TMI Blog1997 (6) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue that the CIT(A) has failed to appreciate that the present cases are covered by cl. (c) of Expln. 2 to s. 147 and he has failed to appreciate that the conditions still remaining in the proviso to s. 147, i.e., "by reason of the failure on the part of the assessee to make a return under s. 139 or to disclose fully and truly all material facts necessary" are to be satisfied only in a case where an assessment under s. 143(3) is reopened after 4 years from the end of the relevant assessment year. According to the Revenue no deduction under s. 80HHC of the IT Act, 1961 was originally envisaged for exports made through export houses and for that reason, the Board had issued Circular No. 466, dt. 14th Aug., 1986, at the request of such exporters. The further grievance in the grounds of appeal is that the CIT(A) failed to appreciate that new sub-s. (1A) to s. 80HHC granting benefits for exports through export houses was introduced with effect from the asst. yr. 1989-90 and onwards and while introducing the Finance Bill, 1988, it was proposed to extend the benefit to supporting manufacturers, exporting through trading or export houses. According to the Revenue in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reopening of the assessments for the years 1987-88 and 1988-89 under s. 147 and entitlement of the assessees for full deduction under s. 80HHC even on exports made through export houses are similar. Therefore, we first take up the appeals preferred by the Revenue in the case of Baby Marine Exports, Quilon, in respect of the asst. yr. 1987-88. The assessment in the above case was originally completed on 2nd March, 1990, on a total income of Rs. 4,73,780, in which deduction under s. 80HHC of the IT Act was granted in a sum of Rs. 26,05,475 for exports made by it through export houses as well. The AO was of the view that the CBDT Circular No. 46, dt. 14th Aug., 1986, was in operation during the asst. yrs. 1986-87 to 1988-89 and as per para 5 of the above circular payments received by any manufacturer whose goods or merchandise were exported through export house/trading house would not be included in the total income of the manufacturer if the claim for such non-inclusion was supported by a certificate issued by the export house/trading house. Since the assessee in this case did not furnish any such certificate, the AO held that the assessee was not entitled to the deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years under consideration under s. 147 of the IT Act, 1961. He pointed out that the assessments were reopened on two grounds, viz.: (1) The effect of CBDT Circular No. 466, dt. 14th Aug., 1986, was not considered properly while making the original assessments and consequently there was mistake in the computation of the deduction under s. 80HHC; and (2) That excess relief under s. 80HHC was granted in that as against the aggregate correct deduction under s. 80HHC of Rs. 15,60,431, deduction was granted at Rs. 16,05,475 in the original assessment. The above is in regard to the asst. yr. 1987-88, and with same change in the figures for the asst. yr. 1988-89. 9. According to the learned Departmental Representative, the excess relief in the original assessment for the asst. yr. 1987-88 was due to incorrect computation of the total income of the assessee from export business taken at Rs. 30,61,303. This computation is given at p. 3 of the paper-book filed by the Revenue. However, it is made clear at this stage only that this computation included the exports made by the assessee through export house. According to the learned Departmental Representative, the proportionate expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment has to be held valid within the meaning of Expln. 2(c)(ii) of the s. 147. In the alternative, he submitted that assuming but not admitting, assumption of jurisdiction to reopen the assessment on the basis of the Circular No. 466, dt. 14th Aug., 1986, even then jurisdiction to reopen the assessment has to be upheld on the latter count. In support of this contention, he relied on the judgment of the Calcutta High Court in the case of CIT vs. Assam Oil Co. Ltd. (1982) 133 ITR 204 (Cal). 12. In order to throw more light on the dispute it would be necessary to state some more facts. The CIT(A) set aside the original assessment with a direction to consider the applicability of the CBDT Circular No. 466, dt. 14th Aug., 1986. The AO rejected the assessee's claim for deduction under s. 80HHC on the ground that the above circular is not applicable to the assessment year in question and that the deduction under s. 80HHC is available to manufacturers only if the benefits of exports are passed on to the manufacturers by the export house. The assessee filed a certificate before the AO from the United Commercial Bank and claimed that the entire proceedings of the export bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reassessments cannot stand. 13. The learned counsel for the assessee took us through the CBDT Circular No. 466, dt. 14th Aug., 1986, regarding the provisions of s. 80HHC of the IT Act, 1961, and share of tax between export house/trading house and manufacturers. By this circular, the Board made it clear that the payment received by any manufacturer whose goods or merchandise are exported through export house/trading house will not be included in the total income of the manufacturer if such claim or non-inclusion is not supported by a certificate by the export house/trading house. The Board has cancelled this circular by the issue of another Circular No. 528, dt. 15th Dec., 1988. The learned counsel argued that the AO has lost sight of the circular to find out whether any income has escaped assessment. According to him the AO had no jurisdiction to issue a notice under s. 148 relying on the Circular No. 466 which was not in effect for the asst. yrs. 1986-87 to 1988-89. In support of this contention, he has relied on the decision of the Allahabad High Court in the case of Jamna Lal Kabra vs. CIT (1968) 69 ITR 461 (All) and contended as per the ratio of the above decision the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under s. 80HHC had been claimed in respect of exports made through export houses also. The learned counsel further submitted that even if any deduction is allowed for the exports made through export houses, it cannot be considered a good ground to deny the deduction under s. 80HHC to the supporting manufacturer. According to him, the CBDT considered its earlier Circular No. 466, dt. 14th Aug., 1986, as invalid and withdrew the same by another Circular No. 528, dt. 15th Dec., 1988. He further urged that the Circular No. 466, dt. 14th Aug., 1986, was not applicable to a period before 1st April, 1989, and since there was no failure or omission on the part of the assessee to disclose any material facts necessary for the completion of the assessments, the reopening was bad in law. He submitted that the notice issued under s. 148 of the Act goes to the very root of the jurisdiction wrongly assumed by the AO. It is not procedural to issue such a notice and in support of the above contention he relied on the decision of the Supreme Court in the case of Ellerman Lines Ltd. vs. CIT 1972 CTR (SC) 71 : (1971) 82 ITR 913 (SC). He cited for example that after the coming into force of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation. The learned counsel pointed out that the words used in s. 147 earlier were 'if the AO is of the opinion' but now these words were substituted by the words 'if the AO has reason to believe' and pointed out that in order to form a belief, application of mind is required. He pointed out that the formation of belief should be rational and there should be nexus between the material on record and the formation of such belief. In support of this contention, he has relied on the decision of the Supreme Court in the case of CIT vs. Madnani Engineering Works Ltd. (1979) 12 CTR (SC) 144 : (1979) 118 ITR 1 (SC), wherein their Lordships of the apex Court have held that the stand taken by the ITO in his affidavit, dt. 5th Dec., 1968, was obviously untenable because the existence of reason to believe on the part of the ITO was a justiciable issue and it was for the Court to be satisfied whether in fact the ITO had reason to believe that income had escaped assessment by reason of failure of the respondent to make a full and true disclosure. In the above case the respondent had produced in the original assessment proceedings all the hundis on the strength of which it had obtained loans from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. "Why" for holding such belief must be reflected from the record of reasons made by the AO. In a case where the AO holds the opinion that because of excessive loss or depreciation allowance the income has escaped assessment, the reasons recorded by the AO must disclose by what process of reasoning he holds such belief that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief. Merely saying that excessive loss or depreciation allowance has been computed without disclosing reasons which led the assessing authority to hold such belief, according to the Supreme Court, does not confer jurisdiction on the AO to take action under s. 147 and s. 148 of the IT Act. 16. For similar proposition, the learned counsel for the assessee relied on the decision of the Gujarat High Court in the case of Kaira District Co-operative Milk Producers Union vs. Asstt. CIT (1996) 134 CTR (Guj) 228, wherein the reassessment and validity of assessment has been considered for the asst. yrs. 1986-87 to 1990-91. The Gujarat High Court held in the above came that the reopening without application of mind or change of opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the Iranian buyer was annexed. In the said contract between STC and the assessee, the assessee was referred to as the 'shipper' and the Iranian buyer as the 'buyer'. The Supreme Court reversed the order of the Tribunal and held on the facts that no term in the contract between the assessee and STC clearly contemplated a sale, viz., a transfer of property in the tea from the assessee to STC. In short, the learned counsel for the assessee cited this decision of the Supreme Court only to show that in spite of having entered into a contract between the assessee and the STC, the assessee was held to be the real exporter and entitled to the benefits of exports made by it. 19. The learned counsel further submitted that the export house does not pay anything at all to the assessee by way of sale proceeds of the goods in foreign exchange. He has pointed out the relevant facts from p. 34 of the paper-book to contend that the agreement between the assessee and the export house does not dissentitle the assessee from claiming the export benefits. He submitted either the export house has wrongly claimed the benefit of exports or it had availed a wrongful benefit. The assessee for that mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use. If any benefit has been granted to the export house on such goods exported through it by the assessee, it is a mistake on the part of the AO. For such a mistake the assessee cannot be punished by denying its rightful claim. The case law as cited and relied on by the learned counsel for the assessee fully supports the assessee's claim. 23. So far as the reopening of the assessments is concerned, it is a fact that the reopening was not as a result of the assessee's failure to disclose fully and truly all material facts necessary for making the assessments. The assessee's computation of profits and the claim for deduction under s. 80HHC was based on the exports effected by it on its own exports and on the exports made through export house. Therefore, there was no failure on the part of the assessee to disclose the material facts necessary for assessment. Hence, escapement of income for assessment cannot be attributed to the assessee for any failure to disclose the income. We do not find escapement of income for not allowing the rightful claim made by the assessee. Therefore, the reopening made by the AO was bad in the eye of law and cannot be upheld. Therefore, the Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
