TMI Blog2007 (9) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... year only in the circumstances where there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. So as it relates to the issue of change of opinion, it has already been found that in the present case it cannot be said that Assessing Officer had not formed any opinion during the course of original assessment proceedings regarding the issues on the basis of which reassessment proceedings are initiated by the revenue. The fact of having formed an opinion is apparent and findings in this regard are well recorded in the original assessment order itself. The ld. DR has placed reliance in the case of Highgain Finvest (P.) Ltd. [ 2007 (5) TMI 50 - HIGH COURT ,NEW DELHI] . The facts in the present case are entirely different. The present case is not a case where bogus transactions are entered into by the assessee or they have subsequently been discovered. No new material has come to the notice of Assessing Officer after framing of the original assessment. Rather original assessment is also based on the same material and no new material has been relied upon for framing the reassessment proceedings. Thus the said case cannot be re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of full disclosure of material and necessary facts should not be so fastidiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the Assessing Officer would have material use of it to charge the assessee more than what he did. The Assessing Officer cannot certainly fall back on the one to make good his deficiency in the first completed assessment, nor is he at liberty to take hold of any and every circumstance, call it non-disclosure of material facts and set machinery of reassessment in motion. In the reasons recorded as well as in the reassessment order, there was no fresh material with the Assessing Officer which was not made available by the assessee during the course of original assessment proceedings. As material facts were disclosed fully and truly during the course of original assessment proceedings, there was no such failure on the part of assessee. Therefore, reassessment proceedings also cannot be held valid according to proviso to section 147. Thus, we hold that reassessment proceedings were not validly initiated and are liable to be quashed. The assessee is saved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law and is liable to be quashed since the proceedings under section 147 of the Act were initiated without there being reason to believe that income of the appellant had escaped assessment, which is sine qua non for assumption of valid jurisdiction. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not holding that there being no failure on the part of the appellant to disclose fully and truly all material facts necessary for assessment, the reassessment proceedings initiated after 4 years from the end of the relevant assessment year were illegal and bad in law. That the Commissioner of Income-tax (Appeals) erred on facts and in law in confirming the action of the Assessing Officer in assessing the gross interest income amounting to Rs. 22,18,23,913 as 'income from other sources' against the same being declared as 'business income' by the appellant. That the Commissioner of Income-tax (Appeals) failed to appreciate that in the original assessment completed vide order dated February 23, 2001, the Assessing Officer had, after due application of mind, assessed only net interest income of Rs. 2,62,36,763 as 'Income from other sources' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (3) of section 80HHC of the Act (applicable to manufacturer-cum-trader exporter) and not clause (a) (applicable to an exclusive manufacturer exporter). That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding that deduction allowable under section 80HHC of the Act has to be restricted to business income included in the gross total income and since business income was loss/negative, no deduction was allowable to the appellant under that section by wrongly invoking the provisions of section 80AB of the Act. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the imposition of interest under section 234B and in confirming the withdrawal of interest under section 244A of the Act. Assessment year 1999-2000 : 1. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not holding that the order dated February 28, 2006, passed by the Assessing Officer under section 143(3) read with section 147 of the Income-tax Act, 1961, ('the Act') is beyond juris diction, bad in law and void ab initio. That the Commissioner of Income-tax (Appeals) erred on the facts and in law in not holding that the impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 That the Commissioner of Income-tax (Appeals) erred on facts and in law in alternatively holding that 90 per cent. of following gross incomes/receipts is, in any case, excludible for computing deduction under that section : (Rs.) (a) Gross interest 34,01,92,899 (b) Dividend income 6,56,18,564 That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding that the gross interest and not the net interest is excludible from the eligible profits for computing deduction under section 80HHC of the Act. That the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the exclusion of 90 per cent. of the following receipts for computing 'profits of the business' in terms of clause (baa) of the Explanation to section 80HHC of the Act. Amount Miscellaneous receipts 6,29,10,669 Staff quarters rent 8,99,511 Gain on exchange 2,02,22,706 Grant-in-aid (NRF) 60,00,000 Total 9,00,32,886 That the Commissioner of Income-tax (Appeals) and the Assessing Officer failed to appreciate that the appellant's eligibility is to be computed with reference to clause (c) of sub-section (3) of section 80HHC of the Act (applicable to manufacturer-cum-trader ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 15,87,06,123 against gross total income of Rs.13,70,00,572. He examined the details of profit and loss account, audit report under section 80HHC and details furnished by the assessee and observed that there were some mistakes in the computation of deduction under section 80HHC. He calculated deduction under section 80HHC as per annexure A of the original assessment order at Rs. 13,01,77,391 and in such manner the Assessing Officer after considering various aspects had restricted the claim of the assessee under section 80HHC to a sum of Rs.13,01,77,391 against claim of Rs. 15,87,06,123. While considering the claim of the assessee under section 80HHC the observations of the Assessing Officer in the original assessment order as per paragraph 6 are as follows : 6. As mentioned above gross total income was computed by the assessee originally at Rs. 19,50,13,221 and later on revised at Rs.13,70,00,572, and against this deduction under section 80HHC has been computed at Rs. 15,87,06,123. As deduction under section 80HHC cannot exceed the profit from business in view of section 80AB, the claim of the assessee under section 80HHC at Rs.15,87,06,123 against gross total of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppel late Tribunal in Prestige Foods Ltd. v. Deputy CIT [1997] 61 ITD 390 (Indore) and Yarn Syndicate Ltd. v. Deputy CIT [2001] 114 Taxman 123 (Cal). The learned Commissioner of Income-tax (Appeals)-XXII, New Delhi, has also confirmed this stand in other cases assessed to tax in this range. (iv) The deduction under section 80HHC allowable to the asses see shall be as per working given in annexure to this order. Annexure A vide which deduction under section 80HHC allowable to the assessee has been computed at Rs. 13,01,77,391 is as under : Annexure A Deduction under section 80HHC 1. Name of the assessee MMTC Ltd. 2. Assessment year 1998-99 (Rs.) 3. Total turnover of the business 42,90,39,06,171 4. Total export turnover 10,28,98,48,814 5. Total profits of the business 16,86,56,836 6. Export turnover in respect of trading goods exported 9,57,01,09,608 7. Direct cost of trading goods exported 8,97,19,94,075 8. Direct cost attributable to trading goods exported Total indirect cost : Salaries and allowances 51,85,81,169 Administrative and indirect Expenses 36,43,02,725 Interest paid 19,55,87,150 Depreciation 2,67,29,808 Deferred revenue expenses 5,48,80,330 Bad debts written off 3,58,30, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from investment 6,56,18,564 Miscellaneous receipts 3,09,28,014 Staff quarters rent 10,86,567 Gain on exchange 2,99,59,498 Grant-in-aid (NRF) 80,00,000 Total 35,74,16,556 The assessee also claimed deduction under section 80HHC on all the aforementioned incomes claiming them to be its income from export business. 2. In fact and in law, the aforementioned incomes should have been offered for taxation as follows : Description Amounts Nature of income Interest income 22,18,23,913 Income from other sources Dividends from investment 6,56,18,564 -do- Miscellaneous receipts 3,09,28,014 Business income not derived from export activity Staff quarters rent 10,86,567 -do- Gain on exchange 2,99,59,498 -do- Grant-in-aid (NRF) 80,00,000 -do- Total 35,74,16,556 3. Because of suppression of these material facts, a wrong claim of deduction under section 80HHC has been granted amounting to Rs.13,01,77,391 for the following reasons : (i) If income from other sources and profits of business not derived from exports are excluded as per the legal provisions of the Income-tax Act, 1961, there is a net loss under the head 'Profits and gains of business or profession' (ii) Consequently, in view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.74 crores is not factually correct. It was pointed out that substantial part of such receipts was excluded from being considered for the purpose of section 80HHC. 8. It was pointed out that merely on the basis of change of opinion assessment could not be reopened. To substantiate such proposition reliance was placed on various decisions discussed in the said reply. 9. Further it was pointed out that it is not a case where income has allegedly escaped assessment either due to non-furnishing of material facts by the assessee and/or ignorance/non-consideration of any of the aforesaid claims of the assessee in the original assessment order. It was pleaded that it can be demonstrated that the Assessing Officer at the time of completing original assessment sought all relevant information/clarification/material from the assessee and had applied his mind on the claim of the assessee and thereafter came to a conscious decision to either agree or disagree with the claims of the assessee. To substantiate such contention it was pointed out as follows : (i) On the issue whether gross interest of Rs. 22.18 crores or net interest of Rs. 2.62 crores was assessable as income from other sources wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, agreed with some of the contentions of the assessee and disagreed with some other. To the extent your honour's predecessor did not agree with the assessee's contentions the assessee preferred appeal before the Commissioner of Income-tax (Appeals). The findings of your honour's predecessor with regard to allowance of deduction under section 80HHC of the Act are recorded in paragraph 6 on page 4 of the assessment order. Your honour's kind attention is specifically invited to paragraph 6(i) of the assessment order wherein your honour's predecessor, after referring to the decision of the Kerala High Court in the case reported in Nanji Topanbhai and Co. v. Asst. CIT [1999] 243 ITR 192 held that the net interest income of Rs. 2.62 crores and dividend income of Rs. 6.56 crores are assessable as income from other sources . Based on these findings, while computing the taxable income of the assessee on page 9 of the assessment order, such income aggregating to Rs. 9.18 crores was assessed as income from other sources . Further, a detailed working of deduction under section 80HHC of the Act was attached as annexure A to the assessment order. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions to plead that in a case where there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year then assessment could not be reopened after expiry of four years from the end of the relevant assessment year. It is in this manner objections were raised for reopening of the assessment. 12. The Assessing Officer rejected such submissions of the assessee by way of an order dated November 21, 2005, which is as under : 1. In this case, the assessment was completed under section 143(3) on February 23, 2001, at a total income of Rs. 12,93,09,770 after allowing deduction 80HHC of Rs. 13,01,77,391. Subsequently, the case was reopened under section 147 of the Income-tax Act after recording reasons in writing on February 23, 2005. The case was reopened on the grounds that if income from other sources and pro fits of business not derived from exports are excluded as per the legal provisions of the Income-tax Act, 1961, there is a net loss under the head 'Profits of export business as per Explanation (baa) to section 80HHC of the Income-tax Act' and consequently in view of the pro vision of section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai, in the case of B. Sorabji v. ITO [2005] 95 ITD 540 (ITA No. 6503/M/2002. The assessment year 1999-2000) which followed the ratio of the decision of the hon'ble Supreme Court in IPCA Laboratory case [2004] 266 ITR 521 while holding that in case of negative business income, deduction under section 80HHC will not be allowable were not before the Assessing Officer at the time of the passing of the assessment order. The different court decisions in the case laws of CIT v. Sterling Foods [1999] 237 ITR 579 (SC), Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497 (Mad) and by the Madras High Court in the cases of CIT v. Sundaram Industries Ltd. [2002] 253 ITR 396 and in the case of CIT v. Menon Impex P. Ltd. [2003] 259 ITR 403 and by the Kerala High Court in the case of CIT v. Cochin Refineries Ltd. [1982] 135 ITR 278 were not in the knowledge of the Assessing Officer at the time of completion of assessment under section 143(3). Now, these case laws have come before the undersigned, as a result of which the meaning of income derived from export business has undergone a radical change. Thus, it cannot be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction cannot be taken on mere rumours and suspicions and there must be some material on record to enable the Assessing Officer to initiate reassessment proceedings [R. S. Chiranji Lal and Sons v. CIT [1959] 36 ITR 407 (Punj)]. Such a material may be a judicial decision [Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC)] which either did not exist when the earlier assessment was made or was not in the knowledge of the Assessing Officer and came to his notice subsequently [ITO v. Saradbhai M. Lakhani [2000] 243 ITR 1 (SC)], or a factual error pointed out by the audit party, or when the audit party [CIT v. P.V.S. Beedies P. Ltd. [1999] 237 ITR 13 (SC), New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi)] draws the attention to know ledge of the Assessing Officer in assessment proceeding for subsequent year. The Assessing Officer may act on direct or circumstantial evidence but his belief must not be based on mere suspicion, gossip or rumour. vide Sheo Nath Singh v. AAC [1971] 82 ITR 147 (SC). In B. S. Agricultural Industries (India) v. Asst. CIT [2004] 88 ITD 1 (Agra), it was held, if the Assessing Officer on the basis of certain information, for whatever reasons had reason to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive loss, deduction, allowance or relief. In Om Parkash Munjal v. Asst. CIT [2002] 83 ITD 481 (Chandigarh), it was held that the only requirement of section 147 after April 1, 1999, is that the Assessing Officer must have reasons to believe that the income chargeable to tax had escaped assessment. He is not required to establish that such escapement is on account of failure on the part of the assessee to disclose true and full facts as required under the old provisions, until case is covered under proviso to section 147. Therefore, reassessment made by the Assessing Officer was well within 4 corners of law. The Allahabad High Court has held that when deduction at a higher rate was allowed in the original assessment, reassessment is not invalid on the ground of mere change of opinion. vide Renu sagar Power Co. Ltd. v. ITO [1979] 117 ITR 719 (All). It is not a case of mere change of opinion if a particular legal posi tion has not been considered at the time of processing of return. vide ITO v. Jila Sahakari Kendriya Bank Mydt. [1999] 69 ITD 214 (Indore). Expiry of time limit : 1. Four years had passed after the completion of assessment under section 143(3) in this case. As per the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to put toward claim for deduction of any expenditure in respect of 'escaped income', or the non-taxability thereof at all even where such claims are accepted, the income cannot be reduced beyond the income originally assessed. (ii) The proceedings for reassessment are for the benefit of the Revenue and not the assessee and an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision in dis guise. (iii) In no case can the income in reassessment proceedings be reduced beyond that originally assessed. 13. After rejection of the objections of the assessee, the Assessing Officer made reassessment vide impugned order dated February 28, 2006, passed under section 147/143(3) of the Act in which deduction under section 80HHC has completely been denied and taxable income has been computed at Rs. 25,94,87,160. The net result computation of income as per reassessment order is as under : With these remarks, the total income is computed as under : (Rs.) (Rs.) Gross total income as computed by the assessee 19,50,13,221 Less : 1. Interest income of Rs. 22,18,23,913 to be considered separately as income from other sources as discussed above 22, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant to disclose fully and truly all material facts necessary for assessment. That being not so in the present case, the pre-requisite condition for initiating reassessment proceedings, in terms of the proviso to section 147 of the Act, were not fulfilled/satisfied. 16. Further elaborating his arguments, learned counsel stated that the appellant is a manufacturer-cum-trader exporter, eligible for claiming deduction as per clause (c) of section 80HHC (3) of the Act. Against interest income of Rs. 22,18,23,913, the assessee had paid interest amounting to Rs. 19,55,87,150 and interest income and dividend income of Rs.6,56,18,564 was declared as income being part of business income . In the original assessment the Assessing Officer assessed the dividend income of Rs. 6,56,18,564 as income from other sources against the same being declared as business income. Further the Assessing Officer has also considered the net interest income of Rs. 2,62,36,763 (22,18,23,913 gross interest 19,55,87,150 interest paid) as income from other sources . Further in the original assessment order, the Assessing Officer while computing deduction under section 80HHC treated the amount of Rs. 19,55,87,150 (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire interest and dividend income whereas such allegation is factually incorrect. He pointed out that on a consideration of original assessment order, the reasons recorded and the impugned reassessment order it can be noted that (a) other receipts namely miscellaneous receipts, staff quarters rent, gains on exchange and grant-in-aid were given identical treatment and were not considered for allowing deduction under section 80HHC of the Act ; (b) dividend income of Rs. 6,56,18,564 was in its entirety held to be assessable as income from other sources and thus did not form part of the business income ; (c) while computing deduction in respect of traded goods, the Assessing Officer considered the entire interest paid amounting to Rs.19,55,87,150 as indirect cost and while computing adjusted profits of the business the Assessing Officer excluded 90 per cent. of the gross interest amounting to Rs. 22,18,23,913. Consequently, entire interest income of Rs. 22,18,23,913 was not at all considered for allowing deduction under section 80HHC of the Act ; 21. Thus he pleaded that in original assessment deduction under section 80HHC of the Act was not at all allowed on all the receipts mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not the legal position, it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods. 26. Thus he pleaded that where the reasons recorded by the Assessing Officer disclosed no more than mere change of opinion the reassessment proceedings are liable to be quashed. For raising such contentions he placed reliance on the following decisions : CIT v. Foramer France [2003] 264 ITR 566 (SC) ; CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) ; KLM Royal Dutch Airlines v. Asst. Director of Income-tax [2007] 292 ITR 49 (Delhi) ; CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi) ; Jindal Photo Films Ltd. v. Deputy CIT [1998] 234 ITR 170 (Delhi) ; Berger Paints India Ltd. v. Joint CIT [2000] 245 ITR 645 (Cal) ; Mercury Travels Ltd. v. Deputy CIT [2002] 258 ITR 533 (Cal) ; Ranchi Handloom Emporium v. CIT [1999] 235 ITR 604 (Patna) ; CIT v. Hardware Trading Co. [2001] 248 ITR 673 (Karn) ; CIT v. Rajasthan Patrika Ltd. [2002] 258 ITR 300 (Raj) ; Marudhar Hotels P. Ltd. v. Deputy CIT [2003] 259 ITR 509 (Raj) ; Oil and Natural Gas Corpn. Ltd. v. Deputy CIT [2003] 262 ITR 648 (Uttaranchal) ; Simplex Concrete Piles (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act was supported by the certificate of the chartered accountant in Form 10CCAC enclosed with the return of income ; 29. Learned counsel referring to the relevant portion of the original assessment order which has already been reproduced in the above part of this order in paragraph 4 pleaded that it can be appreciated that the following issues were considered by the Assessing Officer while partly allowing the claim of the assessee. (i) As deduction under section 80HHC could not exceed the profit from business in view of section 80AB, the claim of the assessee under section 80HHC at Rs. 15,87,06,123 against gross total income of Rs.13,70,00,572 was not correct ; (ii) The assessee had wrongly included all income under the head Profit from business . Dividend income of Rs. 6,56,18,564 and net interest received of Rs. 2,62,36,763, have necessarily to be assessed under the head Income from other sources as provided in section 56 ; (iii) Deduction under section 80HHC has to be computed on the basis of profit/income which does not include income from other sources amounting to Rs. 6,56,18,564 plus Rs. 2,62,36,763 (9,18,55,327) and thus, deduction under section 80HHC has to be rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done in the past and only deficit has to be taken to the expenditure account. The appellant has in its written submission quoted various decisions in support of its claim that the income from interest has to be netted, therefore, personally feel that the claim of the appellant is justified. (emphasis supplied) 31. Referring to these facts learned counsel pleaded that it is clearly established that the assessment of net interest income of Rs. 2.62 crores (and not gross interest income) as income from other sources cannot even be regarded as an oversight. On the contrary he pleaded that the said assessment was a result of a conscious decision arrived at by the Assessing Officer based on indepth investigation and due application of mind. He pleaded that in the aforesaid background facts, it was not open to the Assessing Officer to initiate fresh proceedings merely to assess gross interest income as income from other sources , deferring/disagreeing with the option of his predecessor. 32. Further learned counsel pleaded that allegation of the Assessing Officer that the applicability of section 80AB was not examined in the original assessment order is also factually incorrect as this asp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings are invalid in view of the proviso to section 147 argued that the proviso to section 147 places fetters on the power of the Assessing Officer to initiate reassessment proceedings beyond the period of four years from the end of relevant assessment year, where the assessment has been completed under section 143(3) of the Act unless the income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. For raising such proposition he relied on the following decisions : CIT v. Foramer France [2003] 264 ITR 566 (SC) ; Orient Beverages Ltd. v. ITO [1994] 208 ITR 509 (Cal) ; Peico Electronics and Electricals Ltd. v. Deputy CIT [1994] 210 ITR 991 (Cal) ; Kaira District Co-operative Milk Producers Union Ltd. v. Asst. CIT [1995] 216 ITR 371 (Guj) ; Garden Silk Mills Ltd. v. Deputy CIT (Assessment) (No. 1) [1996] 222 ITR 27 (Guj) ; Pala Marketing Co-operative Society Ltd. v. State of Kerala [1999] 236 ITR 604 (Ker) ; Avani Corpn. v. ITO [1999] 238 ITR 407 (Guj) ; Vareli Weaves P. Ltd. v. Deputy CIT [2004] 240 ITR 77 (Guj) ; Fenner (India) Ltd. v. Deputy CIT [2000] 241 ITR 672 (Mad) ; S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the assessee is to disclose such primary facts. The court further observed that there is no duty cast on the assessee to indicate or draw the attention of the Income-tax Officer to what factual or legal or other inferences can be drawn from the primary facts disclosed. There is not a word in the order of assessment if the respondent-assessee omitted to disclose any material fact. 38. He contended that similar proposition has been laid out in the case of Oriental Carpet Manufacturers (India) Ltd. v. ITO [1987] 168 ITR 296 (P H). 39. Referring to the decision of the Bombay High Court in the case of Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 2) [2004] 268 ITR 339 the learned authorised representative pleaded that it has been categorically observed in the said decision that the reasons recorded by the Assessing Officer should satisfy the failure on the part of the assessee to disclose the necessary facts. Their Lordships observed that it is for the Assessing Officer to reach conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and he has to put his opinion/conclusion on record in b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer which would obviously include applying the available judicial precedent and the said proposition of law was subsequently applied in the decision of Associated Stone Industries (Kotah) Ltd. v. CIT [1997] 224 ITR 560. 43. The learned authorised representative further relied on the following decisions : CWT v. C. M. Ghosh Trust [2005] 279 ITR 346 (All) : Duty of the assessee is only to disclose primary facts. The Assessing Officer having failed to apply decision of the High Court, it cannot be said that the asses see failed to furnish primary facts. Denish Industries Ltd. v. ITO [2004] 271 ITR 340 (Guj) : Held that for deciding the question of jurisdiction, the law applicable on the date of filing of return has to be considered. A retrospective amendment made after the filing of return would not result in holding that the assessee had failed to disclose fully and truly all material facts. CIT v. A. R. Enterprises P. Ltd. [2002] 255 ITR 121. A. V. Thomas Exports Ltd. v. Deputy CIT [2006] 283 ITR (AT) 13 (Chennai) ; [2006] 99 ITD 745 : Subsequent decision of the Supreme Court No failure on the part of the assessee to disclose primary facts Reopening beyond four years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during the present proceedings which fact clearly shows that no fresh facts/particulars were indeed required by the Assessing Officer. Thus he pleaded that initiation of reassessment proceedings was illegal and, therefore, bad in law. 47. On the other hand, the learned Departmental representative contended that according to Explanation 1 of section 147 mere production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Thus he pleaded that according to Explanation 1 of the proviso to section 147, the assessee cannot contend that there was a full disclosure in terms of the proviso to section 147. The learned Departmental representative then referred to the detailed order passed by the Assessing Officer rejecting the objections of the assessee for reopening of the assessment. The learned Departmental representative heavily relied upon the said order which has already been reproduced in the above part of this order. He further referred to the order of the Commissioner of Income-tax (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and, therefore, the information obtained by the Assessing Officer is vague, hearsay and indefinite having no direct nexus with the formation of belief regarding escapement of income. Thus it was held that the initiation of proceedings was invalid. After referring to various case laws their Lordships have upheld initiation of proceedings under section 147/148. 49. The learned Departmental representative further relied on the decision in the case of Sri Krishna P. Ltd. v. ITO [1996] 221 ITR 538 (SC). In this case it was held that disclosure of loans which was subsequently discovered to be false, reassessment was validly initiated. This case law was relied upon to contend that since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to be judged but it is open to an assessee to establish that, in fact there existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was required to be filed. The assessee filed the very same return as was originally filed. Initiation of reassessment proceedings were challenged before the Assessing Officer on the ground of mere change of opinion . The objection of the assessee was rejected by way of an order dated October 21, 2005, observing therein that the assessee had failed to disclose fully and truly all material facts necessary for the assessment which had resulted in escapement of income. Relying on the decision of the hon'ble Supreme Court it was held by the Assessing Officer that mere production of evidence by the petitioner before the Income-tax Officer was not enough. The assessee was duty bound to bring to the notice of the Assessing Officer all material and relevant facts which may lie embedded in the evidence produced by the assessee no matter that the Assessing Officer could have uncovered such facts but had not actually done so. The correctness of such order was challenged before the hon'ble High Court in the said case. Reliance on behalf of the assessee was placed on the Full Bench decision of the jurisdictional High Court in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material available to him taken a view and when he had not done so the proposed reopening could not be assailed on the ground that the same is based only on a change of opinion. 54. Thus it was pleaded by the learned Departmental representative that the learned Commissioner of Income-tax (Appeals) was right in holding that reassessment proceedings were validly initiated. 55. In rejoinder learned counsel appearing on behalf of the assessee pleaded that the case law relied upon by the learned Departmental representative is not applicable to the facts of the present case. He contended that in the case of Sri Krishna P. Ltd. v. ITO [1996] 221 ITR 538 (SC) the loans which were treated to be genuine in the original assessment proceedings were subsequently discovered to be false and, therefore, it was held by the hon'ble Supreme Court that reassessment proceedings were validly initiated. He contended that in the present case no material fact disclosed by the assessee is found to be false rather part disallowance is made on the basis of change of opinion. 56. With regard to the decision of the hon'ble Delhi High Court in the case of CIT v. Highgain Finvest P. Ltd. [2007] 304 ITR 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut application of mind would itself confer jurisdiction upon the Assess ing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong.' 13. Before the Full Bench, a decision of the Gujarat High Court, namely, Praful Chunilal Patel v. M. J. Makwana Asst. CIT [1999] 236 ITR 832, was relied upon by learned counsel for the Revenue and the Full Bench clearly stated that it was with respect, unable to accept the view propounded in that judgment. Notwithstanding this, in Consolidated Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394, the Division Bench found itself in respectful agreement with the view of the Gujarat High Court. 14. Subsequently, a similar issue came up before another Division Bench of this court in KLM Royal Dutch Airlines v. Asst. Director of Income-tax [2007] 292 ITR 49. The Division Bench noted the conflict between the decision of the Full Bench and the Division Bench of this court and quite naturally concluded that since the view expressed by the Division Bench cannot be reconciled with the view of the Full Bench, it must be held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee. 18. In sum and substance, this was the decision rendered by the Tribunal and we do not find any fault in the view taken. Consequently, we are of the view that since the case is one of a mere change of opinion, that does not justify the Assessing Officer's reopening the assessment of the assessee. 19. No substantial question of law arises. The appeal is, therefore, dismissed. 57. Thus he contended that the decision relied upon by the learned Departmental representative in the case of Consolidated Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394 also cannot be applied. Thus the learned authorised representative pleaded that initiation of reassessment proceedings in the present case should be held illegal and, therefore, should be quashed. 58. We have carefully considered the rival submissions in the light of material placed before us. The reassessment has been challenged by the assessee mainly on three grounds. Firstly, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 13,01,77,391 has wrongly been allowed and thus income of the assessee has escaped assessment on account of failure, on the part of assessee to disclose truly and fully all material facts necessary for assessment. 61. As against above reasons the case of the assessee is that deduction on interest income in its entirety was not considered for deduction under section 80HHC. It is the case of the assessee that other receipts namely, miscellaneous receipts, staff quarters rent, gain on exchange and grant-inaid were not considered for allowing deduction under section 80HHC by the Assessing Officer in the original assessment order. It is also the case of the assessee that dividend income of Rs. 6,56,18,564 in its entirety was held to be assessable as income from other sources and thus did not form part, of business income. It is also the case of the assessee that while computing deduction in respect of traded goods, the Assessing Officer considered the entire interest paid amounting to Rs. 19,55,87,150 as indirect cost and while computing adjusted profit of the business the Assessing Officer excluded 90 per cent. of the total interest amounting to Rs.22,18,23,913 and thus th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 80HHC cannot exceed profit from business in view of section 80AB and, therefore, the claim of the assessee under section 80HHC at a sum of Rs. 15,87,06,123 against gross total income of Rs.13,70,00,572 is not correct. It has further been mentioned in paragraph 6(iii) that he has carefully examined details of the profit and loss account, audit report under section 80HHC and other details furnished by the assessee and after careful examination he has pointed out the mistakes which according to him were committed by the assessee while computing deduction under section 80HHC. In paragraphs 6 and 6(i) the Assessing Officer in the original assessment has considered the applicability of section 80AB in the context of deduction under section 80HHC and he has also considered the aspect of dividend income as well as net interest income which according to the Assessing Officer necessarily has to be assessed under the head Income from other sources . Thus so as it relates to allowability or otherwise of deduction under section 80HHC on dividend income and interest income, this aspect was very well considered by the Assessing Officer in the original assessment order and after careful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself. The learned Departmental representative has placed reliance in the case of CIT v. Highgain Finvest P. Ltd. [2007] 304 ITR 325. In the said case return was processed under section 143(1)(a) of the Act and it was found as a matter of fact that the credit of Rs. 5 lakhs given by M/s. Mehram Exports Pvt. Ltd. to the assessee was a bogus transaction on the basis of which reassessment proceedings were initiated and thus the reasons recorded for reassessment proceedings were supported by material which came into the possession of the Assessing Officer after framing of the assessment. This decision was relied upon by the learned Departmental representative contending that sufficiency or correctness of the material could not be gone into at that stage. The facts in the present case are entirely different. The present case is not a case where bogus transactions are entered into by the assessee or they have subsequently been discovered. No new material has come to the notice of the Assessing Officer after framing of the original assessment rather original assessment is also based on the same material and no new material has been relied upon for framing the reassessment proceedings. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it must be held that the Division Bench did not lay down the correct law. Following the view expressed in KLM Royal Dutch Airlines case [2007] 292 ITR 49 (Delhi), we are of the view that it would not be correct on our part to overlook the decision of the Full Bench in Kelvinator of India Ltd. case [2002] 256 ITR 1 (Delhi) and rely upon the decision of the Divi sion Bench in Consolidated Photo and Finvest Ltd. v. Asst. CIT [2006] 281 ITR 394. That would be subversive of judicial discipline. 68. Thus no help can be derived by the learned Departmental representative from the said decision. 69. It has already been mentioned that all the aspects were considered by the Assessing Officer in the original assessment order while computing deduction under section 80HHC. If the contention of the assessee that the reassessment proceedings are based on change of opinion is examined in the light of the latest decision of the hon'ble jurisdictional High Court in the case of CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi), the reassessment proceedings must be held to be invalid. In the said case it was held that when the assessee had placed all material before the Assessing Officer and where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee. 18. In sum and substance, this was the decision rendered by the Tribunal and we do not find any fault in the view taken. Consequently, we are of the view that since the case is one of a mere change of opinion, that does not justify the Assessing Officer's reopening the assessment of the assessee. (emphasis ours) 70. The facts of the present case are rather on strong footings as in the abovementioned case of CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi) no findings were recorded by the Assessing Officer in the assessment order itself and from the assessment record it was noticed that the Assessing Officer had raised the query and the assessee had submitted the replies. In the present case not only the queries were raised by the Assessing Officer and replies were given by the assessee but findings are also recorded in express terms in the original assessment order. Thus an opinion was formed by the Assessing Officer in the original assessment order itself and subsequent reopening has to be held to be based on mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate what are material facts in the view of the officer. The facts must be such that if taken into account, that would have an adverse effect on the assessee by passing of a greater assessment than the one actually made. At the same time, the rule of full disclosure of material and necessary facts should not be so fastidiously construed as would enable the Department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section, as the Assessing Officer would have material use of it to charge the assessee more than what he did. The Assessing Officer cannot certainly fall back on the one to make good his deficiency in the first completed assessment, nor is he at liberty to take hold of any and every circumstance, call it non-disclosure of material facts and set the machinery of reassessment in motion. 73. Keeping in view the above position of law we have to examine that whether there was any such failure on the part of the assessee. The observations of the Assessing Officer in the original assessment order on the issue of grant of deduction under section 80HHC have already been reproduced in paragraph 4 of this order. The reasons recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head 'Profit from business'. There is dividend income of Rs. 6,56,18,564 and net interest received of Rs. 2,62,36,763 which as provided in section 56 has necessarily to be assessed under the head Income from other sources . The decision of the Kerala High Court Nanji Topanbhai and Co. v. Asst. CIT [1999] 243 ITR 192 on this issue is in favour of the Revenue. The Kerala High Court has held that interest income should be taxed under 'Income from other sources' and should be reduced from profits of business for computing deduction under section 80HHC. Thus, deduction under section 80HHC shall be computed on the basis of profits, income which does not include income from other sources amounting to Rs. 6,56,18,564 plus Rs. 2,62,36,763 (Rs. 9,18,55,327) and thus deduction under section 80HHC shall be restricted to profit under the profit from business in view of section 80AB. 75. Further in the original assessment order the Assessing Officer has considered the aspect of negative income as per paragraph 6(iii) which is also reproduced below for the sake of convenience : (iii) From the audit report under section 80HHC, it is noticed that there was some export of man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the section, as the Assessing Officer would have material use of it to charge the assessee more than what he did. The Assessing Officer cannot certainly fall back on the one to make good his deficiency in the first completed assessment, nor is he at liberty to take hold of any and every circumstance, call it non-disclosure of material facts and set machinery of reassessment in motion. 77. In the reasons recorded as well as in the reassessment order, there was no fresh material with the Assessing Officer which was not made available by the assessee during the course of original assessment proceedings. As material facts were disclosed fully and truly during the course of original assessment proceedings, there was no such failure on the part of the assessee. Therefore, reassessment proceedings also cannot be held valid according to proviso to section 147. The case law relied upon by learned counsel and referred to and discussed in paragraphs 37 to 40 of this order duly support this conclusion. However, for the sake of brevity and also to avoid repetition these are not referred again here. 78. Reliance on Explanation 1 to section 147 is also misplaced as Explanation 1 envisages a situ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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