TMI Blog2011 (5) TMI 621X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether on the facts and in the circumstances of the case, the Tribunal misdirected itself in law and adopted a wholly erroneous approach in upholding the initiation of reassessment proceedings in the instant case in respect of the Assessment year 1998-99 through the impugned notice dated 10.03.2003 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961? Whether the finding of the learned Tribunal that the action of the Assessing Officer in initiating the impugned reassessment proceedings in the instant case for the Assessment year 1998-99, was not a case of change of opinion, was wholly arbitrary 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently revised to Iraqi Dinar 24,74,500. Fifty percent of the said amount was payable in Iraqi Dinars in Iraq, and remaining 50 per cent in US dollars outside Iraq. The dispute between MC and PCI on the one hand and Appellant assessee company being Indian firm on the other hand regarding wrongful adjustments/ appropriation of monies held by MC and PCI under the said foreign project, arose, and consequently, the arbitration proceedings were initiated in London. On 15th January 1985 the Appellant assessee company executed a memorandum of understanding agreeing to share the benefits and liabilities accruing and/or 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever he did not succeed, and order of assessing officer was affirmed by the said appellate authority by order dated 13th May, 2002 which was accepted by the appellant. The Revenue incidentally did not prefer any appeal against the said order of the assessing officer allowing deduction under Section 80HHB as far as the principal amount received by the petitioner is concerned. Thereafter on 10th March 2003 a notice was received by the appellant purporting to initiate reassessment proceedings under Section 148 (2) of the said Act for the same assessment year. The reasons for reopening of the said assessment 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng new and were already known to the Assessing Officer previously and the same were part of the original assessment proceedings. Hence, Revenue is not competent to change opinion on reappraisal/reappreciation of the facts on record, based upon the audit objection as the same is wholly without jurisdiction and unjustified in law, more particularly in the light of well settled proposition of law that final decision taken in the course original assessment proceedings by both the Assessing Officer and the Appellate Authority cannot be the subject matter of the readjudication, reappraisal or review. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly due to him from his debtor. Merely raising of claim based on execution of a contract, work or job does not create any legally enforceable right to receive the same. He has referred to the following decisions in this connection. CIT v. Bharat Petroleum Corporation Ltd. reported in (1993) 202 ITR 492. CIT v. Hercules Trading Corporation reported in (1982) 143 ITR 504. Swadeshi Cotton and Flour Mills Pvt. Ltd. v. CIT reported in (1964) 53 ITR 134. He submits, therefore, that the appeal should be allowed and all the judgments of the Revenue authorities below should be set aside 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- -vis nonexpression of views on points in earlier order. This ground was not taken be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of full Bench of this Court in P. G. Sahoo s case (reported in 307 ITR 243) placing reliance on the decision of the Supreme Court in case of Union of India vs. M/s. L. K. Ahuja Co. reported in AIR 1988 SC 1172 and 82 ITR 835. He further submits that sheer fact of pendency of Arbitration does not suspend chargeabililty of tax on income as it was accrued when the work is completed. After hearing the learned counsel for the parties and considering the records it appears to us in order to decide the appeal on the aforesaid formulated points as rightly pointed 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 acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o such use for rendering of services is recognized. The appellant s claim is that the composite receipt in the award should be taken as the receipt from the foreign project and deduction under Section 80HHB should be allowed on the entire award, including interest. I am unable to agree with the appellant that interest awarded by Arbitrator is consequent upon the foreign project undertaking. The award is in relation to delayed payments and would not have been allowable in a similar award also where the project would have been 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain precondition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the grab of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Assistant Commissioner; section 33 provides for a further appeal to the Income-tax Appellate Tribunal; and sub-section (6) of section 33 says that save as provided in section 66 orders passed by the Appellate Tribunal on appeal shall be final. Section 66 provides for reference to the High Court on question of law; and section 66A provides for appeals in certain cases to the Supreme Court. It is clear from the said provisions 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m such profits and gains of an amount equal to- .. .. and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year; Provided that the consideration for the execution of such project or, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) If at any time before the expiry of five years from the end of the previous year in which the deduction under sub-section (1) is allowed, the assessee utilises the amount credited to the Foreign Projects Reserve Account for distribution by way of dividends or profits or for any other 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 subsectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any building, road, dam, bridge or other structure outside India; the assembly or installation of any machinery or plant outside India; the execution of such work (of whatever nature) as may be prescribed. The said benefit was applicable if the following amongst other 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 broug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or on 21st August 1997. Thus it is clear that the right to receive crystallized on resolution of the dispute in arbitration. The law has now been settled that income arises to a person (assessee) only when he acquires legally enforceable right to receive 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee could not have claimed this amount before the same has been awarded. Before award was made, the right to receive compensation has to be regarded as a inchoate right. Similar view was also taken by Supreme Court in the case 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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