The appellant is regularly claiming deduction u/s 10B in the preceding years and also in subsequent years and filing the required report. In none of these years, the claim of deduction has ever been denied.
6. It is contended that the provisions of sec. 195 are not applicable at all in respect of payment of foreign agency commission amounting to Rs. 2,80,39,760/-.
The claim of foreign agency commission expenses made by the appellant and allowed by the Assessing Officer are correct both on fact and law and therefore, does not need any modification u/s 263."30
44. Both these appeals arise out of the assessment order dated 31.10.06. While dealing with ITA No. 1415(Del)09 (supra), we have cancelled the reopening of the completed assessment of the assessee. That being so, the assessment order itself does not survive and so, the consequential order dated 3.2.09 passed by the ld. CIT(A) does not survive too. As such, both these appeals also do not survive and are infructuous. The ld. DR has also placed on file written submissions with regard to the merits of the case. The appeals being held to be infructuous, as above, these written submissions are not adverted to.
45. Hence, both these cross appeals, i.e. ITA Nos. 3461(Del)08 & 3604(Del)10 are dismissed as infructuous.
46. In the result, ITA 1415(Del)09 filed by the assessee is partly allowed as indicated, ITA No. 1941(Del)09 filed by the Department is dismissed, whereas ITA No. 3461(Del)08 filed by the assessee and ITA 3604(Del)10 filed by the Department are dismissed as infructuous.
Order pronounced in the open court on 22.02.2012.
Sd/- sd/-
(G.D. Agrawal) (A.D. Jain)
31
Vice President Judicial Member
Dated: 22.02.2012
*RM
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
True copy
By order
Assistant Registrar
32