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TMI Blog2007 (11) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The Assessing Officer has gravely erred in deducting the amount of DEPB including premium on sale of DEPB from profit and gains of business of the undertaking. 3.That the grounds of Appeal No. 3 does not arise from the order of the learned CIT(A). 4.That the deduction under section 80-IB and section 80HHC have been rightly claimed by the assessee. 5.That the assessment was wrongly reopened by Assessing Officer under section 147 of the Income-tax Act. 6.That the respondent requests for leave to add or amend any ground of appeal before cross-objection is heard and disposed off." 3. At the outset, the learned counsel for the assessee, Sh. Sudhir Sehgal, requested to withdraw the cross-objections filed by the assessee. The learned Departmental Representative did not raise any objection to the request of the learned counsel. Therefore, the cross-objections filed by the assessee are dismissed as withdrawn. 4. We now take up the appeal filed by the Revenue, where the following four effective grounds have been taken; "1.That, the learned CIT(A) has erred in holding that the Assessing Officer could not travel beyond the reasons recorded for reopening the assessment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he view that the amount of deduction allowed under section 80-IB was to be reduced from the profits for the purpose of computing deduction under section 80HHC. He, therefore, initiated proceedings under section 147 of the Income-tax Act, 1961 on 10-11-2004 by issue of a notice under section 148. In response to the said notice, the assessee filed return of income declaring the same income as shown in the original return. Thereafter, a notice Under section 143(2) of the Act was issued. During the course of reassessment proceedings, the Assessing Officer also noticed that the assessee had claimed deduction under section 80-IB of the Act without reducing the amount received as DEPB and duty drawback from the profits as according to him such receipts were not profits derived from industrial activities of an undertaking. He was of the view that assessee had claimed excess deduction under section 80-IB. He also relied on the two judgments of Hon ble Supreme Court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC) and Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278 and the judgment of Hon ble Delhi High Court in the case of CIT v. Ritesh Industries [2005] 274 ITR 324 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d some other decisions of CIT(A) where it was held that for the purpose of computing deduction under section 80HHC, deduction allowed under section 80-IB was not to be reduced from the profits of the business. The only condition was that deductions allowed under sections 80HHC and 80-IB should not exceed the gross total income computed as per provisions of the Act before allowing deductions under these sections. Thus, it was submitted that reassessment proceedings Initiated by the Assessing Officer could not continue because the ground for which such proceedings were initiated no longer survive. Relying on the judgment of Hon ble Punjab Haryana High Court In the case of CIT v. Atlas Cycle Industries [1989] 180 ITR 319 , it was argued that reassessment proceedings cannot continue, if the ground on which such proceedings were initiated was found to be incorrect. Thus, it was submitted that since ground for which proceedings were initiated did not survive, no addition in respect of exclusion of DEPB receipts and duty drawback for the purpose of allowing deduction under section 80-IB could be made by the Assessing Officer. The learned CIT(A) considered these submissions and obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Assessing Officer only on the basis of applicability of provisions of section 80-IB(13) read with sub-section (9) of section 80-IA of the Income-tax Act. From the reasons so recorded it is obvious that the issue of DEPB and duty drawback was not one of the reason for reopening the assessment. It is also important to mention here that an audit query was raised wherein it was objected that the receipt on account of DEPB and duty drawback cannot be said to be attributable to the business of Industrial undertaking but the said objection was rejected by the Assessing Officer by mentioning that the said receipts are attributable to the business of the undertaking directly and the case cited at Cambay Electric Supply Industrial Co. Ltd. v. CIT 1978 CTR (SC) 50 : [1978] 113 ITR 84 (SC) was distinguished and the reference was invited by the Assessing Officer to the decision reported at Dy. CIT v. Metro Tyres Ltd. [2001] 79 ITD 557 (Delhi) which according to Assessing Officer was direct case on the issue. In view of the reply furnished by the Assessing Officer one fact becomes obvious that the said issue had already attained finality and due to this reason it was not made part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough completed under section 143(1) of the Income-tax Act and in the light of the objection of the audit party being not accepted by the Assessing Officer, the addition made on this issue amounted to change of opinion and in this regard I find substance in the submissions of the appellant. The proceedings before the appellate authority are not subject to proceedings pending under section 263 of the Income-tax Act whereas converse is true that if the order is passed under section 263 of Income-tax Act in the case of assessee for the same assessment year, the same effects the pending proceedings before the appellate authority. Therefore, the grounds taken by the appellant are allowed. Ground Nos. 4 to 4.2 pertain to merits of addition corresponding to restricted claim for deduction under section 80-IB by excluding the receipts on account of DEPB and duty drawback from the profits of the industrial undertaking as shown by the assessee whereby the claim for deduction was restricted to Rs. 31,67,439 as against the claim of Rs. 85,52,378 made by the assessee in the return. The learned Authorised Representative for the assessee filed written, submissions on the merits of the issue. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) was not correct in relying on the judgment of Hon ble Punjab Haryana High Court in the case of Vipan Khanna v. CIT [2002] 255 ITR 220 for coming to a conclusion that initiating of the proceedings under section 147 was on the basis of mere change of opinion. He particularly drew our attention to p. 235 of 255 ITR, wherein the Hon ble High Court has clearly stated that the Assessing Officer is free to bring to tax any other item of income which may have escaped assessment and which comes to his notice during the course of proceedings under section 147 of the Act. He submitted that the only limitation imposed on his power is that the Assessing Officer cannot make fishing inquiries. He submitted that in the present case, the Hon ble jurisdictional High Court of Punjab Haryana in the case of Liberty India v. CIT [2007] 158 Taxman 462 has already held that the assessee is not entitled to deduction under section 80-IB in respect of DEPB and other Incentives like duty drawback. Therefore, there is no doubt that the claim of the assessee for deduction under section 8O-IB by including DEPBs and duty drawback was against the law. Therefore, the same represented escaped asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer be restored. 8. The learned counsel for the assessee, on the other hand, heavily relied on the order of the CIT(A) and reiterated the submissions made before the authorities below. He drew our attention to pp. 1 and 2 of the paper book, which is a copy of the audit objection raised by the audit parry. He further referred to p, 3 of the paper book, which is a copy of reply dated 8-9-2004 of the Assessing Officer to audit party where he has stated that the receipts on account of DEPB and duty drawback were attributable to the business of the undertaking. He also relied on the decision of Tribunal, Delhi Bench in the case of Dy. CIT v. Metro Tyres Ltd. [2001] 79 ITD 557. He then referred to p. 4 of the paper book which is a copy of the reasons recorded by the Assessing Officer for initiating the proceedings under section 147. The only reason given by the Assessing Officer was that the deduction allowed under section 80-IB required to be reduced from the profits of the business for the purpose of computing deduction under section 80HHC in terms of provisions of subs. (13) of section 80-IB read with sub-section (9) of section 80-IA of the Act He submitted that the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking, the subsequent action to cover these receipts tantamounted to mere change of opinion. Such action is untenable in the eyes of law. He further submitted that even as per amended provisions, the Assessing Officer can bring to tax any other income that has escaped assessment, if it comes to his notice subsequently. He submitted that there is nothing on record to show that it came to his notice subsequently though the facts on record do show that the Assessing Officer was aware of the same even on the date when he initiated proceedings under section 147 on 10-11-2004. Reply to audit was sent on 9-9-2004. 9. In the rejoinder, the learned Departmental Representative submitted that the action of the Assessing Officer is to be seen in the spirit of provisions of section 147. If the fact that income chargeable to tax by way of allowing deduction under section 80-IB in respect of DEPB receipts and duty drawback also represented escaped income of the assessee, the same can be disallowed while completing the reassessment proceedings. He submitted that it is not correct to say that such action had attained finality. 10. We have heard both the parties at some len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 20-9-2006 of Tribunal. Amritsar. Bench in the case of Upkar International ( supra ). Now the Bench is required to decide whether the learned CIT(A) was justified in arriving at the above conclusion. 11. Admittedly, in this case, the proceedings for the assessment year under consideration have been initiated under section 147 by issue of a notice under section 148 on 10-11-2004. The action of the Assessing Officer is to be considered as per amended provisions of section 147 of the Act with effect from 1-4-1989. Section 147 of the Act confers powers on the Assessing Officer to assess or reassess the income, if he has "reason to believe" that such income chargeable to tax has escaped assessment for that assessment year. The amended provisions of section 147 of the Act are liberal and confer more power on the Assessing Officer for initiating the reassessment proceedings. In the case of Asstt. CIT v. Rajesh Javeri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC), the Hon ble Supreme Court has recently considered the scope of powers of the Assessing Officer for initiating action under section 147 in a case where return filed was processed under section 143(1) and the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer." In the case of Aditya Co. v. CIT [2005] 279 ITR 47 , the Hon ble Punjab Haryana High Court has held that the intimation sent under section 143(1) does not amount to an assessment. The mere fact that the Assessing Officer had not issued a notice under section 143(2) within the time allowed does not debar the Assessing Officer for initiating the proceedings under section 147, if there is a material to show that income chargeable to tax has escaped assessment Thus, the position that emerges from these judgments of Hon ble Punjab Haryana High Court and the Supreme Court is that the mere fact that return was processed under section 143(1) does not debar the Assessing Officer from Initiating the proceedings under section 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exchange rate fluctuation, training fees income etc. were also liable to be excluded for computing deduction under section 80HHC. Accordingly, the Assessing Officer initiated the proceedings under section 147. On these facts, the Hon ble High Court referred to Explanation ( 1 ) to section 147 and observed that once the Assessing Officer found that income has escaped the assessment and income chargeable to tax has been under assessed or such income has been assessed at too low a rate or such income has been made subject of excessive relief under this Act or excessive loss or depreciation allowance or any other allowance under this Act, the Assessing Officer can reopen the assessment provided such action is being taken within a period of four years from the end of the relevant assessment year. The Hon ble High Court observed that it does not make any difference to such action even if the original assessment was completed under section 143(3). While taking such view, the Hon ble High Court also followed its earlier judgment in the case of Praful Chunilal Patet v. M.J. Makwana, Asstt. CIT [1999] 236 ITR 832 (Guj.), where the expression "reason to believe" was dealt with. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belief on any final adjudication of the matter." (Emphasis supplied, italicized in print, is ours) The findings recorded by the Hon ble Gujarat High Court are more or less similar to the findings recorded by the Hon ble Supreme Court in the case of Rajesh Javeri Stock Brokers (P.) Ltd. ( supra ) except that in the case before the Hon ble Gujarat High Court, the original assessment was completed under section 143(3) and in the case before the Hon ble Supreme Court the return was processed under section 143(1). 13. The present case also requires to be examined in the light of legal position explained above. The Assessing Officer has recorded the following reasons for initiating the proceedings under section 147 : "This is the case of a firm deriving income from manufacture and trading of tyres and tubes. Returns declaring total income of Rs. 17,52,669 was furnished by the assessee on 31-10-2002 which was processed accordingly. A deduction of Rs. 86,52,378 was claimed by the assessee under section 80-IB of the Income-tax Act, 1961 on the total profit of Rs. 3,46,09.513. It is seen that the assessee has claimed a deduction at Rs. 2,42,04,446 under section 80HHC of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 Smt. Aruna Luthra ( supra ). 14. 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 Rogini Garments ( supra ). Having regards to these facts and circumstances of the case, we set aside the order of the CIT(A) and restore that of the Assessing Officer in respect of this ground. Accordingly, this ground of appeal is allowed. 15. The next aspect that require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Sterling Foods ( supra ) and Pandian Chemicals Ltd. ( 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 feet that the assessee is not entitled to deduction under section 80-IB in respect of these it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 ( 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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