Allahabad High Court
The Commissioner Of Income Tax Central ... vs M/S Rotomac Pens Ltd. on 30 August, 2012
Author: Sunil Ambwani
Bench: Sunil Ambwani
HIGH COURT OF JUDICATURE AT ALLAHABAD Judgment reserved on 14.8.2012 Judgment delivered on 30.8.2012 INCOME TAX APPEAL NO. 243 OF 2008 Commissioner of Income Tax (Central) Kanpur vs M/s Rotomac Pens Ltd Hon'ble Sunil Ambwani, J.
Hon'ble Aditya Nath Mittal, J.
1. We have heard Shri Dhananjay Awasthi, learned counsel appearing for the appellant. Shri Ashish Bansal appear for the respondent-assessee.
2. The Commissioner of Income Tax (Central) Kanpur has filed this Income-tax Appeal under Section 260-A of the Income Tax Act, 1961, (in short, the Act) against the judgment and order dated 25.1.2008 passed by Income Tax Appellate Tribunal, Lucknow Bench 'B', Lucknow in ITA No. 852/Luc/04 for assessment year 1997-98, on the questions of law for consideration by this Court as follows:-
"(i). Whether the Hon'ble ITAT was justifiable in law in annulling the assessment.
(ii) Whether the Hon'ble ITAT was justifiable in law in holding that the material fact was on record and the assessment could not be re-opened after lapse of four year from the end of the relevant asstt. year."
3.Brief facts, giving rise to this appeal, are that a return of income was filed by the respondent-assessee company under Section 139 (1) of the Act on 29.8.2007, disclosing income of Rs. 3, 42, 36, 480/-. The assessee claimed deduction under Section 80HHC of the Act of Rs.92,44, 415/- and under Section 80IA of Rs. 2, 53, 62, 614/-. A report in form No. 10CCB was filed in respect of deductions claimed under Section 80HHC including the rental income, the interest income, duty draw back and export license premium. The depreciation was included in the income for the purpose of calculation. The income was disclosed as Rs. 8, 45, 42, 046/-, though the depreciation was not mentioned in the profit and loss account. The net profit was shown at Rs. 7, 81, 95, 412/-.
4. The respondent-assessee claimed deduction @ 30% under Section 80IA of the Act on the net profit, as increased by the depreciation in the computation of income. The assessment was completed under Section 143 (3) on 31.3.2000 on the income of Rs. 4, 31, 50, 065/- after deduction under Section 80 HHC was reduced from Rs. 92, 44, 415/- to Rs. 78, 84, 859/-, after applying the depreciation on profit, against the claim made on the profit as enhanced by the depreciation amount.
5. A revised return was filed by the respondent-assessee on 17.6.2002, showing income of Rs. 4, 51, 51, 210/-, taking the correct position of adopting the net profit after allowing depreciation for calculating the deductions under Section 80HHC, and also excluding the interest and rental income for that purpose. The assessee deducted the depreciation, rent and interest from the profit but did not deduct the duty draw back loss in export trading, and licence premium in calculating the deductions under Sections 80IA.
6. The Assessing Officer treated the return dated 17.6.2002 as non-est as it was filed beyond the prescribed period. He, however, considered the non-est return as the information for re-opening the assessment and issued notice under Section 148 on 4.7.2002, after obtaining approval of Commissioner of Income Tax. The re-assessment order was passed on 22.1.2003 on total income of Rs. 4, 75, 29, 000/-.
7. In the appeal filed by the respondent-assessee the Commissioner of Income Tax (Appeals)-I, Kanpur by his order dated 29.11.2004 confirmed the order so far as deducting the loss of export trading activity from the profits of the self-manufactured goods to work out the deduction under Section 80HHC, and the deductions of duty draw back, as well as sale of export entitlements from the profits for the purpose of calculating the deduction under Section 80IA. The CIT (A), however, on the basis of remand report, accepted the plea of the assessee that there was no justification for reducing the amounts of duty draw back and sale proceeds of advance import licence from the turnover as the same were shown separately under the head "other income" in Schedule 14, in the profit and loss account and was not included in the figures of sales shown in the profit and loss account.
8. In the appeal filed by the assessee the Income Tax Appellate Tribunal observed that the assessee has given the details of 'other income' in the schedules annexed to the profit and loss account. The AO should have considered these details while considering the assessee's claim under Section 80HHC and 80IA. The AO applied his mind and had actually reduced the assessee's claim under both the sections in the regular assessment, and therefore, it was a case of remissness, or omission on the part of AO to correctly apply the Explanation (baa) while considering the deduction under Section 80HHC and 80IA to which the notice under Section 148 could not be issued after the expiry of four years from the end of the relevant assessment year. The AO sought to amend the claim under Section 80HHC on account of the decision of the Supreme Court in CIT v. Sterling Foods Ltd 237 ITR 579. Though the non-est return would be valid information for taking action under Section 148, the action could not be taken after lapse of four years in view of the proviso to Section 147, which is dependent for this invocation, on failure on the part of the assessee either to file return or to fully and truly disclose all material facts necessary for assessment. The AO having applied his mind and actually reduced the assess's claim under Sections 80HHC and 80IA, clearly omitted to correctly apply the explanation (baa) for which the notice under Section 148 could not be issued after four years.
9. The ITAT held that the reassessment notice under Section 148 was illegal in view of the proviso to Section 147 and therefore, the assessment made in pursuance to the said notice was annulled. The appeal was consequently allowed.
10. Shri Dhananjai Awasthi appearing for the revenue submits that while computing the deductions under Section 80HHC, the AO had adjusted the eligible amount by reducing depreciation and rental income, without touching the duty draw back and import entitlement. He did not apply his mind to the issue of deductions under Section 80HHC and 80IA. It was not a case of mere change of opinion. The excessive allowance had been computed. Thus the requirements of Explanation-2 (c) of Section 147 was fulfilled. The assessee did not fully and truly disclose all material facts necessary for assessment. The assessee himself deducted the various incomes for arriving at the correct computation of the allowances under Section 80HHC and 80IA either in the computation of income sheet or elsewhere in the return of income.
11. Shri Dhananjai Awasthi submits that Explanation-1 to Section 147 lays down that production of evidence from which material evidence could have been discovered with diligence by the A.O., will not necessarily amount of disclosure. The profit and loss account did not mention the nature of 'other income' which comprised of rent, interest, export entitlement and duty draw back etc. The classification of 'other income' was not given in the profit and loss account. It was given separately in a schedule which was combined both for the profit and loss account and the balance sheet and thus the case was covered by Explanation-1 to Section 147.
12. Shri Dhananjai Awasthi has relied upon Bawa Abhay Sing vs. DCIT (2001) 117 Taxman 12: 253 ITR 83 (Delhi High Court) and Rakesh Agarwal vs. ACIT (1996) 87 Taxman 306 in submitting that the powers to re-open assessment under Section 147 is very wide and can be exercised even if the assessee had disclosed fully and truly all the material facts. He has also relied upon Consolidated Photo & Finvest Ltd vs. ACIT 281 ITR 394 and IPCA Laboratory Ltd vs. DCIT 251 ITR 401 (Bombay), in support of his submissions.
13. Shri Ashish Bansal, learned counsel appearing for the respondent-assessee submits that the schedules are part of the balance sheet. The AO had himself reduced the amount under Section 80HHC and 80IA, and thus he committed an error in applying the Explanation (baa) while considering deductions under Section 80HHC and 80IA. The notice could not be issued under Section 148 after expiry of four years from the end of assessment. Shri Ashish Bansal has relied upon Parashuram Pottery Works Co. Ltd vs. ITO 106 ITR 1 and Renusagar Power Co. v. CIT 117 ITR 733 (All) in support of his submission.
14. We have considered the submissions. The assessee had filed along with his return, a tax audit report with balance sheet, and profit & loss account, along with a schedule. The schedules are integral part of the financial statement. When the assessee had clearly given the details of the 'other income' in the schedules, which were considered by the AO in completing the assessment on 31.3.2000 under Section 143 (3), he could not have ignored them even if he proceeded under Section 147 on the basis of the revised return and completed the assessment on 4.7.2002 under Section 148 of the Act.
15. The AO had treated the revised return under Section 139 (5) as non-est. He thus could not have proceeded after expiry of four years at the end of the relevant assessment year to rectify the mistake. In Sesa Goa Ltd vs. Jt. CIT 294 ITR 101 the notice issued under Section 148 after expiry of ten years on the ground of erroneous computation of deductions under Section 80HHC, was held to be invalid as it was found that the assessee had fully and truly disclosed all material facts. It was found that the AO has changed his opinion on a subsequent decision.
16. In Parashuram Pottery Works Co. Ltd vs. ITO (supra) relied upon by the ITAT it was held that there must be a point of finality in all legal proceedings. The issues, which have become stale, should not be reactivated beyond a particular stage. The lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies, as it must in other spheres of human activity. The income-tax assessment orders cannot be reopened on the score of income escaping assessment under section 147 of the Act of 1961, after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.
17. In the present case the AO examined respondent-assessee's claim under Section 80HHC and 80IA and had allowed the deductions. He did not apply the provisions of Section 80HHC correctly on the primary facts available on record. He did not examine the issues claimed in regard to various expenses despite the fact that the respondent-assessee had clearly disclosed under the head "other income" various items of income, which were mentioned in Explanation (baa). The Tribunal correctly found that in such case it was a case of remissness on the part of AO or wrong application of law to the primary facts available on record. The assessee had disclosed the material facts and there was no dispute regarding the nature and quantum of other income. When the material facts were available on record, the AO was required to apply the law correctly on the material facts available for assessment. In the circumstances, it could not be said that the particulars were not disclosed and were found subsequently by the AO, to justify the assessment under Section 148.
18. In the present case the notice under Section 148 could be given if the assessing officer had reason to believe that any income chargeable to tax has escaped assessment. When all materials were disclosed on the basis of which the assessment under Section 143 (3) was completed, and the revised return was treated as non-est, as it was beyond limitation, it could be taken as information only if the AO could form the opinion that the material facts were not placed on record and that the revised return contains those facts which are sufficient to form an opinion that the income had escaped assessment; or that the assessee had understated the income, or claimed excessive loss, deductions, allowance or relief in the return or on any of such grounds under Explanation-2.
19. On the aforesaid discussions we hold that the ITAT was justified in annulling the assessment under Section 148 and was also justified in law in holding that the material facts was on record and thus the assessment could not be reopened after lapse of four years from the end of the relevant assessment year.
20. Both the questions of law are decided against the revenue and in favour of the assessee.
21. The Income Tax Appeal is dismissed.
Dt.30.8.2012 RKP/