DCIT, New Delhi v. M/s. Orient Crafts Ltd., New Delhi

ITA 3604/DEL/2010 | 2002-2003
Pronouncement Date: 22-02-2012 | Result: Dismissed

Appeal Details

RSA Number 360420114 RSA 2010
Bench Delhi
Appeal Number ITA 3604/DEL/2010
Duration Of Justice 1 year(s) 6 month(s) 26 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Orient Crafts Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-02-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 22-02-2012
Date Of Final Hearing 17-11-2011
Next Hearing Date 17-11-2011
Assessment Year 2002-2003
Appeal Filed On 27-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E DELHI) BEFORE SHRI G.D. AGRAWAL HONBLE VICE PRESIDENT AND SHRI A.D. JAIN JUDICIAL MEMBER ITA NOS. 3461(DEL)08 & 1415(DEL)2009 ASSESSMENT YEAR: 2002-03 M/S. ORIENT CRAFT LIMITED V. DY.COMMISSIONE R OF INCOME F-8 OKHLA INDL.AREA PHASE I TAX CIRCLE 13(1 ) NEW DELHI. NEW DELHI. ITA NOS. 1941(DEL)09 & 3604(DEL)10 ASSESSMENT YEAR: 2002-03 DY.COMMISSIONER OF INCOME M/S.ORIENT CRAFT LI MITED TAX CIR. 13(1) NEW DELHI. V. F-8 OKHLA INDL.A REA PHASE I NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY: S/SHRI SALIL AGGARWAL & SAILESH GUPTA ADV. DEPARTMENT BY: SHRI RAJ TANDON CIT/DR ORDER PER A.D. JAIN J.M. THESE ARE CROSS APPEALS FOR ASSESSMENT YEAR 2002-03 . ITA NO.1415 IS THE ASSESSEES APPEAL WHEREAS ITA NO. 19 41 IS THE DEPARTMENTS APPEAL. IN THE ASSESSEES APPEAL THE FOLLOWING GROUNDS HAVE BEEN TAKEN:- 2 1. THAT THE ORDER PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND AGAINST THE FACTS & CIR CUMSTANCES OF THE CASE. 2 THAT THE LEARNED CIT (APPEALS) ERRED IN LAW A ND ON FACTS IN NOT ACCEPTING THE CONTENTION OF THE APPELLANT REGAR DING REOPENING OF ASSESSMENT UNDER SECTION 147. IT IS CONTENDED THAT THE PROCEEDINGS INITIATED U/S 147 OF THE INCOME TAX ACT ARE WITHOUT JURISDICTION VOID NOT BASED ON EVIDENCES AND ARE NON-EST IN LAW. 3.THAT THE LEARNED CIT (APPEALS) HAS ERRED IN LAW A ND ON FACTS IN HOLDING THAT INTEREST ON FDR AMOUNTING TO RS. 9 98 245/- HAS RIGHTLY BEEN TREATED BY THE AO AS INCOME FROM OTHER SOURCES. THE CONTENTION OF THE LEARNED CIT (APPEALS) AND AO THAT SURPLUS FUNDS ARE PARKED IN FDR AND IT HAS NO NEXUS WITH TH E EXPORT BUSINESS OF THE APPELLANT IS WRONG AND MISCONCEIVED OF THE FACTS. 4.THE LEARNED CIT (APPEALS) ERRED IN LAW AND ON FAC TS IN HOLDING THAT INTEREST ON FDR IS NOT ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE INCOME TAX ACT 1961. 2. IN THE DEPARTMENTS APPEAL THE REVENUE HAS RAIS ED THE FOLLOWING GROUNDS:- (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW IN DIRECTING THE AO TO TREAT THE PREMIUM ON SALE OF QUOTA AMOUNTING TO ` . 17 54 174/- AS OTHER RECEIPTS UNDER EXPLANATION (BA A) TO SECTION 80HHC OF I. TAX ACT. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN DIRECTING THE AO TO TREAT DEPB INCOME AMOUNTING TO ` . 2 55 74 491/- AS OTHER RECEIPTS UNDER EXPLANATION (BAA) TO SECTIO N 80HHC OF I.TAX ACT. ITA NO. 1415 : 3. GROUND NO. 1 IS GENERAL. 3 4. GROUND NOS. 2&3 ARE AGAINST THE REOPENING OF THE COMPLETED ASSESSMENT. 5. THE FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 30.10.2002 DECLARI NG AN INCOME OF ` 4 45 35 395/-. THE RETURN WAS PROCESSED U/S 143(1) ON 27.2.2003. NOTICE U/S 148 OF THE I.T. ACT WAS ISSU ED ON 15.7.2005. FOR THE REASON THAT WHILE DEDUCTING 90 % OF OTHER INCOME FROM THE PROFIT OF BUSINESS PREMIUM ON SALE OF QUOTA OF ` 17 54 174/- INCLUDED IN THE SALES WAS NOT CONSIDER ED WHICH RESULTED IN EXCESS ALLOWANCE OF DEDUCTION U/S 80 HH C OF THE ACT. IN RESPONSE THE ASSESSEE FILED ITS RETURN OF INCOM E ON 22.8.2005 AGAIN DECLARING A TOTAL INCOME OF ` 4 45 35 395/-. THEREAFTER THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 20.8.2 006 REDUCING THE TAXABLE INCOME TO THE EXTENT OF ` 71 471/- AND INCREASED THE CLAIM OF DEDUCTION U/S 80 HHC OF THE ACT. THE ASS ESSEE OBJECTED TO THE REOPENING OF THE COMPLETED ASSESSME NT. VIDE ORDER DATED 31.10.2006 PASSED UNDER SECTIONS 147/1 43(3) OF THE ACT THE AO RECOMPUTED THE DEDUCTION U/S 80 HHC OF THE ACT. 6. AS NOTED IN THE ASSESSMENT PROCEEDINGS ITSELF THE ASSESSEE HAD QUESTIONED THE REOPENING . THE AO HOWEVER R EJECTED THIS 4 CHALLENGE OBSERVING INTER ALIA THAT THE REASONS RECORDED FOR REOPENING THE COMPLETED ASSESSMENT CLEARLY ESTABLIS HED BEYOND DOUBT THAT THE ASSESSEES CASE WAS COVERED IN CLAUS E (C) OF EXPLANATION 2 BELOW THE FIRST PROVISO TO SECTION 14 7 OF THE ACT THE ASSESSEE HAVING CLAIMED EXCESS DEDUCTION U/S 80 HHC ON EXPORT QUOTA PREMIUM; AND THAT THE NOTICE U/S 148 O F THE ACT WAS WITHIN THE PERIOD OF 4 YEARS AND NO ASSESSMENT U/S 143(3) OF THE ACT HAD BEEN MADE EARLIER IN THE CASE. 7. BEFORE THE LD. CIT(A) THE ASSESSEE AGAIN TOOK U P THE CHALLENGE AGAINST THE REOPENING. IT WAS CONTENDE D THAT THE PROCEEDINGS INITIATED U/S 147 OF THE ACT WERE WITHO UT JURISDICTION AND VOID AND NOT BASED ON ANY EVIDENCE; THAT THERE WAS NO MATERIAL BEFORE THE AO OR ANY REASON TO BELIEVE THE ESCAPEMENT OF INCOME; THAT ALONG WITH THE RETURN OF INCOME FIL ED ON 31.10.02 ALL THE REQUIRED DOCUMENTS INCLUDING CLAIMS FOR DED UCTION U/S 80 HHC OF THE ACT IN THE FORM OF REPORT U/S 10 CCAC WI TH CALCULATION DETAILS IN RESPECT OF WORKING OF DEDUCT ION U/S 80 HHC WERE ALSO FILED; THAT AFTER THE PROCESSING OF THE R ETURN SUCH COMPLETED ASSESSMENT WAS WRONGLY REOPENED; THAT THE ASSESSEES OBJECTION AGAINST THE SAID REOPENING HOWEVER WAS WRONGLY 5 REJECTED BY THE AO; THAT THE REASONS TO BELIEVE ESC APEMENT OF INCOME WERE NEVER PROVIDED TO THE ASSESSEE IN THE A SSESSMENT PROCEEDINGS BUT WERE ONLY REPRODUCED IN THE ASSESS MENT ORDER PASSED UNDER SECTIONS 147/143(3) OF THE ACT ON 31.1 0.2006; THAT THE CASE OF THE AO WAS THEREFORE HIT BY THE DECISIO N OF THE HONBLE SUPREME COURT IN G.K.N. DRIVESHAFT (I)LTD. V. ITO 259 ITR 19(SC) WHERE-UNDER THE AO IS BOUND TO F URNISH THE REASONS TO THE ASSESSEE WITHIN A REASONABLE TIME SO AS TO ENABLE THE ASSESSEE TO FILE OBJECTIONS THEREON; THAT FURTH ER THE PROVISIONS OF SECTION 147 OF THE ACT CAN BE INVOKED ONLY IF TH E AO HAS REASON TO BELIEVE ESCAPEMENT OF INCOME; THAT THE RE ASONS RECORDED BY THE AO MUST DISCLOSE THE PROCESS OF REA SONING FOR ARRIVING AT SUCH A BELIEF; THAT MERELY SAYING THAT EXCESS LOSS OF DEPRECIATION HAD BEEN COMPUTED WITHOUT DISCLOSING THE REASONS OR WRONG INTERPRETATION LEADING THE AO TO HOLD SUCH BELIEF DOES NOT CONFER JURISDICTION ON THE AO TO REASSESS THE INCOME; THAT ALSO A MERE CHANGE OF OPINION ON THE INTERPRETATIO N OF A PARTICULAR PROVISION FROM THAT ADOPTED BY THE EARLI ER ASSESSING AUTHORITY ALSO DOES NOT CONFER JURISDICTION TO REAS SESS INCOME; THAT IN THE PRESENT CASE THE AOS CONTENTION THAT WHILE DEDUCTING 6 90% OF OTHER INCOME FROM THE PROFIT OF BUSINESS PR EMIUM ON SALE OF QUOTA OF ` 17 54 174/- INCLUDED IN THE SALES WAS NOT CONSIDERED WAS FACTUALLY INCORRECT RENDERING THE REOPENING OF THE COMPLETED ASSESSMENT BAD IN LAW; THAT PREMIUM O N SALE OF QUOTA OF ` 17 54 174/- WAS NEVER INCLUDED IN THE SALE FOR THE PURPOSE OF COMPUTATION OF INCOME U/S 80 HHC OF THE ACT; THAT THIS VIEW OF THE AO WAS ALSO INCORRECT IN VIEW OF T HE INSTRUCTION NO. 133/137/97/TCC DATED 23.2.98 ISSUED BY THE CBDT RELYING ON VARIOUS JUDICIAL DECISIONS INCLUDING THE CIT(A) S ORDERS IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2000-01 AN D 2001-02; THAT MOREOVER IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISIONS THAT WHEN THE PRIMARY FACTS NECESSARY FOR THE ASSESSMENT ARE FULLY AND TRULY DISCLOSED TO THE AO AT THE STAGE OF THE ORIGI NAL ASSESSMENT HE IS NOT ON A MERE CHANGE OF OPINION ENTITLED TO COMMENCE REASSESSMENT PROCEEDINGS. 8. WHILE REJECTING THE SAID CONTENTIONS OF THE ASSE SSEE THE LD. CIT(A) OBSERVED AS FOLLOWS:- I HAVE GONE THROUGH THE OBSERVATIONS MADE BY THE A O IN THE ASSESSMENT ORDER AND THE SUBMISSIONS FILED BY T HE APPELLANT ON THIS ISSUE. IT IS SEEN THAT THE AO HAS RECORDED REASONS BEFORE REOPENING THE ASSESSMENT PROCEEDINGS . THE 7 ASSESSMENT WAS REOPENED ON THE BASIS OF CERTAIN DISCREPANCIES NOTICED WITH REGARD TO DEDUCTIONS CLA IMED U/S 80HHC OF THE I.T. ACT 1961 AND THE SAME HAS BE EN REOPENED WITHIN FOUR YEARS FROM THE END OF THE RELE VANT ASSESSMENT YEAR. THEREFORE THE PROVISIONS OF PROVI SO TO SEC. 147 DO NOT APPLY TO THE FACTS OF THE PRESENT C ASE. IT IS A SETTLED LAW THAT IF NOTICE U/S 148 IS ISSUED WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR THE ASSESSMENT CAN BE REOPENED IN SPITE OF THE COMPLET E DISCLOSURE OF MATERIAL FACTS MADE BY THE APPELLANT. IT IS SEEN OBJECTION OF THE APPELLANT FOR REOPENING OF AS SESSMENT HAS BEEN DEALT IN PARA 4 5 6 OF THE ASSESSMENT ORDE R. THERE WAS NO SEPARATE OBJECTIONS RAISED BY THE APPELLANT BEFORE STARTING OF THE PROCEEDINGS THEREFORE NO SEPARATE ORDER WAS PASSED BY THE AO AS REQUIRED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G.K.N. DRIVES HAFT (I) LTD. VS. ITO AND OTHERS. THE CASE LAWS RELIED U PON BY THE APPELLANT ARE NOT IDENTICAL TO THE FACTS OF THE APPELLANTS CASE. THERE IS NO PROCEDURAL OR LEGAL L ACUNA IN THE REOPENING MADE BY THE AO. THEREFORE THE CONTEN TION OF THE APPELLANT CANNOT BE ACCEPTED. RELIANCE IS PL ACED ON THE JUDGMENT OF PRAFUL CHUNNI LAL PATEL VASANT CHUN NI LAL PATEL VS. ACIT (1999) 236 ITR 832 (GUJ.). AS SUCH THERE IS NO FORCE IN THE ABOVE GROUND OF AP PEAL RAISED VIDE GROUND NO. 2 OF APPEAL ACCORDINGLY THE SAME IS REJECTED. 9. AGGRIEVED BY THE AFORESAID ACTION OF THE LD. CI T(A) THE ASSESSEE HAS RAISED GROUND NOS. 2&3 BEFORE US. 10. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS BROADLY REITERATED THE STAND TAKEN BEFORE THE AUTHORITIES B ELOW. IT HAS BEEN CONTENDED THAT THE INITIATION OF THE REOPENING OF THE COMPLETED ASSESSMENT WAS BROUGHT ABOUT WITHIN 4 YEA RS OF THE 8 RELEVANT ASSESSMENT YEAR; THAT THE REASON FOR REOPE NING WAS ONLY ONE I.E. THAT WHILE DEDUCTING 90% OF THE INCOME F ROM PROFIT OF BUSINESS THE ASSESSEE HAD ALLEGEDLY NOT CONSIDERED PREMIUM ON SALE OF QUOTA OF ` 17 54 174/- RESULTING IN EXCESS ALLOWANCE OF DEDUCTION U/S 80 HHC OF THE ACT TO THE ASSESSEE; TH AT IN FACT THERE HAS BEEN NO ESCAPEMENT OF INCOME; AND THAT TH E REASON RECORDED BY THE AO FOR REOPENING THE COMPLETED ASSE SSMENT IS NOT AT ALL A VALID REASON SINCE IT WAS INCORRECT I NASMUCH AS PREMIUM SALE OF QUOTA OF ` 17 54 174/- WAS NEVER INCLUDED IN THE SALE FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/ S 80 HHC OF THE ACT. ATTENTION IN THIS REGARD HAS BEEN DRAWN T O THE TRIBUNAL ORDER DATED 7.9.05 PASSED IN ITA NOS. 2210 AND 2211 IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2000-01 AN D 2001-02 [COPY AT PAGES 65 TO 71 OF THE ASSESSEES PAPER BOO K (APB FOR SHORT)] WHEREIN WHILE DEALING WITH THE ASSES SEES CHALLENGE TO THE CITS ORDER U/S 263 OF THE ACT THE TRIBUNAL HELD THAT THE INCOME RESULTING TO THE ASSESSEE FROM THE SALE OF Q UOTA RIGHTS IS EXIGIBLE FOR THE BENEFITS ENVISAGED U/S 80 HHC OF T HE ACT IN LINE WITH THE DECISION IN ANIL L. SHAH V. ACIT 95 TTJ 206(MUMBAI) AND CBDT INSTRUCTION NO. 133/139/97 T CL 9 DATED 23.2.98. ATTENTION HAS ALSO BEEN DRAWN TO T HE TRIBUNAL ORDER DATED 21.11.08 IN THE ASSESSEES OWN CASE FO R ASSESSMENT YEARS 1999-00 AND 2003-04(COPY AT APB 74 TO 82) WH EREIN THE AFORESAID TRIBUNAL DECISION FOR ASSESSMENT YEARS 20 00-01 AND 2001-02 WAS FOLLOWED. IT HAS ALSO BEEN POINTED OUT THAT FOR ASSESSMENT YEARS 2000-01 AND 2001-02 THE QUANTUM F IRST APPELLATE ORDERS OF THE CIT(A) HOLDING THAT THE PR EMIUM ON SALE OF QUOTA COULD BE TAKEN TO BE COVERED U/S 28(IIA) F OR THE PURPOSE OF CALCULATING PROFIT ON BUSINESS AS PER THE PROVIS O TO SECTION 80 HHC(3) OF THE ACT WAS UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 15.10.2007 (COPY AT APB 72 -73) TAKING COGNI ZANCE OF THE FACT THAT VIDE ITS ORDER (SUPRA) DATED 7.9.05 ORDE RS PASSED BY THE CIT U/S 263 OF THE ACT HAD BEEN QUASHED. THE LEAR NED COUNSEL FOR THE ASSESSEE HAS SOUGHT TO PLACE RELIANCE ON C IT V. KELVINATOR OF INDIA LTD. 320 ITR 561(SC) AND ACI T V. RAJESH JHAVERI STOCK BROKERS PVT.LTD. 291 ITR 500(SC) TO CONTEND THAT NO TANGIBLE MATERIAL HAVING BEEN AVAILABLE BEF ORE THE AO AFTER THE PROCESSING OF THE RETURN FILED BY THE ASS ESSEE THE REOPENING OF THE COMPLETED ASSESSMENT WAS BAD IN LA W. 10 11. THE LD. DR ON THE OTHER HAND HAS STRONGLY REL IED ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT AS CORR ECTLY OBSERVED BY THE LD. CIT(A) THE ASSESSMENT WAS REOPENED ON T HE BASIS OF CERTAIN DISCREPANCIES NOTED WITH REGARD TO THE DEDU CTIONS CLAIMED U/S 80 HHC OF THE ACT; THAT THE PROVISO TO SECTION 147 OF THE ACT DOES NOT APPLY THE REOPENING OF THE COMPLETED ASS ESSMENT HAVING BEEN BROUGHT ABOUT WITHIN 4 YEARS FROM THE E ND OF THE RELEVANT ASSESSMENT YEAR; THAT AS SUCH THE ASSESSM ENT COULD BE REOPENED DESPITE COMPLETE DISCLOSURE OF MATERIAL FA CTS BY THE ASSESSEE; AND THAT THE REASONS RECORDED ARE TO BE R EAD AS A WHOLE. THE LD. DR HAS FILED A SYNOPSIS/COMPILATION OF JUDI CIAL DECISIONS. 12. THE COMPILATION OF JUDICIAL DECISIONS FILED BY THE LD. DR IT IS SEEN HAS BEEN FILED IN THE DEPARTMENTS APPEAL IN ITA NO. 1941(DEL)09 IN WHICH THE ISSUES AS SEEN FROM THE GROUNDS OF APPEAL ABOVE PERTAIN TO THE TREATMENT TO BE ACCORD ED TO THE PREMIUM ON THE SALE OF QUOTA AND DEPB INCOME. 14 O UT OF THE 17 DECISIONS DISCUSSED IN THIS COMPILATION ARE REGA RDING REOPENING OF THE COMPLETED ASSESSMENT. THE REMAIN ING 3 DECISIONS DEAL WITH THE ISSUES INVOLVED IN THE DEPA RTMENTS 11 APPEAL. THE LEARNED COUNSEL FOR THE ASSESSEE HAS AL SO FILED A SYNOPSIS IN REBUTTAL. 13. WE HAVE HEARD THE PARTIES ON GROUND NOS. 2&3 IN THE ASSESSEES APPEAL. THE ISSUE IS AS TO WHETHER THE LD. CIT(A) HAS RIGHTLY UPHELD THE REOPENING OF THE COMPLETED ASSES SMENT OF THE ASSESSEE EVEN THOUGH AS PER THE ASSESSEE SUCH RE OPENING WAS BAD IN LAW. 14. THE FOLLOWING ARE THE REASONS RECORDED FOR REOP ENING OF THE COMPLETED ASSESSMENT OF THE ASSESSEE:- ON GOING THROUGH THE RETURN OF INCOME FILED BY THE ASSESSEE IT IS REVEALED THAT WHILE DEDUCTING 90% O F OTHER INCOME FROM THE PROFIT OF BUSINESS PREMIUM ON SALE OF QUOTA OF RS. 17 54 174/- INCLUDED IN THE SALES WAS NOT CONSIDERED. THEREFORE OMISSION TO DEDUCTION 90% OF RS. 17 54 174/- FROM THE PROFIT OF BUSINESS RESULTED IN EXCESS ALLOWANCE OF DEDUCTION U/S 80HHC OF THE INCOME TAX ACT 1961. IN VIEW OF THESE FACTS THERE IS REASON OF BEL IEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT . 15. THE ASSESSEES CONTENTION ON THE OTHER HAND IS THAT THIS REASON IS WRONG INASMUCH AS THE PREMIUM ON SALE OF QUOTA OF ` 17 54 174/- WAS NEVER INCLUDED IN THE SALE FOR COMP UTATION OF DEDUCTION U/S 80 HHC OF THE ACT. IN ITS REPLY DATE D 28.8.06 (COPY AT APB 30 TO 39) THE ASSESSEE HAD SUBMITTED THAT A 12 CLARIFICATION HAS BEEN SOUGHT BY THE APPAREL EXPORT PROMOTION COUNCIL (AEPC) AS TO WHETHER THE PREMIUM RECEIVED F OR THE TRANSFER OF EXPORT QUOTAS WOULD BE TREATED AS A PAR T OF EXPORT PROFIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC O F THE I.T. ACT; THAT THE CBDT IN THIS REGARD VIDE INSTRUCTION NO. 133/137/97- TCL DATED 23.02.1998 HAS CLARIFIED THAT THE PREMI UM ON SALE OF EXPORT QUOTAS STATUTORILY RECEIVES THE SAME TREATME NT AS PROFITS ON SALE OF IMPORT LICENCES CASH ASSISTANCE AND DUTY D RAW BACK; THAT AS PER THE SAID INSTRUCTION PREMIUM ON SALE OF QUO TA SHOULD GET THE SAME TREATMENT AS THAT ACCORDED TO EXPORT INCEN TIVES; THAT MORE-OVER FOR ASSESSMENT YEARS 2000-01 AND 2001-02 IN THE ASSESSEES OWN CASE VIDE ORDER DATED 31.7.2006 TH E LD. CIT(A) HAD HELD THAT PREMIUM ON SALE OF QUOTA SHOULD GET T HE SAME TREATMENT AS FOR THE EXPORT INCENTIVES; AND THAT AC CORDINGLY THE DEDUCTION U/S 80HHC OF THE ACT HAD BEEN GOT REVISED BY THE ASSESSEE COMPANY AS PER THE SAID CBDT INSTRUCTION A ND THE CIT(A)S ORDER FOR ASSESSMENT YEARS 2000-01 AND 200 1-02 AND ACCORDING TO THE REVISED COMPUTATION OF INCOME THE ASSESSEE COMPANY WOULD BE ENTITLED FOR A REFUND OF ` 32 026/-. VIDE ITS WRITTEN SUBMISSION DATED 20.2.07 (COPY AT APB 45 TO 53) FILED 13 BEFORE THE CIT(A) THE ASSESSEE INTER ALIA CONTEN DED THAT ALONG WITH THE RETURN OF INCOME ALL THE REQUIRED DOCUMEN TS INCLUDING THE CLAIM OF DEDUCTION U/S 80HHC IN THE FORM OF REP ORT U/S 10 CCAC FOR CALCULATION DETAILS IN RESPECT OF WORKING OF DEDUCTIONS U/S 80 HHC OF THE ACT HAD BEEN FILED AFTER WHICH THE RETURN FILED WAS PROCESSED; THAT THE REASONS RECORDED FOR REOPENING THE COMPLETED ASSESSMENT HAD NOT BEEN SUPPLIED TO THE A SSESSEE AND WERE DELINEATED ONLY IN THE ASSESSMENT ORDER; THAT THE REASONS RECORDED BY THE AO ARE WRONG SINCE THE PREMIUM ON S ALE OF QUOTA OF ` 17 54 174/- HAD NEVER BEEN INCLUDED FOR SALE OF COMPUTATION OF INCOME U/S 80 HHC OF THE ACT; THAT T HE REASON OF THE AO WAS ALSO INCORRECT IN VIEW OF THE CBDT INSTR UCTION DATED 23.2.98 (SUPRA) RELIED ON BY THE LD. CIT(A) HIMSEL F IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2000-01 AN D 2001-02 (SUPRA); AND THAT IT WAS LEGALLY SETTLED THAT WHEN THE PRIMARY FACTS NECESSARY FOR THE ASSESSMENT ARE FULLY AND TRULY DI SCLOSED TO THE AO IN THE ORIGINAL ASSESSMENT THE AO IS NOT ENTITL ED ON A CHANGE OF OPINION TO COMMENCE REASSESSMENT PROCEEDI NGS. 16. IN ITS WRITTEN SUBMISSIONS DATED 20.1.09 (COPY AT APB 61 TO 64) FILED BY THE ASSESSEE BEFORE THE LD. CIT(A) THE ASSESSEE 14 REITERATED ITS AFORESAID STAND AND IT WAS STATED TH AT THE CLAIM OF THE ASSESSEE WAS ALLOWABLE AND HAD BEEN ALLOWED IN THE PAST ALSO DUE TO WHICH ON THE SAME SET OF FACTS REOPENING O F THE ASSESSMENT WAS BAD IN LAW. 17. THE LD. CIT(A) HOWEVER DID NOT FAVOURABLY CON SIDER THE ABOVE CONTENTION ON BEHALF OF THE ASSESSEE. 18. IN THE ASSESSEES OWN CASE THE TRIBUNAL VIDE ITS ORDER DATED 7.9.05(SUPRA) FOR ASSESSMENT YEARS 2000-01 A ND 2001-02 HAS DECIDED THE ISSUE OF TREATMENT OF PREMIUM ON SA LE OF QUOTA FOR THE PURPOSE OF SECTION 80 HHC OF THE ACT. IT H AS BEEN HELD AS FOLLOWS:- 5. IN THE ABOVE BACKGROUND WE HAVE CONSIDERED THE PLEAS OF THE ASSESSEE AS WELL AS THE STAND OF THE R EVENUE MANIFESTED BY THE ORDER OF THE COMMISSIONER. WE HA VE ALSO PERUSED THE ORDER OF ASSESSMENT FRAMED BY THE ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT A S WELL AS THE OTHER MATERIAL PLACED ON RECORD TO WHICH OU R ATTENTION WAS DRAWN DURING THE COURSE OF THE HEARIN G. THE CRUX OF THE DISPUTE BEFORE US RELATES TO THE EFFICA CY OF THE EXERCISE OF JURISDICTION BY THE COMMISSIONER U/S 26 3 OF THE ACT WHEREBY THE ORDER OF ASSESSMENT DATED 28.02.200 3 PASSED BY THE AO U/S 143(3) OF THE ACT HAS BEEN HEL D AS ERRONEOUS IN SO FAR AS IT WAS PRE-JUDICIAL TO THE I NTEREST OF THE REVENUE WITH REGARD TO AN ELEMENT OF DEDUCTION ALLOWABLE U/S 80HHC OF THE ACT TO THE ASSESSEE. TH E FIRST AND THE FOREMOST GRIEVANCE OF THE ASSESSEE IS THAT THE ASSUMPTION OF JURISDICTION BY THE COMMISSIONER U/S 263 ITSELF IF FLAWED FOR THE REASON THAT THE TWIN CONDI TIONS 15 REQUIRED TO SATISFY THE INVOCATION OF SECTION 263 H AVE NOT BEEN COMPLIED WITH. THE HONBLE SUPREME COURT IN T HE CASE OF MALABAR INDUSTRIAL COMPANY LTD. (SUPRA) HEL D THAT THE COMMISSIONER U/S 263 HAS TO BE SATISFIED OF TW IN CONDITIONS NAMELY THAT THE ORDER OF THE AO SOUGHT TO BE REVISED IS ERRONEOUS AND THAT IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE TWIN CONDITIONS HAVE TO BE CUMULATIVELY SATISFIED. EVEN IF ONE OF THEM IS ABS ENT I.E. IF THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF REVENUE OR IF THE OR DER OF THE AO IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE INTER EST OF REVENUE NO RECOURSE CAN BE MADE TO THE PROVISIONS OF SEC. 263 OF THE ACT. WITH THIS SHORT DISCUSSION WE PRO CEED TO EXAMINE THE FACTUAL CONTOURS OF THE PRESENT CONTROV ERSY. 6. IN THE INSTANT CASE WE MAY FIRST EXAMINE AS TO THE MANNER IN WHICH THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHC OF THE ACT. EVIDENTLY THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF RS. 19 13 58 168/- IN THE RE TURN OF INCOME WHICH WAS ALSO ACCOMPANIED BY THE REPORT OF AN ACCOUNTANT IN TERMS OF SEC. 80HHC(4) OF THE ACT. A COPY OF THE REQUISITE REPORT WAS ALSO BEING PLACED IN TH E PAPER BOOK FILED BEFORE THE TRIBUNAL. IT IS OBSERVED THA T THE RECEIPT BY WAY OF SALE OF QUOTA RIGHTS HAVE BEEN SH OWN AS A PART OF TOTAL TURNOVER. SECONDLY THE SAID GROSS RECEIPTS WERE TAKEN AS PART OF LOCAL TURNOVER AND CONSEQUENT LY IT CONSTITUTED A PART OF THE PROFITS OF THE BUSINESS . IT WAS ON THIS BASIS THE ASSESEE HAS THEREAFTER COMPUTED I TS CLAIM U/S 80HHC AT RS. 19 13 15 168/- WHICH HAS SINCE BEE N ACCEPTED BY THE AO IN THE COURSE OF ASSESSMENT U/S 143(3) OF THE ACT. THE FIRST AND THE FOREMOST ASPECT THAT WE FIND EXPEDIENT TO EXAMINE IS AS TO WHETHER THE CLAIM SO MADE BY THE ASSESSEE AND ALSO ALLOWED BY THE AO IN THE ASSE SSMENT FINALIZED U/S 143(3) COULD BE SAID TO BE PREJUDICIA L TO THE INTEREST OF REVENUE IN THE CONTEXT OF THE STAND OF THE COMMISSIONER THAT THE CLAIM OF THE ASSESSEE HAD BEE N ALLOWED IN A MANNER NOT ADMISSIBLE UNDER THE ACT IN RESPECT OF THE PROFIT ON SALE OF QUOTA RIGHTS. IN THIS CONTEXT A REFERENCE IS NECESSARY TO THE INSTRUCTION DATED 23.02.1998 (SUPRA) BY THE CBDT REGARDING THE TREATM ENT 16 OF PREMIUM RECEIVED ON THE TRANSFER OF QUOTAS FOR T HE PURPOSES OF COMPUTING DEDUCTION U/S 80HHC OF THE AC T AS COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK. W E FIND IT CONVENIENT TO REPRODUCE HEREIN PARAS 3 AND 4 OF SAID INSTRUCTION WHICH READS AS UNDER: - 3. TECHNICALLY EXPORT PREMIUM CAN BE EQUATED WITH THE ITEMS MENTIONED IN SECTION 28(IIIA) (PROFIT ON SALE OF IMPORT LICENSES) SECTION 28(IIIB) (CASH ASSISTANCE) AND SECTION 28(IIIC) (DUTY DRAWBACK). 4. THEREFORE THE PRESENT ITEM VIZ. THE PREMIUM ON SALE OF EXPORT QUOTAS STATUTORILY RECEIVE THE SAME TREATMENT AS PROFITS ON SALE OF IMPORT LICENSES CASH ASSISTANCE AND DUTY DRAWBACK. IN TERMS OF THE SAID INSTRUCTIONS IT IS CLARIFIED THAT THE PROFIT ON SALE OF QUOTA RIGHTS ARE TO BE EQUATED WI TH THE ITEMS MENTIONED IN SEC. 28(IIIA) (PROFITS ON SALE O F IMPORT LICENSES) 28(IIIB) (CASH ASSISTANCE) AND SEC. 28(I IIC) (DUTY DRAWBACK). THIS WOULD IMPLY THAT THE TREATMENT MET ED UNDER SECTION 80HHC TO THE ITEMS SPECIFIED IN SEC. 28(IIIA) 28(IIIB) AND 28(IIIC) IS ALSO TO BE ACCORD ED TO THE INCOME EARNED BY THE ASSESSEE AS PROFIT ON SALE OF QUOTA RIGHTS. THEREFORE THE PROVISO TO SEC. 80HHC(3) CO MES INTO PLAY WHEREBY THE ASSESSEE IS ELIGIBLE TO FURTH ER DEDUCTION OF THE AMOUNT WHICH BEARS TO 90% OF ANY S UM REFERRED TO IN SEC. 28(IIA) 28(IIIB) AND 28(IIIC) THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE TOTA L TURNOVER OF THE ASSESSEE. AT THIS STAGE IT WOULD ALSO BE APPROPRIATE TO REFER TO THE MUMBAI BENCH DECISION O F THE TRIBUNAL IN THE CASE OF ANIL L. SHAH (SUPRA) WHEREI N AN IDENTICAL SITUATION HAS BEEN CONSIDERED BY THE TRIB UNAL. THE TRIBUNAL HELD THAT THE QUOTA PREMIUM WAS NOT INCLUDIBLE IN COMPUTING TOTAL TURNOVER BUT THE SAME WAS LIABLE TO BE EXCLUDED TO THE EXTENT OF 90% IN TERMS OF EXPLANATION (BAA) TO SEC. 80HHC OF THE ACT. THEREU PON IN TERMS OF CBDT CIRCULAR (SUPRA) SUCH INCOME IS LI ABLE FOR THE DEDUCTION IN TERMS OF THE PROVISO BELOW SEC . 80HHC(3) OF THE ACT. NOW ONCE THE DEDUCTION IN TH IS MANNER IS REWORKED AND HELD TO BE ADMISSIBLE TO THE 17 ASSESSEE AS PER ALW THERE DOES NOT REMAIN ANY PREJ UDICE TO THE REVENUE BECAUSE OF THE MANNER IN WHICH THE AO H AS FINALIZED THE ASSESSMENT U/S 143(3) OF THE ACT FOR THE REASON THAT THE DEDUCTION CLAIMED AND ALLOWED BY TH E AO STANDS ON A LOWER FOOTING. INDEED THE COMMISSIONER WAS CORRECT TO SAY THAT THE AO WAS WRONG IN NOT EXCLUDI NG 90% OF THE INCOME FROM SALE OF QUOTA RIGHTS FROM THE P ROFITS OF BUSINESS IN TERMS OF EXPLANATION (BAA) TO SECTION 80HHC BUT HE FAILED TO NOTICE FURTHER THAT SUCH AMOUNT IS REQUIRED TO BE AGAIN SUBJECTED TO RELIEF U/S 80HHC IN TERMS OF THE PROVISO TO SEC. 80HHC(3) AS MANDATED BY THE CBDT CIRCULAR DATED 23.02.1998 (SUPRA). IT IS THEREFORE ABUNDANTLY CLEAR THAT THE INCOME RESULTING TO THE A SSESSEE FROM SALE OF QUOTA RIGHTS IS EXIGIBLE FOR THE BENEF ITS ENVISAGED U/S 80HHC AND SUCH POSITION HAS BEEN UPHE LD BY THE TRIBUNAL IN THE CASE OF ANIL L. SHAH (SUPRA) AND ALSO IN THE LINE WITH THE INSTRUCTION ISSUED BY THE CBDT (SUPRA). THUS IN PRINCIPLE THE ASSESSEE IS ENTITLED TO SEE K RELIEF U/S 80HHC EVEN IN RESPECT OF THE IMPUGNED INCOME. HOWE VER COMING BACK TO THE PRESENT CONTROVERSY ON THE BASI S OF THE AFORESAID DECISION EVEN IF WE ARE TO UPHOLD THE CH ARGE OF THE COMMISSIONER THAT THE AO ERRED IN NOT APPLYING THE CORRECT LAW TO COMPUTE THE DEDUCTION U/S 80HHC YET AFTER THE APPLICATION OF THE CORRECT LEGAL POSITION THER E DOES NOT REMAIN ANY PREJUDICE TO THE REVENUE IN THE ORDER OF ASSESSMENT WITH RESPECT TO COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. THERE DOES NOT REMAIN ANY PREJUD ICE TO THE REVENUE. THEREFORE THE TWIN CONDITIONS REQUIR ED TO BE SATISFIED BY THE COMMISSIONER BEFORE INVOKING SEC. 263 UNDER THE PRESENT CIRCUMSTANCES DOES NOT STAND SAT ISFIED. HENCE ON THIS PRELIMINARY ASPECT ITSELF WE FIND T HAT THE ASSUMPTION OF JURISDICTION BY THE COMMISSIONER TO INTERFERE IN THE ORDER OF THE ASSESSMENT MADE BY TH E AO U/S 143(3) BY RESORTING TO SEC. 263 STANDS VITIATED. A S A RESULT THE ORDER OF THE COMMISSIONER DATED 1.02.2005 IS LI ABLE TO BE QUASHED. WE HOLD SO. 7. IN THE RESULT BOTH THE APPEALS ARE ALLOWED. 18 19. THE AFORESAID TRIBUNAL ORDER IN THE ASSESSEES CASE FOR ASSESSMENT YEARS 2000-01 AND 2001-02 HAS BEEN FOLLO WED BY THE TRIBUNAL IN THE ASSESSEES CASE FOR ASSESSMENT YEAR S 1999-00 AND 2003-04 VIDE ITS ORDER DATED 21.11.08(SUPRA). TH E ISSUE OF TREATMENT OF PREMIUM OF SALE OF QUOTA WHICH WAS TH E ONLY ISSUE TRIED TO BE MADE OUT BY THE AO IN THE REASONS RECOR DED FOR REOPENING THE COMPLETED ASSESSMENT THUS STANDS DECIDED IN F AVOUR OF THE ASSESSEE BY THE AFORESAID TRIBUNAL DECISIONS. 20. APROPOS THE CHALLENGE TO THE REOPENING OF THE C OMPLETED ASSESSMENT IN CIT V. KELVINATOR OF INDIA LTD.(S UPRA) THE HONBLE SUPREME COURT HAS HELD THAT FOR REOPENING O F A COMPLETED ASSESSMENT OPINION AND REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT HAS TO BE RECORDED BY THE AO ; THAT THERE MUST BE TANGIBLE MATERIAL FOR THE FORMATION OF SUCH BELIEF; THAT THE AO HAS TO HAVE REASON TO BELIEVE THAT INCOME HA S ESCAPED ASSESSMENT BUT THIS DOES NOT IMPLY THAT THE AO CAN REOPEN AN ASSESSMENT ON A MERE CHANGE OF OPINION; THAT THE CO NCEPT OF CHANGE OF OPINION MUST BE TREATED AS AN IN-BUILT TE ST TO CHECK THE ABUSE OF POWER; THAT HENCE AFTER THE AMENDMENT BRO UGHT ABOUT IN SECTION 147 AFTER 1.4.89 THE AO HAS POWER TO REOPEN AN 19 ASSESSMENT PROVIDED THERE IS TANGIBLE MATERIAL T O COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FOR A SSESSMENT; AND THAT THE REASON MUST HAVE A LINK WITH THE FORMA TION OF BELIEF. 21. IN RAJESH JHAVERI(SUPRA) THE HONBLE SUPREME COURT HAS HELD INTER ALIA THAT THE EXPRESSION REASON TO BE LIEVE IN SECTION 147 OF THE ACT WOULD MEAN CAUSE OF JUSTIFICATION; THAT IF THE AO HAS CAUSE OF JUSTIFICATION TO KNOW OR SUPPOSE THAT INCOME HAD ESCAPED ASSESSMENT HE CAN BE SAID TO HAVE REASON TO BELIEV E THAT INCOME HAD ESCAPED ASSESSMENT; AND THAT AT THE STAGE OF ISSUE OF NOTICE THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH REASONABLE PERSON COULD HAVE FORMED THE REQUISITE BELIEF. 22. IN THE PRESENT CASE AS IS EVIDENT FROM THE ABOVE NO FRESH MATERIAL HAS COME TO THE NOTICE OF THE AO AFTER THE ORIGINAL RETURN FILED BY THE ASSESSEE WAS PROCESSED. THE ISS UE ON MERITS STANDS COVERED BY THE TRIBUNAL DECISION SUPRA AND C BDT INSTRUCTION SUPRA. THEREFORE EVEN AS SUCH NO ADDI TION COULD BE MADE. THERE IS THEREFORE NO ESCAPEMENT OF INCOME. 23. APROPOS THE CASE LAWS SOUGHT TO BE RELIED ON B Y THE DEPARTMENT IN RAJESH JHAVERI (SUPRA) THE SUPREM E COURT LAID DOWN A TEST I.E. AT THE STAGE OF ISSUANCE OF NOTICE OF 20 REASSESSMENT WHAT IS TO BE CONSIDERED IS ONLY WHET HER THERE WAS A RELEVANT MATERIAL BEFORE THE AO BASED ON WHI CH A REASONABLE PERSON COULD HAVE FORMED SUCH BELIEF. IN THE ASSESSEE'S CASE AS ABOVE NO MATERIAL WHATSOEVER MUCH LESS TANGIBLE MATERIAL CAME TO THE NOTICE OF THE AO AFTE R THE PROCESSING OF THE RETURN FILED BY THE ASSESSEE. FUR THER THE AO WRONGLY SOUGHT TO APPLY EXPLANATION TO SECTION 80 H HC OF THE ACT. IF HE HAD CONSIDERED THE FIRST PROVISO TO SECT ION 80 HHC IT WOULD HAVE BEEN APPARENT TO HIM THAT THERE WAS NO ESCAPEMENT OF INCOME. RAJESH JHAVERI(SUPRA) MOREOVER STAND S NOW CONSIDERED BY THE HON'BLE SUPREME COURT IN KELVINA TOR OF INDIA(SUPRA) WHEREIN AS DISCUSSED IT HAS BEEN O BSERVED INTER ALIA THAT AFTER THE AMENDMENT W.E.F. 1.4.89 THE A O HAS POWER TO REOPEN AN ASSESSMENT PROVIDED THERE IS TANGIB LE MATERIAL TO CONCLUDE THAT THERE WAS ESCAPEMENT OF INCOME FRO M ASSESSMENT WHICH IS NOT THE CASE HEREIN AS DISCUS SED. 24. THE DEPARTMENT HAS THEN RELIED ON LITTLE ANGELS EDUCATIONAL SOCIETY V. ITO 336 ITR 413 (AP). HOWE VER THE FACTS THEREIN ARE ENTIRELY AT A TANGENT FROM THE ON ES PRESENT HEREIN. IN THAT CASE THERE WAS A CLEAR TANGENT MAT ERIAL 21 SUGGESTING ESCAPEMENT OF INCOME. THE ORDER OF THE I TAT IN PRIYADARSHINI EDUCATIONAL ACADEMY V. ACIT 123 TTJ (VIZAG) 195 SHOWED THAT INCOME HAD ESCAPED ASSESSMENT. IN THE ASSESSEE'S CASE ON THE OTHER HAND THERE WAS NO SU CH INFORMATION WITH THE AO. HE BASED THE REASONS FOR R EOPENING THE COMPLETED ASSESSMENT ON THE ASSESSEE'S RETURN O F INCOME WHICH AS CONSIDERED DID NOT SHOW ANY ESCAPEMENT O F INCOME IN VIEW OF THE CBDT INSTRUCTION. IN DALMIA P. LTD . V. CIT & ANOTHER 202 TAXMAN 372(DEL) FULL AND TRUE MATERI AL FACTS HAD NOT BEEN DISCLOSED BY THE ASSESSEE DURING THE A SSESSMENT U/S 143(3) OF THE ACT. IT WAS FOR THIS REASON THAT THE HON'BLE HIGH COURT HELD THE REOPENING TO BE VALID. THIS IS NOT SO EVIDENTLY IN THE ASSESSEE'S CASE. IN FACT IN THE ASSESSEE'S CASE THERE HAS BEEN NO SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT. MOREOVER SIGNIFICANTLY IN THAT CASE EVEN THOUGH THERE HAD BEEN A SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT T HE HON'BLE HIGH COURT STILL HELD THAT THERE HAS TO BE SUFFICIENT MATERIAL TO REOPEN THE ASSESSMENT. THEN DALMIA P. LTD. (SUPR A) INVOLVE ISSUE OF CHANGE OF OPINION. IN THE CASE BEFORE US ON THE OTHER HAND TO REITERATE NO TANGIBLE MATERIAL OR OPINION HAS BEEN 22 SHOWN TO HAVE EXISTED BEFORE THE AO AT THE TIME OF FORMATION OF A REASON TO BELIEVE ESCAPEMENT OF INCOME SO AS TO E NABLE THE AO TO INITIATE REASSESSMENT PROCEEDINGS. 25. ACIT & DCIT V MAHENDRA HOLIDAYS & RESORTS INDIA LTD. 39 SOT 438(CHENNAI) IS THE NEXT CASE ON WHIC H RELIANCE HAS BEEN SOUGHT TO BE PLACED ON BEHALF OF THE DEPAR TMENT. WE ARE UNABLE TO CONSTRUE AS TO HOW THIS CASE ACTS ADV ERSELY TO THE CAUSE OF THE ASSESSEE. THEREIN TOO THE TEST OF TA NGIBLE MATERIAL WAS REITERATED IN CASES OF PROCESSING OF THE RETURN U/S 143(1) OF THE ACT. FURTHER AGAIN THE ISSUE OF CHA NGE OF OPINION WAS INVOLVED THEREIN WHICH IS PRESENT HERE. 26. THE NEXT DECISION RELIED ON BY THE DEPARTME NT IS ACIT V. T.N. GOPAL 121 ITD 352(CHENNAI). IN THAT CASE TANGIBLE MATERIAL DID EXIST FOR THE FORMATION OF THE RECTIFICATION ORDER U/S 154 OF THE ACT. IN THE ASSESSEE'S CASE NOT ONLY TH ERE IS NO SUCH TANGIBLE MATERIAL BUT ALSO THERE IS NO ESCAPEMENT O F INCOME AS DISCUSSED. THE LD. DR HAS ALSO RELIED ON ANKITA DE POSITS & ADVANCES P. LTD. V. CIT 193 TAXMAN 36(HP). THEREI N TOO THE ISSUE WAS OF CHANGE OF OPINION WHICH IS ABSENT IN THE APPEAL AT HAND. MOREOVER KELVINATOR OF INDIA(SUP RA) WAS NOT 23 ADVERTED TO IN THAT CASE. SIGNIFICANTLY HOWEVER I N THAT CASE ALSO IT WAS HELD THAT IN CASE NO OPINION HAS BEEN EXPRESSED WOULD HAVE THE REASON TO BE AS LONG AS IT PRIMA FA CIE SPECIFIES THE CONSCIENCE OF THE COURT THE COURT WOULD NOT IN TERFERE IN THE ISSUANCE OF A NOTICE FOR REASSESSMENT. HEREIN AS D ISCUSSED SINCE THERE IS NO ESCAPEMENT OF INCOME AS DISCUSSE D THE OPINION EXPRESSED BY THE AO IN THE REASONS DOES NOT PERSUADE US TO HOLD THE INITIATION OF REASSESSMENT PROCEEDIN GS AS VALID. 27. IN CIT V. CHANDRA SEKHAR BALA GOPAL 328 IT R 619(KER) IT IS SEEN IS THE DECISION RENDERED PRIO R TO KELVINATOR OF INDIA(SUPRA). KELVINATOR OF INDIA (SUPRA) TO REITERATE SPECIFICALLY LAYS DOWN THE PRE-REQUISITE OF TANGIBLE MATERIAL TO REOPEN THE ASSESSMENT. FURTHER-MORE EV EN IN CHANDRA SEKHAR BALA GOPAL(SUPRA) THE REQUIREMENT OF ESCAPEMENT OF INCOME HAS NOT BEEN DONE AWAY WITH AN D IN THE CASE OF THE PRESENT ASSESSEE IT CANNOT BE GAIN-SAI D THERE IS NO SUCH ESCAPEMENT OF INCOME. 28. CIT V. NATIONAL TYRE & RUBBER CO. OF INDIA L TD. 15 TAXMAN.COM 3(KER) AGAIN DOES NOT TAKE INTO CONSIDE RATION KELVINATOR OF INDIA (SUPRA). THEN IN THAT CASE THERE WAS 24 TANGIBLE MATERIAL I.E. AUDIT OBJECTION. IN THE AS SESSEE'S CASE NO TANGIBLE MATERIAL EXISTED. THEN ALSO EVEN IN N ATIONAL TYRE & RUBBER CO. OF INDIA LTD.(SUPRA) ESCAPEMENT OF I NCOME DID EXIST WHICH IS NOT SO HEREIN. 29. JAGAN LAMPS V. ITO 26 ITD 111(DEL) INVOLVED SPECIFICALLY THE ISSUE OF CHANGE OF OPINION WHICH IS NOT PRESENT HEREIN. FURTHER THEREIN THERE WAS AGAIN ESCAPEMENT OF INCOME. KELVINATOR OF INDIA(SUPRA) WAS REFERRED T O WITH REFERENCE TO EXISTENCE OF TANGIBLE MATERIAL. 30. IN ITO V. NEETEE CLOTHING P. LTD. 129 TTJ 342(DEL) ONCE MORE THERE WAS EXISTENCE OF TANGIBLE MATERIAL I.E. THE SHOW CAUSE NOTICE ISSUED U/S 263 OF THE ACT. NEETE E CLOTHING P. LTD. (SUPRA) THEN INVOLVED NOTHING OTHER THAN THE ISSUE OF CHANGE OF OPINION WHICH IS ABSENT IN THE ASSESSEE'S CASE. TOO THERE WAS ESCAPEMENT OF INCOME THERE. MOREOVER THE ASSESSMENT IN THAT CASE WAS A SCRUTINY ASSESSMENT WHEREAS IN THE PRESENT CASE THERE HAS BEEN NO SCRUTINY ASSESS MENT. 31. ALSO IN FROZEN FOOD EXPORTS LTD. V. ITO 1 26 ITD 1(DEL) HERE TANGIBLE MATERIAL EXISTED IN THE SHAPE OF THE FIRST APPELLATE ORDERS FOR OTHER YEARS AND THE ISSUE INVO LVED WAS 25 CHANGE OF OPINION. THERE WAS ALSO ESCAPEMENT OF INC OME IN THAT CASE. 32. RAYMOND WOOLLEN MILLS LTD. V. ITO & OTHERS 324 ITR 154(BOM) SUPPORTS THE ASSESSEE'S CASE RATHER THAN THAT OF THE DEPARTMENT INASMUCH AS IT SPEAKS OF PRIMA FACIE MAT ERIAL FOR REOPENING OF THE PROCEEDINGS AND IN THE ASSESSEE'S CASE THERE WAS NO SUCH MATERIAL. 33. THE DEPARTMENT HAS LASTLY SOUGHT TO SEEK SU PPORT FROM INDIA EXPORTS V. ACIT 2010-TIOL-621 ITAT MUMB AI AND DCIT V. CALICO TRENDS -2011-TIOL-39-ITAT-LKW. IN BOTH THESE MATTERS THE ASSESSMENT WAS A SCRUTINY A SSESSMENT SUBSEQUENT WHERETO THERE HAD BEEN AN AMENDMENT IN THE LAW WHICH THE AO NOTICED IN IT THE REOPENING OF THE C OMPLETED ASSESSMENT WAS HELD TO BE VALID. THE FACTS OF THE P RESENT CASE AS DELIBERATED UPON ARE ENTIRELY DIFFERENT THERE BEING NO SCRUTINY ASSESSMENT AND THERE BEING NO EXISTENCE OF TANGIBLE MATERIAL BEFORE THE AO AFTER PROCESSING OF THE RETU RN OF INCOME. 34. THE THREE DECISIONS CITED BY THE DEPARTMENT ON MERITS ARE- 1. SANTEX FASHIONS LTD. V. ACIT 92 ITD 535(DEL); 2. CIT V. KALPATARU 328 ITR 451(BOM); AND 3. CIT V. PUROLATOR 2011-TIOL-176-HC-DEL-IT. 26 35. HOWEVER IN VIEW OF THE DISCUSSION ON THE VA LIDITY OR OTHERWISE OF THE INITIATION OF THE REASSESSMENT PRO CEEDINGS THE MERITS OF THE CASE HAVE NOT BEEN DISCUSSED. 36. FOR THE ABOVE DISCUSSION WE HOLD THAT SIN CE THERE WAS NO TANGIBLE MATERIAL AVAILABLE WITH THE AO TO FORM THE REQUISITE BELIEF OF ESCAPEMENT OF INCOME THE REOPENING OF TH E COMPLETED ASSESSMENT IS UNSUSTAINABLE IN THE EYE OF LAW. THE SAME IS THEREFORE CANCELLED. 37. THE LD. DR HAS CONTENDED THAT THIS BEING A CURABLE DEFECT THE MATTER BE SENT BACK FOR FRESH ADJUDICATION. HOW EVER WE FIND THAT THE FLAW IN THE REOPENING OF THE COMPLETE D ASSESSMENT GOES TO THE VERY ROOT OF THE MATTER AND IT IS A JUR ISDICTIONAL DEFECT. IN THE ABSENCE OF TANGIBLE MATERIAL TO FORM A BELIEF OF ESCAPEMENT OF INCOME AND THERE IN FACT BEING NO E SCAPEMENT OF INCOME WHATSOEVER IT IS NOT A CURABLE DEFECT AN D THIS CONTENTION OF THE LD. DR IS REJECTED. 38. SINCE THE VERY REOPENING OF THE COMPLETED ASS ESSMENT STANDS CANCELLED AS ABOVE NOTHING ELSE REMAINS AN D THE REMAINING GROUNDS OF THE ASSESSEE'S APPEAL HAVE NEI THER BEEN 27 DISCUSSED AS THEY NO LONGER SURVIVE AND THEY ARE NO T BEING GONE INTO. 39. THEREFORE THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AS INDICATED. ITA NO. 1941(DEL)2009 40. SINCE THE REOPENING OF THE COMPLETED ASSESS MENT HAS BEEN CANCELLED AS BAD IN LAW AS PER THE DISCUSSION IN ITA NO. 1415(DEL)2009 ABOVE THE GROUNDS OF THE DEPARTMENT' S APPEAL WHICH ARE ON MERITS DO NOT SURVIVE. 41. THEREFORE THE APPEAL OF THE DEPARTMENT IS DISMISSED ITA NOS. 3461(DEL)08 & 3604(DEL)10 42. THESE ARE CROSS APPEALS FOR ASSESSMENT YEAR 2 002-03 AGAINST THE ORDER PASSED BY THE CIT U/S 263 OF THE I.T. ACT. ITA NO.3461(DEL)08 HAS BEEN FILED BY THE ASSESSEE WHERE AS ITA NO. 3604(DEL)10 HAS BEEN PREFERRED BY THE DEPARTMEN T. THE DEPARTMENT IN ITS APPEAL HAS TAKEN THE FOLLOWING EF FECTIVE GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO ALL OW THE DEDUCTION OF RS. 13 35 65 316/- U/S 10B OF THE ACT AFTER VERIFICATION. 28 THE LD. CIT(A) IGNORED THE FACT THE ASSESSEE HAD NO T FILED THE FORM NO. 56G NEITHER WITH THE RETURN NOR AT THE TIME OF ASSESSMENT PROCEEDING U/S 143(3)/147 OF THE IT ACT. IN VIEW OF THE ABOVE MENTIONED FACTS OF THE CASE AND PROVISIONS OF SEC. 10B(5) OF THE IT ACT THE ASSESS EE IS NOT ENTITLED TO CLAIM DEDUCTION U/S 10B OF THE IT ACT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS . 2 80 39 760/- MADE BY AO U/S 40(A)(I) OF THE ACT. THE CIT(A) ERRED IN DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE AS AT THE TIME OF ASSESSMENT U/S 143(3)/14 7 THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENTARY EVIDENCE TO SHOW THAT THE SERVICES WERE PROVIDED BY THE AGENTS OUTSIDE INDIA WHICH IS REQUIREMENT OF THE CIRCULAR NO. 786 DATED 07.02.2000 OF THE CBDT. 43. THE GROUNDS TAKEN BY THE ASSESSEE IN ITS APP EAL NO. 3461(DEL)08 ARE AS FOLLOWS:- 1. THAT THE IMPUGNED ORDER PASSED BY COMMISSIONER OF INCOME TAX U/S 263 IS BAD IN LAW AND AGAINST THE FA CTS AND CIRCUMSTANCES OF THE CASE. 2. THAT THE COMMISSIONER OF INCOME TAX HAS ERRONEOU SLY ASSUMED JURISDICTION THUS THE ORDER U/S 263 IS INVA LID AND WITHOUT THE AUTHORITY OF LAW. THAT THE PROPOSAL TO CANCEL THE ASSESSMENT ORDER VI DE SHOW CAUSE NOTICE DATED 18.07.2008 AND ORDER CANCELLED/REVISED FOR ASSESSMENT YEAR AS PER ORDER U/S 263 IS DIFFERENT AND THEREFORE BAD IN LAW. 3. THAT THE COMMISSIONER OF INCOME TAX HAS ERRED IN LA W AND ON FACTS IN STATING THAT THE ORDER PASSED U/S 143(3)/147 IS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE WITHOUT RECORDING FINDING AND THEREFORE 29 CANCELLATION OF THE ASSESSMENT ORDER U/S 143(3)/147 IS WITHOUT ANY JUSTIFICATION. 4. IT IS CONTENDED THAT THE PROVISIONS OF SEC. 263 ARE NOT APPLICABLE AT ALL AS THE ORDER PASSED U/S 143(3)/14 7 SHOULD HAVE BEEN BOTH ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF THE REVENUE AND THEREFORE ACTION U/S 263 IS TANTAM OUNT TO IMPOSING ANOTHER VIEW THAN THAT OF THE ASSESSING OF FICER ON THE ISSUE. 5. IT IS CONTENDED THAT THE REPORT IN FORM NO. 56G WAS ENCLOSED WITH THE ORIGINAL RETURN OF INCOME FILED O N 31.10.2002 AND THE FACT WAS MENTIONED IN THE ACKNOWLEDGEMENT NO. OF DOCUMENTS/ STATEMENTS ATTACHED UNDER THE HEAD DESCRIPTION AS AUDIT REPO RT/TAX AUDIT-2(TWO). MOREOVER THE COPY OF THE CERTIFICAT E WAS ALSO FILED BEFORE THE ASSESSING OFFICER IN REPLY TO OBJECTION RAISED BY REVENUE AUDIT PARTY VIDE LETTER DATED 03. 10.2007. THE APPELLANT IS REGULARLY CLAIMING DEDUCTION U/S 1 0B IN THE PRECEDING YEARS AND ALSO IN SUBSEQUENT YEARS AN D FILING THE REQUIRED REPORT. IN NONE OF THESE YEARS THE CLAIM OF DEDUCTION HAS EVER BEEN DENIED. 6. IT IS CONTENDED THAT THE PROVISIONS OF SEC. 195 ARE NOT APPLICABLE AT ALL IN RESPECT OF PAYMENT OF FOREIGN AGENCY COMMISSION AMOUNTING TO RS. 2 80 39 760/-. THE CLAIM OF FOREIGN AGENCY COMMISSION EXPENSES MAD E BY THE APPELLANT AND ALLOWED BY THE ASSESSING OFFICER ARE CORRECT BOTH ON FACT AND LAW AND THEREFORE DOES NO T NEED ANY MODIFICATION U/S 263. 30 44. BOTH THESE APPEALS ARISE OUT OF THE ASSESSM ENT ORDER DATED 31.10.06. WHILE DEALING WITH ITA NO. 1415(DEL)09 (S UPRA) WE HAVE CANCELLED THE REOPENING OF THE COMPLETED ASSES SMENT OF THE ASSESSEE. THAT BEING SO THE ASSESSMENT ORDER I TSELF DOES NOT SURVIVE AND SO THE CONSEQUENTIAL ORDER DATED 3.2.0 9 PASSED BY THE LD. CIT(A) DOES NOT SURVIVE TOO. AS SUCH BOTH THESE APPEALS ALSO DO NOT SURVIVE AND ARE INFRUCTUOUS. THE LD. DR HAS ALSO PLACED ON FILE WRITTEN SUBMISSIONS WITH REGARD TO T HE MERITS OF THE CASE. THE APPEALS BEING HELD TO BE INFRUCTUOUS AS ABOVE THESE WRITTEN SUBMISSIONS ARE NOT ADVERTED TO. 45. HENCE BOTH THESE CROSS APPEALS I.E. ITA NO S. 3461(DEL)08 & 3604(DEL)10 ARE DISMISSED AS INFRUCTU OUS. 46. IN THE RESULT ITA 1415(DEL)09 FILED BY THE A SSESSEE IS PARTLY ALLOWED AS INDICATED ITA NO. 1941(DEL)09 FI LED BY THE DEPARTMENT IS DISMISSED WHEREAS ITA NO. 3461(DEL)0 8 FILED BY THE ASSESSEE AND ITA 3604(DEL)10 FILED BY THE DE PARTMENT ARE DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 22.02.2012. SD/- SD/- (G.D. AGRAWAL) (A.D. JAIN) 31 VICE PRESIDENT JUDICIAL MEMBER DATED: 22.02.2012 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR 32