9911796707
TMI Blog2002 (7) TMI 245X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be assessed to any income tax in view of the provision of section 80HHC(1) read with section 80HHC(3a) of the Income-tax Act." 5. Shri P.S. Bhargava, learned counsel for the assessee submitted that in view of the provisions contained under section 80HHC(1)(3)(a), the assessee is entitled to exemption on the profit derived by it from the export business. The learned Counsel, in this regard, placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. Punit Commercial Ltd. [2000] 245 ITR 550. He further submitted that the learned Commissioner (Appeals) has although referred to this decision in para 14 of his order, but he has not discussed it in his findings. 6. On the other hand, the ld. Senior D.R. submitted that the assessee was following mixed system of accounting and therefore the Assessing Officer has the duty to examine the nature of accounts maintained by the assessee. According to him interest income could not be treated as business income and, therefore, the Assessing Officer was fully justified in treating it separately from income from export activity. He supported the order of learned Commissioner (Appeals) and also placed reliance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1B) derived by the assessee from the export of such goods or merchandise: (3) For the purpose of sub-section (1),-- (a) Where the export out of India is of goods or merchandise manufactured (or processed) by the assessee, the profits derived from such export shall be the amount which bears to the profits of the business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee." 9. In view of the above quoted provisions, the contention of the learned Counsel was that the assessee is entitled for exemption on the profits earned from export business. This contention was also supported by making reference to the decision in the case of Punit Commercial Ltd. In that case the assessee was a 100 per cent exporter. It had credited in the profit & loss account interest income while working out the deduction under section 80HHC, by considering these amounts as part of the business profit. The Assessing Officer held that interest income cannot be treated as profit relating to business exports and, accordingly, while working out the business profits for the purposes of section 80HHC, he reduced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred, in not making any reference to the decision relied upon by the assessee, appears to be correct. 13. A perusal of the order of the learned Commissioner (Appeals) further goes to show that he has placed reliance on the decision in the case of Tutikorin Alkali Chemicals & Fertilisers Ltd. v. CIT [1997] 227 ITR 172 and the other case of CIT v. Sterling Foods [1999] 237 ITR 579 (SC). 14. It may be pointed out that in the case of Tutikorin Alkali Chemicals & Fertilisers Ltd., the assessee had surplus funds in his hands. In order to earn income out of the surplus funds, it had invested the amount for the purpose of earning interest. Interest thus earned was of revenue nature. In that context it was held that merely because the interest income was utilized to repay the interest on the loan taken by the assessee, it did not cease to be his income. The Hon'ble Court has further held that after borrowed capital is used for purposes of earning income that income will have to be taxed in accordance with law. 15. In the case of Sterling Foods, the assessee earned income from import entitlements granted by the Central Government under an Export Promotion Scheme. The assessee was entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The issue was also considered by the Nagpur Bench of Hon'ble Bombay High Court in the case of CIT v. Nagpur Engineering Co. Ltd. and it was held that interest on fixed deposits is eligible profits for computation of deduction under sections 80HHC and 80-I. The S.L.P. filed against the decision of the Hon'ble Bombay High Court in this case has been dismissed by the Hon'ble Supreme Court of India and thus this decision has become final. 18. In view of the above, we are unable to uphold the findings of the learned Commissioner (Appeals) affirming the view taken by the Assessing Officer and treating the interest income of FDRs liable to tax as income from other sources. 19. This ground is, therefore, allowed in favour of the assessee. Ground No.2 20. This ground runs as under: "Because the action taken under section 147 by the ld. Assessing Officer and upheld by the learned Appellate Authority is arbitrary, against the facts and law and completely liquidates or annihilates the concept of Mixed method of accounting as enunciated in section 145 of Income tax Act." 21. Before us, Shri P.S. Bhargava, learned counsel for the assessee submitted that in the instant case, the reassessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued. The learned Commissioner (Appeals) considered the arguments of the assessee and rejected the same by observing as under: "I have considered the facts of the case as well as the arguments of the appellant. I would like to point out that the basis on which the assessment can be reopened as per the provisions of section 147 has undergone a dramatic change w.e.f. 1-4-1989 & now the Assessing Officer can it he has reason to believe that any income chargeable to tax has escaped the assessment for any assessment year be might assess or reassess such income by invoking the provisions of section 147. Such power can be invoked even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been massed in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. Thus the words "escaped assessment", where the return is filed, cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non consideration or caused by a mistake of law applicable to such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the case of the appellant, the fact remains that what has been pointed out by the Audit Party is the correct position of law as it stood at that point of time and not a mere opinion as was the case in the decision cited by the appellant. In this view of the matter, I agree with the Assessing Officer that the proceedings under section 147 have been correctly initiated. This ground of appeal is therefore dismissed." 25. Against these observations of the learned Commissioner (Appeals), the contention of the learned counsel for the assessee, Shri P.S. Bhargava was that the learned Commissioner (Appeals) has not properly considered the decision of the Hon'ble Supreme Court of India in the case of Indian & Eastern Newspaper Society. His specific plea was that there was no justification for reopening the assessment merely on the basis of change of opinion. The learned Counsel also contended that in view of the decision of Hon'ble Delhi High Court in the case of Kelvinator of India Ltd., the controversy has been set at rest. 26. The ld. Senior D.R. on the other hand, laid emphasis on the amended provisions of section 147 of Income-tax Act which became effective from 1-4-1988. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose. That part alone of the note of an audit party which mentions the law which escaped the notice of the ITO constitutes "information" within the mean of section 147(b), the part which embodies the opinion cannot be taken into account by the ITO. In every case, the ITO must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware, The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO." 30. In view of the above, it can be said that the nature of audit report has to be taken in the light of the ratio of the decision of Hon'ble Supreme Court of India laid down above. In our view, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 ITR 170 (Delhi) and the decision of the Hon'ble Allahabad High Court in the case of Foramer, it was observed that even under the newly substituted section 147, w.e.f. 1-4-1989 an assessment could not be reopened upon a mere change of opinion. In the case of Praful Chunilal Patel, the Hon'ble Gujarat High Court had held as under: "The power to make assessment or reassessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. The words "escaped assessment", where the return is filed, cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non consideration, or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based. In cases where the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself." These observations are fully applicable to the present case of the assessee. Thus, in our opinion, the decision of Full Bench of Hon'ble High Court is applicable to the facts of the present matter and in view of the same, the reopening of assessment cannot be upheld on the facts and circumstances of the present case. It may be pointed out that the case of Praful Chunilal Patel on which the learned Commissioner (Appeals) placed reliance has been dissented from by the Hon'ble High Court. Thus, in view of the above legal and factual aspect of the matter, the ground taken by the assessee deserves to be allowed. 34. Hence, ground No. 2 is allowed in favour of the assessee. Ground No. 3 (a, b, c & d) 35. These grounds are directed against the findings of the learned Commissioner (Appeals) in assessing the interest income on accrued basis and in treating the interest income as income from other sources. Since these grounds are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest income from fixed deposits as eligible profits of the business while computing the deduction under section 80HHC and section 80-I of the Act. 19. In view of the legal position as laid down in the above referred decision of Mumbai High Court and in other decisions cited before us by the ld. counsel for the assessee, we are of the considered view that the interest income earned by the assessee on the FDRs in the facts and circumstances of this case was to be treated as business income of the assessee and, the fore, it should not have been excluded while computing income for the purpose of deductions allowable under sections 80HH and 80-I of the Act. Hence, we reverse the finding of the Commissioner (Appeals) and allow ground No. 5 taken by the assessee in this appeal." 41. Since the issue involved in the present case is similar, we follow our order dated 28-3-2002 and hold that interest income earned on FDRs in the case of the assessee is to be treated as business income of the assessee. 42. The learned Commissioner (Appeals) has placed reliance on the decision of the Hon'ble Supreme Court of India in the case of Dr. V.P. Gopinathan. In that case the assessee, an individual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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