9911796707
TMI Blog2011 (5) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... rary and against the facts and evidences on record, unreasonable and/or otherwise perverse? Whether the Tribunal misdirected itself in law and misconstrued the provisions of Section 80HHB of the said Act in holding that the Assessee Company was not entitled to the deduction under the said section in respect of the contract receipts representing the profits and gains derived from and arising out of the foreign project executed in Iraq and assessed to tax in its hands in the Assessment Year 1998-99, and whether the findings recorded by the learned Tribunal in this respect are wholly arbitrary, baseless, against the facts and evidences on record, unreasonable and/or otherwise perverse? Whether the findings of the learned Tribunal that the Appellant Assessee Company was not maintaining separate accounts in respect of profits derived from the business of execution of foreign project and that it did not seek permission of the Reserve Bank of India or such other Competent Authority allowing extension of time for repatriation of convertible foreign exchange beyond six months of the relevant previous year, were wholly arbitrary, baseless, against the facts and evidences on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r arising in pursuance of the said arbitration in the ratio of 77 per cent and 23 per cent respectively. Claims and counter claims were raised before the Arbitrator in London by the parties to the arbitration. Ultimately, a lump sum consent award for Us $ 4.15 million, in full and final settlement of all the claims of the parties, was made by the Arbitrator in favour of E.P.I.L. Out of this amount, US $ 1.835 million was paid by MC PCI directly to EPIL and the remaining US $ 2.315 million was kept in a joint bank account E.P.I.L. and SDB opened with Syndicate Bank New Delhi in August 1994. The proceeds of the convertible foreign exchange, US $2.315 million being Rs. 7,25,30,350 was repatriated to India on 17th October, 1994 and credited to the said joint Bank account, and out of the same, a sum of Rs. 7,25,30,000 was invested in fixed deposit on 21.10.1994 in the joint names of E.P.I.L. & S.D.B. with Syndicate Bank. However, the said final accounts between E.P.I.L. and appellant could not be settled and the disputes in between them, were also referred to arbitration, and the learned Sole Arbitrator ultimately passed an award on 20th January, 1998 and thereby the appellant/petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which was taken to appeal to appellate authority is based on audit query. Pursuant to the said notice the appellant filed its fresh return of total income for the assessment year 1998-99 under protest contending inter alia, no part of its income for the said year had escaped assessment nor any excess deduction was granted to it, which it was not otherwise entitled in law. The explanation offered by the appellant was not accepted by the Assessing Officer in the reassessment proceeding. After hearing it was held by him that the deduction allowed earlier was not allowable as there was mistake apparently on the face of the record by reason of the fact that the income accrued prior to introduction of Section 80HHB of the said Act on completion of execution of works in Foreign Country. The accrual of income was so held because the appellant/assessee has been maintaining mercantile system of accounting and the assessee should have shown the receivable amount of foreign exchange as per agreement minus expenditure as its income for the assessment year 1982-83, since the project was completed in March 1982. Section 80HHB was inserted in the Income Tax Act, with effect from April 1983. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. This position of law has been settled in the following judgments of the Supreme Court and various High Courts which are as follows: Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996. CIT v. Lucas TVS LTD (2001) 249 ITR 306(SC) IMC Ltd. v. JCIT (2003) 261 ITR 731(Cal) Transworld International Inc. v. JCIT (2005) 273 ITR 242(Del.) Asian Paints Ltd. v. Deputy Commisioner of Income Tax reported in (2009) 308 ITR 195 Gemini Leather Stores v. Income Tax Officer (1975)100 ITR 1 (SC). In the instant case Revenue had not pointed out any new fact which was not known earlier. The Revenue had taken different views while reopening original assessment orders. This is legally impermissible as laid down in the case of Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996. He further submits with the authority of two Supreme Court decisions in case of Commissioner of Income Tax v. Rao Thakur Narayan Singh reported in (1965) 56 ITR 234 and in the case of Oil India Ltd. v. CIT reported in (1982) 138 ITR 836 that original assessment order otherwise cannot be changed and/or reopened as the doctrine of merger would be applicable in this case. The original assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side and original order of assessment should be restored. Mr. Som appearing for the Revenue contends on the other hand that in this case the assessing officer is justified in reopening the case as in the original assessment order under Section 143 (3) of the said Act no opinion was expressed by the Assessing Officer on the question of accrual of income that is to say right to receive the income from the foreign contract in the context of execution of the contract and certificate to that effect by the foreign principal vis-à-vis nonexpression of views on points in earlier order. This ground was not taken before the CIT (Appeal) as such there was no occasion to form any opinion, as in the appeal CIT was limited to the point of disallowance of deduction of the amount of interest of Rs. 2 Crores. He contends that there has been substantial change in Section 147 in the year 1989 and legal implication of change has been discussed in a decision of Delhi High Court reported in (2009) ITR 295 (Carlton Overseas Pvt. Ltd. v. ITO). He submits that scope of Section 147 is much wider and can be applied, even if an assessee had disclosed fully and truly all material facts. He conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out by Mr. Poddar following core issues are involved in this matter:- 1. Whether on the facts and circumstances of this case initiation of reassessment proceedings based on change of opinion on the question of applicability of Section 80(HHB) of the Income Tax Act, 1961 is legally permissible? 2. If the aforesaid point is decided in negative then whether the actual receipt of the amount arising out of the works executed pursuant to the foreign contract can be treated to be accrual of income for the purpose of giving deduction under Section 80(HHB) of the said Act although, the assessee maintains mercantile system of accounting? 3. Whether even if it is accepted that actual receipt of the income is treated for the purpose of assessment of tax conditions mentioned in the said section are fulfilled to allow deduction or not? The first question assumes importance. From the records we find that by the original assessment order Assessing Officer allowed a sum of Rs.3,57,40,835/- being the 50% of the contract receipt as per award of Rs. 7,14,81,670/-. It appears from the order the Assessing Officer had taken note of the fact that the said amount was rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a domestic one on the principle of natural justice. In this case the execution of construction project was entitled to certain contract receipts under a contractual obligation which was not paid within time resulting in the operation of a clause of the mutual contract calling for intervention of the Arbitrator in any case or a dispute. The award by the Arbitrator gave rise to the interest which was not as a result of execution of construction contract. The interest was like compensation for the delay.....................I therefore agree with the Assessing Officer (wrongly mentioned as Appellant) and reject the ground of appeal." Thus, it appears from the two decisions of two authorities in the original assessment proceedings that both the authorities have formed opinion on the allowability of the deduction in the order of Assessing Officer directly and indirectly by the appellate order. It is true in two decisions reasoning as to allowability have not been recorded by any of the authorities. We are of the view that just because reasoning was not given it cannot be said that these decisions are not based on no opinion for which reopening of earlier assessment is called f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove." In the context of the aforesaid earlier Gujarat High Court decision in case of Gruh Finance Ltd. V. Joint Commissioner of Income Tax (Asst.) reported in (2000) 243 ITR 482 cited by Mr. Some needs consideration. In this judgment it is held that at the time of first assessment if no conscious consideration of the material is made and a mistake has been committed by Assessing Officer, then it is a case of "reason to believe" within the meaning of Section 147 of the Act and in that case it may call for reopening of assessment. To put differently if on conscious consideration of materials then available, decision is taken reassessment under Section 147 of the Act is not permissible. It seems to us that Gujarat High Court has made distinction where reassessment is permissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons that the order of the Tribunal made within its jurisdiction, subject to the provisions of section 66 of the Act, is final. Therefore, the decision of the Tribunal in respect of the subject-matter under appeal before it is final and cannot be reopened by the assessee or the department." The Division Bench of this Court in case of Oil India Limited v. C.I.T reported in (1982) 138 ITR 836 (Cal), at page 840 of the report has been pleased to reiterate the question of finality of any order passed by Revenue Officers. Therein it has been stated as follows:- "Now, it is well settled that before the AAC certain orders are appealable. It is also well settled that in an appeal preferred before the AAC the whole assessment is open for review by the AAC. He is both the appellate as well as the adjudicating authority. But his jurisdiction is limited to the appeal preferred before him. There are certain orders which are not appealable before the AAC but certain types of allegations can be taken up in an appeal by separate appeals. Apart from those two cases if an assessment is the subject-matter of appeal then any ground which was held in favour of the assessee can al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the case may be, of such work is payable in convertible foreign exchange. (2) For the purpose of this section,- (a) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder; (b) "foreign project" means a project for- (i) the construction of any building, road, dam, bridge or other structure outside India; (ii) the assembly or installation of any machinery or plant outside India; (iii) the execution of such other work (of whatever nature) as may be prescribed. (3) The deduction under this section shall be allowed only if the following conditions are fulfilled, namely:- (i) the assessee maintains separate accounts in respect of the profits and gains derived from the business of the execution of the foreign project, or, as the case may be, of the work forming part of the foreign project undertaken by him and, where the assessee is a person other than an Indian company or a co-operative society, such accounts have been audited by an ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er purpose which is not a purpose of the business of the assessee, the deduction originally allowed under sub-section (1) shall be deemed to have been wrongly allowed, and the Assessing Officer may, notwithstanding anything contained in this Act, recomputed the total income of the assessee for the relevant previous year and make the necessary amendment; and the provisions of section 154 shall, so far as may be, apply thereto, the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the money was so utilised. (5) Notwithstanding anything contained in any other provision of this Chapter under the heading "C.- Deductions in respect of certain incomes," no part of the consideration or of the income comprised in the consideration payable to the assessee for the execution of a foreign project referred to in clause (a) of subsection (1) or of any work referred to in clause (b) of that sub-section shall qualify for deduction for any assessment year under any such other provision." The said section admittedly has come into effect from 1st April, 1983, during currency of assessment year 1983-84. At the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions are fulfilled: (i) maintenance of separate accounts, in respect of profits and gains derived from the business of the execution of foreign project, (ii) furnishing certificate along with returns of income, in prescribed form from an Accountant under the Act certifying deduction has been correctly claimed in accordance with the provisions of this section, (iii) An amount equal to such percentage of profits and gains as is referred to in sub-section (1) in relation to the relevant assessment year is debited to profit and loss account of the previous year in respect of which deduction under this section is to be allowed and credited to a reserve account such amount is brought by the assessee, in convertible foreign exchange into India. The convertible foreign exchange is to be brought within a period of six months from the end of previous year referred to. Therefore, unless this amount is brought upon conversion of foreign exchange the benefit could not be available, and on conversion it has to be shown in the books of accounts. Thus it logically follows that on actual receipt of the money this benefit is available irrespective of the question of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eive the amount, conversely the same amount becomes legally due and payable to him by his debtor or the same is credited in his favour. Any claim based on execution of a contract work or job does not create any legally enforceable right to receive the same. In the case of Commissioner of Income Tax v. Bharat Petroleum Corporation Ltd. reported in 202 ITR 492 (Cal) the Division Bench of this Court at page 499 has been pleased to observe that " therefore, the claim until settled and cleared was a mere claim and does not give rise to any right to receive the said additional claim." At page 500 of the said report it is observed by Their Lordships as follows:- "As the assessee was maintaining its accounts on the mercantile basis, until and unless the assessee has acquired a right to receive the said amount which it has claimed before the Government in clear violation of the directive of the Ministry of Petroleum, the said amount cannot be said to have accrued to the assessee or to have resulted in an accrual of income." In the case of Commissioner of Income Tax v. Hercules Trading Corporation reported in 143 ITR 504 (Cal) the Division Bench at page 507 of the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT v. Swadeshi Cotton & Flour Mills Pvt. Ltd. reported in 53 ITR 134 (SC). In view of the consistent pronouncement of High Authorities on this aspect we hold that the right to receive the amount has accrued only when the award was published by the Indian Arbitrator in favour of the assessee company and not before that. We therefore unable to accept the contention of Mr. Som that the right to get payment accrues the moment execution of work is completed in March 1982. If we accept this logic then it will lead to the absurdity for what amount of the claim is to be entered into books of account? When it is yet to be decided by the Arbitrator. It would have been possible in a case where there had been no dispute with regard to the claim and could be recovered on mere presentation of the bill and without any intervention of any adjudicating authority. Such claim would have been shown in the books of account as being an income. Before the dispute is settled by Arbitrator if any amount is shown as per the claim of the assessee it would amount to deciding the dispute by the party himself not by the Arbitrator. The decisions of the Full Bench cited by Mr. Some in P.G. and Sawoo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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