JOSEPH ZAVERI CHERIAN, MUMBAI V. ITO WD 21(3)(30, MUMBAI

ITA 736/MUM/2010

• Counselvise Citation: 73619914 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 03-11-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 01-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Assessee Lawyers: KULIN V MUNIM
• Keywords: Validity of assessment; Reason to believe; Reassessment proceedings
• Section: 147; 148; 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI P.M.JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 736/MUM/2010. ASSESS MENT YEAR : 2001-02. JOSEPH ZAVIER CHERIAN, THE INCOME-TAX OFFICER, C/O M/S ELITE INTERNATIONAL, VS. WARD-21(3)(3), 6, VASANT VILLA, OPP.IIT MARKET, MUMBAI. POWAI, MUMBAI 400076. PAN AAAPC7096C. APPELLANT. RESPONDENT. APPELLANT BY : SHR I KULIN V. MUNIM. RESPONDENT BY : SHRI O.A. MAO. DATE OF HEA RING : 03-11-2011. DATE OF PRONOUN CEMENT : 18-11-2011. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-32, MUMBAI DATED 16-12-2009. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF LEATHER AR TICLES UNDER THE NAME AND STYLE OF HIS PROPRIETARY CONCERN M/S ELITE INTERNATIONAL. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 25-10- 2001 DECLARING TOTAL INCOME OF RS.1,70,170/- AFTER CLAIMING DEDUCTION OF RS.6,72, 593/- U/S 80HHC. IN THE ASSESSMENT COMPLETED U/S 143(3) ORIGINALLY ON 23-10 -2002, THE CLAIM OF THE 2 ITA NO.736/MUM/2010 ASSESSMENT YEAR : 2001-02. ASSESSEE FOR DEDUCTION U/S 80HHC WAS FULLY ALLOWED BY THE AO AND THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED AT THE SAME FIG URE OF RS.1,70,170/- AS DECLARED IN THE RETURN. SUBSEQUENTLY THE SAID ASSESSMENT WAS REOPENED BY THE AO BY ISSUING NOTICE U/S 148 ON 17-03-2008 ON THE GROUND THAT THE ASSESSEE HAD GOT THE GOODS MANUFACTURED BY OUTSIDE AGENCIES BY PAYING LABOUR C HARGES AND, THEREFORE, HE WAS COVERED UNDER THE CATEGORY OF TRADING EXPORTER AND NOT MANUFACTURING EXPORTER. ACCORDING TO THE AO, THE ASSESSEE THUS WAS ALLOWED DEDUCTION U/S 80HHC IN EXCESS. DURING THE COURSE OF REASSESSMENT PROCEEDIN GS, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT GETTING THE FINISHED GOODS MAN UFACTURED FROM OUTSIDE PARTIES BY PAYING LABOUR CHARGES CONSTITUTED MANUFACTURING ACTIVITY AND, THEREFORE, DEDUCTION U/S 80HHC WAS RIGHTLY CLAIMED AND ALLOWED TREATING HIM AS MANUFACTURING EXPORTER. RELIANCE IN SUPPORT OF TH IS CONTENTION WAS PLACED BY THE ASSESSEE INTER ALIA, ON THE DECISION OF HONBLE KAR NATAKA HIGH COURT IN THE CASE OF CIT VS. INDIAN RESINS & POLYMERS 235 ITR 5. THIS ST AND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO. ACCORDING TO HIM, THE A SSESSEE HAVING NOT DIRECTLY MANUFACTURED THE GOODS BUT HAVING SUB-CONTRACTED TH E ACTIVITIES OF MANUFACTURING TO THIRD PARTIES, HIS CASE WAS COVERED UNDER THE CA TEGORY OF A TRADING EXPORTER. ACCORDINGLY THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80HHC WAS RESTRICTED BY THE AO TO RS.3,33,739/- IN THE REASSESSMENT COMPLET ED U/S 143(3) READ WITH SECTION 147 BY AN ORDER DATED 31-10-2008. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) RE AD WITH SECTION 147, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEA RNED CIT(APPEALS) CHALLENGING THE VALIDITY OF REASSESSMENT MADE BY THE AO AS WELL AS DISPUTING THE ADDITION MADE THEREIN BY RESTRICTING HIS CLAIM FOR DEDUCTION U/S 80HHC. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THE PRELIMINARY ISSUE RAISED BY THE ASSESSEE CHALLENGING THE VALIDITY OF REASSESSMENT MADE BY TH E AO. HE HELD THAT THE 3 ITA NO.736/MUM/2010 ASSESSMENT YEAR : 2001-02. ASSESSMENT WAS REOPENED BY THE AO BY ISSUING NOTICE U/S 148 AFTER FOLLOWING DUE PROCESS OF LAW AND THERE WAS NOTHING ILLEGAL IN THE REASSESSMENT COMPLETED BY HIM IN PURSUANCE OF THE NOTICE ISSUED U/S 148. HE ALSO CONFIRMED THE ADDITION MADE BY THE AO BY WAY OF RESTRICTING THE ASSESSEES CLAIM F OR DEDUCTION U/S 80HHC OBSERVING THAT THE ASSESSEE HAVING NO MANUFACTURING FACILITIES OF HIS OWN, HE COULD NOT BE SAID TO BE MANUFACTURING EXPORTER. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEA L BEFORE THE TRIBUNAL. 4. IN GROUND NO.1 OF THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF ASSESSMENT MADE BY THE AO U/S 143(3) READ WITH SECT ION 147. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS PRELIMINARY ISSUE RAISED BY THE ASSESSEE CHALLENGING THE VALIDITY OF REASSESSMENT MADE BY THE AO ON THE GROUND THAT THE INITIATION OF REASSESSMENT PROC EEDINGS ITSELF WAS BAD IN LAW. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED IN THIS REGARD THAT THE ASSESSMENT IN THE PRESENT CASE COMPLETED ORIGINALLY U/S 143(3) WAS REOPENED BY THE AO AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF T HE ASSESSMENT YEAR WITHOUT POINTING OUT IN THE REASONS RECORDED ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR. HE HAS INVITED OUR ATTENTION TO TH E REASONS RECORDED BY THE AO FOR REOPENING THE ASSESSMENT WHICH ARE REPRODUCED HEREU NDER FROM THE COPY FILED BY THE ASSESSEE ON RECORD : IN THIS CASE, ASSESSMENT WAS COMPLETED U/S 143(3) ON 23.10.2002 ON TOTAL INCOME OF RS.1,70,170/- AFTER ALLOWING THE AS SESSEES CLAIM FOR DEDUCTION U/S 80HHC OF RS.6,72,593/-. PERUSAL OF THE RECORDS REVEALS THAT THE ASSESSEE H AS CLAIMED THE DEDUCTION AS MANUFACTURER EXPORTER WHEREAS THE ASSE SSEE HAS GOT THE GOODS MANUFACTURED/PRODUCED FROM OUTSIDE AGENCIES BY PAYI NG LABOUR CHARGES. ON THIS BASIS, THE ASSESSEE IS ENTITLED TO DEDUCTION U /S 80HHC OF RS.3,33,739/- 4 ITA NO.736/MUM/2010 ASSESSMENT YEAR : 2001-02. INSTEAD OF RS.6,72,593/- CLAIMED AND ALLOWED. THIS HAS RESULTED IN UNDER ASSESSMENT TO THE EXTENT OF RS.3,38,854/-. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THA T THE INCOME CHARGEABLE TO TAX TO THE EXTENT OF RS.3,38,851/- HA S ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE I.T. ACT 1 968. AS MORE THAN 4 YEARS HAVE ELAPSED FROM THE END OF THE ASSESSMENT YEAR, CITS KIND APPROVAL AS PER PROVISION TO SECTI ON 151(1) IS REQUESTED FOR ISSUE OF NOTICE U/S 148 OF THE I.T. ACT. 6. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSE SSEE, THERE IS NOTHING WHATSOEVER MENTIONED OR EVEN INDICATED IN THE REASO NS RECORDED BY THE AO ABOUT ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT AND THIS POSITION CLEA RLY EVIDENT FROM THE REASONS RECORDED BY THE AO HAS NOT BEEN DISPUTED EVEN BY TH E LEARNED DR. IN THE CASE OF DHANRAJ SINGH & CO. VS. CIT AND ANOTHER 132 ITR 323 , THE HONBLE PATNA HIGH COURT HAS HELD THAT THERE BEING NO ALLEGATION WHATS OEVER IN THE REASONS RECORDED THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSES SEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS, INITIATION OF REASSESSMENT PROCEEDI NGS WOULD BE INVALID. IN THE CASE OF KAIRA DISTRICT COOP. MILK PRODUCERS UNION LTD. V S. CIT 216 ITR 371, THE HONBLE GUJARAT HIGH COURT HAS HELD THAT WHERE IN T HE REASONS RECORDED FOR INITIATING THE PROCEEDINGS U/S 147, THERE IS NO MEN TION ABOUT THE SATISFACTION OF THE AO OR THE FORMATION OF BELIEF AS TO THE ESCAPEMENT OF INCOME OWING TO THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIA L FACTS FOR ASSESSMENT, ISSUE OF NOTICE U/S 148 WOULD BE INVALID. TO THE SIMILAR EFF ECT ARE THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ICICI PRUDENTIAL L IFE INSURANCE CO. LTD. VS. ACIT 325 ITR 471 AND IN THE CASE OF INDIAN OIL CORP ORATION LTD. VS. DCIT 327 ITR 272. 5 ITA NO.736/MUM/2010 ASSESSMENT YEAR : 2001-02. 7. IN THE PRESENT CASE, THERE IS NOTHING IN THE REA SONS RECORDED BY THE AO TO SHOW THAT ALLEGED ESCAPEMENT OF INCOME WAS OWING TO THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE MATERIAL FACTS TRULY AND F ULLY AND NO SUCH ALLEGATION WAS MADE IN THE REASONS SO RECORDED BY THE AO. THIS BEI NG THE POSITION AND KEEPING IN VIEW THE LEGAL POSITION EMANATING FROM THE JUDICIA L PRONOUNCEMENT DISCUSSED ABOVE, WE HOLD THAT THE INITIATION OF REASSESSMENT PROCEEDINGS BY THE AO IN THE PRESENT CASE AFTER THE EXPIRY OF FOUR YEARS FROM TH E RELEVANT ASSESSMENT YEARS WITHOUT COMPLYING WITH THE REQUIREMENTS OF PROVISO TO SECTION 147 WAS BAD IN LAW AND THE ASSESSMENT COMPLETED U/S 143(3) READ WITH S ECTION 147 IN PURSUANCE OF THE SAME IS INVALID. WE, THEREFORE, QUASH THE SAID ASSE SSMENT AND ALLOW GROUND NO.1 OF THE ASSESSEES APPEAL. 8. KEEPING IN VIEW OUR DECISION RENDERED ON PRELIMI NARY ISSUE WHILE DISPOSING OF GROUND NO. 1 OF THE ASSESSEES APPEAL QUASHING T HE ASSESSMENT MADE BY THE AO U/S 143(3) READ WITH SECTION 147, THE OTHER GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL DISPUTING THE ADDITION MADE IN THE SAID ASSE SSMENT HAVE BECOME INFRUCTUOUS. WE DO NOT, THEREFORE, CONSIDER IT NECE SSARY OR EXPEDIENT TO ADJUDICATE UPON THE SAME. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED ORDER PRONOUNCED ON THIS 18 TH DAY OF NOV.., 2011. SD/- SD/- (B.R. MITTAL) ( P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 18 TH NOV., 2011. WAKODE 6 ITA NO.736/MUM/2010 ASSESSMENT YEAR : 2001-02. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, I-BENCH. (TRUE COPY) BY ORDE R ASSTT. REGI STRAR, ITAT, MUMBAI BEN CHES, MUMBAI ,