Allowed

M/S Allanasons Ltd. v. the Deputy Commissione of INCOME-TAX,CIRCLE-1 (1)

Bombay HC18 Jun 2014WP/802/2005

Case brief

AI extract

What is this about?

The Bombay High Court held that a notice issued under Section 148 of the Income-tax Act to reopen an assessment was invalid. The court found the reopening was based on a mere change of opinion regarding a Claim for deduction under Section 80HHC, and the Assessing Officer had issued the notice relying on incorrect facts by failing to apply the modified appellate order of the CIT(A).

What did the court decide?

The writ petition was allowed and the impugned notice dated 10 January 2005 issued under Section 148 of the Income Tax Act was set aside.

M/S Allanasons Ltd. Vs the Deputy Commissione… — Civil Procedure and Limitation | Bombay HC (2014)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

¶5

WRIT PETITION NO.802OF 2005

M/s. Allanasons Ltd.

….Petitioner.

vs.

The Deputy Commissioner of Income Tax Circle 1(1) and ors. ….Respondents.

¶10

Mr. Rafiqu Dada, Senior Advocate with Mr. Jitendra Jain and Mr. Murlidharan i/by M/s. Joy Legal Consultants for the Petitioner. Mr. Suresh Kumar for the Respondent.

¶11

CORAM : M. S. SANKLECHA AND G.S. KULKARNI, JJ. DATE : 22 JULY 2014

¶12

PC:

¶13

This petition assails the notice dated 10 January 2005 issued by the Assessing officer under Section 148 of the Income Tax Act, 1961 (“the Act”). By the impugned notice dated 10 January 2005 the Assessing officer is seeking to reopen the assessment for Assessment Year 2000-01.

¶14

This petition was admitted on 20 June 2005 and a stay of the impugned notice was granted.

¶15

On 29 November 2000, the petitioner filed its return of income for A.Y. 2000-01. In its return the petition had declared an income of Rs.2.04 crores after having claimed deduction of Rs.6.45 crores under Section 80HHC of the Act.

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During the course of assessment proceedings by letter dated 15 November 2002 under Section 143(3) of the Act, the Assessing officer called upon the petitioners' to explain why the deduction claimed under Section 80HHC of the Act should not be recomputed in view of loss in trading activities and 90% other income (such as interest) not being correctly taken. The petitioner responded to the notice by letter dated 19 November 2002 and justified the deduction as claimed under Section 80 HHC of the Act. On 30 December 2002, the Assessing officer passed an order under Section143(3) of the Act determining the petitioner's income of Rs.2.58 crores. However, the petitioner's claim to the benefit of Section 80 HHC of the Act was reduced from Rs.6.45 crores as claimed by the petitioner to Rs.5.93 crores on account of export manufacture loss and disallowance of interest income attributable to the petitioner's export business.

¶20

Being aggrieved, the petitioner filed an appeal to the CIT(A) challenging the assessment order under Section 143(3) dated 30 December 2002 for A.Y. 2000-01.On 29 December 2003, by an order the CIT(A) upheld the view of the Assessing officer in respect of loss on export manufacture but partially allowed the appeal in respect of the claim for interest income being related to export business. The Assessing Officer was directed to grant deduction under Section 80HHC of the Act on interest income. The order dated 29 December 2003 of the CIT(A) challenged by the petitioner as well as respondent revenue before the Tribunal to the extent the order was to their prejudice. The petitioner also requested the Assessing Officer to give

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effect to the order dated 29 December 2003 of the CIT(A). This giving effect to the order of the CIT(A) according to the petitioner would result in the petitioner's being entitled to deduction under Section 80HHC of the Act to the extent of Rs.6.64 crores.

¶25

In the mean time, before giving effect to the order of the CIT(A) dated 29 December 2003, the Assessing officer issued impugned notice dated 10 January 2005 under Section 148 of the Act seeking to reopen assessment for A.Y. 2000-01. The reasons in support of the impugned notice as furnished to the petitioner read as under:

¶26

“ORDER SHEET

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ALLANA SONS LIMITED A.Y. 2000-2001 Assessee has been allowed deduction u/s.80HHC as under: Trading Profit Rs.16,65,032/Loss from manufacturing Rs.19,21,142/Deduction on incentives Rs.5,96,07,066/Deduction allowed Rs.5,93,50,957/-

¶28

When the deduction was allowed the judgment of Mangalya Trading and Investment Limited (ITA 6354/Mum/98 dated 23/4/2004) was not available at the time completion of assessment u/s. 143(3).The decision of ITAT Mumbai has been endorsed by the Hon'ble Bombay High Court in the case of Rohan Dyes and Intermediates Ltd. vs. CIT dated 9/8/2004. In view of these judgments the deduction u/s.80HHC would not available on the balance incentives, even where the 90% of the incentives exceeds the (Net) loss from the exports. As per the Judgment of IPCA Laboratories Limited of Supreme Court (266 ITR 521) and the losses in export of trading goods should be adjusted against the profits of manufacture goods for

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vis-a versa while computing the deduction u/s.80HHC. Therefore, in view of the decision of IPCA Laboratories Ltd. and Rohan Dyes and Intermediates Ltd. the deduction u/s. 80HHC will not available on balance incentives is there is no net profit from trading and manufacturing export.”

¶33

After adjusting the loss of Rs.19,21,142/from manufacturing export against trading profit of Rs.16,65,032/- there is net loss of Rs.2,56,110/-. Since the assessee do not have profit from exports, the deduction on incentives is not available in view of the decision of Rohan Dyes and Intermediates Ltd. cited above. Therefore, I have reason to believe that income has escaped assessment. Approval has been granted by CIR-I Mumbai vide letter dated 6/1/2005 for reopening assessment u/s.147 of the Act. Therefore, assessment proceedings are reopened u/s.147. Issue notice u/s.148 of the I. T. Act.”

¶34

On 7 February 2005, the petitioner recorded its objection to the reasons furnished to it for issuing impugned notice dated 10 January 2005. In particular, the petitioner pointed out that:

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(i) Figures taken as the basis for reopening the assessment for A.Y. 2000-01 are incorrect as it ignores the order in Appeal dated 29 December 2003 passed by the CIT(A) to which extent the order dated 30 December 2002 passed under Section 143(3) of the Act stands modified/merged;

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(ii) Claim for deduction u/s. 80HHC of the Act was a subject matter of consideration by the Assessing officer while passing assessment order on 30 December 2002 under Section 143(3) of the Act as specific queries in that regard were raised. Thus, the proposed reopening notice is based on mere

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change of opinion;

(iii) The issue viz. method of Section 80 HHC computation is now settled by virtue of the observations in the decision of this Court in IPCA Laboratories Ltd. vs. Dy. CIT (2001)251 ITR 401 (Bombay) and the same has been followed.

¶42

On the above grounds the petitioners sought the withdrawal of the impugned notice dated 20 June 2005;

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Notwithstanding the above, the Assessing Officer by order dated 28 February 2005 rejected the petitioner's objection to the grounds of reopening. In particular, stating that during reassessment proceedings he was not bound by the order passed by the Appellate authority. The Assessing Officer also stated that effect has been given to the order of CIT(A) by order dated 15 February 2005 and the revenue is entitled to reopen the assessment as the same is being done within four years from the end of the relevant assessment year.

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It was only on 18 March 2005 that the petitioner was served with the copy of the order dated 15 February 2005 of the Assessing officer giving effect to the order dated 29 December 2003 of the CIT(A). However, while giving effect to the order of CIT(A), the Assessing Officer completely ignored the interest income which had to be taken into account. This resulted in the petitioner filing a rectification application before the Assessing Officer. However, the same was rejected by order dated 26 April 2006 of the Assessing Officer. This resulted in the petitioner filing an appeal against the order rejecting the rectification application to the CIT(A). On 30 May 2005, CIT(A)

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allowed the petitioner' appeal and directed the Assessing officer to consider interest income in accordance with the directions contained its earlier order dated 29 December 2003 of the CIT(A). The respondentRevenue being aggrieved by the order dated 30 May 2005 of the CIT(A) allowing the petitioner's appeal preferred an appeal before the Income Tax Appellate Tribunal (Tribunal).

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Thereafter, during the pendency of this petition the Tribunal disposed of the appeals filed by the petitioner and the respondent revenue against the order dated 29 December 2003 of the CIT(A) on merits. The Tribunal by an order dated 22 November 2006 dismissed the petitioner's appeal with regard to the loss on account of export manufacture and also dismissed the revenue's appeal with regard to interest for the purpose of computation of deduction under Section 80HHC of the Act.

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The respondent revenue's appeal against the order dated 2 August 2005 of CIT(A) on the rejection of rectification application by Assessing officer was also dismissed by the Tribunal on 10 November 2008. These events i.e. orders of the CIT(A) and the Tribunal passed after filing of the petition have been brought on record by amendment.

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Mr. Rafiq Dada, learned Senior Counsel for the petitioner in support of the petition submits as under:-

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a) The entire basis for reopening was without jurisdiction as while issuing impugned notice dated 10 January 2005 the Assessing

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officer had completely ignored and had not given effect to the order dated 29 December 2003 of the CIT(A). Consequently the foundational facts leading to the issue of impugned notice was erroneous and therefore, without jurisdiction;

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b) In any view of the matter, on merits, the petitioner's stand that interest income has to be included to compute the deduction available under Section 80HHC of the Act has been upheld by the CIT(A) as well as Tribunal. It is submitted that the order passed by the Assessing officer under Section 143(3) of the Act has merged into appellate orders and therefore, if interest amount is taken into account for computing deduction under Section 80HHC of the Act, no cause would exist to issue a reopening notice;

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c) The impugned notice is without jurisdiction as it is a result of change of opinion on the part of the Assessing officer. During the course of the assessment proceeding the Assessing Officer had specifically made queries with regard to claim for deduction under Section 80HHC of the Act and had considered the petitioner's response to the same while passing the order dated 30 December 2002; and

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d) Subsequent amendment to Section 80HHC of the Act by introduction of the fifth proviso thereto with retrospective effect from 12 April 1992 would also cover the issue on merits in favour of the petitioner.

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In view of the above, it is submitted that the petition be allowed.

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As against the above, Mr. Suresh Kumar learned Counsel appearing for the revenue in support of the impugned notice submits that at this stage there is no need of interference by this Court. The contention of the petitioner on merits could be urged before the Assessing Officer during the reassessment proceedings and the same would be disposed of in accordance with law.

¶64

We have considered the rival submissions. It is well settled that a notice to reopen the assessment under Section-148 of the Act can only be issued if the Assessing officer has reason to believe that income chargeable to tax has escaped assessment. This reason to believe on the part of the Assessing Officer has not to be on the basis of change of opinion i.e. where Assessing Officer has had occasion to consider an issue during the assessment proceeding under Section 143(3)of the Act. In this case, the Assessing Officer had during the proceeding under section 143(3) of the Act raised queries to the petitioner specifically with regard to petitioner's claim for deduction under Section 80HHC of the Act and the petitioner's response to the same was considered by the Assessing Officer while passing the assessment order. Therefore,the impugned notice and the grounds in support thereof are in fact a change of opinion on the part of the Assessing Officer. Therefore, on the aforesaid ground alone impugned notice is not sustainable.

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Moreover, it is pertinent to note that the order dated 30 December 2002 passed by the Assessing officer has been modified by order dated 29 December 2003 of CIT(A) to the extent it directed to the Assessing Officer to consider the interest income while computing

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the petitioner's claim for deduction under Section 80HHC of the Act. Thus the order dated 30 December 2002 of the Assessing Officer got merged into the order of CIT(A) dated 29 December 2003. The Assessing officer did not give effect to the order dated 29 December 2003 of the Appellate Authority while issuing the impugned notice on 10 January 2005. This resulted the Assessing Officer applying his mind to incorrect figures while forming the reasonable belief that income chargeable to tax has escaped assessment for the issue of impugned notice. Therefore, the jurisdictional requirement of having reason to believe that income chargeable to tax has escaped assessment was not satisfied, as the applicable facts were not considered. The order disposing of the objections records that the effect was given to the order dated 29 December 2013 by him on 15 February 2005. This was undisputedly much after the impugned notice. Therefore, admittedly the impugned notice has been issued on the basis of incorrect facts. On this ground also, we find merit in the submissions made on behalf of the petitioner.

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In any view of the matter, the stand of the petitioner on merits with regard to interest income being included while computing the claim for deduction under Section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to Section 80HHC (3) of the Act by addition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing officer would bound by

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the orders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice dated 10 January 2005.

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Accordingly, the petition is allowed. No order as to costs.

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(G. S. KULKARNI, J.)

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(M.S. SANKLECHA, J.)

M/S Allanasons Ltd. v. the Deputy Commissione of INCOME-TAX,CIRCLE-1 (1)

Case brief

What is this about?

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M/S Allanasons Ltd. v. the Deputy Commissione of INCOME-TAX,CIRCLE-1 (1)

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