Income Tax Appellate Tribunal - Delhi
Raj Kumar Mahajan, New Delhi vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "F" DELHI)
BEFORE SHRI A.D. JAIN AND SHRI R.C. SHARMA
ITA NO. 1792(Del)2010
Assessment year: 2001-02
Raj Kumar Mahajan, Dy.Commissioner of Income Tax,
Prop.M/s.Girdhars International v. Circle 25(1), New Delhi.
K-2, Udyog Nagar, Peera Garhi,
New Delhi.
(Appellant) (Respondent)
Appellant by: S/Shri Ved Jain, Venkatesh Chaurasia, CAs
& Mrs. Rano Jain, CA
Respondent by: Smt. Banita Devi Naorem, Sr. DR
ORDER
PER A.D. JAIN, J.M.
This is assessee's appeal for the assessment year 2001-02, taking the following grounds:-
"1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax(Appeals)[CIT(A)] is bad, both in the eye of law and on the facts.
2.(i) On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law, in confirming the proceedings under section 147, read with section 148, ignoring the fact that the same was bad in the eye of law as the condition and procedure prescribed under the statute have not been satisfied and complied with.
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(ii) On the facts and circumstances of the case, the reassessment proceedings initiated by the ld. AO are bad in the eye of law as the reasons recorded for the issue of notice under section 148 are bad in the eye of law and are contrary to the facts.
3(i) On the facts and circumstances of the case, the ld. CIT(A) has erred, both on facts and in law, in rejecting the contention of the assessee that the order passed by ld. AO is bad both in the eye of law and on facts as the same has been reopened on the basis of reasons without there being any failure on part of the assessee to disclose fully and truly all material facts necessary for assessment, as the same has been reopened after a period of four years from the end of relevant assessment year and the assessment has already been made under sec. 143(3).
(ii) On the facts and circumstances of the case, the order passed by learned AO is bad both in the eye of law and on facts, as the assessee had already disclosed fully and truly all material facts necessary for the assessment under section 143(3).
4(i) On the facts and circumstances of the case, the ld. CIT(A) has erred both on facts and in law in confirming the action of the AO in making an addition of Rs. 46,55,572/- on account of difference in calculating deduction u/s 80 HHC and u/s 80 IA of the Act.
(ii) That the abovesaid additions have been made by indulging in surmises, conjectures and without bringing any adverse material on record."
2. The first effective grievance of the assessee [grounds 3(i) and 3(ii)] is that the reopening of the completed assessment is bad in law, as the completed assessment was reopened after 4 years from the end of the relevant assessment year, without there being any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, all material facts necessary for the assessment having been 3 ITA 1792(Del)10 already disclosed fully and truly in the assessment completed u/s 143(3) of the I.T. Act.
3. The facts of the case in this regard are that the assessee individual filed his return of income for the year under consideration, i.e., asstt.year 2001-02, on 23.10.2001, declaring an income of Rs. 11,33,210/-, claiming deduction of Rs. 2,35,68,838/- u/s 80HHC of the Act and of Rs. 61,70,349/- u/s 80 IB thereof. The assessment was completed u/s 143(3) at a total income of Rs.11,33,210/-, vide assessment order dated 31.3.03. The aforesaid deductions claimed by the assessee were allowed by the AO.
4. The said completed assessment was reopened on 28.3.2008 by recording the following reasons for reopening (page 26 of the assessee's Paper Book, 'APB', for short):
"REASONS FOR TAKING ACTION U/S 147/148 IN THE CASE OF SH. RAJ KUMAR MAHAJAN FOR THE ASSESSMENT YEAR 2001-02 Return of income in this case was filed on 23.10.2001 declaring an income of Rs. 11,33,210/- after claiming deduction u/s 80 HHC at Rs. 2,35,68,838/- and u/s 80 IB at Rs. 61,70,349/-.
The assessment in this case was completed u/s 143(3) on 31.03.2003 on a total income of Rs. 11,33,210/- and the deduction as claimed by the assessee u/s 80 HHC and u/s 80 IB were allowed to him by the AO.
On going through the assessment records of the assessee, for asstt.year 2001-02, it is seen that the assessee has wrongly claimed deduction u/s 80HHC at Rs.2,35,68,838/- by restricting the deduction u/s 80 IA at Rs. 61,70,349/-. This restriction of deduction by the assessee has been 4 ITA 1792(Del)10 done by reducing from the eligible profits for deduction u/s 80IA the deduction claimed u/s 80HHC. However, as per law the assessee has to claim deduction u/s 80 IA on profits without any reduction by taking away deduction u/s 80HHC on the said profits.
Further, the assessee has while working out deduction u/s 80HHC has not reduced the amount of deduction u/s 80IA from the profits of business. This is against the provisions of section 80IA(9). Secondly the assessee has not reduced interest income earned from profits while calculating deduction u/s 80HHC. Thirdly, assessee has wrongly included FDR interest as part of his business income.
Due to all the reasons cited above, the assessee has wrongly claimed a higher deduction u/s 80HhC then what he is allowed as per law. The deduction u/s 80HHC actually works out to Rs. 1,76,48,818/- as against wrong claim of deduction by the assessee at Rs. 2,35,68,838/-. Thus excess deduction claimed by the assessee u/s 80HHC comes to Rs. 59,20,020/-. However, since the assessee has claimed a lesser deduction u/s 80IA of Rs. 61,70,349/- instead of Rs. 74,34,797/-, the excess deduction claimed by the assessee u/s 80HHC at Rs. 59,20,020/- will be reduced by the amount of short deduction u/s 80IA of Rs. 12,64,448/-. Thus excess deduction u/s 80HHC claimed by the assessee would be Rs. 46,55,572/-(59,20,020 - 12,64,448).
Thus, the assessee has claimed excess deduction u/s 80HHC and there has been a failure on the part of the assessee for not disclosing fully and truly all material facts necessary for his assessment for the asstt.year 2001-
02. I have therefore reasons to believe that income of the assessee by way of excess deduction of Rs. 46,55,572/- u/s 80HHC allowed to the assessee has escaped assessment for the asstt.year 2001-02. It is, therefore, necessary to take action u/s 147/148 in this case for the said assessment year.
Sd/-
ACIT, Circle 25(1), New Delhi."
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5. The assessee filed the following objections against the issuance of the notice for reopening the completed assessment [AO page 1, paras (1) to (4)]:
"Return of income in this case was filed on 23.10.2001 declaring an income of Rs. 11,33,210/- after claiming deduction u/s 80 HHC at Rs. 2,35,68,838/- and u/s 80 IB at Rs. 61,70,349/-.
The assessment in this case was completed u/s 143(3) on 31.03.2003 on a total income of Rs. 11,33,210/- and the deduction as claimed by the assessee u/s 80HHC and u/s 80 IB were allowed to him by the AO.
On going through the assessment records of the assessee for asstt.year 2001-02, it is seen that the assessee has wrongly claimed deduction u/s 80HHC at Rs. 2,35,68,238/- by restricting the deduction u/s 80IB at Rs. 61,70,349/-. So while calculating deduction u/s 80HHC the amount of deduction u/s 80IB was to be reduced from the profit of export business in view of the provisions of section 80IB(13) read with section 80IA(9) which provides that where an amount of profits and gains of an industrial undertaking is claimed and allowed as deduction u/s 80IB, the profits to that extent should not qualify for deduction for any assessment year under any other provisions of Chapter VIA and in no case shall exceed the profit of industrial undertaking.
Further, it is also seen that while computing profit of business as well as deduction for section 80HHC the assessee has wrongly taken into account 90% of FDR interest of Rs. 10,47,539/- as business income instead of treating it as income from other sources as held in several court judgments in this respect. So the whole amount of FDR interest of Rs. 10,47,539/- should have been reduced from the profit of business for section 80HHC and no amount of it should have also allowed for deduction u/s 80HHC of the I.T. Act. It may also be mentioned here that as per clause (baa)under Explanation to Sec. 80HHC 90% of any receipts by way of brokerage, commission,
6 ITA 1792(Del)10 interest, rent charges or any other receipt of similar nature are assessable under the head 'profits and gains of business or profession' and not under the head 'other sources'.
In view of the above facts the deduction u/s 80HHC works out to Rs. 1,76,48,818/- as against wrong claim of this deduction by the assessee at Rs. 2,35,68,838/-. Thus excess deduction claim by the assessee comes to Rs.5,92,20,020/- but as the assessee has restricted the deduction u/s 80IB at Rs. 61,70,349/- instead of Rs. 74,34,797/-, the excess deduction claimed by the assessee u/s 80HHC at Rs. 59,20,020/- will be reduced by the amount of short deduction u/s 80IB of Rs.12,64,448/-. Thus excess deduction u/s 80HHC claimed by the assessee would be Rs. 46,55,572/- (59,20,020 - 12,64,448/-) by reasons of the failure on the part of the assessee for not disclosing fully and truly all material facts necessary for his assessment for the asstt.year 2001-02. The then AO had therefore reasons to believe that income of the assessee by way of excess deduction of Rs. 46,55,572/- u/s 80HHC allowed to the assessee had escaped assessment for asstt.year 2001-02.
On the basis of the above facts, necessary approval for taking action u/s 147/148 for asstt.year 2001-02 was sought from the Commissioner of Income Tax, Delhi IX, New Delhi vide his office letter F.No. CIT-IX/151(2)/2007-08/3588 dated 28.3.2008. Therefore, notice u/s 148 dated 28.3.2008 was issued to the assessee by the then ACIT, Circle 25(1) , New Delhi after recording reasons thereof on 28.3.2008 with a satisfaction note that he had reasons to believe that income of the assessee by way of excess deduction of Rs. 46,55,572/- u/s 80 HHC allowed to the assessee had escaped assessment for asstt.year 2001-02 and it was, therefore, necessary to take action u/s 147/148 in this case for the said assessment year.
In response to notice issued u/s 148 the assessee filed a letter dated 21.4.2008 submitting that "since the assessee does not have any additional income to disclose, the original return filed by the assessee u/s 139 on 23.10.2001 vide ack.No. 0190 should be treated as return filed in response to notice u/s 148 of the I.T. Act, 1961. The assessee would also like to know the reasons on the basis of which the said notice has been issued. Hence, copy of reasons recorded for taking action u/s 147/148 for asstt.year 2001-02 was supplied to the assessee 7 ITA 1792(Del)10 on 29.4.2008. Thereafter the assessee filed a letter dated 23.5.2008 raising objections for issue of notice u/s 148 as under:-
1. The order u/s 143(3) dated 31.3.2003 has very clearly stated that detailed questionnaires were issued and detailed information as called for was filed.
2. It is very clear that the reasons on the basis of which the AO wants to take action u/s 147 has been made out of the information, fact and figures which were disclosed by him in his return and there is no failure on his part.
3. As per proviso to section 147 no action can be taken after four years if assessee has fully and truly disclosed all material facts necessary for his assessment for that assessment year. This view is also supported by the following judgments.
a) Praful Chunilal Patel Vasant Chunilal Patel v. Asstt.CIT[1999](Guj);
b) ICICI Bank Ltd. v. K.J. Rao;
c) Fenner (India) Ltd. v. DCIT [2000] (Mad); and
d) Grindwell Norton Ltd. v. Asstt. CIT[2004] 267 ITR 673(Bom).
4. In view of the proviso of section 147 and above judgments and also considering the fact that the assessee has disclosed all material facts in his return and there is no failure on the part of the assessee, it is requested to drop the proceedings as the four years period has already passed."
6. The assessee's above submissions were not found by the AO to be satisfactory. It was observed that it was clear from the reasons recorded that the assessee had, in his return of income, claimed excess deduction u/s 80 HHC and that there had been a failure on the assessee's part in not 8 ITA 1792(Del)10 disclosing fully and truly all material facts necessary for his assessment for the year. It was further observed that after the insertion of the Explanation to Section 147 with effect from assessment year 1989-90, the position is that sofar as regards the primary facts, it is the assessee's duty to disclose all the primary facts, including particular entries in the books of account, particular portions of documents, and documents and other evidences which could have been discovered by the assessing authority from the documents and other evidence disclosed. The assessee's objections to the reopening were rejected in this manner and the disallowance of Rs. 46,55,572/- on account of excess deduction u/s 80 HHC claimed by and allowed to the assessee, was added to the assessee's income.
7. Before the learned CIT(A), the assessee filed written submissions, as summarized by the CIT(A) (page 4, para 3.2 to page 5 of the impugned order):
"1. The reopening of the assessment is bad in law, made after expiry of 4 years and all the conditions as laid down in the proviso of Section 147 for reopening the assessment are not applicable to the circumstances of the appellant, included that the appellant had fully and truly disclosed all the material facts. The notice u/s 148 was issued after the expiry of four years and hence barred by time limitation as provided in section 147. Change of opinion cannot be the basis for reopening the assessment.
2. Return was filed along with relevant details enclosing the documents in support of various claims made, the AO also examined 9 ITA 1792(Del)10 the allowability of claims u/s 80HHC and 80 IB. The photocopy of the AO's notice and submission of the assessee were furnished.
3. All material facts required for making the assessment were disclosed fully and truly. Hence the assessment cannot be reopened after 4 years from the end of relevant assessment year unless there is failure to disclose the primary facts. He relied on the following case laws:
Haryana Acrylic v. CIT, 308 ITR 38(Del);
ONGC v. DCIT, 262 ITR 648 (Uttaranchal);
ACIT v. Rajesh Jhaveri, 291 ITR 500(SC); and Mcdermott Intl.Inc. v. ACIT, 259 ITR 138(Uttaranchal).
4. On the same set of facts, the assessee cannot resort to reopening by changing opinion. He relied on the case law: CIT v. Kelvinator of India Ltd., 256 ITR 1(Del).
5. He further argued that the Hon'ble Supreme Court has dismissed the departmental appeal filed against the Full Bench judgment of Delhi High Court in the case of CIT v. Kelvinator of India Ltd., 256 ITR 1(Del)(FB) vide order dated 19.01.2010.
6. The legal requirements were not met by the AO before charting the course of reopening of the assessment."
8. The CIT(A), however, upheld the action of the AO in reopening the completed assessment. He observed, inter alia, that the reassessment proceedings were initiated in this case on the basis of the fact that the assessee had claimed wrong and excessive relief/deduction under sections 80HHC and 80 IA of the Act; that the AO had recorded that the income of the assessee had escaped assessment by the reason of omission or failure of the assessee to disclose fully and truly all material facts regarding the claim 10 ITA 1792(Del)10 u/s 80HHC, which were necessary for the assessment; that thus, there was escapement of income of Rs.46,55,572/-; that the then AO, during the original assessment proceedings, had undisputedly queried the assessee regarding the claim of deduction u/s 80 HHC; that it was evident from the assessee's then submissions that the assessee had not disclosed the full facts about the nature of income and the claim of deduction u/s 80 HHC and it was this failure on the assessee's part which had resulted into escapement of income; that the interest income derived on the FDRs of the proprietory concern had been shown as business income and the assessee had claimed deduction u/s 80HHC on this income; that it was thus established that the assessee had failed to make full and true disclosure of all material facts necessary for his assessment for the year; that in this case, there was a direct nexus between the material available with the AO to form a belief of escapement of income and the belief formed by the AO; that the assessee did not declare the nature of interest income of Rs. 10,47,539/- on FDRs under the head 'other sources', though he had shown the interest on FDRs of minors as income from other sources; that even the Audit Report was silent on the interest income and the true facts about the export turnover were also not revealed in it; that it was, therefore, that the AO's belief that the assessee had claimed excess relief/deduction by suppressing the full facts, was 11 ITA 1792(Del)10 reasonable and justified; that there were wrong claims and accordingly, there was escapement of income; and that the assessee had not explained the excess deduction u/s 80HHC by Rs. 59,20,020/- and the lesser deduction u/s 80 IA by Rs. 12,64,448/-, as mentioned in the reasons recorded for reopening the assessment. The CIT(A) upheld the reopening of the completed assessment.
9. Before us, the ld. Counsel for the assessee has argued that the assessee had disclosed fully and truly, all material facts necessary for the assessment; that this is evident from the original Assessment Order; that the then AO, during the original assessment proceedings, had put to the assessee specific queries about both the deductions claimed under sections 80HHC and 80 IB, as well as the interest; that the assessee had given detailed replies to all such queries, disclosing all material facts with regard thereto; that therefore, there was no failure on the part of the assessee; and that as such, the reopening, having been done after four years from the end of the relevant assessment year, is hit by the first Proviso to Section 147 of the Act and is thus bad in law. Apropos the observations made by the CIT(A) in the impugned Order, the ld. Counsel for the assessee has submitted that there is no merit in the observation that mere production of books of account, on the basis of which material evidence could have been discovered by the AO, will not 12 ITA 1792(Del)10 necessarily amount to disclosure; that the present is a case of complete disclosure; that the issue of deduction was specifically examined and it was only thereafter, that the deduction claimed was allowed; and that the completed assessment was not reopened on the basis of any external information or material, rather it was reopened only on the basis of facts disclosed in the original assessment proceedings, which is impermissible in law.
10. Per contra, the ld. DR has strongly supported the Order under appeal. It has been contended that the assessee did not make either full or true disclosure of the material facts necessary for his assessment for the year; that the assessee had claimed excessive deduction under sections 80 HHC and 80 IA of the Act by suppressing full facts with regard thereto, due to which, his income had escaped assessment; that it was due to this, that the completed assessment was correctly reopened; that the assessee had claimed deduction under section 80 HHC of the Act on interest derived on FDRs of the proprietory concern, which had been shown as business income; that the assessee did not declare the nature of interest income of Rs. 10,47,539/- on FDRs under the head of other sources, even though interest on FDRs of minors had been depicted as income from other sources; that the fact of the assessee having thus claimed excessive deduction rightly led the AO to form 13 ITA 1792(Del)10 the belief of the escapement of the assessee's income; that the conditions contained in the first Proviso to section 147 of the Act stood fulfilled; that the escapement of the assessee's income came about clearly due to the failure of the assessee to disclose in the original assessment proceedings, fully and truly, all material facts necessary for his assessment for the year; that in these facts, the ld. CIT(A) correctly upheld the action of the AO in reopening the completed assessment; and that there thus being no force in the grievance sought to be wrongly raised by the assessee in this regard, the same be rejected outright.
11. We have heard the parties and have perused the material on record. The question presently to be considered is whether, as contended by the Department, there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the year under consideration, leading to escapement of income chargeable to tax, which formed the basis of the AO's belief of such escapement of income, justifying his action of reopening the completed assessment, which action was upheld by the CIT(A) or, whether, as maintained by the assessee, there was no such failure on the part of the assessee, all material facts necessary for his assessment for the year were fully and truly disclosed by him during the original assessment proceedings by giving specific replies to pointed queries 14 ITA 1792(Del)10 raised by the then AO and the reopening had its basis only in such facts disclosed by the assessee in the original assessment proceedings, rather than in any external information or material, rendering the reopening bad in law inasmuch as it fails the requirement of the provisions of Section 147 of the Act.
12. The completed assessment has been reopened under section 147 of the Act. Section 147 (main provision - relevant portion) provides as follows:-
"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.............".
13. Thus, according to section 147, if the AO has reason to believe escapement of income, he may assess or reassess such income .
14. The first Proviso (relevant portion) to Section 147 states:
"Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to .......disclose fully and truly all material facts necessary for his assessment, for that assessment year."
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15. Therefore, as per the first proviso to section 147, unless it is due to the failure of the assessee to disclose fully and truly all material facts necessary for his assessment that his income has escaped assessment, an assessment completed under the scrutiny assessment procedure prescribed by the provisions of section 143(3) of the Act cannot be reopened after four years from the end of the relevant assessment year.
16. The Department's case, as per the CIT(A)'s observations, is that the assessee had claimed, in his return of income, excessive deduction under sections 80 HHC and 80 IA of the Act by withholding the full facts about the nature of income and claim of deduction under section 80 HHC; that such deduction was claimed on interest income on FDRs of the assessee's proprietary concern, which had been shown to be business income, as evident from the assessee's reply dated 4.12.02 filed before the AO in the original assessment proceedings; that the assessee did not declare the nature of interest income of Rs. 10,47,539/- on FDRs under the head 'Other sources', though he had shown the interest on FDRs of minors as income from other sources; that it was this failure on the part of the assessee which resulted in the escapement of the assessee's income for the year under consideration, due to which the AO rightly reopened the completed assessment.
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17. The assessee, on the other hand, has taken the stand that there was no such failure on his part; that in the original assessment proceedings, the then AO, had asked specific queries of the assessee, which were duly replied to; that the original assessment order was passed by the AO on due application of mind; and that the completed assessment was reopened only on the basis of the material and evidence brought on record by the assessee in the original assessment proceedings in response to the pointed specific questions put by the AO.
18. Now, the objection raised by the CIT(A) is that from the assessee's written submissions dated 4.12.02, filed in the original assessment proceedings, it is evident that the assessee had not disclosed the full facts about the nature of income and claim of deduction under section 80 HHC, which resulted into escapement of income, and that the deduction was claimed on income derived on FDRs of the assessee's proprietary concern, which income was shown as business income.
19. The following is the Questionnaire (copy at APB 17-18) issued to the assessee on 6.8.02 by the AO in the original assessment proceedings:
"I) A note on the nature and beginning of this business.
2) Copy of bank statement showing that all the foreign exchange earned on export sale were realized by 30.9.2001.
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3) Copies of bills of lading shipping bills of each export transaction showing the date, destination and the value of each transaction.
4) The deduction claimed u/s 80 HHC is excessive as FDR interest of Rs. 10,47,538/- has been taken as business income and not as income from other sources. In effect, 10 per cent of this interest income amounting to Rs. 1,04,754/-, has escaped taxation. Please show cause why this excess deduction u/s 80 HHC should not be added back to your income.
5) Rs. 81,70,349/- has been claimed as deduction u/s 80 IA. Please furnish documentary proof in support of this claim.
6) Details of each purchase above Rs. 5,00,000/- may be furnished.
7) Please provide a list of the parties from whom packing material has been purchased and the amount paid to each one of them.
8) Please furnish details of each administrative and selling expense that exceeds Rs. 1,00,000/-.
9) Sundry creditors amount to Rs. 11,25,324/-. Please furnish a detailed break up of opening balance purchases during the year and closing balance as all such cases where the outstanding amount is more than Rs. 1,00,000/-.
10) A copy of bank statement may be furnished with explanations for each credit entry of more than Rs. 5,00,000/-.
11) Please explain under what circumstances you deposited Rs.5,00,000/- as self assessment tax in July 2001 when you have claimed a refund of Rs. 22,25,928/- in your return filed on 23.10.2001.
12) Interest income has been shown as Rs. 10,47,538.76 whereas as per TDS certificates the interest received is around Rs. 15,00,000/-. This difference may be explained.
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13) Additions to fixed assets during the year amount to Rs. 34,37,987/-. Please furnish documentary proof of the purchases made."
20. The assessee filed the following Reply (APB-19) dated 4.12.02 justifying his eligibility for deduction claimed under section 80IB of the Act:
"1. Confirmation of M/s. Pamposh Printers & M/s. Dee Kay Packers is enclosed.
2. Regarding the eligibility u/s 80 IA/IB it is submitted that the assessee is satisfying all the following conditions.
a) It should be a new undertaking. It is a new undertaking and it is not formed by splitting up or the reconstruction of an existing unit.
b) It should not be formed by transfer of machinery or plant previously used for any purpose. All the machinery used in this undertaking has been purchased from Machinery suppliers and not from any existing industrial undertaking.
c) It should not manufacture or produce articles specified in the eleventh schedule. The assessee is manufacturing candles for export, which is not mentioned in eleventh schedule.
d) It begins to manufacture before March 31, 2002.
e) It should employ more than 10/20 workers. The assessee was employing 85 persons as per the copy of ESI return for the half year ended 31.3.02. Copy of the returns enclosed."
21. The contents of the assessee's Reply (APB 20-21) dated 4.12.02, concerning the deduction claimed under section 80HHC of the Act are thus:
19 ITA 1792(Del)10 "1. Copies of the bills for addition in fixed assets totaling Rs.
34,37,987/- during the financial year 2000-01 are enclosed.
2. Regarding the deduction u/s 80HHC it is submitted that during the A.Y. 00-01 80% of the export profit was exempted from profit. As per Explanation (baa) of this section profit of the business means the profit of the business as computed under the head "Profits and gains of business or profession" as reduced by-
a) Ninety percent of any sum referred to in clause (iiia), (iiib) and (iiic) of section 28 orof any receipts by way of a brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profit; and
b) The profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. It is very clear from the plain reading of this section that even 10% of the interest, rent and other receipts would be eligible for deduction u/s 80HHC.
3. Details of each purchase above Rs. 5,00,000/- along with copies of bills are enclosed.
4. List of parties from whom packing material has been purchased and amount paid to each one of them is also enclosed.
5. Detail of each administrative and selling expenses that exceeds Rs. 1,00,000/- is enclosed.
6. List of Sundry creditors is enclosed with balance sheet.
7. A copy of bank statement with explanation for each and every entry is enclosed."
22. In the questionnaire, the AO had put a specific question to the assessee regarding the deduction claimed under section 80 HHC:
20 ITA 1792(Del)10 "4. The deduction claimed u/s 80 HHC is excessive as FDR interest of Rs. 10,47,538/- has been taken as business income and not as income from other sources. In effect, 10 per cent of this interest income, amounting to Rs. 1,04,754/-, has escaped taxation. Please show cause why this excess deduction u/s 80HHC should not be added back to your income."
23. In response, vide reply at APB 20-21(supra), the assessee stated that during A.Y.00-01 (sic.-the immediately preceding assessment year), 80% of the export profit was exempted from profit; and as per Explanation(baa) to section 80 HHC, profit of the business means the profit of the business as computed under the head "Profits and Gains of Business or Profession" as reduced by ninety percent of any sum referred to in sections 28(iiia), (iiib) and (iiic), or of any receipt by way of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profit, and the profits of any branch, office, warehouse or any other establishment of the assessee outside India. The assessee contended that as such, even 10% of the interest, rent and other receipts would be eligible for deduction under section 80HHC. With the reply, the assessee enclosed:
1. Details of each purchase above Rs. 5,00,000/- alongwith copies of bills.
2. List of parties from whom packing material had been purchased and details of amount paid to each one of them.
3. Detail of each administrative and selling expense that exceeded Rs. 1,00,000/- and 21 ITA 1792(Del)10
4. A copy of bank statement with explanation for each and every entry.
24. A list of sundry creditors was stated to have been filed earlier alongwith the Balance Sheet. The Audit Report (APB-10), mentioning the deduction claimed under section 80 HHC, was already with the AO, undisputedly. Report under section 80HHC (APB 12-13) was also with the AO.
25. The ld. CIT(A) has observed that mere production of books of account, on the basis of which, material evidence could have been discovered by the AO, will not necessarily amount to disclosure.
26. Now, there cannot be any possible denial to the above proposition. However, a perusal of the assessee's reply shows that the present is not a case where the assessee had merely produced books of account, on the basis of which, material evidence could have been discovered by the AO. As discussed, the assessee, in his reply, made full and true disclosure of material facts necessary for his assessment, including furnishing of details of each purchase of above five lakh rupees, alongwith copies of bills, a list of parties from whom packing material had been purchased, the detail of amounts paid to each of such parties, detail of each administrative and selling expense exceeding one lakh rupees, as also a copy of bank statement 22 ITA 1792(Del)10 with explanation for each and every entry. It was on considering the said explanation offered by the assessee in its entirety, that the deduction claimed under section 80HHC of the Act was allowed in the original assessment proceedings.
27. The return of income filed by the assessee, in the Computation of Income (APB-1), mentioned at item No. 22(b), the claim of deduction under section 80HHC at Rs. 2,35,68,838/-.
28. Besides the assessee's reply, the AO also had before him, the Audit Report (APB-10), mentioning the deduction under section 80HHC and the Report under section 80HHC (APB-12-13). As per the Audit Report:
"26. Section-wise details of deductions, if any, admissible under Chapter VI A- 80HHC - 2,35,68,838/-"
29. According to the Form No. 10CCAC, i.e., the Report under section 80HHC(4) of the I.T. Act (APB 12-13), the Chartered Accountant of the assessee had certified that:
"2. I certify that the deduction to be claimed by the assessee under sub-section (1) of section 80HHC of the Income Tax Act, 1961 in respect of assessment year 01-02 is Rs.2,35,68,838/- which has been determined on the basis of the sale proceeds received by the assessee in convertible foreign exchange . The amount has been worked out on the basis of the details in Annexure A to this Form.
3. I, therefore, certify that the total deduction to be claimed by the assessee under section 80HHC in respect of the assessment year 01- 02 is Rs. 2,35,68,838/-."
23 ITA 1792(Del)10
30. The details of the claim of the assessee of deduction under section 80HHC of the Act, as per Annexure A(APB-13) to Form 10CCAC(supra), are as follows:
"1. Name of the assessee : Raj Kumar Mahajan, Prop.
Girdhars International
2. Assessment year : 2001-02
3. Total turnover of the business : 9,12,09,206
4. Total export turnover : 9,02,14,006
5. Total profits of the business : 3,07,86,726
6. Export turnover in respect of Trading goods : Nil
7. Direct cost of Trading Goods Exporter : N.A.
8. Indirect cost attributable to Trading goods exported : N.A.
9. Total of 7&8 : Nil
10.Profits from export of trading goods (6 minus 9) : Nil
11.Adjusted total turnover (3 minus 6) : 9,12,09,206
12.Adjusted export turnover (4 minus 6) : 9,02,14,006
13.Adjusted profits of the business 24 ITA 1792(Del)10 (5 minus 10) : 3,07,86,726
14.Profit derived by assessee from export of goods or merchandise to which section 80 HHC applies, computed under sub-sec.(3)of Section 80 HHC : 2,35,68,838
15. Export turnover, deduction in respect of which will be claimed by a supporting manufacturer in accordance with proviso to sub-section (1)of Sec.80HHC : Nil
16. Profits from the export turnover mentioned in item 15 above, calculated in accordance with proviso to sub-sec.(1)of Sec.
80HHC. : Nil
17.Deduction u/s 80HHC to which
the assessee is entitled(item 14
minus 16) : 2,35,68,838
18.Remarks, if any : Nil"
31. Thus, all material facts necessary for the assessee's assessment were duly disclosed by him fully and truly in the original assessment proceedings.
In the original Assessment Order (APB 22), the AO observed, inter alia:
"In response Shri S.K. Dhingra, FCA and authorized representative of the assessee, attended from time to time and filed the detailed information as called for."
25 ITA 1792(Del)10
32. Therefore, the original Assessing Officer, while passing the original Assessment Order, was well seized of the full and true disclosure by the assessee, of the material facts necessary for the assessee's assessment for the year under consideration. It was only on consideration of such full and true disclosure, that the original Assessment Order was passed, granting the deduction claimed by the assessee.
33. Hence, on the basis of the above, we do not find ourselves in agreement with this objection of the ld. CIT(A).
34. The ld. CIT(A) has observed that there being a live nexus between the AO's reason to believe the escapement of income and the alleged actual factum of such escapement of income, the reopening of the completed assessment is valid. Would that it were so! Then matters would have been simpler. However, from the reasons recorded for reopening the completed assessment, as reproduced hereinbefore, it is apparent that there was no fresh external material available with the AO so as to enable him to form the belief of escapement of the assessee's income. The material which formed the very raison d'etre of the AO's reasons for reopening the completed assessment is the very material forming the subject-matter of the Questionnaire (supra) issued to the assessee by the then AO during the original assessment proceedings. The said Questionnaire, as noted, was 26 ITA 1792(Del)10 adequately responded to by the assessee with cogent and voluminous documentary evidence. That being so, link, if any between the reason for reopening the completed assessment and the alleged escapement of income, is not a link at all, muchless a live link, at that. The Department has remained at pains to buttress its stand that it was for the assessee's failure to disclose the full and true material facts necessary for his assessment, that his income escaped assessment, necessitating a valid reopening of his completed assessment. But, it has failed to do so. As deliberated upon, the assessee did make full and true disclosure of mateial facts relevant for his assessment during the original assessment proceedings.
35. The reasons recorded for reopening the completed assessment do not, therefore, meet the ratio of 'CIT v. Kelvinator of India Ltd.' 256 ITR 1(SC), as per which, if the facts are on record, reopening on a mere change of opinion is not permissible even within four years from the end of the relevant assessment year. In the present case, once, on being pointedly queried by the AO in the original assessment proceedings, the assessee had disclosed full and true material facts necessary for his assessment for the relevant assessment year, the subsequent reopening of the completed assessment on the same set of facts, without either reference or recourse to any external material, was indeed a mere change of opinion by the 27 ITA 1792(Del)10 subsequent AO, from that of the AO who passed the original Assessment Order. Such a course is impermissible and entirely not in accordance with the law as laid down by the Hon'ble Supreme Court in 'Kelvinator'(supra). The Hon'ble Delhi High Court Full Bench decision [as upheld by the Hon'ble Supreme Court in "Kelvinator"(supra)] in "Kelvinator" 256 ITR 1(Del) has been referred to in "Eicher Ltd." 294 ITR 310(Del), holding that it would not be correct to overlook the Full Bench decision of the Hon'ble Delhi High Court in "Kelvinator" (supra). While doing so, "KLM Royal Dutch Airlines v. Asstt.Director of Income Tax" 292 ITR 49(Del) was followed.
36. As per the reasons recorded by the AO for the reopening of the completed assessment, the assessee had wrongly claimed deduction under section 80HHC of the Act at Rs.2,35,68,838/- by restricting the deduction under section 80 IA at Rs. 61,70,349/-; that this restriction of deduction by the assessee had been done by reducing from the eligible profits for deduction under section 80 IA, the deduction claimed under section 80HHC; that however, as per law, the assessee had to claim deduction under section 80 IA on profits without any reduction by taking away the deduction under section 80HHC on the said profits; that further, the assessee had, while working out deduction under section 80HHC, not reduced the amount of 28 ITA 1792(Del)10 deduction under section 80 IA from the profits of business, which was against the provisions of section 80 IA(9); that the assessee also did not reduce, while calculating the deduction under section 80 HHC, the interest income earned from profits; and that the assessee wrongly included the FDR interest as part of the business income.
37. Apropos the deduction claimed by the assessee under section 80 IA also, the position remains much the same as with regard to the claim of deduction under section 80HHC. In the Questionnaire (supra), the AO queried:
"5. Rs. 61,70,349/- has been claimed as deduction u/s 80IA. Please furnish documentary proof in support of this claim."
38. The assessee responded (APB-19):
"1. Confirmation of M/s. Pamposh Printers & M/s. Dee Kay Packers is enclosed.
2. Regarding the eligibility u/s 80 IA/IB it is submitted that the assessee is satisfying all the following conditions:
a) It should be a new undertaking:- It is a new undertaking and it is not formed by splitting up or the reconstruction of an existing unit.
b) It should not be formed by transfer of machinery or plant previously used for any purpose:- All the machinery used in this undertaking has been purchased from Machinery suppliers and not from any existing industrial undertaking.
29 ITA 1792(Del)10
c) It should not manufacture or produce articles specified in the eleventh schedule:- The assessee is manufacturing candles for export, which is not mentioned in eleventh schedule.
d) It begins to manufacture before March 31, 2002.
e) It should employ more than 10/20 workers:-The assessee was employing 85 persons as per the copy of ESI return for the half year ended 31.3.02. Copy of the return is enclosed.
39. The AO had before him the Audit Report(APB-10) mentioning the deduction under section 80 IA and the report under section 80IA(APB-15-
16).
40. As per the Tax Audit Report (supra):
"26. Section-wise details of deductions, if any, admissible under Chapter VIA 80 IA - 61,70,349."
41. According to the Report under section 80IA, i.e., Form No. 10CCB(supra):
"FORM No. 10CCB [See rule 18BBB] Audit Report under section 80-I/80IA/80IB of the Income Tax Act, 1961.
'I/We have examined the balance sheet of the industrial undertaking M/s. Girdhars International Prop. Mr. Raj Kumar Mahajan, PAN - AEKPM0668L as at 31st March, 2001 and the profit and loss account of the said industrial undertaking for the year ended on that date which are in 30 ITA 1792(Del)10 agreement with the books of account maintained at The Head Office at K- 2,Udhog Nagar,Peera Garhi, New Delhi-110 041.
*I/We have obtained all the informations which to the best of *my/our knowledge and belief were necessary for the purposes of the audit. In *my/our opinion, proper books of account have been kept by the head office and the branches of the industrial undertaking aforesaid visited by *me/us sofar as appears from *my/our examination of books, and proper returns adequate for the purposes of audit have received from branches not visited by *me/us, subject of the comments given below:-
...................NIL.............................
In *my/our opinion and to the best of *my/our information and according to explanations given to *me/us, the said accounts give a true and fair view-
(1) In the case of the balance sheet of the state of affairs of the above-
named industrial undertaking as at 31st March, 2001 and (2) In the case of the profit and loss account, or the profit or loss of the industrial undertaking for the accounting year ending on 31st March,2001.
Place: New Delhi For S.K. Dhingra & Co.
Chartered Accountants
Date: 15th October, 01. sd/-
S.K. Dhingra
M.N.-83398
Calculation of deduction u/s 80IA/IB
Profit as per profit and loss account 3,07,86,726
Less interest included in above profit 10,47,539
______________
Eligible profit of industrial undertaking 2,97,39,187
Deduction u/s 80 IA-25% of above 74,34,797
31 ITA 1792(Del)10
Deduction allowed as per note below 61,70,349
As per clause 9A of section 80IA, total deduction under this section & under any other provisions of the Act, would be restricted to the profit and gains of the undertaking. Profits of the undertaking are Rs. 2,97,39,187 & deductions u/s 80 HHC has been claimed for Rs. 2,35,68,838 therefore deduction u/s 80IA would be restricted to 2,97,39,187 less 2,35,57,987 = 61,70,349.
Rebate is available to the assessee from A.Y. 98-99 for ten years."
42. The assessee's return of income, in the computation of income (APB-
1), at item No. 22(b) mentioned claim of deduction under section 80 IA at Rs. 61,70,349/-.
43. Hence, with regard to the claim of deduction under section 80IA too, the assessee, in the original assessment proceedings, had made full and true disclosure of all material facts necessary for his assessment for the assessment year under consideration. It was only on such disclosure that the deduction claimed was allowed by the then AO to the assessee.
44. As such, on this score also, the reopening of the completed assessment was done not on the basis of any external material, but based on the very disclosure made by the assessee in the original assessment proceedings.
45. In "Tanna Builders(P)Ltd. v. Neela Krishnan and Anr.", 283 ITR 448(Bom), where the reopening of the completed assessment was beyond four years from the end of the relevant assessment year, such reopening was held to be unsustainable in the absence of any material to show any failure 32 ITA 1792(Del)10 on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant year.
46. In "Orient Beverages Ltd. v. Income Tax Officer & Ors.", 208 ITR 509(Cal), it was held that since the notice under section 148 of the act had been issued after the expiry of four years from the end of the relevant assessment year, the AO had no jurisdiction to issue such notice in the absence of any material showing omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment.
47. In "CIT v. Eicher Ltd." 294 ITR 310(Del), it has been held that reassessment is not permissible on a change of opinion; that where all material facts are disclosed and the AO applies his mind, failure to record a finding in the assessment order does not mean that income has escaped assessment.
48. In "Haryana Acrylic Manufacturing Co. v. CIT And Another" 308 ITR 38(Del), it was held that where the reassessment notice was issued after four years from the end of the relevant assessment year and there was no indication in the reasons recorded about the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment and the regular assessment order stated specific information as 33 ITA 1792(Del)10 required having been filed and verified, the notice and all proceedings pursuant thereto were to be specified.
49. In "Wel Intertrade P.Ltd. And Another v. ITO" 308 ITR 22(Del), it has been held that if the assessee has disclosed fully and truly all material facts necessary for the assessment, action u/s 147 of the Act cannot be taken after expiry of four years from the relevant assessment year on the basis of mere change of opinion of the AO.
50. In "Texmaco Ltd. v. ITO" [1992] Tax CR 788(Cal), it has been held that the first proviso to section 147 of the Act is only a law of limitation and as such it does not approve of a wrong claim or wrong done by the assessee, but because of the law of limitation, such income cannot be added or reassessed.
51. In "Carlton Overseas Pvt. Ltd. v. ITO And Others" 318 ITR 295(Del), it was held that where there was no new or fresh material before the AO except the opinion of the revenue audit party with regard to the non- availability of deduction under sections 80IA and 80HHC of the Act, the opinion of the revenue audit party being merely an opinion different from that taken by the Assessing Officer in the assessment proceedings, such a mere change of opinion could not form the basis for issuing of a notice under sections 147/148 of the Act and that, therefore, such a notice was 34 ITA 1792(Del)10 liable to be quashed. Facts herein are found to be squarely covered by "Carlton"(supra).
52. Sofar as regards the CIT(A)'s reliance on "Shyam Bansal v. ACIT"
296 ITR 25(All), for the proposition that the reopening of the assessment is possible to the assessment completed u/s 143(3) of the I.T. Act where there is no discussion on the issue in question, we do not find such reliance to be appropriate. In "Shyam Bansal" (supra), Their Lordships of the Hon'ble High Court held that there was no assessment in the assessment order with regard to the issue at hand before them and that the AO had failed to examine that issue in the course of assessment proceedings before him. The factual position in the case before us, on the other hand, is entirely different.
Here, the assessee has been able to well demonstrate that a detailed Questionnaire was issued to him with regard to deductions claimed under sections 80 HHC and 80 IA and that he had made full disclosure with regard to the material facts fully and truly, pertaining to both these claims, as was necessary for his assessment for the year under consideration. An assessment on these claims was indeed made and the claims were allowed, as available from the assessment order. Now, as to how an assessment order is drafted is not in the hands of the assessee. However, the assessment order does evince that detailed information as called for, was filed. It was 35 ITA 1792(Del)10 only on considering the same, that the claims were allowed. In these facts, "Shyam Bansal" (supra) is not applicable. It cannot be said that in the present case, the AO failed to examine this issue in the course of the original assessment proceedings. Moreover, in keeping with "Eicher Ltd."(supra), the failure to record a finding, where all material facts have been disclosed and the AO has applied his mind, does not mean income escaped assessment.
53. In 'Kelvinator'(supra). the Hon'ble Supreme Court has held that the AO has power to reopen the completed assessment u/s 147 where there is tangible material to come to the conclusion that there is an escapement of income from assessment and that the reason to believe escapement of income must have a live-link with the formation of belief. The reopening in the present case, we find, as discussed hereinbefore, is entirely at variance with 'Kelvinator'(supra). Here, there was no tangible material available with the AO to form the belief of escapement of income but for the very disclosure made by the assessee. Moreover, the reason for reopening did not have any link, much less any live-link with the formation of the belief.
54. In view of the above, the grievance sought to be raised by the assessee with regard to the issue of reopening is found to be justified and is accepted as such. Accordingly, the reopening of the completed assessment, for the 36 ITA 1792(Del)10 preceding detailed discussion, is held to be bad in law and is quashed as such.
55. Since the issue of reopening the completed assessment has been thus decided in favour of the assessee, at this stage we do not deem it necessary to go into the merits of the case as raised in the remaining grounds.
56. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 21.06.2010.
Sd/- sd/-
(R.C. Sharma) (A.D. Jain)
Accountant Member Judicial Member
Dated: 21.06.2010
*RM
copy forwarded to:
1. Raj Kumar Mahajan,
Prop.M/s.Girdhars International
K-2, Udyog Nagar, Peera Garhi,
New Delhi.
2. DCIT, Circle 25(1), New Delhi.
3. CIT
4. CIT(A)
5. DR
true copy
by order
Deputy Registrar