MKR Frozen Food Exports Ltd.,, v. ITO, Ward-6(1),,

ITA 2411/DEL/2004 | 1998-1999
Pronouncement Date: 12-03-2010 | Result: Dismissed

Appeal Details

RSA Number 241120114 RSA 2004
Assessee PAN OFTHE1961A
Bench Delhi
Appeal Number ITA 2411/DEL/2004
Duration Of Justice 5 year(s) 9 month(s) 26 day(s)
Appellant MKR Frozen Food Exports Ltd.,,
Respondent ITO, Ward-6(1),,
Appeal Type Income Tax Appeal
Pronouncement Date 12-03-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 12-03-2010
Date Of Final Hearing 23-02-2010
Next Hearing Date 23-02-2010
Assessment Year 1998-1999
Appeal Filed On 17-05-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI K.G. BANSAL AND SHRI GEORGE MATHAN ITA NO. 2411(DEL)/2004 ASSESSMENT YEAR: 1998-99 MKR FROZEN FOOD EXPORTS LTD. INCOM E-TAX OFFICER 80 M.M. JANPATH NEW DELHI. VS. WARD 6(1) NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL AGGARWA L & SHRI GAUTAM JAIN ADVOCATE RESPONDENT BY : SMT. SURBHI VERMA G ARG SR. DR ORDER PER K.G. BANSAL : AM THIS APPEAL EMANATES FROM THE ORDER OF THE C IT(APPEALS)-IX NEW DELHI PASSED ON 22 ND APRIL 2004 IN APPEAL NO. 214/2003-04 AND IT PERTAINS TO ASSESSMENT YEAR 1998-99. THE CORR ESPONDING ASSESSMENT ORDER WAS FRAMED BY THE INCOME-TAX OFFICER WARD 6(1) NEW DELHI ON 31.12.2003 UNDER THE PROVISIONS OF SECTION 147 O F THE INCOME-TAX ACT 1961 (THE ACT FOR SHORT). THE ASSESSEE HA S TAKEN UP FOUR GROUNDS IN THE APPEAL IN WHICH MAKING OF THE ASSESSMENT U/S 147 AND TAXATION OF INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES WERE CHALLENGED. GROUND NOS. 2 3 AND 4 REGARDING THE MERITS OF TAXATION OF INTEREST INCOME WERE SUBSTITUTED BY ONE GROUND V IDE LETTER DATED 16.2.2009 WHICH READS THAT THE LD. CIT(APPEA LS) HAS ERRED BOTH ON ITA NO. 2411(DEL)/2004 2 FACTS AND IN LAW IN UPHOLDING THE ACTION OF TH E AO FOR TAXATION OF INTEREST INCOME OF RS. 16 49 441/- UNDER THE HEA D INCOME FROM OTHER SOURCES INSTEAD OF HOLDING THAT THE SAME WAS ELIGIBLE FOR SET OFF AGAINST THE EXPENDITURE INCURRED ON INTEREST O F RS. 19 60 038/- WHILE COMPUTING THE PROFITS OF BUSINESS OF 100% EXPORT ORIENTED UNIT (EOU FOR SHORT) OF THE ASSESSEE COMPANY. THE ASSESS EE ALSO MOVED AN ADDITIONAL GROUND VIDE LETTER DATED 15.11.2007 TO THE EFFECT THAT THE ORDER OF ASSESSMENT FRAMED BY THE AO IS WITHOUT JURIS DICTION AS NO NOTICE U/S 143(2) OF THE ACT WAS ISSUED AND SERVED AFTER THE ASSESSEE HAD FILED THE RETURN OF INCOME IN PURSUANCE OF NOTICE U/S 148. 1.1 IN REGARD TO THE ADDITIONAL GROUND IT W AS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ALL THE FACTS ARE AVAILABLE ON FILE AND IT IS PURELY A QUESTION OF LAW. IT WAS STRESSED TH AT NO NEW FACT IS REQUIRED TO BE BROUGHT ON RECORD. THEREFORE IT WAS AR GUED THAT THE GROUND SHOULD BE ADMITTED IN VIEW OF THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. (N TPC FOR SHORT ) VS. CIT (1998) 229 ITR 383. THE LD. DR OPPOSED TH E GROUND BY SUBMITTING THAT SUCH A NOTICE HAD BEEN ISSUED TO THE ASS ESSEE AS CAN BE SEEN FROM THE ASSESSMENT RECORD. WE HAVE CONSIDERED THE FACTS OF THE CASE AND ITA NO. 2411(DEL)/2004 3 RIVAL SUBMISSIONS. IT BECOMES CLEAR FROM THE SUBMISSIONS OF THE LD. COUNSEL THAT ALL THE FACTS ARE AVAILABLE ON RECORD AND NO NEW FACT IS REQUIRED TO BE FOUND FOR GIVING A FINDING ON T HIS GROUND. IN THE CASE OF NTPC THE HONBLE SUPREME COURT MENTIONED AT PAGE 387 THAT THE VIEW THAT THE TRIBUNAL HAS TO CONFINE ITSELF ONLY T O ISSUES ARISING OUT OF THE APPEAL BEFORE THE CIT(APPEALS) TAKES TOO NARROW A VIEW OF THE POWERS OF THE TRIBUNAL. UNDOUBTEDLY THE TRIBUNAL WILL HAVE THE DISCRETION TO ALLOW OR NOT TO ALLOW A NEW GROUND TO BE RA ISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER A QUE STION OF LAW ARISING FROM FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOW ED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN OR DER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. THUS IT IS CLEAR THAT THE TRIBUNAL CAN ENTERTAIN A NEW GROUND MORE PARTICULARLY W HEN IT IS ONLY A QUESTION OF LAW ALTHOUGH THE DISCRETION IS VESTED IN THE TRIBUNAL IN THIS REGARD. IN VIEW OF THIS THE LD. COUNSEL WAS REQUIRED TO STATE AS TO WHY SUCH A GROUND WAS NOT TAKEN BEFORE THE LD. CIT(APPEALS ) OR THIS FACT WAS NOT MENTIONED BEFORE THE AO IN THE COURSE OF ASSESS MENT PROCEEDINGS U/S 147. IT WAS SUBMITTED THAT THE ASSESSEE WAS UNAWARE OF THE CORRECT POSITION OF LAW IN THIS BEHALF WHICH BECAME C LEAR ONLY AFTER INSERTION ITA NO. 2411(DEL)/2004 4 OF CLAUSE (B) TO THE PROVISO TO SECTION 148 BY FINANCE ACT 2006 RETROSPECTIVELY WITH EFFECT FROM 1.10.1991. WE HAVE CONSIDERED THIS SUBMISSION ALSO. THERE IS NO EVIDENCE ON RE CORD BY WAY OF AFFIDAVIT ETC. TO SUPPORT THE AFORESAID SUBMISSION OF T HE LD. COUNSEL. FURTHER THE ADDITIONAL GROUND WAS TAKEN UP 15 MONTHS AF TER THE AFORESAID FINANCE ACT WAS ENACTED AND THERE IS NO EXPLANATION ON RECORD FOR THE DELAY THEREAFTER. NONETHELESS SINCE IT IS PURELY A QUESTION OF LAW TO BE DECIDED ON THE BASIS OF FACTS AVAILABLE ON RE CORD THE GROUND IS ADMITTED FOR ADJUDICATION IN THE INTEREST OF JUSTICE. 2. GROUND NO. 1 IS THAT THE LD. CIT(APPEALS) ERR ED IN UPHOLDING THE REOPENING OF THE ASSESSMENT U/S 147 OF THE ACT. IT WAS PRAYED THAT THE ASSESSMENT MADE THEREAFTER MAY BE CANCELLED. 2.1 THE FACTS IN THIS REGARD ARE THAT THE RETURN OF INCOME WAS FILED ON 28.11.1998 DECLARING NIL INCOME. THE SAME WAS PROCESSED U/S 143(1)(A) ON 26.4.1999 AT NIL INCOME AS DECLA RED. AN ORDER U/S 154 WAS PASSED ON 28.5.1999 IN WHICH THE INCOME WAS ASSESSED AT RS. 16 49 441/- BEING INTEREST ON THE FIXED DEP OSITS. THIS ORDER WAS RECTIFIED U/S 154 ON 21.10.1999 ASSESSING THE INCOME AT NIL BY HOLDING ITA NO. 2411(DEL)/2004 5 THAT THERE WAS NO EVIDENCE ON RECORD TO DENY EXEMPTION U/S 10B ON THE INTEREST INCOME. THIS RECTIFICATION ORDER WAS MADE ON THE BASIS OF TWO LETTERS DATED 4.10.1999 AND 7.10.1999 FILED BY THE ASSESSEE TO THE EFFECT THAT THE ASSESSEE IS AN EOU. THEREAFTER THE AO RECORDED REASONS FOR MAKING ASSESSMENT U/S 147 ON 1 7.3.2003 WHICH READ AS UNDER:- M K R FROZEN FOOD EXPORTS LTD.- A.Y: 1998-99 17.3.2003 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPOR T OF FROZEN FOODS AND MEALS. THE PROFIT FROM BUSINESS IS CLAIMED EXEMPT U/S 10B. DURING THE YEAR UNDER CONSIDERA TION THE ASSESSEE RECEIVED INTEREST OF RS.. 16 49 441/- WHICH IS ADJUSTED AGAINST INTEREST PAID BY ASSESSEE. THE METHOD SHOWN BY ASSESSEE IS NOT CORRECT. THE ASSE SSEE SHOULD HAVE CREDITED ALL INTEREST INCOME AND DEBITED INTEREST PAID BY IT. THE INTEREST INCOME CANNOT BE FORMED AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 10B. THEREFORE THE INTEREST RECEIVED ON FDRS I S TO BE ASSESSED AS INCOME FROM OTHER SOURCES. IN VIEW OF ABOVE I HAVE REASON TO BELIEVE THAT INCOME OF RS. 16 49 441/- HAS ESCAPED ASSESSMENT. LETTER TO ADDL. CIT RANG E-6 SOLICITING APPROVAL U/S 151 FOR ISSUE OF NOTICE U/S 148 IS ISSUED. 2.2 APPROVAL TO ISSUE NOTICE U/S 148 WAS ALSO OBTAINED FROM THE ADDITIONAL COMMISSIONER OF INCOME-TAX AND SUCH APP ROVAL WAS RECORDED IN THE NOTE-SHEET ON 21.03.2003. ITA NO. 2411(DEL)/2004 6 2.3 THE LD. COUNSEL SUBMITTED THAT ISSUANCE OF NOTICE U/S 148 IN THIS CASE DID NOT REQUIRE THE APPROVAL OF THE ADDIT IONAL CIT. HOWEVER IT WAS ARGUED THAT SIGNATURES APPENDED TO THE REASONS RECORDED AND SUPPLIED TO THE ASSESSEE WERE DIFFERENT FROM T HE SIGNATURES IN THE ASSESSMENT ORDER. THUS HIS CASE WAS THAT THE REASONS WERE NOT RECORDED BY THE AO AND THE NOTICE U/S 148 IS REQUIRED TO BE CANCELLED ON THIS VERY GROUND. IN REPLY TH E LD. DR SUBMITTED THAT THE ARGUMENT OF THE LD. COUNSEL IS TOTALLY MISCONC EIVED FOR THE SIMPLE REASON THAT THE AO HAD NOT ONLY RECORDED THE REASONS ON 17.3.2003 BUT ALSO HAD TAKEN APPROVAL OF THE ADDITIONAL COMMIS SIONER ON OR BEFORE 21.3.2003. COMING TO THE DIFFERENCE IN SIGNAT URES IT WAS HER CASE THAT THE ASSESSMENT ORDER CARRIED FULL SIGNATU RES WHILE THE RECORDED REASONS WERE INITIALED BY THE AO. 2.4 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE PARTIES IN THIS BEHALF. WE HAVE ALSO PERUSED THE SIGNATU RES ON ASSESSMENT ORDER AND IN THE REASONS RECORDED BY THE AO. ON PRI MA FACIE PERUSAL OF THESE TWO SIGNATURES WE ARE OF THE VIEW TH AT THEY HAVE BEEN MADE BY THE SAME PERSON BEING FULL IN THE ASSE SSMENT ORDER AND IN INITIAL IN THE RECORDED REASONS. HOWEVER WE QUALIFY OUR AFORESAID OBSERVATION ITA NO. 2411(DEL)/2004 7 BY STATING THAT WE ARE NOT HANDWRITING EXP ERTS AND IT IS ONLY OUR PRIMA FACIE VIEW. THE LD. DR HAD ALSO MENTIONE D THAT THE AO HAD OBTAINED APPROVAL OF THE ADDITIONAL COMMISSIONER BEFORE 21.3.2003 AND THUS THERE IS NO SCOPE OR OCCASION TO ARGUE THAT THE NOTE WAS NOT INITIALED BY THE AO. WE AGREE WITH HER IN THIS MATTER BECAUSE SUCH AN APPROVAL COULD NOT HAVE BEEN OBTAINED WITHOUT FO RWARDING THE REASONS TO THE ADDITIONAL COMMISSIONER ALTHOUGH AS MENTION ED EARLIER SUCH AN APPROVAL WAS NOT REQUIRED IN LAW. NOTWITHSTANDIN G THE AFORESAID OBSERVATION WE ALSO MENTION THAT ALL ACTS DONE IN DISCHARGE OF OFFICIAL DUTY ARE ASSUMED TO BE DONE IN REGULAR COURS E UNLESS PROVED OTHERWISE AND THE ONUS OF SUCH PROOF IS ON THE PARTY WHICH DISPUTES THE FACT. APART FROM MAKING ONLY A VERBAL SUBMISSION NO EV IDENCE WAS BROUGHT ON RECORD BY WAY OF OPINION OF HAND-WRITING EXPE RT REPORT OF HAND-WRITING EXPERT RECORD FROM THE ADDITIONAL CIT ETC. THEREFORE WE HAVE NO REASON WHATSOEVER TO AGREE WITH THE LD. COUNSEL THAT THIS NOTE WAS NOT INITIALED BY THE AO. FURTHER ONLY INITIALING TH E NOTE IS SUFFICIENT FOR THE PURPOSE OF THE ACT SO AS TO ASSUME JURISDICTI ON. THEREFORE THIS ARGUMENT IS DISMISSED. ITA NO. 2411(DEL)/2004 8 2.5 COMING TO VALIDITY OF ISSUANCE OF NOTICE U /S 148 IT WAS SUBMITTED THAT THE AO HAD PROCESSED THE RETURN OF INCOME A T NIL INCOME. THEREAFTER THE INCOME WAS REVISED U/S 154 TO RS. 16 4 9 441/- ON 28.5.1999. THE INCOME WAS FINALLY REDUCED TO NIL ON 21.10.199 9. NOTHING HAPPENED BETWEEN 21.10.1999 AND 17.3.2003 AS NO FURTHE R MATERIAL CAME TO THE POSSESSION OF THE AO. THEREFORE THE NOTICE WAS ISSUED MERELY ON CHANGE OF OPINION WHICH IS NOT PERMISSIBLE I N LAW. IN THIS CONNECTION RELIANCE WAS PLACED ON THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. (2002 ) 256 ITR 1. THIS DECISION OF THE HONBLE DELHI HIGH COURT WAS AFF IRMED BY THE HONBLE SUPREME COURT IN CIT VS. KELVINATOR OF INDIA LT D. (2010) 320 ITR 561. IN THIS VERY CONNECTION RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF TECH SPAN INDIA (P) LTD. & ANOTHER VS. ITO (2006) 283 ITR 212. IT WAS FURTHER SUBMITTED THAT THE AO HAS USED THE SENTENCE THE INTEREST IN COME CANNOT BE FORMED AS PART OF EXPORT TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 10B IN THE REASONS. ADMITTEDLY INTEREST INCOME AND EXPOR T TURNOVER ARE TWO DIFFERENT SPECIES OF INCOME AND THEREFORE THI S SENTENCE SHOWS THAT THE AO DID NOT APPLY HIS MIND WHILE RECORDING THE REASONS. IT WAS ALSO SUBMITTED THAT SECTION 10B(4) WAS AMENDED BY FINANCE ACT 2001 WITH ITA NO. 2411(DEL)/2004 9 EFFECT FROM 01.04.2001 FOR THE PURPOSE OF COMPUT ING THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER S OFTWARE IN A MANNER SIMILAR TO THE MANNER PROVIDED IN SECTION 80HHC . THIS AMENDMENT IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE A S THE ASSESSMENT PERTAINS TO ASSESSMENT YEAR 1998-99. THE CONCEPT OF THE TURN OVER WAS BROUGHT IN THIS SECTION BY THE AFORESAID AMENDMENT. PRIO R TO THAT SUCH A CONCEPT WAS NOT THERE. THEREFORE THE LAW OF A WRONG YEAR HAS BEEN APPLIED WHILE RECORDING REASONS WHICH CANNOT BE DONE AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF SIEMENS INFORMA TION SYSTEMS LTD. VS. ACIT & OTHERS (2007) 293 ITR 548. IT WAS ALSO SUBMITTED THAT IN DECIDING WHETHER JURISDICTION WAS PROPERLY ASS UMED FOR ISSUANCE OF NOTICE U/S 148 THE ONLY THING TO BE SEEN IS TH E REASONS RECORDED BEFORE ISSUING THE NOTICE. WHEN THESE REASONS ARE EXAMINED IT IS FOUND THAT THEY COULD NOT HAVE LED TO REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT. 2.6 IN REPLY THE LD. DR RELIED ON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF ACIT VS. RAJESH JHAVER I STOCK BROKERS P. LTD. (2007) 291 ITR 500 IN WHICH IT WAS INTER-AL IA HELD THAT THERE CANNOT BE FORMATION OF ANY OPINION WHEN A RETURN I S PROCESSED U/S 143(1)(A) ITA NO. 2411(DEL)/2004 10 AND THUS THERE IS NO QUESTION OF CHANGE OF O PINION WHEN REASONS ARE RECORDED FOR MAKING ASSESSMENT U/S 147. IT WAS FURTHER SUBMITTED THAT THERE WERE OTHER REASONS FOR REOPENING THE ASSESSMENT AS MENTIONED BY THE LD. CIT(APPEALS) IN HIS ORDER. IN THE ORDER FOR ASSESSMENT YEAR 2001-02 THE AO TOOK A STAND THAT INTEREST RECEIVED BY THE ASSESSEE FROM THE FIXED DEPOSITS WA S TAXABLE UNDER THE RESIDUARY HEAD AND THUS DEDUCTION U/S 10B WAS NOT APPLICABLE TO SUCH INCOME. THIS VIEW WAS CONFIRMED BY THE CIT(APPEALS) IN ORDER DATED 3.3.2003 IN APPEAL NO. 112/2002-03. THIS ORDER OF THE LD. CIT(A) CONSTITUTED INFORMATION FOR THE AO ON THE BASIS O F WHICH HE RECORDED REASONS FOR THIS YEAR ON 17.3.2003. IN THE LIG HT OF THESE FACTS IT WAS ARGUED THAT THE REOPENING WAS JUSTIFIED IN TH E LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF INDIAN & EA STERN NEWSPAPER SOCIETY VS. CIT (1979) 119 ITR 997 AND KALYA NJI MAVJI &COMPANY VS. CIT (1976) 102 ITR 287. 2.7 IN THE REJOINDER THE LD. COUNSEL SUBMITTED THAT THE FACTUM OF RECEIPT OF THE APPELLATE ORDER FOR ASSESSMENT YEAR 2001-02 HAS NOT BEEN MENTIONED IN THE REASONS. THE ORDER PASS ED BY THE AO U/S 154 ON 21.10.1999 SHOWS THE APPLICATION OF MIND AS IT WAS MENTIONED THAT AS PER ITA NO. 2411(DEL)/2004 11 RECORD THERE IS NO EVIDENCE TO DENY EXEMPTI ON U/S 10B TO THE ASSESSEE. 2.8 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF BOTH THE PARTIES. THE FIRST ISSUE IN THIS CASE ISW HETHER THERE WAS APPLICATION OF MIND BY THE AO AT THE TIME OF PROCESSING TH E RETURN OF INCOME OR PASSING ORDER U/S 154 ON 21.10.1999? IN THE CASE OF RAJESH JHAVERI STOCK BROKERS P. LTD. (SUPRA) IT WAS HELD THAT INTIMATION AND ASSESSMENT ARE TWO DIFFERENT CONCEPTS. NO OPPORTUNITY OF BEING HEARD IS TO BE GIVEN TO THE ASSESSEE WHILE P ROCESSING THE RETURN U/S 143(1)(A) AS THE AO HAS TO PROCEED TO ACCEPT THE RETURN AND MAKE ONLY PERMISSIBLE ADJUSTMENTS. THEREFORE THERE IS NO FORMATION OF OPINION WHEN A RETURN IS PROCESSED U/S 143(1)(A). THE SUBSEQUENT ORDERS PASSED BY THE AO U/S 154 ON 28.5.1999 AND 21.10.1999 H AVE TO BE EXAMINED IN THE LIGHT OF THE FACT THAT INCOME DETERMINED ON PROCESSING OF THE RETURN WAS SOUGHT TO BE REVISED. WHAT COULD NOT BE D ONE U/S 143(1) COULD ALSO NOT BE DONE U/S 154 WHILE RECTIFYING THAT ORDE R. THEREFORE ORDER WAS PASSED ON 21.10.1999 AS RECTIFICATION MADE O N 28.5.1999 WAS BEYOND THE SCOPE OF ADJUSTMENTS AS IT COULD NOT BE U /S 143(1)(A). MERELY MENTIONING THAT THERE IS NO EVIDENCE TO DENY EXEMPTION U/S 10B DOES NOT LEAD TO AN INFERENCE THAT THERE WAS APPL ICATION OF MIND FOR THE ITA NO. 2411(DEL)/2004 12 SIMPLE REASON THAT IN THE CONTEXT OF WHAT HAS BE EN STATED EARLIER THERE COULD HAVE BEEN NO APPLICATION OF MIND AS THE PROCESSING OF THE RETURN WAS MADE IN ACCORDANCE WITH LAW. THEREFORE WE ARE OF THE VIEW THAT THE ORDER DATED 21.10.1999 CANNOT LEAD TO A N INFERENCE THAT THE AO CONSIDERED THE MATTER AND ALLOWED DEDUCTION U/S 10B IN RESPECT OF INTEREST INCOME. HAVING HELD SO THE FACTS O F THE CASE ARE NOW IN PARI-MATERIA WITH THE FACTS OF THE CASE OF RAJE SH JHAVERI STOCK BROKERS P. LTD. (SUPRA) IN WHICH IT WAS INTER-ALIA HEL D THAT IF THE AO HAS REASON TO BELIEVE THAT THE INCOME ESCAPED ASSESSMENT HE WILL BE JUSTIFIED IN DOING SO IN RESPECT OF INCOME DETERMINED U/ S 143(1)(A) AND THE CONCEPT OF CHANGE OF OPINION WILL NOT STAND IN HIS WAY IF THE CONDITION OF REASON TO BELIEVE IS SATISFIED. WITH THESE PRELIMINARY REMARKS WE MAY EXAMINE OTHER SUBMISSIONS OF RIVAL PA RTIES BY TAKING INTO ACCOUNT THE CASE LAW UNDER EXISTING AND THE PRE- EXISTING PROVISIONS IN THE MATTER. 2.9 THE RELEVANT LAW APPLICABLE IN THE CASE OF INDIAN & EASTERN NEWSPAPER SOCIETY (SUPRA) HAS BEEN EXTRACTED B Y THE HONBLE COURT ON PAGE 1000 WHICH READS AS UNDER:- 147. IF- (A) THE INCOME-TAX OFFICER HAS REASON TO BEL IEVE THAT BY REASON OF THE OMISSION OR FAILURE ON THE PART OF AN ASSESSEE TO MAKE A RETURN UNDER SECTION 139 FOR ANY A SSESSMENT ITA NO. 2411(DEL)/2004 13 YEAR TO THE INCOME-TAX OFFICER OR TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT FOR THAT YEAR INCOME CHARGEABLE TO TAX HAS ESCAPED AS SESSMENT FOR THAT YEAR OR (B) NOTWITHSTANDING THAT THERE HAS BEEN NO OMISSION OR FAILURE AS MENTIONED IN CLAUSE (A) ON THE PART OF THE ASSESSEE THE INCOME-TAX OFFICER HAS IN CONSE QUENCE OF INFORMATION IN HIS POSSESSION REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR AN Y ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVIS IONS OF SECTIONS 148 TO 153 ASSESS OR REASSESS SUCH INCOME OR RECOMPUTED THE LOSS OR THE DEPRECIATION ALLOW ANCE AS THE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED. . THE LAW APPLICABLE IN THE CASE OF THE ASSESS EE READS AS UNDER:- IF THE ASSESSING OFFICER HAS REASON TO BELIEV E THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE P ROVISIONS OF SECTIONS 148 TO 153 ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH H AS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSE QUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION OR RECOMPUTED THE LOSS OR THE DEPRECIATION ALLOWA NCE OR ANY OTHER ALLOWANCE AS THE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HEREINAFTER IN THIS SECTION AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEVAN T ASSESSMENT YEAR): PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB- SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDE R THIS SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END O F THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE T O TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE ITA NO. 2411(DEL)/2004 14 FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. 3.10 ON COMPARATIVE READING OF THE PRE-EXISTING L AW AND THE PRESENT LAW IT WILL BECOME CLEAR THAT THE PROVISIONS CON TAINED IN CLAUSE (A) AND CLAUSE (B) OF SECTION 147 WERE RE-STATED IN T HE SECTION AND THE FIRST PROVISO ALBEIT WITH SOME CHANGES. WE ARE N OT CONCERNED WITH THE POSITION OF LAW CONTAINED IN CLAUSE (A) OF SECTION 147 EARLIER AND PROVISO TO SECTION 147 NOW FOR THE SIMPLE REA SON THAT THERE IS NO ALLEGATION OF OMISSION OR FAILURE ON THE PART OF THE ASSESSEE AND REGULAR ASSESSMENT HAS NOT BEEN MADE U/S 143(3). THE L AW CONTAINED IN SECTION 147(B) EARLIER AND SECTION 147 NOW IS SIMIL AR EXCEPT THAT THE PRESENT LAW DISPENSES WITH THE REQUIREMENT OF INFORMATIO N. BOTH THE PROVISIONS CONTAIN THE EXPRESSION REASON TO BELIEVE. NO NE OF THE PROVISIONS CONTAINS ANY MENTION ABOUT THE EXPRESSION CHANG E OF OPINION WHICH PRIMA-FACIE APPEARS TO BE APPLICABLE ONLY WHEN THERE HAS BEEN AN ALLEGATION THAT THERE WAS A FAILURE ON THE PAR T OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT IN A CASE WHERE ASSESSMENT WAS MADE U/S 143(3). A S MENTIONED EARLIER THE EARLIER LAW CONTAINS ADDITIONAL CONDITION OF INFORMATION. THE PROVISION CONTAINED IN SECTION 34(1)(B) OF 192 2 ACT WAS SIMILAR IN CONTENTS TO THE PROVISION CONTAINED IN SECTION 147(B) OF THE 1961 ACT. ITA NO. 2411(DEL)/2004 15 THEREFORE IF THIS CASE CAN STAND THE TEST LAID DOWN IN KALYANJI MAVJI & CO. AND INDIAN & EASTERN NEWSPAPER SOCIETY (SUPRA) THERE WILL BE NO REASON TO COME TO A CONCLUSION THAT ASSU MPTION OF JURISDICTION IN THIS CASE WAS BAD IN LAW. IN THE CASE OF KALYANJI MAVJI & CO.(SUPRA) A REFERENCE WAS MADE TO THE DECISION OF HONBL E BOMBAY HIGH COURT IN THE CASE OF CIT VS. H. HOLCK LARSEN (1972) 8 5 ITR 461 IN WHICH FOLLOWING OBSERVATIONS WERE MADE:- WHAT IS OBLIGATORY IN ORDER TO APPLY SECTION 34(1)(B) IS THAT HE MUST HAVE INFORMATION IN HIS POSSESSION IN CONSEQUENCE OF WHICH HE HAS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT OR IS UNDER-ASS ESSED ETC. THE DISTINCTION REALLY CONSISTS IN A CHANGE OF OPINION UNSUPPORTED BY SUBSEQUENT INFORMATION ON THE ONE HAND AND A CHANGE OF OPINION BASED ON INFORMATION SUBSE QUENTLY OBTAINED ON THE OTHER. IN THE FORMER CLASS OF CASES THE ASSESSMENT PROCEEDINGS ARE ATTEMPTED TO BE REOP ENED WITHOUT THE DISCOVERY OF AN ERROR AND WITHOUT RECEIVING ANY INFORMATION AS TO FACT OR LAW.. SUCH A REOPE NING IS BASED ON A MERE CHANGE OF OPINION AND IS WITH OUT JURISDICTION..IN THE LATTER CLASS OF CASES THE REOPENING IS BASED ON INFORMATION LEADING TO THE REQUIS ITE BELIEF AND IS THEREFORE WITHIN THE JURISDICTION OF THE OF FICER. 3.11 THE HONBLE SUPREME COURT ON THE BASIS OF AFORESAID OBSERVATIONS MENTIONED THAT THE DECISION IS REALLY BASED ON THE QUESTION WHETHER IT IS OPEN TO THE ITO TO CHANGE HIS OPINION SUBSEQUENTLY ON SAME MATERIAL AND RE-OPEN THE ORIGINAL ASSESSME NT. WE ARE NO DOUBT INCLINED TO AGREE WITH THE VIEW EXPRESSED BY CHANDRCHUD J. IN THE ITA NO. 2411(DEL)/2004 16 AFORESAID CASE BUT AS THIS QUESTION IS NOT FREE FROM DIFFICULTY AS THERE IS SOME DIVERGENCE OF JUDICIAL OPINION ON THE SUBJECT WE WOULD REFRAIN FROM GIVING ANY DEFINITE DECISION ON THIS PO INT PARTICULARLY WHEN IN THE VIEW WE TAKE IN THE INSTANT CASE THIS POINT DOES NOT REALLY ARISE FOR DETERMINATION WHICH IS REALLY BASED ON A NOTHER PRINCIPLE NAMELY THAT THE INFORMATION WAS DERIVED BY THE ITO F ROM FRESH FACTS AND CLEARLY COVERED BY PRINCIPLES LAID DOWN IN A. RAMAN & COMPANY (1968) 67 ITR 11. THUS THE APPEAL OF THE ASSESSEE WAS DISMISSED. IT MAY BE MENTIONED BY US HERE THAT IN THAT CASE THE INFORMATION WAS RECEIVED BY THE ITO IN THE COURSE OF ASSESSMENT PROCEEDIN GS OF THE SUBSEQUENT YEAR ON THE BASIS OF WHICH RE-ASSESSMENT PROCEE DINGS WERE INITIATED U/S 34(1)(B). THE INFORMATION WAS OF FACT NAMELY THAT THE MONEY BORROWED ON WHICH INTEREST WAS PAID AND CLA IMED WAS NOT WHOLLY UTILIZED FOR THE PURPOSE OF BUSINESS BUT ALSO D IVERTED TO THE PARTNERS. ON COMPARISON OF THE FACTS OF THESE CASES IT WIL L BE SEEN THAT THE INFORMATION WAS DERIVED BY ANALYSIS OF THE EXISTING FACTS IN A SUBSEQUENT YEAR IN THE CASE OF KALYANJI MAVJI & CO.. HOWEVER IN THIS CASE INFORMATION OF LAW HAS BEEN RECE IVED FROM AN AUTHORITY COMPETENT UNDER THE ACT TO PRONOUNCE LAW NAMELY THE CIT(APPEALS) IN AN SUCCEEDING YEAR. IN THE CASE OF IND IAN & EASTERN NEWSPAPER ITA NO. 2411(DEL)/2004 17 SOCIETY (SUPRA) THE HONBLE COURT MENTIONED THAT THE INFORMATION COULD BE OF FACT OR OF LAW. HOWEVER WHEN IT IS A N INFORMATION OF LAW IT MUST EMANATE FROM A FORMAL SOURCE COMPETENT TO PRONOUNCE THE STATE OF LAW. THE AUDIT PARTY IS NOT SUCH A FO RMAL SOURCE. HOWEVER IT IS CLEAR TO US THAT THE CIT(APPEALS) IS AN AUTHOR ITY UNDER THE INCOME-TAX ACT WHICH IS ENTRUSTED WITH THE WORK OF DET ERMINING FACTS AND POSITION OF LAW IN DISPUTE BEFORE HIM. SUCH QU ASI-JUDICIAL AUTHORITY HAD PRONOUNCED THAT THE INCOME BY WAY OF INTEREST W AS REQUIRED TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. THE AO AFTER RECEIPT OF THIS ORDER INITIATED ASSESSMENT PROCEEDINGS U/S 147 . THE CASE OF INDIAN & EASTERN NEWSPAPER SOCIETY (SUPRA) SUPPORTS HIS ACTION EVEN UNDER THE MORE STRINGENT PROVISION WHICH CONTAINED ADDITI ONAL REQUIREMENT OF INFORMATION. IN SUCH A CIRCUMSTANCE THERE IS NO REASON TO HOLD THAT THE ASSUMPTION OF JURISDICTION WAS BAD IN LAW . THE ASSUMPTION OF JURISDICTION BY THE AO IN THIS CASE FINDS DIREC T SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LTD. (SUPRA). AT PAGES 511 AND 512 TH E HONBLE COURT MENTIONED THAT THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM 1.4.1989 ARE SUBSTANTIALLY DIFFER ENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH SUBSTITUTION. THEREAF TER THE COURT MENTIONED ITA NO. 2411(DEL)/2004 18 ABOUT PRE-EXISTING CLAUSES (A) AND (B) WHICH WE HAVE ALREADY DEALT WITH. IT WAS ALSO MENTIONED THAT FOR ASSUMPTION OF J URISDICTION U/S 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED (I) T HE AO MUST HAVE REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ES CAPED ASSESSMENT; AND (II) SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITHER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE F ULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. HOWEVER UNDER THE SUBSTITUTED SECTION ONLY FIRST CONDITION WILL SUFFICE. IN OT HER WORDS IF THE AO HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSE SSMENT IT CONFERS JURISDICTION TO RE-OPEN THE ASSESSMENT. HOWEVE R BOTH THE CONDITIONS ARE TO BE SATISFIED IF THE CASE FALLS WITHIN TH E AMBIT OF THE FIRST PROVISO. AT PAGE 508 THE HONBLE COURT ALSO OBSERVED THA T THE WORDS INTIMATION AND ASSESSMENT ARE DIFFERENT IN AS MUCH AS I N ASSESSMENT THE AO IS FREE TO MAKE ANY ADDITION AFTER GRANTING O PPORTUNITY TO THE ASSESSEE. NO ADDITION IS PERMISSIBLE IN THE INTIMATION AND NO OPPORTUNITY IS TO BE GRANTED TO THE ASSESSEE. THEREFORE INTIMATION BEING NO ASSESSMENT THERE IS NO QUESTION OF CHANGE OF OPINION. IT MAY BE MENTIONED HERE THAT IN THIS AND SUCCEEDING YEARS THE AO HAD GRANTED DEDUCTION TO THE ASSESSEE U/S 10B IN RESPECT OF INTEREST INCOME. HOWEVER HE TOOK A DIFFERENT STAND IN ASSESSMENT YEAR 2001-02 AND HELD THAT INTEREST ON ITA NO. 2411(DEL)/2004 19 FIXED DEPOSITS WAS TO BE TAXED UNDER THE RESIDUARY HEAD. THIS ORDER WAS CONFIRMED BY THE CIT(APPEALS) ON 3.3.2003 I N APPEAL NO. 112/2002- 03. THE AO DID NOT TAKE ANY ACTION U/S 147 ON PASSING ASSESSMENT ORDER FOR ASSESSMENT YEAR 2001-02 BUT WAITED FOR THE ORDER OF CIT(APPEALS) IN THE MATTER BEFORE RECORDING HI S NOTE U/S 147 ON 17.3.2003. THESE BACKGROUND FACTS CANNOT BE IGNORED WHILE DECIDING WHETHER JURISDICTION WAS VALIDLY ASSUMED BY HI M FOR ISSUING NOTICE U/S 148. ONCE HIS ALTERED STAND WAS FORTIFIED BY THE ORDER OF THE LD. CIT(APPEALS) HE RECORDED THE NOTE TO THE EFFECT THAT INTEREST INCOME OF RS. 16 49 441/- HAS ESCAPED ASSESSMENT. IN OTHER WORDS HE HAD INFORMATION OF LAW IN HIS POSSESSION THAT THE AFORESAID INCOME HAS ESCAPED ASSESSMENT. THUS ACCORDING TO US H E WAS JUSTIFIED IN DOING SO. 3.12 THE LD. COUNSEL TOOK SOME OBJECTIONS IN TH IS REGARD. THE FIRST ONE IS THAT THE NOTE WAS RECORDED ON THE BASIS OF L AW WHICH WAS NOT APPLICABLE TO THIS YEAR. WE ARE OF THE VIEW T HAT THIS ARGUMENT IS MISPLACED. THE LAW AS IT EXISTED ALLOWED THE DEDUCTION OF PROFITS AND GAINS DERIVED FROM AN EOU FROM EXPORT O F ARTICLES OR THINGS OR COMPUTER SOFTWARE. THE AO HAS CLEARLY MENTIONED THAT INTEREST ON FIXED ITA NO. 2411(DEL)/2004 20 DEPOSITS IS TO BE TAXED UNDER THE RESIDUARY HEAD. THE INTENT OF THE USE OF EXPRESSION THAT INTEREST INCOME CANNOT BE FORMED AS PART OF EXPORT TURNOVER WAS THAT EARNING OF INTEREST INCOME CANNOT BE EQUATED WITH PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THEREFORE WE DO NOT AGREE WITH HI M THAT THE AO INVOKED PROVISIONS OF THE LAW APPLICABLE WITH EFFECT FRO M ASSESSMENT YEAR 2001- 02. ACCORDINGLY IT IS FURTHER HELD THAT TH E RATIO OF THE DECISION IN THE CASE OF SIEMENS INFORMATION SYSTEMS LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THIS CASE. ON THE CONTRARY HE REC ORDED THE NOTE ON THE BASIS OF LAW AS IT EXISTED FOR ASSESSMENT YEAR 1998-99. 3.13 IT WAS ALSO THE SUBMISSION OF THE LD. COUNSE L THAT IN DECIDING THIS ISSUE IT IS NOT OPEN TO THE REVENUE TO REFER TO REASONS OTHER THAN THOSE RECORDED BY THE AO AND FOR THIS PURPOSE HE RELIED ON THE DECISION OF HONBLE ALLAHABAD HIGH CJOURT IN THE CASE OF JA MNA LAL KABRA VS. ITO (1968) 69 ITR 461. THE HONBLE COURT MENTIONED THAT THE AFORESAID CONSIDERATION ACQUIRES IMPORTANCE WHEN THE QUEST ION IS RAISED AS TO WHAT WERE THE REASONS ON THE BASIS OF WHICH THE IT O INVOKED JURISDICTION U/S 147(A) AND IT IS NOT PERMISSIBLE IN THIS CONN ECTION TO REFER TO REASONS OTHER THAN THOSE RECORDED BY HIM IN PURSUANC E OF SECTION 148(2). IT ITA NO. 2411(DEL)/2004 21 WAS FURTHER MENTIONED THAT IN THE REASONS IT IS NOT STATED THAT THE ACTION U/S 147(A) IS BEING TAKEN BECAUSE THE ASSESSEE DID NOT FILE A RETURN OF INCOME OR THAT HE DID ANYTHING JUSTIFYING T HE CONCLUSION THAT HE OMITTED OR FAILED DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. AN ATTEMPT IS BEING MADE BY FILING AN AFFIDAVIT TO SUPPORT THE VALIDITY OF THE REASONS WHICH CAN NOT BE DONE AS THE REVENUE MUST CONFINE TO THE REASONS RECORDED BY THE ITO ONLY. IN THIS CASE THE AO HAD CLEARLY RECORDED THAT THE INTERES T INCOME WAS LIABLE TO BE ASSESSED UNDER THE RESIDUARY HEAD AS IT DID N OT FORM PART OF PROFITS AND GAINS DERIVED FROM EXPORT TURNOVER. THE REA SONS ARE QUITE CLEAR WHICH LEAD A REASONABLE PERSON TO HAVE REASON TO BELIEVE THAT THE INCOME HAD ESCAPED ASSESSMENT. THE BACKGROUND FAC TS ONLY GO TO SUPPORT HIS REASONS AND ARE NOT INTENDED TO SUPPLANT THE REASONS. EVEN IF SUBSEQUENT ORDERS OF THE AO AND THE LD. CIT(APPEAL S) ARE IGNORED THE FACTS DO LEAD TO A PRIMA FACIE INFERENCE THA T INTEREST INCOME WAS WRONGLY CONSIDERED AS PROFITS AND GAINS OF BUSINE SS OF EXPORT. THE AO WAS NOT REQUIRED TO PROVE HIS CASE TO THE HILT AT THAT POINT OF TIME. WHAT IS REQUIRED AT THE TIME OF RECORDING RE ASONS IS THAT THERE SHOULD BE SOME REASON WHICH HAS A LIVE NEXUS WITH T HE FORMATION OF THE BELIEF. THESE INGREDIENTS EXIST IN THIS CASE. THER EFORE WE DO NOT FIND ANY ITA NO. 2411(DEL)/2004 22 FORCE IN THE ARGUMENT OF THE LD. COUNSEL AS THE FACTS OF THE CASE OF JAMNA LAL KABRA ARE QUITE DISTINGUISHABLE. 3.14 WE MAY ONCE MORE PROCEED TO EXAMINE THE A RGUMENT OF THE LD. COUNSEL IN RESPECT OF CHANGE OF OPINION ON WHICH SIGNIFICANT EMPHASIS WAS LAID BY HIM. IN THE CASE OF KEL VINATOR OF INDIA LTD. THE FACTS ARE MENTIONED IN THE DECISION OF HONBLE D ELHI HIGH COURT THAT THE ASSESSMENT FOR ASSESSMENT YEAR 1987-88 WAS COMP LETED U/S 143(3) AND THEREAFTER IT WAS RE-OPENED WITH A VIEW TO BRIN G TO TAX CERTAIN AMOUNTS AGGREGATING TO RS. 43 91 603/- COMPRISING OF INT EREST CLAIM OF RS. 41.28 LAKH GUEST HOUSE EXPENSES OF RS. 1.76 LAKH ADVERTISEMENT EXPENSES OF RS. 83 303/- AND CLUB EXPENSES OF RS. 4 300/-. THE ASSESSMENT WAS REOPENED U/S 147. THE ASSESSEE OBJECTED TO TH E REOPENING PARTICULARLY ON THE GROUND THAT THE TRIBUNAL HAD ALLOWED SI MILAR EXPENSES FOR ASSESSMENT YEAR 1986-87 ON APPEAL. THE HONB LE COURT EXAMINED THE PROVISIONS REGARDING REOPENING IN THE 1922 ACT AND IN THE 1961 ACT. THE HONBLE COURT ALSO EXAMINED THE REASONS RECORDED BY THE AO AND THE AFFIDAVIT FILED BY HIM. IT TRANSPIRED THAT THE AO STATED THAT HE WRONGLY ALLOWED THE DEDUCTIONS IN THE ORIGINAL ASSESSMENT AND THEREFORE HE WAS OF THE OPINION THAT INCOME HAD ESCAPED ASSESSMENT. ADMITTEDLY ITA NO. 2411(DEL)/2004 23 NOTHING HAD HAPPENED BETWEEN THE COMPLETION OF O RIGINAL ASSESSMENT AND FORMATION OF OPINION BY THE AO. THERE WAS NO C HANGE IN LAW AND NO NEW MATERIAL CAME ON THE RECORD. NO INFORMATION WA S RECEIVED. IT WAS MERELY A CASE OF FRESH APPLICATION OF MIND BY THE AO TO THE SAME SET OF FACTS. THE COURT WAS OF THE VIEW THAT THE AO D ID NOT HAVE JURISDICTION TO REOPEN THE ASSESSMENT. THIS FINDING WAS CONFIRME D BY THE HONBLE SUPREME COURT. THE FACTS OF THIS CASE ARE C LEARLY DISTINGUISHABLE. IN THE FIRST PLACE THE ASSESSMENT YEAR INVOLVED I N THE CASE BEFORE THE HONBLE COURT WAS ASSESSMENT YEAR 1987-88. IN THE SECOND NOTHING HAD HAPPENED IN THAT CASE AFTER ORIGINAL ASS ESSMENT WHILE THE AO IN THE CASE AT HAND HAD THE BENEFIT OF HIS SUBSEQUEN T ORDER AND THE DECISION OF THE LD. CIT(APPEALS) IN RESPECT OF CORRECT H EAD OF INCOME. THEREFORE THERE WERE OTHER REASONS WHICH JUSTIFIED THE REOPENING OF THE ASSESSMENT AND TAKING A CUE FROM THE DECISION IN THE CASE OF KALYANJI MAVJI & CO. (SUPRA) IF THERE ARE OTHER REASONS ONE MAY NOT GO INTO THE QUESTION OF CHANGE OF OPINION. THE FACTS OF T HE CASE OF TECHSPAN INDIA (P)LTD. (SUPRA) ARE THAT IN THE ASSESSMEN T FOR ASSESSMENT YEAR 2001-02 THE ASSESSEE CLAIMED DEDUCTION U/S 10 A OF THE ACT. IN THE ORIGINAL ASSESSMENT PROCEEDINGS A DETAILED ENQUIRY WAS CONDUCTED BY THE AO FOR WHICH A SHOW CAUSE NOTICE WAS I SSUED REQUIRING THE ITA NO. 2411(DEL)/2004 24 ASSESSEE TO INDICATE ALLOCATION OF EXPENSES TO THE SOFTWARE DIVISION AND FULFILLMENT DIVISION AND EVEN SUGGESTED ALLOC ATION ON A PROPORTIONATE BASIS. THE ASSESSEE MADE A DETAILED SUB MISSIONS IN RESPECT OF ALLOCATION MADE BY IT. ON EXAMINATION OF THE DETAILS A DEDUCTION OF RS. 4 86 62 452/- WAS ALLOWED U/S 10A. SUBSEQUENTL Y A NOTICE WAS ISSUED U/S 148 ON THE GROUND THAT EXCESS DEDUCTION H AS BEEN ALLOWED U/S 10A. THE COURT REITERATED THE PRINCIPLE LAID D OWN IN A NUMBER OF CASES CITED AT PAGE 228 THAT A MERE CHANGE OF OPIN ION CANNOT BE A BASIS FOR REOPENING THE ASSESSMENT. THUS THIS RATIO W OULD BE APPLICABLE ONLY TO CASES WHERE THE AO HAS APPLIED HIS MIND AND TAKEN A CONSCIOUS DECISION ON A PARTICULAR MATTER. IT HAS NO A PPLICATION WHERE THE ORDER OF ASSESSMENT DOES NOT AND BY ITS VERY NATURE CAN NOT ADDRESS ITSELF TO THE ASPECTS WHICH ARE THE BASIS OF REOPENING OF TH E ASSESSMENT. THUS IT IS CLEAR THAT THE FACTS OF THAT CASE ARE ALSO DIS TINGUISHABLE AS ASSESSMENT WAS MADE IN THAT CASE AFTER DETAILED SCRUTIN Y AND U/S143(3). THE HONBLE COURT CLEARLY MENTIONED THAT THE PRINCIPLE OF CHANGE OF OPINION WILL HAVE NO APPLICATION WHERE THERE WAS NO FO RMATION OF OPINION AT ALL AND IT SEEMS TO US THAT THIS PART OF THE J UDGMENT APPLIES EVEN TO AN ASSESSMENT MADE U/S 143(3). WE HAVE ALREADY HELD THAT PROCESSING U/S 143(1)(A) AND AN ORDER U/S 154 THEREON DO NOT LEAD TO INFERENCE OF ITA NO. 2411(DEL)/2004 25 APPLICATION OF MIND. THEREFORE THERE COULD B E NO QUESTION OF CHANGE OF OPINION. 3.15 THUS IT IS HELD THAT THE LD. CIT(A) WAS RIGHT IN HOLDING THAT THE AO PROPERLY ASSUMED JURISDICTION U/S 147 AND CONSEQUENTLY NOTICE ISSUED U/S 148 WAS VALID IN LAW. THEREFORE GROUND NO. 1 IS DISMISSED. 4. THE ADDITIONAL GROUND IS THAT THE AO DID NO T HAVE JURISDICTION TO MAKE ASSESSMENT U/S 143(3) READ WITH SECTI ON 148 AS NOTICE U/S 143(2) WAS NEITHER ISSUED NOR SERVED ON THE ASSESSEE AFTER MAKING OF THE RETURN U/S 148. 4.1 THE LD. COUNSEL DREW OUR ATTENTION TO CLAUS E (B) OF PROVISO TO SECTION 148 BEING IN THE NATURE OF A VALIDATIO N PROVISION WHICH PROVIDES THAT FOR MAKING THE ASSESSMENT RE-ASSESSMENT O R RE-COMPUTATION OF INCOME EVERY NOTICE SERVED BEFORE THE EXPIRY OF TIME LIMIT FOR MAKING THE ASSESSMENT SHALL BE DEEMED TO BE A VALID NOTICE. IT WAS HIS CASE THAT FOR MAKING ASSESSMENT U/S 147 IT WAS O BLIGATORY ON THE PART OF THE AO TO ISSUE AND SERVE A NOTICE U/S 143(2) BE FORE ANY VARIATION COULD BE MADE TO THE INCOME RETURNED U/S 148. SINCE TH E NOTICE HAS NEITHER BEEN ITA NO. 2411(DEL)/2004 26 ISSUED NOR SERVED THE ASSESSMENT FRAMED U /S 143(3) READ WITH SECTION 147 IS INVALID. IN ORDER TO SUPPORT HIS CASE RELIANCE WAS PLACED ON THE DECISION IN THE CASE OF PAWAN GUPTA (2009) 318 ITR 322 (DEL) AND VANDANA GOGOI (2007) 289 ITR 28 (GAUHATI) IN WHICH IT WAS HELD THAT SUCH A NOTICE IS ESSENTIAL FOR MAKING ASSESSMENT OF UNDISCLOSED INCOME AFTER SCRUTINY U/S 158BC OF THE ACT. IT WAS ARGUED THAT SIMILAR CONSIDERATION IS APPLICABLE IN REGARD TO ASS ESSMENT MADE U/S 147. WE MAY BRIEFLY STATE THE RATIO OF THE CASE OF PAWAN GUPTA (SUPRA) AS IT IS THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT. ONE OF THE QUESTIONS BEFORE THE HONBLE COURT WAS WHETHER ISSUANCE/SE RVICE OF NOTICE U/S 143(2) WITHIN THE PRESCRIBED LIMIT OF TIME IS A PRE-REQUISITE FOR FRAMING THE BLOCK ASSESSMENT ORDER UNDER CHAPTER XIV- B OF THE INCOME-TAX ACT 1961? IT WAS HELD THAT SECTION 143(2) HAS BEEN SPECIFICALLY INCORPORATED IN THE SCHEME OF BLOCK ASSESSMENT PROCEEDINGS AND THAT CANNOT BE IGNORED. THUS CONCURRING WITH THE JUDGMENT IN THE CASE OF VANDANA GOGOI (SUPRA) IT WAS HELD THAT ISSUAN CE OF A NOTICE U/S 143(2) IS A PRE-REQUISITE FOR FRAMING THE BL OCK ASSESSMENT ORDER UNDER CHAPTER XIV-B. IT WAS ALSO HELD THAT IF AN ASSESSMENT ORDER IS PASSED WITHOUT COMPLYING WITH SECTION 143(2) IT WOULD BE INVALID AND NOT MERELY IRREGULAR. FURTHER RELIANCE WAS P LACED ON THE DECISION OF ITA NO. 2411(DEL)/2004 27 HONBLE MADRAS HIGH COURT IN THE CASE OF VENK AT NAICAEN TRUST & ANOTHER VS. ITO & ANOTHER (2000) 242 ITR 151 IN WHICH IT WAS HELD THAT WHEN THE ASSESSEE PLEADS THAT HE HAS N OT BEEN PROPERLY SERVED WITH ANY NOTICE IT IS FOR THE DEPARTMENT TO PLACE THE RELEVANT MATERIAL TO SUBSTANTIATE ITS PLEA THAT THE ASSESSEE WAS SERVED WITH THE PROPER NOTICE. OUR ATTENTION WAS ALSO DRAWN TO PAGE 1 OF THE ASSESSMENT ORDER WHERE IT IS MENTIONED IN PARAGRAPH 3 THAT THE REAFTER A NOTICE U/S 142(1) WAS ISSUED TO THE ASSESSEE ASKING IT TO FILE VAR IOUS DETAILS. THUS THE CASE OF THE LD. COUNSEL WAS THAT THE NOTICE WAS NEITHER ISSUED NOR SERVED ON THE ASSESSEE. 4.2 IN REPLY THE LD. DR PRODUCED THE CASE RECORD MAINTAINED BY THE ITO AND SHOWED TO US AND THE LD. COUNSEL AN OF FICE COPY OF NOTICE U/S 143(2) DATED 21.4.2003 ISSUED TO THE ASSESSEE. THIS NOTICE IS AVAILABLE ON PAGE 31 OF THE CASE RECORD. SHE ALSO SH OWED TWO OTHER NOTICES DATED 11.11.2003 ISSUED U/S 142(1). OUR ATT ENTION WAS ALSO DRAWN TO PARAGRAPH 1 OF THE ASSESSMENT ORDER WHICH MAK ES A MENTION THAT THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/ S 143(2)(II) WAS ISSUED IN RESPONSE TO WHICH SHRI ANIL KAKKAR C.A. ATTEND ED AND MADE ORAL AS WELL AS WRITTEN SUBMISSIONS. HOWEVER SHE WAS NOT ABLE TO BRING ON ITA NO. 2411(DEL)/2004 28 RECORD THE OUT-WARD DAK REGISTER WHICH COULD PROVE THE SERVICE OF NOTICE ON THE GROUND THAT THE MATTER IS VERY OLD AND SUCH RECORD IS NOT TRACEABLE. 4.3 IN THE REJOINDER THE CASE OF THE LD. COUNS EL WAS THAT THE REVENUE HAS TO SHOW NOT ONLY THE ISSUANCE OF THE NOTIC E BUT ALSO ITS SERVICE ON THE ASSESSEE AS HELD IN THE CASE OF VENKAT NAICAEN TRUST & ANOTHER (SUPRA). 4.4 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. THE ADDITIONAL GROUND IN RESPECT OF NON-ISSUA NCE AND NON-SERVICE OF NOTICE U/S 143(2) MOVED BY THE ASSESSEE ON 1 5.11.2007 FOR THE FIRST TIME BEFORE US WAS ADMITTED ON THE EXPLICIT REPR ESENTATION OF THE LD. COUNSEL THAT IT IS PURELY A QUESTION OF LAW FOR WHI CH NO FURTHER FACT IS REQUIRED TO BE BROUGHT ON RECORD OR EXAMINED. THE FAC TS ARE THAT THE ASSESSEE HAD FILED THE RETURN OF INCOME ON 28.11.1999 DE CLARING NIL INCOME. AS MENTIONED EARLIER THIS ORDER WAS SUBJECT MATTE R OF TWO REVISIONS U/S 154. THEREAFTER ASSESSMENT PROCEEDINGS U/S 14 7 WERE INITIATED BY ISSUING NOTICE U/S 148 ON 21.3.2003. THE ASSE SSEE DID NOT FILE ANY FRESH RETURN IN RESPONSE TO THIS NOTICE BUT SUBMITTED THAT ORIGINAL RETURN FILED ITA NO. 2411(DEL)/2004 29 ON 28.11.1998 MAY BE TAKEN A RETURN U/S 148 . THE AO MENTIONS ABOUT ISSUANCE OF NOTICES U/S 143(2)(II) AND 142(1) . IN REGARD TO NOTICE U/S 148 ALSO THE AO MENTIONS ONLY ABOUT ITS ISSUAN CE. THE CASE OF THE LD. DR IS THAT IF OTHER NOTICES HAVE BEEN RECEIVE D BY THE ASSESSEE THERE IS NO REASON TO COME TO A CONCLUSION THAT NOTICE U/ S 143(2) HAS NOT BEEN RECEIVED BY THE ASSESSEE. THE FURTHER FACTS ARE THAT THIS ISSUE WAS NEVER AGITATED EITHER BEFORE THE AO OR THE LD. CI T(APPEALS). THUS VALUABLE TIME WAS LOST DURING WHICH EITHER OF T HE LOWER AUTHORITIES COULD HAVE VERIFIED FACTS DURING THE COURSE OF ASSE SSMENT PROCEEDINGS OR SOON THEREAFTER IN THE APPELLATE PROCEEDINGS. THE A PPELLATE ORDER WAS PASSED ON 22.4.2004 I.E. WITHIN ABOUT FOUR MONTHS OF THE PASSING OF THE ORDER U/S 147. THE ASSESSEE ALSO DID NOT TAKE UP THI S ISSUE WHILE FILING THE APPEAL ON 17.5.2004. THE ADDITIONAL GROUND W AS TAKEN ON 15.11.2007 I.E. AFTER LAPSE OF ABOUT 3 YEARS AND 7 MONT HS. THE GROUND IS NOT SUPPORTED BY BRINGING ANY EVIDENCE ON RECORD. NO AFFIDAVIT HAS ALSO BEEN FILED IN THIS REGARD. THEREFORE THE Q UESTION IS WHETHER THE GROUND IS BASED ON FACTUAL REALITY OR NOT? I T IS NO DOUBT TRUE THAT THE ONUS OF SERVICE OF NOTICE IS ON THE REVENUE A S HELD IN THE CASE OF VENKAT NAICAEN TRUST & ANOTHER (SUPRA). WHILE TH E CASES OF PAWAN GULATI AND VANDANA GOGOI (SUPRA) WERE DECIDED U/S 158BC THE ITA NO. 2411(DEL)/2004 30 PROVISION CONTAINED IN PROVISO (B) MAKES IT CL EAR THAT A NOTICE U/S 143(2) HAS TO BE SERVED BEFORE COMPLETING ASSES SMENT 147. HAVING NOT TAKEN ANY STEP IN THIS MATTER FOR A LONG PE RIOD BETWEEN THE STARTING OF ASSESSMENT PROCEEDINGS AND ENDING WITH 14.11.2 007 THE LD. COUNSEL NOW WANTS PRODUCTION OF ALL THE RECORDS TO PROVE THE SERVICE AFTER LAPSE OF A LONG PERIOD OF TIME. FURTHER A PORTION OF THE ADDITIONAL GROUND REGARDING NON-ISSUANCE OF THE NOTICE I S FOUND TO BE FALSE ON EXAMINATION OF RECORDS WHICH WAS ALSO SHOWN T O THE LD. COUNSEL. IN THE CIRCUMSTANCES NARRATED ABOVE IT IS CLEA R THAT THE LD. COUNSEL WANTS REVENUE TO DO THE IMPOSSIBLE OF BRINGING MISSING RECORD OF SERVICE OF NOTICE WITHOUT DOING ANYTHING BEING DONE ON THE PART OF THE ASSESSEE. WE ARE OF THE VIEW THAT NONE OF THE PARTIES CAN BE FORCED DO ANYTHING WHICH IS IMPOSSIBLE. THE TENOR OF THE ORDER WHICH SPEAKS OF ISSUANCE OF NOTICES U/S 148 143(2) AND 142(1) LEADS TO AN IRRESISTIBLE CONCLUSION OF FACT THAT NOTICE U/S 143(2) WAS SERVED O N THE ASSESSEE IN DUE COURSE JUST AS OTHER NOTICES WERE ADMITTEDLY SERVED O N HIM. THEREFORE ON PECULIAR FACTS OF THIS CASE WE ARE OF THE VIEW THAT THE NOTICE HAS BEEN SERVED ON THE ASSESSEE. OTHERWISE HE HAS BEEN GIVEN FULL OPPORTUNITY OF BEING HEARD UNDER THIS SECTION AS WELL AS S ECTION 142(1). THUS THIS GROUND IS ALSO DISMISSED. ITA NO. 2411(DEL)/2004 31 5. COMING TO THE MERITS THE SUBSTITUTED GROUND IS THAT THE LD. CIT(APPEALS) ERRED IN HOLDING THAT INTEREST INC OME OF RS. 16 49 441/- WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOU RCES AND NOT ELIGIBLE FOR SET OFF AGAINST INTEREST EXPENDITURE OF RS. 19 60 038/- WHILE COMPUTING THE PROFITS OF BUSINESS OF THE EO U. 5.1 IN THIS CONNECTION THE AO REFERRED TO THE PR OVISION CONTAINED IN SECTION 10-B WHICH ALLOWS THE DEDUCTION OF P ROFITS AND GAINS DERIVED BY THE EOU IN COMPUTING THE TOTAL INCOME. IT W AS HIS CASE THAT THE INCOME WAS NOT DERIVED FROM THE EOU AS THE WORDS DERIVED FROM ARE NARROWER IN MEANING AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS LTD. (1999) 237 ITR 579. THIS FINDING WAS CONFIRMED BY THE LD. CIT(APPEALS) BY RELYING ON A NUMBER OF CASES AND MENTIONING THAT THERE MUST BE DIRE CT AND PROXIMATE LINK BETWEEN THE EOU AND THE INCOME FOR THE LATTER TO BE TERMED AS PROFITS DERIVED FROM THE EOU. 5.2 BEFORE US THE LD. COUNSEL REFERRED TO THE STATEMENT OF FACTS FILED BEFORE THE LD. CIT(APPEALS) IN WHICH IT IS MENTIONED THAT THE ASSESSEE EARNED INTEREST INCOME OF RS. 16 49 44 1/- FROM THE BANK AND ITA NO. 2411(DEL)/2004 32 PAID INTEREST OF RS. 19 60 038/- TO THE BANK IN RESPECT OF CREDIT FACILITY ENJOYED BY IT. THUS THERE WAS A RESULTANT D EBIT OF RS. 3 10 597/- WHICH WAS CLAIMED AS EXPENDITURE. THERE WAS A CL EAR NEXUS BETWEEN PAYMENT AND EARNING OF INTEREST AS THE ASSES SEE WAS ENGAGED IN THE BUSINESS MENTIONED IN SECTION 10-B AS IT STOOD BEFORE 01.04.2001 UNDER WHICH ANY PROFIT AND GAINS DERIVED BY THE EO U SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE ASSES SEE WAS CARRYING ON THE BUSINESS OF EOU ONLY. THE OWN FUNDS OF THE A SSESSEE WERE NOT SUFFICIENT TO CARRY ON THE BUSINESS AND THUS BORROWINGS FROM THE BANK WERE NECESSITATED. THE INTEREST EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS. AS PROFITS WERE EARNED THEY WERE INVESTED IN THE FIXED DEPOSITS FOR EARNING INTEREST IN COME SO AS TO REDUCE THE INTEREST BURDEN OF THE BUSINESS. IN SUCH A SIT UATION THERE WAS A NEXUS BETWEEN EARNING AND PAYING OF THE INTERESTS. TH EREFORE INTEREST RECEIVED COULD NOT HAVE BEEN TREATED UNDER T HE RESIDUARY HEAD OF INCOME. 5.3 TO SUPPORT THE AFORESAID CONTENTION RELI ANCE WAS PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CAS E OF CIT VS. PUNEET COMMERCIAL LTD. (2002) 245 ITR 550 A CASE DE CIDED U/S 80HHC. IT ITA NO. 2411(DEL)/2004 33 WAS HELD THAT THE ASSESSEE WAS ENGAGED IN T HE BUSINESS OF EXPORT AND THE WHOLE OF THE PROFIT WAS DERIVED FROM T HIS ACTIVITY ONLY. THEREFORE THE WHOLE OF THE INCOME INCLUDING THE INTEREST I NCOME WAS DEDUCTIBLE U/S 80HHC(3)(A). FURTHER RELIANCE WAS PLA CED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM HONDA POWER EQUIPMENT (2007) 289 ITR 475 IN WHICH IT WAS HELD THAT WHERE SURPLUS FUNDS ARE PARKED WITH THE BANK AND INTE REST IS EARNED THEREON IT CAN BE CATEGORIZED AS INCOME FROM OTHER SOURCES ONLY. SUCH INCOME IS OUTSIDE THE RING OF PROFITS AND GAINS OF BUSI NESS. THERE COULD ALSO BE ANOTHER CATEGORY OF CASES WHERE THE EXPORTER IS REQUIRED TO KEEP MONEY IN FIXED DEPOSITS MANDATORILY IN ORDER TO AVAIL OF CREDIT FACILITY. INTEREST EARNED ON SUCH DEPOSITS FOR THE PURPOSE OF AVAILING CREDIT FACILITY FROM THE BANK DOES HAVE AN IMMEDIATE NEXUS W ITH EXPORT BUSINESS. THE FINDING TO THE CONTRARY WILL THUS APPLY ONL Y IF THE AO HAD HELD THAT THE INTEREST INCOME IS BUSINESS INCOME. RELIA NCE WAS ALSO PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. VS. ITO (2009) 315 ITR 255. IT WAS HELD THAT FUNDS BY WAY OF SHARE CAPITAL WERE RAISED SPECIFICALLY FOR ACQUIRING LAND AND DEVELOPMENT OF INFRASTRUCTU RE. THEREFORE INTEREST EARNED ON SUCH FUNDS PRIMARILY BROUGHT FOR INFU SING MONEY IN THE ITA NO. 2411(DEL)/2004 34 BUSINESS COULD NOT BE TREATED AS INCOME FROM OT HER SOURCES. IT WAS ALSO HELD THAT THE INCOME WAS EARNED IN THE PERIOD PRIOR TO COMMENCEMENT OF BUSINESS WHICH WAS REQUIRED TO BE SET OF F AGAINST PRE-OPERATIVE EXPENSES. RELIANCE WAS ALSO PLACED ON THE D ECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SNAM PROGETTI SPA VS . ADDITIONAL CIT (1981) 132 ITR 70 IN WHICH IT WAS HELD THAT THE WHOLE SITUATION IS TO BE SEEN IN SUCH A CASE IS WHETHER THE INCOME IS DERIVED FROM THE BUSINESS ACTIVITIES. IF IT IS SO DERIVED THEN THE MER E FACT THAT IT IS TO BE TAXED UNDER A DIFFERENT SECTION WILL MAKE NO DIFFERE NCE. THE ASSESSEE HAD NOT COME FROM ITALY TO INDIA FOR EARNING INTERE ST INCOME FROM THE BANK BUT TO CARRY ON THE BUSINESS. THEREFORE THE INTEREST INCOME WAS ALSO BUSINESS INCOME FOR THE PURPOSE OF SET OFF. 5.4 IN REPLY THE LD. DR REFERRED TO THE FIN DINGS OF THE LD. CIT(APPEALS) IN WHICH AFTER CONSIDERING VARIOUS CASES IT WAS MENTIONED THAT THERE SHOULD BE A DIRECT AND PROXI MATE CONNECTION BETWEEN THE INCOME AND THE EOU. IN ORDER TO SUPPORT HIS ORDER RELIANCE WAS PLACED ON THE DECISION OF HONBLE SUPREME COUR T OF INDIA IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. CIT (1997) 227 ITR 172 IN WHICH IT WAS HELD THAT INTEREST EARNED BY INVESTING BORROWED ITA NO. 2411(DEL)/2004 35 FUNDS PRIOR TO THE COMMENCEMENT OF BUSINESS IS T AXABLE UNDER THE RESIDUARY HEAD. FURTHER RELIANCE WAS PLACE D ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. STERLING FOODS (1999) 237 ITR 579 IN WHICH IT WAS HELD THAT THE WORDS DERIVED FROM MEAN TO GET TO TRACE FROM A SOURCE ARISE FROM ORIGINATE IN SHOW THE ORIGIN OR FORMATION OF. THE SOURCE OF IMPORT EN TITLEMENT COULD NOT BE SAID TO BE THE INDUSTRIAL UNDERTAKING OF THE AS SESSEE WHICH IN FACT IS THE SCHEME OF THE CENTRAL GOVERNMENT WHICH GRANTS ENTITLEMENTS TO THE ASSESSEE. THE AFORESAID WORDS MEAN THAT THER E SHOULD BE A DIRECT NEXUS BETWEEN PROFITS AND GAINS AND THE INDUSTRIAL UNDERTAKING. THEREFORE IT WAS HELD THAT THE INCENTIVE RECEIVED BY THE AS SESSEE COULD NOT BE SAID TO BE THE INCOME DERIVED FROM THE ELIGIBLE INDU STRIAL UNDERTAKING. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MONARCH TOOLS P. LTD. (2003) 260 ITR 258 IN WHICH IT WAS HELD THAT WHEN SURPLUS FU NDS ARE INVESTED IN FIXED DEPOSITS INTEREST INCOME EARNED THEREON IS ASSESSABLE AS INCOME FROM OTHER SOURCES. RELIANCE WAS ALSO PLACED ON T HE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF K. RAVINDRANATHA N NAIR VS. DY. CIT (2003) 262 ITR 669 IN WHICH IT WAS HELD T HAT INTEREST EARNED ON FIXED DEPOSITS WAS NOT THE INCOME DERIVED FR OM EXPORT BUSINESS AND ITA NO. 2411(DEL)/2004 36 THEREFORE IT WAS NOT ENTITLED TO DEDUCTION U/S 80HHC. RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. G. SATHEESH NAIR (2003) 264 ITR 377 IN WHICH IT WAS HELD THAT INTEREST EARNED ON TERM DEPOSITS PLACED WITH TH E BANK WILL NOT PARTAKE THE CHARACTER OF BUSINESS INCOME SO AS TO ALLOW DEDUCT ION U/S 80HH. SUCH AN INCOME CAN ONLY BE CATEGORIZED AS INCOME FROM OTHER SOURCES. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS ACCEPTED TH E DECISION OF THE LOWER AUTHORITIES IN ASSESSMENT YEAR 2002-03 AND THEREFO RE PRINCIPLE OF CONSISTENCY DEMANDS THAT THE GROUND OF THE ASSE SSEE MAY BE DISMISSED. 5.5 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D RIVAL SUBMISSIONS. SECTION 10-B AS IT EXISTED FOR THE YEAR UNDE R CONSIDERATION PERMITTED A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIV ED BY AN EOU FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWA RE FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERT AKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COM PUTER SOFTWARE. THE RIVAL PARTIES HAVE CITED THE CASES DECIDED UNDER SE CTIONS 80HH AND 80HHC ALSO FOR THE INTERPRETATION OF THE TERM PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM AN EOU. THEREFORE IT MAY BE OF CONSEQUENCE TO LOOK ITA NO. 2411(DEL)/2004 37 INTO THE PROVISIONS CONTAINED IN SECTIONS 80HH A ND 80HHC IN THIS REGARD. SECTION 80HH ALLOWS A DEDUCTION WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERI VED FROM AN INDUSTRIAL UNDERTAKING. ON COMPARATIVE READING OF THIS PROVISION WITH THE PROVISION CONTAINED IN SECTION 10B IT IS CLE AR THAT THE PROVISIONS DEAL WITH THE DEDUCTION OF PROFITS AND GAINS DERIVE D FROM AN EOU U/S 10B AND PROFITS AND GAINS DERIVED FROM AN INDUSTRI AL UNDERTAKING IN SECTION 80HH. THE CORRESPONDING PROVISION U/S 80HHC I S WORDED SOMEWHAT DIFFERENTLY AND IT PROVIDES FOR ALLOWANCE OF A DEDUCTION TO THE EXTENT OF PROFITS REFERRED TO IN SUB-SECTION (1B) DERI VED BY AN ASSESSEE FROM THE EXPORT OF GOODS OR MERCHANDISE. THIS S ECTION PROVIDES FOR THE COMPUTATION OF THE PROFITS DERIVED FROM SUCH E XPORT IN SUB-SECTION (3) AND FOR THIS PURPOSE CLAUSE (BAA) AND THE EXPLAN ATION BELOW SUB-SECTION (4C) DEFINES THE TERM PROFITS OF THE BUSINESS . THUS THE PROVISION OF THIS SECTION IS SOMEWHAT DIFFERENT FROM THE PRO VISIONS CONTAINED IN SECTIONS 80HH AND 10B ALTHOUGH ALL THESE PROVISI ONS DO MENTION ABOUT PROFITS DERIVED FROM THE EOU INDUSTRIAL UNDE RTAKING OR EXPORT OF GOODS OR MERCHANDISE AS THE CASE MAY BE. 5.6 THE FACTS OF THE CASE ARE THAT THE AS SESSEE CARRIES ON THE BUSINESS OF AN EOU. FOR THIS PURPOSE OVER-DRAFT FACILITIES WERE TAKEN ITA NO. 2411(DEL)/2004 38 FROM THE BANK TO MEET LIQUIDITY REQUIREMENTS. SUBSEQUENTLY WHEN THE ASSESSEE EARNED THE PROFIT THE MONEY SO GENERAT ED WAS PLACED IN FIXED DEPOSITS WITH THE BANK. THE CASE OF THE LD. COU NSEL IS THAT THE DEPOSITS WERE PLACED WITH A VIEW TO REDUCE THE INTEREST L IABILITY AND THEREFORE INTEREST INCOME PARTAKES THE CHARACTER OF PROFIT S AND GAINS OF BUSINESS. ON THE OTHER HAND THE CASE OF THE LD. DR IS THAT THERE IS NO LINKAGE BETWEEN THE BORROWINGS FROM THE BANK AND PLACIN G FIXED DEPOSITS WITH THE BANK. THE INTEREST EARNED FROM THE BANK DID NOT HAVE DIRECT OR PROXIMATE CONNECTION WITH THE BUSINESS OF EXPORT OF THE EOU. THEREFORE INTEREST SO RECEIVED WAS TAXABLE UNDER THE RESI DUARY HEAD. 5.7 IN THE CASE OF SNAM PROGETTI SPA (SUPRA) T HE HONBLE COURT MENTIONED THAT THE QUESTION TO BE SEEN IS WHET HER INTEREST INCOME IS ALSO DERIVED FROM THE BUSINESS ACTIVITY. IF IT IS SO DERIVED THEN THE MERE FACT THAT IT IS TAXED UNDER A DIFFEREN T SECTION WILL MAKE NO DIFFERENCE. IN THESE CIRCUMSTANCES IT WAS HELD THAT INTEREST ON BANK DEPOSITS IS ALSO BUSINESS INCOME FOR THE PURPOSE O F SET-OFF OF THE CARRIED FORWARD LOSSES. FROM THE DECISION IT IS CLEA R THAT THE ASSESSEE HAD NOT COME TO INDIA FOR EARNING INTEREST FROM THE BAN KS BUT TO CONDUCT BUSINESS ON A LARGE SCALE. THE COURT HELD INTE REST INCOME TO BE BUSINESS ITA NO. 2411(DEL)/2004 39 INCOME ONLY FOR THE PURPOSE OF SET OFF. THE FA CTS OF CASE AT HAND ARE DISTINGUISHABLE BECAUSE THE QUESTION BEFORE US IS NOT ONLY WHETHER INTEREST INCOME IS BUSINESS INCOME FOR THE PURPOSE OF SET-OFF BUT WHETHER INTEREST INCOME CAN BE SAID TO BE DERIVED FROM THE EOU. 5.8 COMING TO THE CASE OF PUNEET COMMERCIAL LTD. (SUPRA) THE CASE WAS DECIDED BY HONBLE BOMBAY HIGH COURT U/S 80 HHC(3). THE AO PROCEEDED ON THE FOOTING THAT THE INTEREST INCOM E WAS BUSINESS INCOME BUT IT WAS NOT INCOME DERIVED FROM EXPORT. WITHO UT GOING INTO THE LARGER QUESTION RAISED BY THE LD. COUNSEL FOR THE DEPART MENT THE HONBLE COURT HELD THAT THE ENTIRE BUSINESS INCOME HAS TO BE DEEMED TO BE PROFIT DERIVED FROM EXPORT OF GOODS. THE FACTS OF THI S CASE ARE ALSO DISTINGUISHABLE AS ADMITTEDLY THE AO HAD CONSI DERED INTEREST INCOME TO BE BUSINESS INCOME. 5.9 IN THE CASE OF SHRI RAM HONDA POWER EQUIPMEN T (SUPRA) DECIDED BY THE JURISDICTIONAL HIGH COURT THE MAIN FINDI NG WAS THAT WHERE SURPLUS FUNDS ARE PLACED WITH THE BANK IN DEPOSITS TH E INTEREST INCOME EARNED THEREFROM CAN ONLY BE CATEGORIZED AS INCOME FROM OTHER SOURCES. HOWEVER IT WAS ALSO MENTIONED THAT THERE COULD B E CASES WHERE PLACING ITA NO. 2411(DEL)/2004 40 THE DEPOSITS WITH THE BANK IS A MANDATORY RE QUIREMENT FOR AVAILING OF CREDIT FACILITIES IN WHICH CASE INTEREST INC OME MAY PARTAKE THE CHARACTER OF BUSINESS INCOME. THEREFORE IF THE AO HAS HELD INTEREST INCOME TO BE BUSINESS INCOME THE QUESTION CANNO T BE REOPENED AND NETTING WILL HAVE TO BE ALLOWED. WE ARE OF THE VIEW THAT PRIMA FACIE THE RATIO OF THE CASE IS AGAINST THE ASSESSEE AS T HE ASSESSEE HAS NOT PROVED THAT PLACING OF DEPOSITS WAS MANDATORY FOR A VAILING OF OVERDRAFT FACILITIES. HIS ONLY CASE IS THAT DEPOSITS W ERE PLACED WITH THE BANK TO REDUCE INTEREST BURDEN WHICH WILL HAPPEN IN AL L SUCH CASES. THAT WILL NOT LEAD TO AN INFERENCE THAT INTEREST INCOME WI LL BE BUSINESS INCOME WHENEVER INTEREST IS PAID TO THE BANK. FURTHER THE AO HAS SPECIFICALLY HELD THAT INTEREST INCOME IS LIABLE TO BE TAXED UNDER THE RESIDUARY HEAD AND THEREFORE THE CASE IS NOT COVERED UNDER T HE OTHER CATEGORY. 5.10 IN THE CASE OF INDIAN OIL PANIPAT POWER CONSORTIUM LTD. (SUPRA) THE HONBLE JURISDICTIONAL HIGH COURT HAD A TO TALLY DIFFERENT QUESTION TO DECIDE NAMELY WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT INTEREST ACCRUED ON FUNDS DEPLOYED WITH THE BANK COULD B E TAXED AS INCOME FROM OTHER SOURCES AND NOT AS A CAPITAL RECEIPT LIABLE TO BE SET OFF AGAINST PRE-OPERATIVE EXPENSES. IT WAS HELD THAT THE F UNDS DEPLOYED BY THE ITA NO. 2411(DEL)/2004 41 ASSESSEE WERE INEXTRICABLY LINKED WITH THE SETTI NG UP OF THE PLANT AND THEREFORE INTEREST EARNED THEREON COULD NOT BE TREATED AS INCOME FROM OTHER SOURCES. THE FACTS OF THIS CASE ARE A LSO DISTINGUISHABLE AS WE ARE NOT DEALING WITH A CASE WHERE INTEREST INCOME IS EARNED DURING THE COURSE OF SETTING UP OF THE BUSINESS. IT IS THE CASE OF A GOING CONCERN AND INTEREST HAS BEEN EARNED AFTER THE BUSIN ESS HAS BEEN SET UP. IN ABSENCE OF REQUIREMENT OF PROVING THAT IT WAS MAN DATORY TO KEEP DEPOSITS WITH THE BANK TO AVAIL OF CREDIT THE ONLY CO NCLUSION WHICH CAN BE DRAWN IS THAT PROFITS GENERATED IN THE COURSE OF BUSINESS WERE FOUND TO BE SURPLUS AND PLACED WITH THE BANK FOR EARNING I NTEREST. 5.11 THE LD. COUNSEL HAD ALSO RELIED ON TH E ORDER OF ITAT MUMBAI BENCH IN THE CASE OF LIVINGSTONES JEWELLERY (P) LTD. VS. DY. CIT IN ITA NO. 187(MUM)/2007 FOR ASSESSMENT YEAR 2003-04 THE SUMMARY OF WHICH WAS PLACED BEFORE US. IN THAT CASE IT I S SEEN FROM THE SUMMARY THAT THE DECISION WAS THAT ALL THE PROFITS W HICH HAVE NEXUS WITH THE BUSINESS OF THE UNDERTAKING WILL QUALIFY FOR D EDUCTION. THE FACTS STATED IN THE SUMMARY ARE THAT THE ASSESSEE HAD PLAC ED FIXED DEPOSITS WITH THE BANK FOR OBTAINING CREDIT FACILITIES. THEREF ORE IT WAS HELD THAT SUCH INTEREST HAD NEXUS WITH THE BUSINESS AND THER EFORE THE INTEREST INCOME ITA NO. 2411(DEL)/2004 42 WAS IN THE NATURE OF BUSINESS PROFITS. THE ALTERN ATIVE SCENARIO IN THE CASE OF SHRI RAM HONDA POWER EQUIPMENT (SUPRA) DEALS W ITH THE SIMILAR ISSUE AND IN THE LIGHT OF OUR FINDING IN RESPECT OF THAT CASE AS ALSO IN ABSENCE OF FULL ORDER IN THIS CASE WE ARE OF THE VIEW THAT THE DECISION OF HONBLE DELHI HIGH COURT AS WELL AS DECISION I N THIS CASE GO AGAINST THE ASSESSEE. 5.12 WE MAY ALSO DEAL WITH THE CASES RELIED UPON BY THE LD. DR. THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZER S LTD.(SUPRA) DEALT WITH EARNING OF INTEREST BEFORE SETTING UP OF THE BUS INESS. ACCORDING TO US THE RATIO OF THIS CASE IS NOT APPLICABLE AS NO BUSIN ESS INCOME COULD BE COMPUTED AT ALL. IN THE CASE OF STERLING FOODS (SUPRA) DECIDED U/S 80HH THE HONBLE SUPREME COURT HELD THAT THE WORDS DERIVED FROM ARE NARROWER IN MEANING AND FOR AVAILING DEDUCTI ON IT HAS TO BE SHOWN THAT THERE IS A PROXIMATE CONNECTION BETWEE N THE UNDERTAKING AND THE INCOME. IN ABSENCE OF SUCH A CONNECTION IT W AS HELD THAT EXPORT PROFITS COULD NOT BE TERMED AS THE PROFITS DERIVED FROM THE INDUSTRIAL UNDERTAKING. WE HAVE ALREADY MENTIONED THAT T HE PROVISION CONTAINED IN THIS SECTION IS IN PARI-MATERIA WITH THE PROVIS ION CONTAINED IN SECTION 10B. THEREFORE THIS CASE PROVIDES THE BAS IS FOR COMING TO THE ITA NO. 2411(DEL)/2004 43 CONCLUSION THAT INTEREST EARNED ON DEPOSITS P LACED WITH THE BANK IS NOT BUSINESS INCOME AS THERE IS NO PROXIMATE CONNECTI ON WITH THE EOU IN A SITUATION WHERE IT IS NOT SHOWN THAT SUCH DEPO SITS WERE NECESSARY FOR AVAILING OF CREDIT FACILITIES. IN THE CASE O F MONARCH TOOLS (P) LTD. (SUPRA) IT WAS HELD THAT WHEN OWN FUNDS ARE KEPT IN DEPOSITS WITH THE BANKS INTEREST THEREON DID NOT HAVE ANY DIREC T OR PROXIMATE CONNECTION WITH THE BUSINESS. IT WAS MENTIONED THAT IN TEREST RECEIVED BY A COMPANY WHICH CARRIES BUSINESS FROM DEPOSI TS AND LOANS COULD ONLY BE TAXED AS INCOME FROM OTHER SOURCES. THE R ATIO OF THIS DECISION IS APPLICABLE TO THE INSTANT CASE AND IT ALSO FOL LOWS THAT IF IT IS NOT BUSINESS INCOME THE INTEREST INCOME CANNOT BE SAID TO H AVE BEEN DERIVED FROM THE EOU. IN THE CASE OF K.RAVINDRANATHAN NA IR (SUPRA) DECIDED U/S 80HHC IT WAS HELD THAT THE INTEREST INCOME RECEIVED ON SHORT-TERM DEPOSITS COULD BE ATTRIBUTED TO THE EXPORT BUS INESS BUT IT COULD NOT BE SAID TO BE INCOME DERIVED FROM EXPORT BUSINESS. WE HAVE MENTIONED EARLIER THAT SECTION 80HHC IS WORDED SOMEWHAT D IFFERENTLY NONETHELESS THE PROVISION DOES SPEAK OF PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM EXPORT OF GOODS AND MERCHANDISE. IN THE C ASE OF G. SATHEESH NAIR (SUPRA) DECIDED U/S 80HH IT WAS HELD THAT INTEREST EARNED ON BANK DEPOSITS WOULD NOT PARTAKE THE CHARACTER OF BUS INESS INCOME WHICH HAS TO ITA NO. 2411(DEL)/2004 44 BE ASSESSED UNDER THE RESIDUARY HEAD. WE HAVE ALREADY MENTIONED THAT THE PROVISION OF SECTIONS 10-B AND 80HH ARE ANALOGOUS PROVISIONS AND THEREFORE THE RATIO OF THAT CASE IS APPLICA BLE TO THIS CASE. 5.13 THE ASSESSEE HAS ACCEPTED SUCH A FINDING I N THE SUBSEQUENT YEAR. THEREFORE RULE OF CONSISTENCY DEMANDS THAT A DIFFERENT VIEW MAY NOT BE TAKEN IN THIS YEAR. 5.14 IN A NUTSHELL IT IS HELD THAT THE LD. CIT(A PPEALS) WAS RIGHT IN HOLDING THE INTEREST INCOME TO BE TAXABLE UNDER THE RESIDUARY HEAD AND NOT THE INCOME DERIVED FROM THE EOU. THEREFORE TH E INTEREST WAS NOT LIABLE TO BE DEDUCTED FROM THE TOTAL INCOME OF TH E ASSESSEE. 6. IN THE RESULT THE APPEAL IS DISMISSED. THE ORDER WAS PRO NOUNCED IN THE OPEN COURT ON 12 TH MARCH 2010. SD/- SD/- (GEORGE MATHAN) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER:12 TH MARCH 2010. SP SATIA ITA NO. 2411(DEL)/2004 45 COPY OF THE ORDER FORWARDED TO:- 1. MKR FROZEN FOOD EXPORTS LTD. NEW DELHI. 2. ITO WARD 6(1) NEW DELHI. 3. CIT(A) 4. CIT- NEW DELHI. 5. DR ITAT NEW DELHI. ASSISTANT REG ISTRAR.