Allahabad High Court
Ajai Verma vs Cit And Anr. on 17 December, 2007
Bench: Sushil Harkauli, Rakesh Sharma
JUDGMENT
1. We have heard Sri S.K. Garg for the petitioner and Sri R.K. Upadhaya for the IT department. The petitioner was assessed by an assessment order dated 29-1-2004 (wrongly mentioned as 29-1-2003) by the respondent No. 2 under Section 144 of the Income Tax Act, 1961 (hereinafter referred to as the Act in short), for the assessment year 2001-02. A copy of the assessment order has been enclosed as Annexure III to this writ petition.
2. The petitioner is challenging a notice issued to him under Section 148 of the Act, a copy of which has been enclosed as Annexure VI to this writ petition.
The main ground of challenge is that the notice under Section 148 dated 10-1-2007 has been issued by the Income Tax Officer. According to the petitioner, this notice has been issued after the expiry of four years from the end of the relevant assessment year and, therefore, the said notice could not have been issued by the Income Tax Officer. It could have been issued by an assessing officer not below the rank of Joint Commissioner.
3. In support of the above proposition, reliance has been placed upon a decision of a Division Bench of this Court in the case of Dr. Shashi Kant Garg v. CIT . The relevant portion of the said decision is extracted below, with the crucial portion underlined by us in the extract:
From a perusal of Section 151 of the Act the following propositions emerge:
(i) if an assessment has been made under Sub-section (3) of Section 143 or Section 147 of the Act and four years have not expired from the end of the relevant assessment year, a notice under Section 148 of the Act has to be issued by the assessing officer who is not below the rank of Assistant Commissioner or Joint Commissioner but before issuing any such notice, the Joint Commissioner is to be satisfied on the reasons recorded by such assessing officer that it is a fit case for issue of such notice. Here Joint Commissioner, who also include an Addl. Commisioner, in view of the definition of the phrase Joint Commissioner as contained in Section 2(28C) of the Act. The satisfaction has to be necessarily recorded by the Addl. CIT or the Joint Commissioner, as the case may be. However, if the assessing officer is the Addl. Commissioner or the Joint Commissioner, then in that case, prior approval of any higher officer is not required in case he has recorded the reasons for issuing notice in view of the provisions of Sub-sections (4) and (5) of Section 120 of the Act;
(ii) if, however, the period of four years has expired and the assessment order has been made under Sub-section (3) of Section 143 or Section 147 of the Act, the notice is to be issued only after the satisfaction has been recorded by either the Chief CIT or the Commissioner on the reasons recorded by the assessing officer that it is a fit case for issue of such notice. Thus, the assessing officer not below the rank of the Assistant Commissioner can issue a notice but before issuing the notice, the satisfaction of the Commissioner or the Chief CIT is necessarily to be obtained.
(9) Where any amount of profit and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profit and gains shall not be allowed under any other provisions of this chapter under the heading 'C- Deduction in respect of certain income', and shall in no case exceed the profit and gains of such eligible business of undertaking or enterprise, as the case may be.
The deduction under Section 80-IB allowed in excess works out to Rs. 77,01,917 chargeable to tax has escaped assessment for the previous year relevant to assessment year 2002-03 and as such, with a view to assess/reassess such escaped income and also any other income chargeable to tax which comes to notice subsequently in due course, proceedings under Section 147 are hereby initiated against the assessee whereby issuing notice under Section 148 of the Income Tax Act, 1961 for the said assessment year.
There is no dispute about the fact that the assessee had claimed deduction under Section 80HHC independently without reducing the amount of deduction allowed under Section 80-IB. No doubt earlier, there was some doubt as to whether both deductions are to be allowed separately or deduction under Section 80HHC is to be computed after reducing the amount of deduction allowed under Section 80-IB in terms of provisions of Section 80-IB(13) read with Section 80-IA(9). This controversy has since been resolved by the Tribunal (Special Bench) Chennai Bench in the case of Asstt. CIT v. Rogini Garments (supra), where it has been held the relief allowed under Section 80-IA is to be deducted from profits and gains of business before computing deduction under Section 80HHC in terms of provisions of Section 80-IB(13) read with Section 80-IA(9). The decision of Tribunal (Special Bench) Chennai, takes precedence over the decision of the Division Bench and binding on all the Benches of the Tribunal except in a case where there is a contrary judgment of jurisdictional High Court or Supreme Court. In the present case, there is a none. Further, even if the decision of the Special Bench is of a later date, it would relate back to the date on which provisions giving rise to the dispute were inserted in the Act. Reliance in this regard is placed on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Smt. Aruna Luthra (supra).
4. Considering the fact that the return was processed under Section 143(1) and original assessment under Section 143(3) had not been made, the assessing officer was justified in forming a 'reason to believe' that income chargeable to tax has escaped assessment in terms of provision of Section 80-IB(13) read with Section 80-IA(9) of the Act. As regards the merits of the claim of the assessee, the issue already stands decided in favour of the revenue and against the assessee by the decision of Tribunal, (Special Bench) Chennai in the case of Asstt. CIT v. Rogini Garments (supra). Having regards to these facts and circumstances of the case, we set aside the order of the Commissioner (Appeals) and restore that of the assessing officer in respect of this ground. Accordingly, this ground of appeal is allowed.
5. The next aspect that requires to be decided by the Bench is whether the assessing officer was justified in restricting the claim of the assessee for deduction under Section 80-IB by excluding DEPB receipts and duty drawback from the profit of an industrial undertaking for the purpose of computing deduction under Section 80-IB. Undoubtedly, the assessing officer had not covered this issue in the reasons recorded for initiating the proceedings under Section 147. Section 147 of the Act reads as under:
147. If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 and 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 proceedings under this section or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 and 153 referred to as the relevant assessment year).
A bare reading of the above section shows that the assessing officer has jurisdiction to assess or reassess income that has escaped assessment for which proceedings under Section 147 have been initiated and also any other income chargeable to tax which has escaped assessment which comes to his notice subsequently in the course of proceedings under this section. It is true that this issue was raised by the audit party. This is clear from pp. 1 and 2 of the paper book. It is also true that in the reply sent by the assessing officer (a copy placed at p. 3 of the paper book) to the audit party, the assessing officer had mentioned that DEPB receipts and duty drawback are attributable to the business of an undertaking. Therefore, the objection was not accepted. Now the question arises whether the reply sent to the audit party which is purely an internal matter can be said to reflect the opinion of the assessing officer at the time of initiating the reassessment proceedings. In our humble view, the opinion is to be expressed in the assessment order only and not in the form of internal communication or correspondence exchanged with the senior authorities or with the audit reply. But in this case, the original return filed was processed under Section 143(1) and no assessment under Section 143(3) was made. Therefore, it cannot be said that the assessing officer had expressed his opinion in regard to this issue. Be that as it may, the assessing officer did not cover this item in the reasons recorded at the time of initiating the proceedings under Section 147 on 11-10-2004 i.e. subsequent to the reply sent to the audit. Thus, it shows that at the time of when proceedings were initiated, the assessing officer did not consider this item having escaped assessment. However, during the course of proceedings under Section 147, the assessing officer referred to the two judgments of Hon'ble Supreme Court in the cases of CIT v. Sterling Foods (supra) and Pandian Chemicals Ltd. v. CIT (supra) and observed that the DEPB receipts and duty drawback were not profits derived from an industrial undertaking, and, therefore, the assessee was not entitled to deduction under Section 80-IB in respect of these items of income. This fact came to the knowledge of the assessing officer after he had initiated proceedings under Section 147. Now the fact that the assessee is not entitled to deduction under Section 80-IB in respect of these items of receipts, it is supported by the judgment of jurisdictional High Court in the case of Liberty India v. CIT (supra), where again the Hon'ble Punjab & Haryana High Court has relied on the judgment of Hon'ble Supreme Court in the case of CIT v. Sterling Foods (supra). Therefore, the deduction claimed under Section 80-IB by the assessee in respect of duty drawback and DEPB receipts was not admissible and represented the escaped income of the assessee. Therefore, such income can be brought to tax while completing the reassessment even though, the same was not covered in the reasons recorded by the assessing officer. The plea of the learned Authorised Representative that the fact that this was escaped income must come to the notice of the assessing officer subsequently is untenable for the reason that at the time of initiating the proceedings, the assessing officer was of the view that deduction under Section 80-IB was admissible in respect of these items. However, subsequently, during the course of reassessment proceedings, the assessing officer by referring to the two judgments of Hon'ble Supreme Court came to know that the assessee was not entitled to deduction under Section 80-IB in respect of these items. This only shows that the fact that such income has escaped assessment came to his knowledge only after initiation of reassessment proceedings. As already held by the Hon'ble Supreme Court in the case of Asstt. CIT v. Rajesh Javeri Stock Brokers (P) Ltd. (supra), the theory of change of opinion is not applicable to a case where the return was processed under Section 143(1). Therefore, this plea of the assessee is rejected. Since the reassessment proceedings were initiated within period of four years from the end of the relevant assessment year and the original assessment was not completed under Section 143(3), the assessing officer was only required to form a 'reason to believe' that income chargeable to tax has escaped assessment and he was not required to establish that such escapement was due to failure on the part of assessee to disclose fully and truly all material facts necessary for assessment. The judgment of Hon'ble Supreme Court in the case of Assistant Commissioner v. Rqjesh Javeri Stock Brokers (P) Ltd. (supra) and the judgment of Hon'ble Gujarat High Court in the case of Inductotherm (India) (P) Ltd. v. James Kurian, Assistant Commissioner (supra) also supports this view. Further, in the case of Srikant G. Shah v. ITO (2007) 110 TTJ (Mumbai) 422 : (2007) 108 ITD 577 (Mumbai), the Tribunal, Bombay Bench has held that in a case where the proceedings under Section 147 have been validly initiated, the assessing officer is authorised to bring to tax any other income chargeable to tax which has escaped assessment and which comes to his notice, subsequently, in the course of assessment proceedings under Section 147; his jurisdiction is not merely confined to bringing to charge to tax, income referred to in reasons recorded by issue of notice under Section 148. In that case, the Tribunal has upheld the disallowance of telephone, car and salary expenses, although the proceedings were not initiated for making disallowance of such expenses. Besides in the case of Vipan Khanna v. CIT (supra), the Hon'ble Punjab & Haryana High Court has held that the assessing officer can bring to tax any other item of income which may have escaped assessment and which comes to his notice during the course of the proceedings under Section 147 of the Act. However, the assessing officer cannot make fishing enquiries to probe, if any other income has escaped income or not. In the case under consideration, the items of income i.e. DEPB receipts and duty drawback are clearly mentioned in the accounts and the return and the same represented escaped income of the assessee to the extent the assessee had claimed deduction under Section 80-IB by including these in the profits. The action of the assessing officer is in conformity with the view of the Punjab & Haryana High Court in the case of Liberty India v. CIT (supra). The plea of the learned Counsel that the judgment of Hon'ble Punjab & Haryana High Court in the case of Liberty India v. CIT (supra) is of later date would not make any difference because in the case of CIT v. Smt Aruna Luthra (supra), the Hon'ble Punjab & Haryana High Court has held that once there is a subsequent judgment of jurisdictional High Court or Supreme Court, the same would relate back to the date when the provisions of the Act giving rise to dispute were inserted. The Hon'ble Punjab & Haryana High Court has held that the same would be mistake of law apparent on record for which the assessing officer would be justified to rectify such mistake under Section 154 of the Act. The judgment of Hon'ble Punjab & Haryana High Court in the case of Amrinder Singh Dhiman v. ITO (supra) is not applicable, because in this case issue involved did not relate to making of general enquiry. The issues covered are definite, specific and represent the escaped income of the assessee. As regards the merits of disallowance of deduction in respect of these items of income, the issue is squarely covered in favour of the revenue and against the assessee by the judgment of Hon'ble Punjab & Haryana High Court in the case of Liberty India v. CIT (supra).
6. Thus, having regard to these facts and circumstances of the case and the legal position discussed above, we are of the considered opinion that the assessing officer was justified in reducing the deduction under Section 80-IB by excluding DEPB receipts and duty drawback from the profits of the business while completing the reassessment. Accordingly, we set aside the order of the Commissioner (Appeals) and restore that of the assessing officer. These grounds of appeal are also allowed.
7. In the result, the appeal of the revenue is allowed and cross-objection filed by the assessee is dismissed.