Vijayeswari Textiles Ltd., Coimbatore v. ACIT, Coimbatore

ITA 953/CHNY/2010 | 2004-2005
Pronouncement Date: 03-01-2011 | Result: Allowed

Appeal Details

RSA Number 95321714 RSA 2010
Assessee PAN ABJFS7481D
Bench Chennai
Appeal Number ITA 953/CHNY/2010
Duration Of Justice 6 month(s) 19 day(s)
Appellant Vijayeswari Textiles Ltd., Coimbatore
Respondent ACIT, Coimbatore
Appeal Type Income Tax Appeal
Pronouncement Date 03-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 03-01-2011
Assessment Year 2004-2005
Appeal Filed On 14-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI BEFORE SHRI U.B.S. BEDI J.M. & SHRI ABRAHAM P. GEO RGE A.M. I.T.A. NO.953/MDS/2010 ASSESSMENT YEAR: 2004-05 VIJAYESWARI TEXTILES LTD. 10/400 PALGHAT ROAD KUNIAMUTHUR COIMBATORE 641 008. [PAN: ABJFS7481D] VS . THE ASSISTANT COMMISSIONER OF INCOME TAX SALARY CIRCLE I INCOME TAX OFFICE RACE COURSE COIMBATORE 641 018. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T.S.V. RAJAGOPAL REVENUE BY : SHRI SHAJI P. JACOB O R D E R PER U.B.S. BEDI J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE LD. CIT(A) II COIMBATORE DATED 29.03.2010 RELEVANT TO THE ASSESSMENT YEAR 2004-05 WHEREBY BESIDES CHALLENGING THE ORDER ON REASSESSME NT THE ASSESSEE HAS ALSO CHALLENGED THE ISSUE ON MERITS. 2. FACTS INDICATE THAT THE ASSESSEE COMPANY FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 ADMITTING TOTAL INCOME OF ` .11 07 259/- UNDER NORMAL PROVISIONS OF THE ACT AND ` .2 86 42 101/- AS BOOK PROFIT UNDER SECTION 115JB O F THE ACT. THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SE CTION 143(3) ON A BOOK PROFIT OF ` .3 06 64 231/- AND REOPENED ASSESSMENT WAS COMPLETE D AFTER MAKING THE FOLLOWING ADDITIONS: A) DEFERRED TAX PROVISION ` .99 78 000/- AS REGARDS ADDITION OF DEFERRED TAX PROVISIONS THE ASSESSEE CLAIMED THAT IT HAD VO LUNTARILY FILED A LETTER DATED 06.07.2007 IN THIS REGARD AND THE SAME WAS ADDED BY THE ASSESSING OFFICER IN HIS ORDER DATED 19.07.2007 . ALSO THE ASSESSEE FILED REVISED RETURN OF INCOME ADDING BACK DEFERRED TAXATION PROVISION OF ` .99 78 000/- FOR COMPUTATION PURPOSE UNDER SECTION 115JB. HENCE THIS IS NOT A SUBJECT MATTER OF APPEAL. I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 2 B) DEDUCTION UNDER SECTION 80HHC WAS RESTRICTED TO ` .80 704/- FOR THE REASON THAT 90% OF INCOME FROM WINDMILL HAS TO BE T REATED AS NOT DERIVED OUT OF EXPORT BUSINESS. 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE TOOK UP THE MATTER IN APPEAL QUESTIONING REASSESSMENT UNDER SEC TION 147 OF THE INCOME TAX ACT WHEN JURISDICTION UNDER SECTION 147 CAME TO AN END ON HIS DROPPING ON MERITS THE ONE AND ONLY POINT ON WHICH HE HAD REOPENED THE ASSESSMENT AND EXCLUSION OF 90% OF INCOME FROM WINDMILL UNDER EXPLANATION (B AA) OF SECTION 80HHC. 3.1 THE ASSESSEE SUBMITTED BEFORE THE FIRST APPELLA TE AUTHORITY THAT REASONS RECORDED FOR REOPENING OF ASSESSMENT IS ONLY FOR WI THDRAWING BUILDING COST ALLOWING AS REVENUE EXPENDITURE AND FOR NO OTHER RE ASON AND HENCE THE ASSESSING OFFICERS JURISDICTION UNDER SECTION 147 CAME TO AN END ONCE HE DECIDED THE ISSUE AND CONSEQUENTLY THE ASSESSING OFFICER DID NOT CON TINUE TO POSSESS THE JURISDICTION TO TAX ANY OTHER ESCAPED INCOME THAT CAME TO HIS NOTICE DURING THE REASSESSMENT PROCEEDINGS. 3.2 THE LD. CIT(A) AFTER EXAMINING THE RELEVANT REC ORD AND REPRODUCING ORDER SHEET ENTRY AND DISCUSSING VARIOUS CASE LAW AND REL EVANT PROVISIONS CAME TO THE CONCLUSION THAT THERE IS NOTHING WRONG IN ASSESSING OFFICERS ACTION IN MODIFYING RELIEF WHILE THE ASSESSMENT IS ALREADY REOPENED FOR A DIFFERENT REASON. 4. AS REGARDS THE ISSUE ON MERITS IS CONCERNED T HE LD. CIT(A) NOTED THAT SHRI T.S.V. RAJAGOPAL CA APPEARED AND FILED A LETTER FO R CLAIMING DEDUCTION UNDER SECTION 80HHC REDUCING THE INCOME FROM GENERATION OF POWER FROM THE NEW UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IA. HOWEVER THIS CANNOT BE ACCEPTED. SINCE THE ASSESSEE HAS TREATED THE WINDMI LL BUSINESS AS A SEPARATE I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 3 BUSINESS UNDERTAKING FOR CLAIMING DEDUCTION UNDER S ECTION 80IA. HENCE IT CANNOT BE ARGUED THAT THIS IS A MACHINERY USED FOR PRODUCT ION OF POWER CHARGES I.E. THE EXPORT BUSINESS. SO THE RECEIPT UNDER WINDMILL BUSI NESS IS TO BE REDUCED (AMOUNTING TO ` .32.42 LACS IS TO BE REDUCED) FROM EXPORT PROFIT FO R COMPUTING ELIGIBLE DEDUCTION UNDER SECTION 80HHC FOR WORKING OF 115JA. THE ASSESSEE IN THE REVISED RETURN HAS CLAIMED 80HHC WORKING ON THE BAS IS OF BOOK PROFIT CITING ITAT DECISION WHICH IS NOT ACCEPTABLE. ASSESSMENT COMPLE TED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. SHRI T.S.V. RAJAGOPAL C.A. ALSO SIGNED IN THE ORDER SHEET. 4.1 THE LD. AR OF THE ASSESSEE IN THE FIRST APPEAL FILED THE FOLLOWING SUBMISSIONS: 1) IN ASSESSEES CASE POWER GENERATED (BY WEG) IS CONSUMED BY ITSELF (I.E.) CAPTIVE CONSUMPTION OF POWER. IN RESULTED IN REDUCT ION IN COST OF POWER (IE) WINDMILL INCOME RESULTED IN ABATEMENT OF EXPENDITUR E. 2) ANY RECEIPT REQUIRES A PAYER AND RECEIVER. IN TH IS CASE IN RESPECT OF ASSESSEES CAPTIVE POWER CONSUMPTION ASSESSEE IS P AYER AS WELL AS RECEIVER. 3) HENCE VALUE OF WIND ENERGY GENERATED OUT OF WIN DMILLS ADJUSTED BY TNEB AGAINST THE TOTAL ELECTRICITY BILLS OF THE ASSESSEE CANNOT BE REGARDED AS ANY OTHER CHARGES OR RECEIPT OF SIMILAR NATURE FOR THE PURPOSE OF EXPLANATION (BAA) OF SECTION 80HHC). 4) IT IS PERTINENT TO QUOTE ASSESSEES LETTER DATED 17.11.2008 SUBMITTED BEFORE THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS . I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 4 IT CAN BE NOTED FROM THE AUDITED ACCOUNTS THAT THI S VALUE OF ` .36.02 LAKHS HAS NOT BEEN CREDITED TO OTHER INCOME AND HAS ONLY BEEN ADJUSTED AGAINST THE POWER AND FUEL CONSU MPTION CHARGES. THIS IS MADE CLEAR IN NOTE NO.18 OF THE NO TES ON ACCOUNTS. THIS IS AKIN TO OWN GENERATION OF POWER POWER CONS UMPTION IS INEVITABLE IN THE COURSE OF EXPORT BUSINESS AND ANY CREDITS EARNED OR ADJUSTED DUE TO OWN GENERATION OF POWER T HROUGH WINDMILLS IS CERTAINLY INTIMATELY CONNECTED TO THE EXPORT BUSINESS AND HENCE ELIGIBLE FOR DEDUCTION U/S 80HHC . THE CREDIT RECEIVED IS ONLY IN THE NATURE OF REDUCT ION OF POWER EXPENDITURE. EVEN IF VIEWED AS OTHER INCOME IT IS DERIVED IN RELATION TO MANUFACTURE OF GOODS THAT ARE EXPORTED. THE BOMBAY HIGH COURT IN 260 ITR 371 CIT VS. BANGAL ORE CLOTHING CO. HAS HELD THAT CHARGES ETC. WHICH ARE P ART OF THE OPERATIONAL INCOME CANNOT BE EXCLUDED FROM BUSINES S INCOME. IN VIEW OF THE ABOVE WE SUBMIT THAT 90% OF THE VAL UE OF WIND ENERGY GENERATED SHOULD NOT BE REDUCED FROM BUSINES S INCOME FOR SECTION 80HHC PURPOSE. 4.2 THE LD. CIT(A) WHILE CONSIDERING THE PLEA OF T HE ASSESSEE IN THE LIGHT OF VARIOUS DECISIONS AS DISCUSSED FROM PARA 7 TO 7.6 H AS CONCLUDED TO UPHOLD THE ACTION OF THE ASSESSING OFFICER IN PARA 8 OF HIS OR DER. BOTH THE PARAS 7 AND 8 ARE REPRODUCED AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSI ONS. 7.1 EXPLANATION (BAA) UNDER SECTION 80HHC WHILE DE FINING PROFITS OF BUSINESS INTER ALIA INCLUDES 90% OF ANY RECEIPTS BY WAY OF BROKERAGE COMMISSION INTEREST RENT CHARGES OR ANY OTHER RE CEIPT FO SIMILAR NATURE. IT IS IN INTERPRETATION OF THESE WORDS TREATMENT OF M ISCELLANEOUS INCOME FOR PURPOSE OF COMPUTATION OF ELIGIBLE PROFITS FOR DEDU CTION HAS BEEN A MATTER OF I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 5 CONTROVERSY IN MOST CASES AS THE REASONS FOR TREATM ENT OF INTEREST INCOME. WHAT IS REQUIRED IS NEXUS OF SUCH INCOME WITH THE A CTIVITY SOUGHT TO BE ENCOURAGED BY THE PROVISION. 7.2 SEC. 80HHC DEALS WITH DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. THE MEANING OF THE EXPRESSION DE RIVED FROM HAS GOT ONLY A LIMITED IMPORT AND THEREFORE THE EXPRESSION DE RIVED FROM AS USED IN SEC. 80HHC MUST BE UNDERSTOOD AS PROFIT DIRECTLY A RISING FROM THE EXPORT OF THE GOODS AND NOT INCIDENTAL TO EXPORT - K. RAVI NDRANATHAN NAIR VS. DCIT (2003) 129 TAXMAN 811/262 ITR 669(KER). 7.3 THE REFERENCE TO SUCH PROFITS IN SUB-CLAUSE ( 1) OF CLAUSE (BAA) OF THE EXPLANATION CAN ONLY BE TO THE PROFITS OF THE B USINESS COMPUTED UNDER THE PROFITS AND GAINS OF BUSINESS OR PROFESSION - K.S . SUBBIAH PILLAI & CO. (INDIA) (P) LTD. V. CIT (2003) 260 ITR 304 (MAD). 7.4 IN THE CASE OF ASSESSEE INCOME FROM THE WINDMI LL IS SHOWN AS SEPARATE BUSINESS FOR THE PURPOSE OF 80IA WORKING. 7.5 80HHC SECTION WAS FIRST INTRODUCED BY THE FINAN CIAL AMENDMENT 1983 TO ENCOURAGE THE EXPORT TURNOVER I.E. TO EARN MORE FOREIGN EXCHANGE. 7.6 IN THE CASE OF CIT VS. BLORE CLOTHING CO. CITE D IN 260 ITR 371 (BOM) (A.YR. 92-93) HONBLE BOMBAY HIGH COURT HELD AS FOLLOWS: S.80HHC EXPLN. (BAA) DEDUCTION U/S 80HHC - PROFITS DERIVED FROM EXPORT - JOB WORK CHARGES - EXPLN.(BAA) CANT BE INVOKED IN EVERY MATTER INVOLV ING RECEIPT BY WAY OF BROKERAGE COMMISSION INTEREST RENT LABOUR CHARG ES ETC. THESE ITEMS OF INCOME HAVE GOT TO BE SEEN IN THE CONTEXT OF THE BU SINESS ACTIVITY OF THE ASSESSEE - IF THE RECEIPT OF LABOUR CHARGES INTERE ST COMMISSION ETC. ACCRUES BY WAY OF OPERATING INCOME IT FALLS OUTSID E THE SCOPE OF EXPLN.(BAA). TRIBUNAL RECORDED A FINDING OF FACT TH AT THE JOB WORK ACTIVITY OF THE ASSESSEE WAS LINKED TO THE MANUFACT URING ACTIVITY AND THERE WAS NO DIFFERENCE BETWEEN THE ACTIVITIES RELA TING TO THE EXPORT BUSINESS CARRIED ON BY THE ASSESSEE AND THE PROCESS ES CARRIED ON UNDER JOB WORK CONTRACTS - SAME NOT CHALLENGED. THEREFORE JOB WORK RECEIPTS COULD NOT BE EXCLUDED FROM BUSINESS PROFITS WHILE C OMPUTING DEDUCTION U/S. 80HHC. CONCLUSION: LABOUR (JOB WORK) CHARGES RECEIVED BY T HE ASSESSEE FOR JOB WORK WHICH WAS AKIN TO THE MANUFACTURING ACTIVITIES RELATING TO THE EXPORT BUSINESS CARRIED ON BY IT DID NOT FALL WITHI N THE SCOPE OF CLAUSE (BAA) OF EXPLN. BELOW S. 80HHC AND THEREFORE 90% OF SUCH RECEIPTS I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 6 COULD NOT BE EXCLUDED FROM BUSINESS PROFITS WHILE C OMPUTING DEDUCTION U/S. 80HHC. 8. IN THE CASE OF ASSESSEE POWER GENERATED BY IT IS SOLD TO TNEB AND THERE IS NO FOREIGN EXCHANGE EARNING INVOLVED IN TH E PROCESS. WIND MILL POWER GENERATION IS NOT AKIN TO MANUFACTURING ACTIV ITIES RELATING TO EXPORT BUSINESS CARRIED ON BY THE ASSESSEE. HENCE IN ASSE SSEES CASE FACTS ARE DISTINGUISHABLE FROM THAT OF THE CASE CITED IN PARA 7.6 ABOVE. THE PROCESS OF POWER GENERATION THROUGH WIND ENERGY GENERATOR IS N OT LINKED TO THE MANUFACTURING ACTIVITIES RELATING TO THE EXPORT BUS INESS CARRIED ON BY THE ASSESSEE. (I.E. THERE IS NO NEXUS OF SUCH INCOME WI TH EXPORT ACTIVITY. THEREFORE I AM OF THE VIEW THAT INCOME FROM WIND MI LL HAS TO BE TREATED AS NOT DERIVED OUT OF EXPORT BUSINESS AND HAS TO BE DEDUCTED FROM THE PROFITS OF BUSINESS FOR QUANTIFYING DEDUCTION U/S. 80HHC. C ONSEQUENTLY THE ACTION OF THE ASSESSING OFFICER IS UPHELD. 5. STILL AGGRIEVED THE ASSESSEE HAS COME UP IN FU RTHER APPEAL AND WHILE REITERATING THE SUBMISSION AS MADE BEFORE THE LD. C IT(A) THE ASSESSEE HAS RELIED UPON THE DECISION OF HONBLE RAJASTHAN HIGH COURT I N THE CASE OF CIT VS. SHRI RAM SINGH 306 ITR 343 TO PLEAD THAT THE ASSESSING OFFIC ER COULD ONLY TREAT THE INCOME FOR WHICH NOTICE UNDER SECTION 148 HAS BEEN ISSUED AS ESCAPED INCOME AND AFTER THAT HE REASSESSED THAT INCOME IN REASSESSMENT PROC EEDING UNDER SECTION 147 AND AFTER HAVING EVEN INITIATED IF SUCH INCOME IS NOT REASSESSED (FOR WHICH NOTICE HAS BEEN ISSUED FOR REASSESSMENT) OTHER INCOME FOR WHICH THERE IS NO NOTICE AND IS NOT PART OF REASONS RECORDED FOR REOPENING COUL D NOT BE TAXED. SINCE INCOME FOR WHICH REASSESSMENT NOTICE HAS BEEN ISSUED HAS ALREA DY BEEN DROPPED BY THE ASSESSING OFFICER SO HE COULD NOT PROCEED TO REASS ESS THE OTHER INCOME WHICH CAME TO HIS NOTICE AS ESCAPED INCOME THEREAFTER. AS SUCH THE REASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS BAD IN LAW AND THE LD. CIT(A) IS NOT LEGALLY JUSTIFIED TO CONFIRM THE ACTION OF THE ASSE SSING OFFICER. IT WAS THUS PLEADED I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 7 FOR QUASHMENT OF REASSESSMENT FRAMED BY THE ASSESSI NG OFFICER. ON MERITS IT WAS SUBMITTED THAT NEITHER THE ASSESSING OFFICER NOR TH E LD. CIT(A) IS JUSTIFIED IN DISALLOWING ANY PART DEDUCTION UNDER SECTION 80HHC WITH RESPECT TO THE CLAIM OF THE ASSESSEE IN RELATION TO CAPTIVE CONSUMPTION OF THE ELECTRICITY GENERATED THROUGH WINDMILL FOR WHICH CREDIT HAS BEEN GIVEN BY THE TNEB AND RELIED UPON THE ARGUMENTS ADVANCED BEFORE THE LD. CIT(A) IN THIS RE GARD. IT WAS THUS PLEADED FOR DELETION OF ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A). 6. THE LD. DR WHILE RELYING UPON THE ITAT DELHI B ENCH DECISION AS REPORTED IN 97 ITD 390 (DELHI) AND OTHER DECISIONS OF HONBLE A LLAHABAD HIGH COURT AS REPORTED IN 111 ITD 339 (ALL) HAS PLEADED THAT SIMI LAR ISSUE ALSO CAME UP BEFORE THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS . TBS PUBLISHERS AND DISTRIBUTORS 325 ITR 257 AND RELIANCE WAS PLACED ON THE HONBLE SUPREME COURTS DECISION IN THE CASE OF ACIT V. RAJESH JHAVERI STOC K BROKERS P. LTD. 291 ITR 500 THE HONBLE KERALA HIGH COURT IN WHICH IT WAS HELD THAT EVEN AFTER NO ADDITION IS MADE WITH SPECIFIC REFERENCE TO REASONS IT WILL NO T INVALID REOPENING. THEREFORE IN VIEW OF THE TRIBUNALS DECISION AND HONBLE KERALA HIGH COURTS DECISION THE ORDERS OF AUTHORITIES BELOW IS FULLY JUSTIFIED WHIC H NEEDS TO BE CONFIRMED. IT WAS THUS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER IN THIS REGARD. ON MERITS IT WAS SUBMITTED THAT CAPTIVE CONSUMPTION OF THE ELECT RICITY FROM THE WINDMILL BY THE ASSESSEE HAS NO NEXUS WITH THE EARNINGS OF THE EXPO RT TURNOVER. THEREFORE RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF CIT VS. K. RAVINDRANATHAN NAIR 295 ITR 228 (SC) IT WAS PRAYED THAT THE ASSESSING OFFICER I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 8 HAS PASSED A CORRECT ORDER AND THE LD. CIT(A) HAS J USTIFIABLY SUSTAINED THE SAME AND IT FURTHER NEEDS TO BE CONFIRMED. IT WAS THUS PLEADED FOR CONFIRMATION OF THE IMPUGNED ORDER. 7. IN ORDER TO COUNTER THE SUBMISSIONS OF THE LD. DR THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ELECTRICITY IS AN INTEGRAL PART OF MANUFACTURING AND WITHOUT IT THERE CAN BE NO MANUFACTURING AND IT CANNOT RESU LT INTO EXPORTING OF GOODS AND THE ASSESSEE CANNOT EARN ANY FOREIGN EXCHANGE. THER EFORE IT HAS DIRECT LINK AND NEXUS WITH THE EXPORT TURNOVER. SINCE THERE IS NO JUSTIFICATION FOR THE ASSESSING OFFICER TO DISALLOW THE CLAIM TO REDUCE THE DEDUCTI ON AS CLAIMED IN SECTION 80HHC IN RELATION TO THE AMOUNT ADJUSTED FOR CONSUMPTION OF ELECTRICITY GENERATED FROM WINDMILL AGAINST WHICH CREDIT WAS GIVEN BY THE TNEB THEREFORE ON MERITS ALSO THE ASSESSING OFFICER WAS NOT JUSTIFIED IN NOT ALLOWING THE CLAIM OF THE ASSESSEE AND THE LD. CIT(A) IS NOT LEGALLY CORRECT TO UPHELD THE ACTION OF THE ASSESSING OFFICER. IT WAS THUS PLEADED FOR DELETION OF ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A). 8. AFTER HEARING BOTH THE SIDES AND CONSIDERING TH E MATERIAL ON RECORD AS WELL AS PRECEDENTS RELIED BY THE RIVAL SIDES WE FIND IT TO BE UNDISPUTED FACT THAT SO FAR AS REASSESSMENT PROCEEDINGS ARE CONCERNED THE ASSE SSING OFFICER DID NOT TREAT ESCAPEMENT WITH RESPECT TO THE ITEM ON THE BASIS OF WHICH NOTICE OF REASSESSMENT HAS BEEN ISSUED AND THE ASSESSING OFFICER HAS PROCE EDED TO REASSESS THE ITEM WHICH DID NOT FORM PART OF THE REASONS RECORDED FOR WHICH NOTICE HAS BEEN ISSUED BUT SAME WAS NOTICED DURING THE REASSESSMENT PROCEE DINGS ONLY AND THE LD. CIT(A) HAS UPHELD HIS ACTION. THE MAIN PLEA OF THE ASSESSEE IS THAT SINCE NO I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 9 REASSESSMENT WITH RESPECT TO THE ITEM MENTIONED IN THE REASON RECORDED FOR INITIATING REASSESSMENT PROCEEDINGS HAVING BEEN MAD E OR TREATED AS ESCAPEMENT IS THERE WHICH HAS BEEN TAXED THEREFORE EVEN IN V IEW OF THE SPECIFIC PROVISIONS REASSESSMENT COULD NOT BE MADE AND STRONG RELIANCE IS MADE ON THE HONBLE RAJASTHAN HIGH COURTS DECISION IN THE CASE OF CIT VS. SHRI RAM SINGH (SUPRA) BUT WE FIND THAT THE FOLLOWING EXPLANATION 3 TO SE CTION 147 HAS BEEN INSERTED BY THE FINANCE (NO.2) ACT 2009 W.E.F. 01.04.1989. [EXPLANATION 3 - FOR THE PURPOSE OF ASSESSMENT OR REASSESSMENT UNDER THIS SECTION THE ASSESSING OFFI CER MAY ASSESS OR REASSESS THE INCOME IN RESPECT OF ANY ISSUE WHI CH HAS ESCAPED ASSESSMENT AND SUCH ISSUE COMES TO HIS NOTICE SUBS EQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION NOTWI THSTANDING THAT THE REASONS FOR SUCH ISSUE HAVE NOT BEEN INCLUDED IN TH E REASONS RECORDED UNDER SUB-SECTION (2) OF SECTION 148] SO IT IS QUITE CLEAR THAT THE ABOVE AMENDMENT HAS BEEN MADE RETROSPECTIVELY I.E. EFFECTIVE FROM 01.04.1989 AND THE ABOVE JUDGMENT IS DELIVERED ON 20.05.2008 BUT THERE IS ALREADY HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CIT V. SUN ENGINEERING WORKS PVT. LIMITED (1992) 198 ITR 297 I N WHICH SIMILAR ISSUE HAS BEEN DEALT WITH AND PREPOSITION HAS BEEN DECIDED IN FAVOUR OF THE REVENUE BUT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. M/S. JET AIRWAYS (I) LIMITED IN INCOME TAX APPEAL NO.1714 OF 2009 DATED 12.04.2010 HAS WHILE CONSIDERING THE LATEST AMENDMENT AS WELL AS JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SUN ENGINEERING WORKS PVT. LIMITED (SUPRA) HAS O PINED TO HOLD THAT IF AN ITEM OF ESCAPEMENT IS NOT PART OF REASONS RECORDED NO REAS SESSMENT WITH RESPECT TO THE I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 10 SAID ITEM COULD BE MADE AND RELEVANT PORITION FROM PARA 12 ONWARDS READS AS UNDER: 12. IN COMMISSIONER OF INCOME TAX V/S. SUN ENGINE ERING WORK LIMITED THE SUPREME COURT DEALT WITH THE FOLLOWING QUESTION OF LAW IN THE COURSE OF ITS JUDGMENT: 'WHERE AN ITEM UNCONNECTED WITH THE ESCAPEMENT OF I NCOME HAS BEEN CONCLUDED FINALLY AGAINST THE ASSESSEE HOW FAR IN REASSESSMENT ON AN ESCAPED ITEM OF INCOME IS IT OPEN TO THE ASSESSEE T O SEEK A REVIEW OF THE CONCLUDED ITEM FOR THE PURPOSE OF COMPUTATION O F THE ESCAPED INCOME ?' THE ISSUE WHICH AROSE BEFORE THE SUPREME COURT WAS WHETHER IN THE COURSE OF A REASSESSMENT ON AN ESCAPED ITEM OF INCOME COULD A N ASSESSEE SEEK A REVIEW IN RESPECT OF AN ITEM WHICH STOOD CONCLUDED IN THE ORIGINAL ORDER OF ASSESSMENT. THE SUPREME COURT DEALT WITH THE PROVIS IONS OF SECTION 147 AS THEY STOOD PRIOR TO THE AMENDMENT ON 1 APRIL 1989. THE SUPREME COURT HELD THAT THE EXPRESSION ESCAPED ASSESSMENT INCLUDES B OTH NON-ASSESSMENT AS WELL AS UNDER ASSESSMENT. INCOME IS SAID TO HAVE ESCAPED ASSESSMENT WITHIN THE MEANING OF THE SECTION WHEN IT HAS NOT B EEN CHARGED IN THE HANDS OF AN ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR. TH E EXPRESSION ASSESS REFERS TO A SITUATION WHERE THE ASSESSMENT OF THE A SSESSEE FOR A PARTICULAR YEAR IS FOR THE FIRST TIME MADE BY RESORTING TO THE PR OVISIONS OF SECTION 147. THE EXPRESSION REASSESS REFERS TO A SITUATION WHERE A N ASSESSMENT HAS ALREADY BEEN MADE BUT THE ASSESSING OFFICER HAS REASON TO B ELIEVE THAT THERE IS UNDER ASSESSMENT ON ACCOUNT OF THE EXISTENCE OF ANY OF TH E GROUNDS CONTEMPLATED BY EXPLANATION 1 TO SECTION 147. THE SUPREME COURT ADV ERTED TO THE JUDGMENT IN V. JAGANMOHAN RAOS CASE [1970] 75 ITR 373 (S.C.) WHICH HELD THAT ONCE AN ASSESSMENT IS VALIDLY REOPENED THE PREVIOUS UNDER ASSESSMENT IS SET ASIDE AND THE INCOME TAX OFFICER HAS THE JURISDICTION AND DUT Y TO LEVY TAX ON THE ENTIRE INCOME THAT HAD ESCAPED ASSESSMENT DURING THE PREVI OUS YEAR. THE COURT HELD THAT THE OBJECT OF SECTION 147 ENSURES TO THE BENEF IT OF THE REVENUE AND IT IS NOT OPEN TO THE ASSESSEE TO CONVERT THE REASSESSMEN T PROCEEDINGS AS AN APPEAL OR REVISION AND THEREBY SEEK RELIEF IN RESPECT OF I TEMS WHICH WERE REJECTED EARLIER OR IN RESPECT OF ITEMS NOT CLAIMED DURING T HE COURSE OF THE ORIGINAL ASSESSMENT PROCEEDINGS. THE JUDGMENT IN JAGANMOHAN RAOS CASE DEALT WITH TH E LANGUAGE OF SECTIONS 22(2) AND 34 OF THE ACT OF 1922 WHILE THE JUDGMENT IN SUN ENGINEERING WORKS (SUPRA) INTERPRETS THE PROVISIONS OF SECTION 147 AS THEY STOOD PRIOR TO THE AMENDMENT ON 1 APRIL 1989. I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 11 13. THE EFFECT OF THE AMENDED PROVISIONS CAME TO B E CONSIDERED IN TWO DISTINCT LINES OF PRECEDENT ON THE SUBJECT. THE FIR ST LINE OF AUTHORITY TO WHICH A REFERENCE HAS ALREADY BEEN MADE EARLIER ADOPTED TH E PRINCIPLE THAT WHERE THE ASSESSING OFFICER HAS FORMED A REASON TO BELIEVE TH AT INCOME HAS ESCAPED ASSESSMENT AND HAS ISSUED A NOTICE UNDER SECTION 14 8 ON CERTAIN SPECIFIC ISSUES IT WAS NOT OPEN TO HIM DURING THE COURSE OF THE PROCEEDINGS FOR ASSESSMENT OR REASSESSMENT TO ASSESS OR REASSESS AN Y OTHER INCOME WHICH MAY HAVE ESCAPED ASSESSMENT BUT WHICH DID NOT FORM THE SUBJECT MATTER OF THE NOTICE UNDER SECTION 148. THIS VIEW WAS ADOPTED IN THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN VIPAN KHANNA (SUPRA) AND IN THE JUDGMENT OF THE KERALA HIGH COURT IN TRAVANCORE CEMENTS LIMI TED (SUPRA). THIS LINE OF AUTHORITY WOULD NOW CEASE TO REFLECT THE CORRECT P OSITION IN LAW BY VIRTUE OF THE AMENDMENT WHICH HAS BEEN BROUGHT IN BY THE INSE RTION OF EXPLANATION 3 TO SECTION 147 BY FINANCE (NO.2) ACT OF 2009. THE EFFE CT OF THE EXPLANATION IS THAT ONCE AN ASSESSING OFFICER HAS FORMED A REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND HAS PR OCEEDED TO ISSUE A NOTICE UNDER SECTION 148 IT IS OPEN TO HIM TO ASSESS OR R EASSESS INCOME IN RESPECT OF ANY OTHER ISSUE THOUGH THE REASONS FOR SUCH ISSUE H AD NOT BEEN INCLUDED IN THE REASONS RECORDED UNDER SECTION 148(2). 14. THE SECOND LINE OF PRECEDENT IS REFLECTED IN A JUDGMENT OF THE RAJASTHAN HIGH COURT IN COMMISSIONER OF INCOME TAX V/S. SHRI RAM SINGH. THE RAJASTHAN HIGH COURT CONSTRUED THE WORDS USED B Y PARLIAMENT IN SECTION 147 PARTICULARLY THE WORDS THAT THE ASSESSING OFFIC ER MAY ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENT LY IN THE COURSE OF THE PROCEEDINGS UNDER SECTION 147. THE RAJASTHAN HIGH C OURT HELD AS FOLLOWS: ..IT IS ONLY WHEN IN PROCEEDINGS UNDER SECTION 147 THE ASSESSING OFFICER ASSESSES OR REASSESSES ANY INCOME CHARGEA BLE TO TAX WHICH HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR WIT H RESPECT TO WHICH HE HAD REASON TO BELIEVE TO BE SO THEN ONLY IN ADDITION HE CAN ALSO PUT TO TAX THE OTHER INCOME CHARGEABLE TO TAX WHI CH HAS ESCAPED ASSESSMENT AND WHICH HAS COME TO HIS NOTICE SUBSEQ UENTLY IN THE COURSE OF PROCEEDINGS UNDER SECTION 147. TO CLARIFY IT FURTHER OR TO PUT IT IN OTHER WORDS IN OUR OPINION IF IN THE COURSE OF PROCEEDINGS UNDER SECTION 147 THE ASSESSING OFFICER WERE TO COME TO THE CONCLUSION THAT ANY INCOME CHA RGEABLE TO TAX WHICH ACCORDING TO HIS REASON TO BELIEVE HAD ES CAPED ASSESSMENT FOR ANY ASSESSMENT YEAR DID NOT ESCAPE ASSESSMENT THEN THE MERE FACT THAT THE ASSESSING OFFICER ENTERTAINED A REASON TO BELIEVE ALBEIT EVEN A GENUINE REASON TO BELIEVE WOULD NOT CONTINUE TO VE ST HIM WITH THE JURISDICTION TO SUBJECT TO TAX ANY OTHER INCOME CHARGEABLE TO TAX WHICH THE ASSESSING OFFICER MAY FIND TO HAVE ESCAPE D ASSESSMENT AND I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 12 WHICH MAY COME TO HIS NOTICE SUBSEQUENTLY IN THE C OURSE OF PROCEEDINGS UNDER SECTION 147. 15. PARLIAMENT WHEN IT ENACTED THE EXPLANATION (3 ) TO SECTION 147 BY THE FINANCE (NO. 2) ACT 2009 CLEARLY HAD BEFORE IT BOT H THE LINES OF PRECEDENT ON THE SUBJECT. THE PRECEDENT DEALT WITH TWO SEPARATE QUESTIONS. WHEN IT EFFECTED THE AMENDMENT BY BRINGING IN EXPLANATION 3 TO SECTI ON 147 PARLIAMENT STEPPED IN TO CORRECT WHAT IT REGARDED AS AN INTERP RETATIONAL ERROR IN THE VIEW WHICH WAS TAKEN BY CERTAIN COURTS THAT THE ASSESSIN G OFFICER HAS TO RESTRICT THE ASSESSMENT OR REASSESSMENT PROCEEDINGS ONLY TO THE ISSUES IN RESPECT OF WHICH REASONS WERE RECORDED FOR REOPENING THE ASSESSMENT. THE CORRECTIVE EXERCISE EMBARKED UPON BY PARLIAMENT IN THE FORM OF EXPLANAT ION 3 CONSEQUENTLY PROVIDES THAT THE ASSESSING OFFICER MAY ASSESS OR R EASSESS THE INCOME IN RESPECT OF ANY ISSUE WHICH COMES TO HIS NOTICE SUBS EQUENTLY IN THE COURSE OF THE PROCEEDINGS THOUGH THE REASONS FOR SUCH ISSUE W ERE NOT INCLUDED IN THE NOTICE UNDER SECTION 148(2). THE DECISIONS OF THE K ERALA HIGH COURT IN TRAVANCORE CEMENTS LIMITED (SUPRA) AND OF THE PUNJA B & HARYANA HIGH COURT IN VIPAN KHANNA (SUPRA) WOULD THEREFORE NO LONGER HOLD THE FIELD. HOWEVER INSOFAR AS THE SECOND LINE OF AUTHORITY IS CONCERNED WHICH IS REFLECTED IN THE JUDGMENT OF THE RAJASTHAN HIGH COU RT IN SHRI RAM SINGH (SUPRA_ EXPLANATION 3 AS INSERTED BY PARLIAMENT WO ULD NOT TAKE AWAY THE BASIS OF THAT DECISION. THE VIEW WHICH WAS TAKEN BY THE RAJASTHAN HIGH COURT WAS ALSO TAKEN IN ANOTHER JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX V/S ATLAS CYCLE INDUSTRI ES. THE DECISION IN ATLAS CYCLE INDUSTRIES HELD THAT THE ASSESSING OFFICER DI D NOT HAVE JURISDICTION TO PROCEED WITH THE REASSESSMENT ONCE HE FOUND THAT T HE TWO GROUNDS MENTIONED IN THE NOTICE UNDER SECTION 148 WERE INCORRECT OR N ON EXISTENT. THE DECISIONS OF THE PUNJAB & HARYANA HIGH COURT IN ATLAS CYCLE I NDUSTRIES (SUPRA) AND OF THE RAJASTHAN HIGH COURT IN SHRI RAM SINGH (SUPRA) WOULD NOT BE AFFECTED BY THE AMENDMENT BROUGHT IN BY THE INSERTION OF EXPLAN ATION 3 TO SECTION 147. 16. EXPLANATION 3 LIFTS THE EMBARGO WHICH WAS INS ERTED BY JUDICIAL INTERPRETATION ON THE MAKING OF AN ASSESSMENT OF R EASSESSMENT ON GROUNDS OTHER THAN THOSE ON THE BASIS OF WHICH A NOTICE WAS ISSUED UNDER SECTION 148 SETTING OUT THE REASONS FOR THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. THOSE JUDICIAL DECISIONS HAD HELD THAT WHEN THE ASS ESSMENT WAS SOUGHT TO BE REOPENED ON THE GROUND THAT INCOME HAD ESCAPED ASSE SSMENT ON A CERTAIN ISSUE THE ASSESSING OFFICER COULD NOT MAKE AN ASSE SSMENT OR REASSESSMENT ON ANOTHER ISSUE WHICH CAME TO HIS NOTICE DURING THE P ROCEEDINGS. THIS INTERPRETATION WILL NO LONGER HOLD THE FIELD AFTER THE INSERTION OF EXPLANATION 3 BY THE FINANCE ACT (NO. 2) OF 2009. HOWEVER EXPLAN ATION 3 DOES NOT AND CANNOT OVERRIDE THE NECESSITY OF FULFILLING THE CON DITIONS SET OUT IN THE SUBSTANTIVE PART OF SECTION 147. AN EXPLANATION TO A STATUTORY PROVISION IS INTENDED TO EXPLAIN ITS CONTENTS AND CANNOT BE CONS TRUED TO OVERRIDE IT OR RENDER THE SUBSTANCE AND CORE NUGATORY. SECTION 147 HAS THIS EFFECT THAT THE I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 13 ASSESSING OFFICER HAS TO ASSESS OR REASSESS THE INC OME (SUCH INCOME) WHICH ESCAPED ASSESSMENT AND WHICH WAS THE BASIS OF THE F ORMATION OF BELIEF AND IF HE DOES SO HE CAN ALSO ASSESS OR REASSESS ANY OTHE R INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE DU RING THE COURSE OF THE PROCEEDINGS. HOWEVER IF AFTER ISSUING A NOTICE UND ER SECTION 148 HE ACCEPTED THE CONTENTION OF THE ASSESSEE AND HOLDS THAT THE I NCOME WHICH HE HAS INITIALLY FORMED A REASON TO BELIEVE HAD ESCAPED ASSESSMENT HAS AS A MATTER OF FACT NOT ESCAPED ASSESSMENT IT IS NOT OPEN TO HIM INDEP ENDENTLY TO ASSESS SOME OTHER INCOME. IF HE INTENDS TO DO SO A FRESH NOTIC E UNDER SECTION 148 WOULD BE NECESSARY THE LEGALITY OF WHICH WOULD BE TESTED IN THE EVENT OF CHALLENGE BY THE ASSESSEE. 17. WE HAVE APPROACHED THE ISSUE OF INTERPRETATION THAT HAS ARISEN FOR DECISION IN THESE APPEALS BOTH AS A MATTER OF FIRS T PRINCIPLE BASED ON THE LANGUAGE USED IN SECTION 147(1) AND ON THE BASIS OF THE PRECEDENT ON THE SUBJECT. WE AGREE WITH THE SUBMISSION WHICH HAS BEE N URGED ON BEHALF OF THE ASSESSEE THAT SECTION 147 (1) AS IT STANDS POSTULAT ES THAT UPON THE FORMATION OF A REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR THE ASSESSING OFFICER MAY ASSE SS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO T AX WHICH COMES TO HIS NOTICE SUBSEQUENTLY DURING THE PROCEEDINGS AS HAVIN G ESCAPED ASSESSMENT. THE WORDS AND ALSO ARE USED IN A CUMULATIVE AND C ONJUNCTIVE SENSE. TO READ THESE WORDS AS BEING IN THE ALTERNATIVE WOULD BE TO REWRITE THE LANGUAGE USED BY PARLIAMENT. OUR VIEW HAS BEEN SUPPORTED BY THE BACKGROUND WHICH LED TO THE INSERTION OF EXPLANATION 3 TO SECTION 14 7. PARLIAMENT MUST BE REGARDED AS BEING AWARE OF THE INTERPRETATION THAT WAS PLACED ON THE WORDS AND ALSO BY THE RAJASTHAN HIGH COURT IN SHRI RAM SINGH (SUPRA). PARLIAMENT HAS NOT TAKEN AWAY THE BASIS OF THAT DEC ISION. WHILE IT IS OPEN TO PARLIAMENT HAVING REGARD TO THE PLENITUDE OF ITS L EGISLATIVE POWERS TO DO SO THE PROVISIONS OF SECTION 147(1) AS THEY STOOD AFTE R THE AMENDMENT OF 1 APRIL 1989 CONTINUE TO HOLD THE FIELD. 18. IN THAT VIEW OF THE MATTER AND FOR THE REASONS THAT WE HAVE INDICATED WE DO NOT REGARD THE DECISION OF THE TRIBUNAL IN TH E PRESENT CASE AS BEING IN ERROR. THE QUESTION OF LAW SHALL ACCORDINGLY STAND ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. THE APPEAL I S ACCORDINGLY DISMISSED. THERE SHALL BE NO ORDER AS TO COSTS. 9. THEREFORE FOLLOWING THE ABOVE NOTED DECISION O F THE HONBLE BOMBAY HIGH COURT WE HOLD THAT SINCE REASSESSED ITEM WAS NOT P ART OF REASONS RECORDED FOR REOPENING OF THE ASSESSMENT UNDER SECTION 147 THOUG H IT IS FOUND DURING I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 I.T.A. NO. 953/MDS/10 14 REASSESSMENT PROCEEDINGS AND ASSESSED REASSESSMENT COULD NOT BE MADE. AS SUCH THE APPEAL OF THE ASSESSEE ON THE VERY FIRST ISSUE OF LEGALITY OF REASSESSMENT IS DECIDED IN FAVOUR OF THE ASSESSEE AND REASSESSME NT PROCEEDINGS ARE DIRECTED TO BE QUASHED. 10. SINCE THE APPEAL OF THE ASSESSEE HAS BEEN ACCE PTED ON THE VERY FIRST ISSUE THEREFORE THE ISSUE ON MERITS AS SUCH IS NOT BEIN G CONSIDERED. 11. AS A RESULT THE APPEAL OF THE ASSESSEE GETS A CCEPTED.. ORDER PRONOUNCED ON 03.01.2011. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER CHENNAI DATED THE 03.01.2011 VM/- COPY TO : APPELLANT/RESPONDENT/CIT(A)- /CIT /DR