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TMI Blog2006 (3) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... tax returns in the year 1996-97 (assessment year) showing huge profits. In the return for the year 2000-01 they stated that their total sales were to the tune of Rs. 1,51,69,515 out of which a sum of Rs. 74,69,314 was net profit, meaning thereby that the profits bore a proportion of 49 per cent, to the gross sales. For the earlier assessment year, i.e., 1999-2000, the proportion of the net profit to the total sales was as high as 66 per cent, because out of the total sales of Rs. 2,97,12,106 net profits were declared to be to the tune of Rs. 1,96,77,631. For the subsequent three assessment years, i.e., 2001-02, 2002-03 and 2003-04, the proportionate net profits to the gross sales were 81 per cent., 95 per cent, and 95 per cent, respectively. The total investment on plant and machinery for unit No. 1 was shown to be just Rs. 1,25,000 and a very small amount of money was shown to have been spent on plant and machinery for the second unit. The Assessing Officer, Parwanoo, on receipt of the return of income for the year 2000-01 on July 26, 2001, in which the entire amount of income i.e., Rs. 74,69,314 was claimed by way of deduction, under section 80-IA of the Income-tax Act, proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax ordered that only 5 per cent, of the total declared net profits of the assessee-firm could be said to be its income from the business at Parwanoo, with respect to which deduction, under section 80-IB of the Income-tax Act could be allowed and that the rest of the amount declared as net profits to the tune of 95 per cent., was the income of the firm from undisclosed sources and hence taxable under the relevant provisions of the Income-tax Act. At the same time the Income-tax Officer, Parwanoo, was directed to reassess the income of the firm for the earlier assessment years. After the passing of the aforesaid order, the Income-tax Officer, Parwanoo, issued notices, under section 148 of the Income-tax Act to the assessee-firm in respect of the returns filed for the assessment years 1996-97, 1997-98, 1998-99, 1999-2000, 2000-01, 2001-02, 2002-03 and 2003-04. The assessee-firm filed an appeal before the Income-tax Appellate Tribunal challenging the order dated July 12, 2004 of the Commissioner of Income-tax. The Appellate Tribunal has accepted the appeal and set aside the order of the Commissioner, holding that the Assessing Officer had passed the order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout application of mind. The further contention of the appellant is that without countering the well-founded and sound reasons recorded by the Commissioner of Income-tax, in support of his order, the Appellate Tribunal has held that the firm was engaged in manufacturing process and so the entire income earned by it is eligible for deduction under sections 80-IA and 80-IB of the Income-tax Act. The writ petition has been filed by the assessee-firm, challenging the action of the Assessing Officer in issuing the notices, under section 148 of the Income-tax Act in respect of the assessment years prior to the year 2000-01 and continuing with the proceedings based on such notices, even after the acceptance of the appeal by the Appellate Tribunal and the setting aside of the order of the Commissioner of Income-tax, whereby the Assessing Officer was advised to issue such notices and to take action under section 148 of the Income-tax Act. The assessee also seeks the quashing of the notices under section 148 of the Income-tax Act in respect of the assessment years subsequent to the assessment year 2000-01, which are alleged to have been issued by the Assessing Officer taking a cue from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and circumstances of the case, the Income-tax Appellate Tribunal was right in holding that during the appellate or revisional proceedings in respect of a particular assessment year, no direction in respect of any other assessment year could be given even if it was relevant and necessary for the disposal of the matter under consideration? 4. Whether, on the facts and circumstances of the case, the hon'ble Income-tax Appellate Tribunal failed to consider the material aspect that the assessee-firm did not fulfil the basic condition of installing new machinery and was thus not eligible to claim deduction under section 80-IA? 5. Whether, on the facts and circumstances of the case, the hon'ble Income-tax Appellate Tribunal was correct in holding that asking the assessee to produce sale vouchers, etc., tantamounts to the Assessing Officer expressing his view on the reasonability of the extraordinarily high profits declared by the assessee as well as the applicability of the provisions of sub-sections (8) and (10) of section 80-IA? 6. Whether the hon'ble Income-tax Appellate Tribunal has not grossly erred in ignoring the overwhelming facts and circumstances which proved that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings or on which the Assessing Officer had not expressed any view?" During the course of the hearing of the appeal an objection was raised by learned counsel for the respondent-assessee that the Commissioner of Income-tax, Shimla, by whom the appeal is filed, did not have the competence and the locus standi to file the appeal, because, the area falling in the jurisdiction of the Income-tax Officer, Parwanoo, stands transferred to the supervisory and revisional jurisdiction of the Commissioner of Income-tax, New Delhi, with effect from September 5, 2005, per order, under section 127 of sub-section (2), passed by the Central Board of Direct Taxes. He submitted that the appeal was filed in October, 2005, that is to say, after the passing of the aforesaid order dated September 5, 2005, by the Central Board of Direct Taxes and hence the Commissioner of Income-tax, New Delhi, to whose supervisory and revisional jurisdiction the area, controlled by the Income-tax Officer, Parwanoo, stands transferred, had the locus standi to file the appeal. To meet the aforesaid technical objection, learned counsel representing the appellant-Commissioner of Income-tax, Shimla, made a prayer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 9, 2006. This order was in consonance with the law laid down by the hon'ble Supreme Court in Uday Shanker Triyar's case. As regards the merits, learned counsel for the assessee urged that as a matter of fact no substantial question of law arises in the present appeal and that the questions formulated by the appellant and incorporated in the grounds of appeal, are nothing but jugglery of words, to get the appeal heard on the merits. While addressing the arguments, learned counsel for the parties mainly confined their submissions to the scope of section 263 of the Income-tax Act, pertaining to the revisional jurisdiction of the Commissioner of Income-tax. Learned counsel for the respondent-assessee urged that when the Assessing Officer had passed the order after conducting survey, under section 133A of the Income-tax Act, the Commissioner of Income-tax could not have interfered with the same even though he held a view different from that of the Assessing Officer. He submitted that where two views are possible, the revisional authority cannot substitute its own view for that of the subordinate authority. Further he submitted that the view of the Commissioner of Income-tax was not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions made by learned counsel for the assessee himself, as noticed hereinabove, it is clear that the following substantial questions of law arise in the appeal: "(1) Whether, on the facts and in the circumstances of the case, the Commissioner of Income-tax, in exercise of his revisional powers, under section 263 of the Income-tax Act, could have set aside the order of the Assessing Officer and modified the assessment for the assessment year 2000-01? (2) Whether the Commissioner of Income-tax, in exercise of his revisional jurisdiction, under section 263 of the Income-tax Act, could have advised/directed the Assessing Officer to reopen the assessments for the earlier assessment years, pertaining to the respondent (assessee-firm)? For appreciation of the submissions of learned counsel for the parties with respect to the point whether the Assessing Officer had passed the order on the dictates of the Commissioner of Income-tax or independently by applying her mind to the material available with her, the order passed by the Assessing Officer needs to be noticed. The same is reproduced below: "Return declaring nil income after deduction under section 80-IB on the profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax and after going through the questionnaire issued to the assessee on October 18, 2002, and reply submitted by the assessee in response to that on November 7, 2002, November 13, 2002, and November 25, 2002, worthy Commissioner of Income-tax has directed that since the reply submitted by the assessee is satisfactory and up to the mark, no more information is required to be called for and to assess the case as such. He therefore directed in the presence of the learned Additional Commissioner of Income-tax, Solan Range, Solan, to incorporate that discussion in the body of the order sheet. Needful has been done as directed. A copy of the draft assessment order was sent to the Additional Commissioner of Income-tax, Solan Range, Solan, under this office letter No. ITO/PWN/2002-03/21127 dated December 13, 2002, for according necessary approval. Approval to complete the assessment was received through telephonic from the office of the Additional Commissioner of Income-tax, Solan Range, Solan and assessment has been completed and the assessment order has been served upon the assessee on December 19, 2002. (Sd.)............. Income-tax Officer." A careful reading of the order shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dictates of a superior officer. If that is so, the contention of the respondent-assessee that the Assessing Officer had formed a view on the basis of the material before her and the said view was not perverse or was not such which could have been formed on the basis of the material on record, the Commissioner of Income-tax, in exercise of the power under section 263 of the Income-tax Act, could not have substituted that view with his own view, cannot be accepted. Before proceeding further in the matter, we would like to add that tax holiday has been allowed to newly established manufacturing units in the State of Himachal Pradesh for a period of ten years and profits and gains from such manufacturing units are deductible from the income assessable to tax to the extent of 100 per cent. Many bogus units had been set up in the State to illegally claim benefit of tax holiday. The modus operandi was that some premises were arranged in the State by the alleged manufacturers in which machinery and plants were installed. Goods were manufactured, furnished and disposed of outside the State, but records were fabricated to show that raw material was received, goods were manufactured and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consumption was less than 400 units, though the sanctioned load was 14.970 KWs. The assessee-respondent does not deny the figures regarding consumption of electricity. The consumption of electricity in the two units is indicative of the fact that probably electricity was being consumed for purposes which fall in the category of domestic use, like running of fans, lighting of rooms and functioning of T.V., refrigerator, etc., etc. Then the proportions which the profits bear to the sales, are so huge that the same are far from being realistic. For example, in respect of unit I out of the total sales of Rs. 88,55,592 the profits are Rs. 56,60,307 or say 250 per cent., approximately, on the cost of the material and expenses on salary, wages, electricity, freight and consumable stores, etc. The percentage of profits is not only unbelievable but even unimaginable. And when the unit is claimed to have been yielding such high profits, it was closed down all of a sudden in the middle of the financial year and a new unit was made operational, which though yielded lesser profits, but even those were unbelievably on the higher side. This unit was also closed down during the relevant financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e within the meaning of section 263 of the Income-tax Act. As regards the second condition, viz., the order of the Assessing Officer being prejudicial to the interests of the Revenue, when the officer competent to pass the order was prevented from making complete enquiry/survey and was directed to accept the return as filed by the assessee without asking for further information, it can legitimately be presumed that the order so passed was prejudicial to the interests of the Revenue, because had the Assessing Officer collected more information from the assessee, as she wanted to, she might not have accepted the return as filed and instead would have treated the income reported by the assessee, to be from some undisclosed sources and levied tax as per prescribed rates. Learned counsel for the assessee also urged that from the note appearing at the foot of the order of the Assessing Officer, it cannot be assumed that she was under pressure or there was any unwarranted or unlawful interference in her judicial working and that at the most this was a case of monitoring of the survey by the Commissioner of Income-tax. The contention has been noticed only to be rejected. As already point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and the circumstances, noticed by the Commissioner of Income-tax in his order dated July 12, 2004, more particularly the fact that no electricity appears to have been consumed in the alleged manufacturing activity and the conduct of the partners of the assessee in suddenly closing down the industry when it was allegedly yielding unimaginable huge profits, the argument merits summary rejection. It appears that the assessee simply got installed machinery and plant worth around rupees 1.5 lakhs, procured electricity connections for industrial activity, got the workers registered for ESI benefits with the ESI Corporation and with the provident fund authorities for contribution to the provident fund and also manipulated other entries and documents like transportation of raw material and goods etc. to give a colour of genuineness to the alleged manufacturing activity, which was either totally nonexistent or was carried out only at a nominal scale, to hoodwink the income-tax authorities for claiming the benefit of tax holiday. While making the submissions with regard to the question whether the Commissioner of Income-tax had the power to advise/direct the Assessing Officer to reop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appeal or revision and not to a finding or direction pertaining to any other assessment year. In the extant Act, i.e. the Income-tax Act, 1961, there are two provisions covering limitation for dealing with the cases of assessment, reassessment or recomputation of income in the matters like the present one. Section 149 of the Income-tax Act provides for limitation for issuance of notice, under section 148 of the Act. Section 150 is in the nature of an exception to section 149. It says that notwithstanding anything contained in section 149, a notice under section 148 may be issued at any time for making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority under the Act by way of appeal, reference or revision. Then there is subsection (2) of section 153 of the Act of 1961, which says that no order of assessment, reassessment or recomputation shall be made, under section 147 after the expiry of one year from the end of the financial year in which notice under section 148 was served. There is an exception to sub-section (2) of section 153, which is contained in sub-section (3)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335. As already noticed, the hon'ble Supreme Court, in the aforesaid judgment has held that any finding or direction contained in an order of appellate or revisional authority, has to be with respect to the assessment year, to which the appeal or revision pertains, to attract the provision lifting the bar of limitation. The counter argument, advanced by the learned counsel for the Revenue, cannot be accepted. The judgment relied upon by learned counsel Gulabchand Motilal v. CIT [1988] 174 ITR 117 (MP) itself negates the contention. The only difference of substance in the relevant provisions of the old Act and the extant Act is that two Explanations have been added to section 153 of the extant Act to slightly expand the meaning of the words "in consequence of or to give effect to an order of appellate or revisional authority" occurring in sections 150(1) and 153(2) by legal fiction. Explanation 2 says that where, by an order, passed, inter alia, by a revisional authority, any income is excluded from the total income of the assessee for an assessment year, then an assessment of such assessment year shall, for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitation contained in sections 149 and 153(2) will not be lifted, if the order or the finding or the direction of the appellate or the revisional authority, pertains to an assessment year other than the assessment year which was the subject-matter of the appellate or revisional proceedings, unless, the case is covered by Explanations 2 and 3 to section 153. In other words, the Revenue cannot successfully press into service the provisions of sections 150(1) and 153(2) lifting the bar of limitation in cases where the order of revisional or appellate authority relates to the assessment year(s) other than the assessment year(s) to which the appeal or revision pertained. The net result of the aforesaid discussion is that though the direction of the Commissioner of Income-tax for reopening the assessment for the earlier assessment years is not without jurisdiction, the bar of limitation contained in sections 150(1) and 153(2) shall be applicable to the reopening of assessments. It was urged before us on behalf of the assessee that the notices issued under section 148 of the Income-tax Act, were barred by limitation prescribed in section 149 of the Act. Section 149(1) provides for diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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