TMI Blog2011 (11) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... legal plea that the reopening was based on change of opinion as also supported his claim for deduction under section 80-HHC in respect of DEPB receipts in the light of amendment brought into statute - It is a mere procedural lapse or an irregularity and not illegality making the assessment bad Regarding contention of the assessee is that the reasons recorded are vague and there is no allegation as to what amount of income had escaped assessment - it is clear that for the year under consideration turnover of the assessee was more than Rs.10 crores - There is no dispute about the fact that the AO has not quantified that the amount of income escaped because applicability of the said provisos - AO computed deduction under section 80-HHC by reducing sale of DEPB receipt from profits of business and thereafter computing deduction as per amended provisions of section 80-HHC - Decided against the assessee - IT Appeal No. 2098 (DelhI) of 2011 - - - Dated:- 30-11-2011 - MS. DIVA SINGH, K.D. RANJAN, JJ. V.K. Garg for the Appellant. Rohit Garg for the Respondent. ORDER K.D. Ranjan, Accountant Member This appeal by the assessee for assessment year 2002-03 arises out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 500/161 Taxman 316 observed that accepting return of income under section 143(1) was not an assessment and hence there was no question of change of opinion. The assessing officer completed the assessment after allowing deduction under section 80-HHC keeping in view the amendment brought into statute by the Taxation Laws (Amendment) Act, 2005 with retrospective effect from 1/04/1998. 5. Before the ld. CIT (Appeals) it was submitted that in the reasons recorded there is no whisper of any particular receipt/income which had escaped assessment. There was no formation of even belief as to escapement of any income in the reasons recorded. Only reason as recorded is that amended provisions of section 80HHC were attracted in the case of the assessee as per which deduction claimed under section 80HHC was excessive. The reasons recorded do not have any nexus with the reasons to believe that any income had escaped assessment. The reasons recorded by the AO were hypothetical and were thus based on assumptions. The ld. AR of the assessee placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT v. Sifl Stock Broking Ltd. [2010] 325 ITR 285 for the proposition t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded clearly indicate the adequacy of the material with the AO to form belief that income had escaped assessment. The reasons recorded by the assessing officer could not be held as vague or non-existent or that there was no relevant material before the AO. The reasons recorded by the assessing officer would lead a reasonable person to believe that deduction under section 80HHC has been excessively claimed and as per sub clause (iii) of Explanation 2(c) to section 147 if the excessive relief has been allowed, it amounted to escapement of income. The ld. CIT (Appeals) also noted that in other years the assessee had not objected to reopening of proceedings and has duly complied with the amended provisions of section 80HHC of the Act. Therefore, while accepting the proposition that each year is an independent year, the assessee cannot on same facts adopt a shifting stand on the legal issue as per his own convenience. The ld. CIT (Appeals), therefore, upheld the reopening of assessment and rejected the objections of the ld. counsel of the assessee on the ground of inadequacy of material. 6. Before us the ld. AR of the assessee submitted that notice under section 148 was received be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopened on the ground that amendment was made in the Act and the assessee was exporter having turnover more than Rs. 10 crores. Therefore, the third Proviso to section 80-HHC of the Act was applicable. The ld. Sr. DR further submitted that there is no difference between the reasons recorded and communicated to the assessee. The sum and substance is the same. He further submitted that the decision of Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. Ltd. ( supra ) is not applicable to the facts of the assessee's case. He placed reliance on the decision by Hon'ble Supreme Court in the case of Phool Chand Bajarang Lal v. ITO [1993] 203 ITR 456/69 Taxman 627 and the decision of Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34. 8. We have heard both the parties and gone through the material available on record. In this case return of income filed on 30/10/2002 was processed under section 143(1) of the Act on 8/08/2003. It is a settled law that processing of return under section 143(1) is not an assessment as held by Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. ( supra ). Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (b); ( b ) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Explanation . - In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.] ......................................................." 10. From above it is clear that for assumption of jurisdiction under section 147, the AO is required to issue notice within the time limit specified under section 149 of the Act. However, provisions of section 148(1) make it mandatory to serve the notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year relevant assessment year before assessment or reassessment or re-computation of income under section 147 of the Act is made. Under section 149(1)(a) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under section 147(b) for assessment year 1965-66 by a Regd. Post on 31st March, 1970 and the notice was received by the assessee on 03rd April, 1970. The issue before Hon'ble Supreme Court was whether notice served beyond the period of limitation of issue of notice was valid. Hon'ble Supreme Court observed that the scheme of Income-tax Act, 1961 so far as notice for reassessment is concerned is quite different from that of 1922 Act. A clear distinction has been made out between "issue of notice" and "service of notice" under the 1961 Act. Section 149 of the 1961 Act, which provides the period of limitation, categorically prescribes that no notice under section 148 shall be issued after the period prescribed has lapsed. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. Section 148(1) provides for service of notice as a condition precedent to making the order of assessment. Service of notice under 1961 Act is not a condition precedent to conferment of jurisdiction on the ITO; it is a condition precedent only to the making of the order of assessment. It was held that the notice was not barred by lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 further observed that the Hon'ble Supreme Court gave a strange and wide meaning of the word "issue" in order to save the Income-tax (Amendment) Act, 1959, from being rendered nugatory. They did not even remotely considered section 149 of the 1961 Act. Consequently, Hon'ble Patna High Court has held that Banarsi Devi's case is no warrant for the abstruse proposition that the word "issued" de hors its context must always mean "issued" and "served" in every statute or in section 149 of the Act. 13. Thus from the decisions of Hon'ble Supreme Court in the case of Shanabhai P. Patel ( supra ) and Hon'ble Patna High Court in the case of Sheo Kumari Devi ( supra ) the law is settled that term "issue" appearing in section 149 of the Act cannot mean as "issue and serve". The jurisdiction becomes vested in the Assessing Officer to assess/reassess the escaped income the moment the notice u/s 148 is issued. Service under the Act is not a condition precedent to conferment of jurisdiction on the assessing officer but a condition precedent only to the making of the order of assessment. Therefore, the contention of the assessee that reasons have not been served within the period of six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopening of assessment on legal plea that the reopening was based on change of opinion as also supported his claim for deduction under section 80-HHC in respect of DEPB receipts in the light of amendment brought into statute. The reliance was placed on the decision of Special Bench of the Mumbai Tribunal in the case of Topman Exports ( supra ). The assessee also filed the computation of deduction under section 80HHC relying on the decision of Topman Exports ( supra ) vide letter dated 4th December, 2009. The assessing officer taking into consideration the reply so filed completed assessment on 8/12/2009 dealing with the issue raised by the assessee in respect of change of opinion, relying on the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Ltd. ( supra ). It is a fact that assessing officer had not disposed off the objections challenging reopening of assessment before completion of assessment. In this regard we would like to mention that Hon'ble Supreme Court in the case of GKN Driveshaft (P.) Ltd. ( supra ) had delivered the judgement on 23rd May, 2007. Therefore, as on the date on which notice u/s 148 was issued, the law was settled that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear that for the year under consideration turnover of the assessee was more than Rs.10 crores. The taxation Laws (Amendment) Act, 2005 inserted Second, Third and Forth provisos to section 80HHC(3) with effect from 1.4.1998 and Fifth proviso with effect from 1.4.1992. In the case before us Second, Third and Forth provisos are relevant and are reproduced as below:- "Provided further that in the case of an assessee having export turnover not exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 28(iiia), 28(iiib) and 28(iiic) at Rs. 70,58,351/-. In the absence full details it will be impossible to quantify the exact escapement of income within the meaning of amended provisions of section 80-HHC by the Taxation Laws (Amendment) Act, 2005. However, the AO while recording the reasons has recorded that the turnover of the assessee was more than Rs.10 crores. In fact as per report in form No. 10-CCAC the total turnover of the business and export turnover was the same i.e. at Rs.16,35,59,369/-. Therefore, amended provisions of section 80-HHC were applicable particularly third proviso to section 80-HHC(3) which was inserted by the Taxation Laws (Amendment) Act, 2005. Hon'ble Supreme Court in the case of Phool Chand Bajrang Lal ( supra ) has held as under :- "Since the belief is that of the Income-tax Officer, the sufficiency of the reasons for forming the belief is not for the court to judge, but it is open to an assessee to establish that there in fact existed no belief or that the belief was not 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 Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change of opinion in the case of the assessee. The ld. AR of the assessee has also placed reliance on the decision of Hon'ble Gauhati High Court in the case of Panchratan Cement (P.) Ltd. ( supra ) the assessee, an industrial unit, was entitled to avail of the benefit of transport subsidy and insurance subsidy under certain schemes. For assessment year 2004-05, it availed of the subsidies. According to the assessee, such subsidies had contributed to the profits and gains in its business of manufacture and sale of cement. The assessing officer by his assessment order completed under section 143(3) had allowed deduction of the amounts from the taxable income of the assessee, but subsequently by a notice under section 148 sought to conduct a reassessment on the ground that the amounts of these subsidies had, due to error or law, been deducted from the taxable income of the assessee under section 80-IC thereby occasioning escapement of income within the meaning of section 147. The assessee challenged the reopening of assessment in Writ Petition. It was held that initiation of reassessment proceedings was wholly structured on the language of section 80-HH and decision of the Calcutta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of information received from Investigation Wing that the assessee was beneficiary of a bogus claim of long term capital gains. Hon'ble Delhi High Court arrived at the conclusion that it was not at all discernible as to whether Income Tax Officer has applied his mind to the information and independently arrived at a belief that on the basis of material which he had before him income had escaped assessment. The decision of Hon'ble Delhi High Court is also not applicable to the facts of the assessee's case. 21. The next issue for consideration relates to computation of deduction under section 80-HHC of the Act. The relevant grounds of appeals are reproduced as under :- "3. That the ld. CIT (Appeals) has erred on facts and in law in confirming the deduction allowed under section 80-HHC at Rs.2,45,01,962/- as against Rs.2,93,63,268/- claimed by the assessee; 4. That the ld. CIT (Appeals) has erred on facts and in law in confirming the applicability of amended provisions of Section 80-HHC as amended by Taxation Laws (Amendment) Act, 2005 and accordingly holding that 90 per cent of the entire amount of DEPB of Rs. 78,42,612/- has to be reduced from the eligible business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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