DCIT, Kanpur V. M/s. Mirza International Ltd., Kanpur

ITA 749/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9085 (ITAT-LUCKNOW)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-03-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Retrospective amendment; Additional evidence; Non compliance; Assessment record
• Section: 143(3); 80HHC; 147; 148; 28; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A : LUCKNOW BEFORE SHRI H. L. KARWA, HONBLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NOS.749 & 750/LKW/10 ASSESSMENT YEARS:2000-2001 & 2001-2002 DY. C.I.T.-6, VS. M/S MIRZA INTERNATIONAL LTD., KANPUR. 14/6, CIVIL LINES, KANPUR. PAN:AAECM3626M (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRAVEEN KUMAR, D. R. RESPONDENT BY: SHRI RAKESH GARG, ADVOCATE ORDER PER N. K. SAINI: THESE TWO APPEALS BY THE DEPARTMENT ARE DIRECTED AG AINST THE SEPARATE ORDERS OF THE LEARNED CIT (A)-II, KANPUR D ATED 29/09/2010 AND 28/09/2010 FOR THE ASSESSMENT YEARS 2000-2001 AND 2 001-2002 RESPECTIVELY. THESE APPEALS CONCERNING TO THE SAME ASSESSEE WERE HEARD TOGETHER SO THESE ARE BEING DISPOSED BY THIS CONSOL IDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL DEAL WITH I.T.A. NO.749/LKW/10 FOR THE ASSESSMENT YEAR 2000-2001. IN THIS APPEAL THE DEPARTMENT HAS RAISE D THE FOLLOWING GROUNDS: 2 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN ACCEPTING THE ADDITIONAL EVIDENCE WITHOUT TAKING RE MAND REPORT FROM THE ASSESSING OFFICER WHICH IS CONTRARY TO RULE 46 OF I.T.RULES. 2. THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KANPUR BEING ERRONEOUS, UNJUST AND BA D IN LAW AND ON FACTS DESERVES TO BE VACATED AND THAT TH E ORDER OF THE ASSESSING OFFICER BE RESTORED; AND 3. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL GIVEN ABOVE AND/OR ADD ANY FRESH GROUND AS AND WHEN IT IS CONSIDERED NECESSARY TO DO SO. 3. THE FACTS RELATED TO THIS CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND DERIVES INCOME FROM MANU FACTURE AND SALE/EXPORT OF LEATHER AND SHOES. THE ASSESSEE FIL ED THE RETURN OF INCOME ON 31/11/2000 DECLARING AN INCOME OF ` 2,04,24,300/- WHICH WAS PROCESSED U/S 143(1) OF THE I.T. ACT. SUBSEQUENTLY, ACTION U /S 147 WAS TAKEN BY ISSUING THE NOTICE U/S 148 OF THE AT ON THE BASIS O F TAXATION LAWS AMENDMENT ACT, 2005 TO REASSESS THE CLAIM U/S 80HHC WITH REGARD TO DEPB CREDITS. IN RESPONSE TO THE NOTICE U/S 148, R ETURN DECLARING THE SAME INCOME WAS FILED BY THE ASSESSEE. THE ASSESSING OF FICER, DURING THE ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE R ECEIVED EXPORT INCENTIVES AMOUNTING TO ` 12,43,21,384/-. HE ASKED THE ASSESSEE TO FURNISH THE DETAILS IN RESPECT OF SUCH EXPORT INCEN TIVES AND TO EXPLAIN AS TO 3 WHETHER THE DEPB CREDITS WERE INCLUDED IN THE SAME. IN RESPONSE, THE ASSESSEE SUBMITTED THAT OUT OF EXPORT INCENTIVES AM OUNTING TO ` 12,43,21,384/-, A SUM OF ` 7,68,82,054/- REPRESENTED THE DEPB CREDITS IN RESPECT OF VARIOUS UNITS OF THE ASSESSEE. THE ASSE SSING OFFICER OBSERVED THAT SECTION 80HHC UNDERWENT A MAJOR CHANGE VIDE TA XATION LAWS AMENDMENT ACT, 2005 WHEREBY THE FOLLOWING PROVISION S WERE MADE PART OF SECTION 80HHC WITH RETROSPECTIVE EFFECT FROM 01/04/ 98: PROVIDED ALSO THAT IN THE CASE OF AN ASSESSEE HAVI NG EXPORT TURNOVER EXCEEDING RUPEES TEN CRORES DURING THE PRE VIOUS YEAR, THE PROFITS COMPUTED UNDER CLAUSE (A) OR CLAU SE (B) OR CLAUSE (C) OF THIS SUBSECTION OR AFTER GIVING EFFEC T TO THE FIRST PROVISO, AS THE CASE MAY BE, SHALL BE FURTHER INCRE ASED BY THE AMOUNT WHICH BEARS TO NINETY PERCENT OF ANY SUM REF ERRED TO IN CLAUSE (IIIE) OF SECTION 28, THE SAME PROPORTION AS THE EXPORT TURNOVER BEARS TO THE - TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE ASSESSEE, IF THE ASSESSEE HAS THE NECESSARY AND SUFFICIENT EVIDENCE TO PROVE THAT, A) HE HAD AN OPTION TO CHOOSE EITHER THE DUTY DRAWB ACK OR THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING DUTY REMIS SION SCHEME, AND (B) THE RATE OF DUTY DRAWBACK CREDIT ATTRIBUTABLE T O THE CUSTOMS DUTY WAS HIGHER THAN THE RATE OF CREDIT ALL OWABLE UNDER-THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING DUTY REMISSION SCHEME.' 3.1 BASED ON THE AFORESAID AMENDMENT, THE ASSESSING OFF ICER DISALLOWED THE DEDUCTION U/S 80HHC OF ENTIRE DEPB C REDIT BY STATING AS UNDER: 4 'SINCE THE EXPORT TURNOVER OF THE ASSESSEE COMPANY IN THE RELEVANT PERIOD EXCEEDED ` 10 CRORES AND FURTHER DEPB CREDITS AMOUNTING TO ` 7,68,82,054/- WERE INCLUDED IN THE EXPORT INCENTIVES, THE DEDUCTION U/S 80HHC IN RESPECT OF T HE AFORESAID DEPB CREDITS WAS ALLOWABLE ONLY IF THE CO NDITIONS PRESCRIBED AND MENTIONED HERE IN BEFORE IN THE AMEN DED PROVISIONS OF SECTION 80HHC WERE SATISFIED. FROM T HE REPLY GIVEN BY THE ASSESSEE, THE OBVIOUS INFERENCE WHICH EMERGED WAS THAT THE PRESCRIBED CONDITIONS FOR ALLOWABILITY OF DEDUCTION U/S 80HHC IN RESPECT OF DEPB CREDITS WERE NOT SATIS FIED IN THE CASE OF ASSESSEE COMPANY. UNDER THE CIRCUMSTANCES, DEDUCTION U/S 80HHC WILL NOT BE ALLOWED IN RESPECT OF THE DEPB CREDITS AMOUNTING TO ` 7,68,82,054/-' 4. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A) A ND SUBMITTED AS UNDER: 'SIR, OUT OF TOTAL DEPB CREDITS DURING THE YEAR AMO UNTING TO ` 7,68,82,054/-, AN AMOUNT OF ` 5,53,60,721/- WAS CONSUMED BY THE ASSESSEE FOR IMPORT OF RAW MATERIAL AND CAPI TAL GOODS FOR ITS PERSONAL USE. THEREFORE, THIS AMOUNT CANNOT BE SAID TO HAVE BEEN TRANSFERRED IN VIEW OF PROVISIONS OF SECT ION 28(IIID) AND AS SUCH AT LEAST THIS AMOUNT IS ADMISSIBLE FOR DEDUCTION U/S 80HHC.' 4.1 THE ASSESSEE ALSO FURNISHED COMPLETE DETAILS OF DEP B CLAIMS RECEIVED/RECEIVABLE DURING THE YEAR, CONSUMED DURIN G THE YEAR, SOLD DURING THE YEAR AND ALSO THE OUTSTANDING BALANCE AS ON 31/ 03/2000, SUMMARY OF WHICH WAS AS UNDER: OPENING (01/04/1999) (-) 90,12,758.78 DEPB CLAIM/RECEIVED F.Y. 1999-2000 7, 68,82,954.00 6,78,69,295.22 LESS:SALES FROM 01/04/199 TO 31/03/2000 69,288.00 5 ADD: PROFIT ON SALES OF DEPB 4,157.00 (-) 73,445.00 LESS: CONSUMED AGAINST PURCHASES FROM 5,53,60,7 21.00 OUTSIDE INDIA DURING THE F.Y.99-2000 1,72,719.00 (-) 5,55,33,440.00 BALANCE DEPB 1,22,62,410.22 4.2 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE, DIRECTED THE ASSESSING OFFICER TO INCLUDE THE AMOUNT OF ` 7,68,82,054/- IN THE PROFIT & LOSS OF THE BUSINESS U/S 28(IV) OF THE I.T. ACT AND RECOMPUTE THE DEDUCTION U/S 80HHC BY OBSERVING AS UNDER: TO HAVE A BETTER UNDERSTANDING OF THE ISSUE, IT WO ULD BE WORTHWHILE TO EXTRACT THE PROVISIONS OF SECTION 28(IIID), WHICH IS AS UNDER: ANY PROFIT ON THE TRANSFER OF THE DUTY ENTITLEMENT PASS BOOK SCHEME, BEING THE DUTY REMISSION SCHEME UNDER THE EXPORT AND IMPORT POLICY FORMULATED AND ANNOUNCED UNDER SECTION 5 OF THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 (22 OF 1992) ; 7.3 THE CATCH WORD IN THIS EXPRESSION IS 'PROFIT O N TRANSFER'. THE WORD 'PROFIT' IN THIS EXPRESSION HAS ALREADY BE EN ELUCIDATED BY THE HON'BLE BOMBAY HIGH COURT IN ITS LANDMARK DECISION IN THE CASE OF KALPATRU COLORS & CHEMICALS (SUPRA). NOW COMING TO THE MEANING OF THE WORD 'TRANSFER', T HE WORD 'TRANSFER' HAS BEEN DEFINED IN THE I.T. ACT IN SECT ION 2(47). HOWEVER, THE SAME IS APPLICABLE ONLY FOR THE PURPOS ES OF CAPITAL GAINS, AND THUS, NO RELIANCE CAN BE PLACED ON THIS DEFINITION FOR THE PURPOSE AT HAND. THE WORD 'TRANS FER' HAS ALSO BEEN DEFINED IN THE I. T. ACT, BUT THAT IS AGA IN LIMITED TO IMMOVABLE PROPERTIES AND ACTIONABLE CLAIMS. DEPB IS NEITHER AN IMMOVABLE PROPERTY NOR AN ACTIONABLE CLAIM. IN T HE CASE OF M/S YASHA OVERSEAS VS. CST [APPEAL (CIVIL 2155 OF 2 000], THE HON'BLE SUPREME COURT HAS OBSERVED THAT DEPB HAS I NTRINSIC VALUE THAT MAKES IT A MARKET COMMODITY. THEREFORE, DEPB, LIKE REP LICENCE, QUALIFY AS GOODS' WITHIN THE MEA NING OF SALES TAX LAWS. THUS, 'TRANSFER' OF DEPB HAS TO BE SEEN IN THE 6 CONTEXT OF GOODS/MOVABLE PROPERTY. THE COMMON MEANI NG OF TRANSFER AS EXTRACTED FROM LAW LEXICON IS 'AN ACT O F THE PARTIES, OR OF THE LAW, BY WHICH THE TITLE TO PROPE RTY IS CONVEYED FROM ONE PERSON TO ANOTHER, 'MAKE OVER THE POSSESS ION OF PROPERTY, A RIGHT TO ANOTHER' OR 'CONVEYOR PASS THE RIGHT OF ONE PERSON OVER TO ANOTHER'. IN VIEW OF THE ABOVE 'TRAN SFER' PRESUPPOSES THE EXISTENCE OF 'ANOTHER' PERSON. THER EFORE, USING DEPB FOR SELF CONSUMPTION CAN NOT BE CALLED ' TRANSFER'. FROM THE AFORESAID DISCUSSION, IT IS CLEAR THAT THE INCOME U/S SECTION 28(IIID) DOES NOT INCLUDE WITHIN ITS AMBIT THE AMOUNT OF DEPB USED FOR SELF CONSUMPTION OR WHICH HAS NOT BEE N TRANSFERRED. THIS HAS ALSO BEEN MADE CLEAR BY THE S PEECH OF THE HON'BLE FINANCE MINISTER: 'WE ARE NOW DEALING WITH ONLY THE PERIOD 1.4.1998 T O 31.3.2005. THAT IS A PERIOD OF ABOUT SEVEN YEAR. TH IS PROBLEM DID NOT ARISE BEFORE 1.4.1998. THIS PROBLEM DOES NOT ARISE BEFORE 1.4.1998. THIS PROBLEM DOES N OT ARISE AFTER 1.4.2005. IN THIS PERIOD OF SEVEN YEARS , THE RELEVANT SECTIONS I AM NOT GETTING INTO AN APPOSITI ON OF THE LAW - ARE SECTION 28 AND SECTION 80HHC. THESE A RE THE TWO SECTIONS WHICH ARE RELEVANT. NOW, THE DEPARTMENTS INTERPRETATION IS THAT DEPB CREDIT SAL E- I WILL EXPLAIN WHAT IT IS- IT IS NOT EXPORT PROFIT. W HAT IS A DEPB CREDIT SALE? A DEPB CREDIT SALE IS, THAT ON YO UR DEPB PASSBOOK, IF YOU HAVE CERTAIN CREDITS IN YOUR FAVOUR, YOU CAN IMPORT ITEMS AGAINST THE CREDIT WIT HOUT PAYING DUTY. BUT YOU CAN ALSO SELL THE CREDIT TO AN OTHER IMPORTER. IF YOU ACTUALLY IMPORT, IT IS PART OF EXP ORT- IMPORT. IF YOU SELL IT TO ANOTHER IMPORTER AND MAKE A PROFIT ON THAT THE PREMIUM, IT IS NOT EXPORT PROFIT . IT IS SIMPLE BUSINESS PROFIT BECAUSE THE INCOME YOU EARN IS NOT IN FOREIGN EXCHANGE. IT IS IN INDIAN RUPEES. IT DOES NOT ARISE OUT OF EXPORT ACTIVITY OR IMPORT ACTIVITY . IT ARISES BECAUSE YOU ARE TRADING IN A 'LICENSE', WHICH HAS A PREMIUM IN THE MARKET. SO, THE DEPARTMENT TOOK THE VIEW THAT IT DOES NOT FALL UNDER SECTION 28 READ WI TH SECTION 80HHC. I AM NOT GOING INTO THE SUB SECTIONS . THEREFORE, THIS IS NOT TO BE COUNTED AS EXEMPTED EX PORT PROFIT. THIS MUST BE ADDED BACK AS TAXABLE PROFIT.' THE 7 ASSESSEE TOOK A DIFFERENT VIEW. IN APPEAL, THE ITA T HAS OBSERVED THAT THE SAME FALLS UNDER SECTION 28(IV) I F NOT UNDER SECTION 28(IIIB) OR (IIIE). IT FALLS UNDER SE CTION 28(IV). THEN, THE TRIBUNAL GAVE A JUDGMENT, WHICH I FIND AS A LAWYER DIFFICULT TO UNDERSTAND. BUT WITH GREAT RESPECT TO THE TRIBUNAL WHICH IS ENTITLED TO TAKE A VIEW, THE TRIBUNAL GAVE A JUDGMENT THAT ALTHOUGH IT FALLS UNDER SECTION 28(IV), IT DOES NOT FALL UNDER SECTION 80HH C 'EXPLANATION '(BAA). ' 7.4 THIS ASPECT HAS BEEN ALSO DISCUSSED BY THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS & CHEMICALS (SUPRA). THE OBSERVATION OF THE HON'BLE C OURT IN THIS REGARD ARE AS UNDER: (III) PARLIAMENT CONSIDERED THAT AN EXPORTER WHO IN STEAD OF UTILIZING THE DEPB CREDIT FOR PAYING CUSTOMS DUTY O N IMPORTED GOODS, MAKES A PROFIT BY TRANSFERRING THE DEPB, WOU LD FORM A SEPARATE CLASS AND SEEKS TO TAX THE RECEIPTS ON THE TRANSFER OF THE DEPB CREDIT AS BUSINESS PROFITS AND NOT EXPORT PROFITS. EXPORTERS WHO TRANSFER THE DEPB CREDIT AND MAKE A P ROFIT CANNOT BE PLACED ON PAR WITH THOSE EXPORTERS WHO UT ILIZE THE CREDIT FOR PAYING THE CUSTOMS DUTY ON THE IMPORTED GOODS; XXXXXXXXXXX WHEN THE DEPB CREDIT IS NOT UTILIZED FOR PAYING CUS TOMS DUTY BUT IS TRANSFERRED FOR ANY SUM, THEN SUCH SUM WOULD BE PROFITS ON TRANSFER OF DEPB COVERED UNDER SECTION 28(IIID); XXXXXXXXXX WHAT CONSTITUTES PROFITS UNDER SECTION 28(IIID) IS THE AMOUNT RECEIVED ON TRANSFER OF THE DEPB CREDIT AND NOT THE AMOUNT OF CREDIT WHICH THE ASSESSEE WAS ENTITLED TO UNDER THE DEPB SCHEME. XXXXXXXXXX 8 FOR ONE THING CLAUSE (IIID) OF SECTION 28 MUST COVE R WITHIN ITS PURVIEW, THE ENTIRETY OF THE SALE CONSIDERATION WHI CH IS REALIZED BY THE EXPORTER ON THE TRANSFER OF THE DEPB CREDIT SINCE THAT REPRESENTS THE PROFIT WHICH THE EXPORTER OBTAINS ON THE TRANSFER OF THE CREDIT. XXXXXXXXXX 7.5 AS REGARDS THE RECOGNITION OF INCOME ON ACCOUNT OF RECEIVING OF DEPB LICENSES, THE INCOME THEREUPON AC CRUES SOON AS VALID APPLICATION FOR A LICENSE IS MADE. TH IS ASPECT IS NO MORE RES-INTEGRA IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PUNJAB BONE MILLS 271 ITR 780 (SC). TO SIMILAR EFFECT IS THE DECISION OF THE HON' BLE ITAT IN THE CASE OF UNITED PHOSPHOROUS LIMITED VS. JCIT (81 ITD 553 (AHD) WHEREIN IT HAS BEEN CATEGORICALLY HELD THAT T HE VALUE OF THE LICENCE BENEFIT RECEIVABLE BY THE ASSESSEE HAS TO BE TREATED AS INCOME ACCRUING TO IT IN THE YEAR IN WHI CH THE EXPORTS ARE ACTUALLY MADE AND IS CHARGEABLE TO TAX ACCORDINGLY IN THAT YEAR ALONE. THUS, TOTAL INCOME ACCRUED ON A /C OF THE DEPB LICENSES RECEIVED/RECOVERABLE DURING THE YEAR WOULD BE ` 7,68,82,054/-. THIS INCOME WOULD BE INCLUDED IN TH E PROFIT AND LOSS OF THE BUSINESS UNDER SECTION 28(IV) WHICH READS - 'THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CO NVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION' OR WITHIN SECTION 28 ITSELF. MY VIEW IN THIS REGARD IS SUPPORTED BY THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT V/S SWADESHI COTTON MILLS (121 ITR 747) AND AGRA CHAIN MANUFACTURING CO. (114 ITR 840) AND ALSO BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF METAL ROLLING WORKS P. LTD. (142 ITR 170). HOWEVER, AN AMOUNT OF ` 69,288/- AND AN ADDITIONAL PREMIUM OF ` 4,157/- (TOTALING TO ` 73,445/-) IS PROFITS ON TRANSFER OF DEPB DURING THE YEAR UNDER SECTION 28(IIID) OF THE ACT. THE AO IS D IRECTED TO RECOMPUTE THE DEDUCTION U/S 80HHC IN LIGHT OF THE A FORESAID. NOW THE DEPARTMENT IS IN APPEAL. 9 5. THE LEARNED D. R. STRONGLY SUPPORTED THE ORDER O F THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE LEARNED CIT (A) VIOLATED THE PROVISIONS OF RULE 46A OF THE I.T. RULES AND DID NO T PROVIDE ANY OPPORTUNITY TO THE ASSESSING OFFICER TO DEFEND HIS CASE, EVEN NO REMAND REPORT WAS ASKED. THEREFORE, THE ISSUE DESERVES TO BE SET ASIDE TO THE ASSESSING OFFICER. 6. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FO R THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND FURTHER SUBMITTED THAT THE LEARNED CIT (A) APPRECIATED THE FACTS IN RIGHT PERSPECTIVE AND DECIDED THE ISSUE IN ACCORDANCE WIT H LAW BY FOLLOWING THE JUDGMENT OF VARIOUS HIGH COURTS. THEREFORE, THERE IS NO NEED TO SET ASIDE THE ISSUE TO THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT THERE WAS NO VIOLATION OF RULE 46 OF THE I.T. RULES, 1962 AND NO NEW EVIDENCE OR DOCUMENT WAS FURNISHED BEFORE THE LEARNED CIT (A), THEREFORE, THERE IS NO MERIT IN THE APPEAL OF THE DEPARTMENT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE INSTANT CASE, IT APPEARS THAT THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM OF DEPB CREDITS WHILE ALLOWING THE DEDUCTION U/S 80HHC. THE LEARNED CIT (A) DIRECTED THE 10 ASSESSING OFFICER TO ALLOW THE CLAIM SINCE THE ASSE SSEE FULFILLED THE CONDITIONS. IN THE INSTANT CASE THE ASSESSEE CLAIME D DEPB CREDIT AMOUNTING TO ` 7,68,82,054/-. THE EXPLANATION OF THE ASSESSEE WAS THAT AFTER THE AMENDMENT, IT WAS OPTIONAL FOR THE ASSESS EE TO OPT EITHER DRAWBACK OR DEPB CREDITS. THE ASSESSEE CONSUMED A SUM OF ` 5,53,60,721/- OF THE DEPB AGAINST PURCHASES. IN TH E INSTANT CASE, THE LEARNED CIT (A) DECIDED THE ISSUE IN ACCORDANCE WIT H THE VIEW TAKEN BY THE ITAT, AHMEDABAD BENCH IN THE CASE OF UNITED PHOSPHO ROUS LIMITED VS. JT. CIT 81 ITD 553 (AHD) AND THE JUDGMENT OF HON'BLE SU PREME COURT IN THE CASE OF PUNJAB BONE MILLS 271 ITR 780 (SC). IN THE INSTANT CASE, THE LEARNED D. R. COULD NOT POINT OUT HOW AND IN WHAT M ANNER THE LEARNED CIT (A) VIOLATED THE PROVISIONS OF RULE 46 OF THE I. T. RULES, 1962 AND ALSO COULD NOT CONTROVERT THE FINDINGS GIVEN BY THE LEAR NED CIT (A). WE, THEREFORE, ARE OF THE VIEW THAT IN THE PRESENT CASE THERE IS NO VIOLATION OF RULE 46A OF THE I.T. RULES, 1962. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF LEARNED CIT (A). WE ACCORDINGLY DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 8. NOW WE WILL DEAL WITH I.T.A. NO.750/LKW/10. IN THIS APPEAL THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS: 11 1. THAT THE LEARNED CIT (A) HAS ERRED IN LAW AND O N FACTS IN QUASHING THE NOTICE U/S 148 WHEREAS THE AMENDMENTS IN TAXATION LAW HAS ITS RETROSPECTIVE EFFECT REGARD ING ASSESSMENT YEARS. 2. THAT THE ORDER OF CIT (A)-II, KANPUR BEING ERRON EOUS, UNJUST AND BAD IN LAW AND ON FACTS DESERVES TO BE VACATED AND THAT THE ORDER OF THE ASSESSING OFFICER BE RESTORED; AND 3. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL GIVEN ABOVE AND/OR ADD ANY FRESH GROUND AS AND WHEN IT IS CONSIDERED NECESSARY TO DO SO. 9. THE ONLY GRIEVANCE OF THE DEPARTMENT IN THIS APP EAL RELATES TO THE ACTION OF THE LEARNED CIT (A) TO QUASH THE NOTICE I SSUED BY THE ASSESSING OFFICER U/S 148 OF THE I.T. ACT. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCO ME ON 31/10/2001 DECLARING BUSINESS INCOME OF ` 2,76,53,150/- AND CAPITAL GAIN OF ` 38,35,174/- AFTER CLAIMING THE DEDUCTION U/S 80HHC OF ` 5,92,97,792/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT ON 31/03/2003. LATER ON THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSES SMENT U/S 143(3) WAS COMPLETED ON 18/03/2004 AT A TOTAL INCOME OF ` 2,94,44,311/- AND CAPITAL GAIN OF ` 38,65,174/-. LATER ON A NOTICE U/S 148 OF THE I.T. ACT DATED 31/03/2007 WAS SERVED UPON THE ASSESSEE ON 20/04/20 07. THE ASSESSMENT ONCE AGAIN WAS FRAMED U/S 143(3) READ WI TH SECTION 147 OF THE I.T. ACT ON 8/8/2008 WHEREIN THE ASSESSING OFFI CER INVOKED THE 12 EXTRAORDINARY AMENDED PROVISION OF SECTION 80HHC OF THE I.T. ACT FOR DENYING THE BENEFIT OF DEDUCTION U/S 80HHC OF THE I .T. ACT. 10. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT( A) AND CHALLENGED THE ACTION OF REOPENING OF THE COMPLETED ASSESSMENT (COMPLETED U/S 143(3) OF THE I.T. ACT) AND SUBMITTED THAT THE NOTI CE DATED 31/03/2007 U/S 147 OF THE I.T. ACT HAD BEEN ISSUED AFTER 4 YEARS F ROM THE END OF THE RELEVANT ASSESSMENT YEAR I.E. 2001-2002. IT WAS FU RTHER SUBMITTED THAT THE PROVISO TO SECTION 147 WAS ATTRACTED AND THERE WAS NO DEFAULT ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR THE ASSESSMENT WHICH HAD ALREADY BEEN COMPLETED U/S 143(3) OF THE I.T. ACT AND THAT THERE WAS NO MENTION BY THE ASSESSING OFFICER IN THE REASONS RECORDED (FOR ISSUING THE NOTICE U/S 148) THAT THER E WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY AL L MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. IT WAS ACCORDINGLY CONTENDED T HAT THE ACTION OF THE ASSESSING OFFICER TO REOPEN THE ALREADY COMPLETED A SSESSMENT WAS AB INITIO VOID. IT WAS FURTHER CONTENDED THAT A SIMI LAR OBJECTION HAD BEEN RAISED BEFORE THE ASSESSING OFFICER VIDE LETTER DAT ED 08.08.2008 AND SINCE THE ASSESSING OFFICER DID NOT DISPOSE OF THE OBJECT ION BEFORE PASSING THE ASSESSMENT ORDER, THE ORDER ITSELF WAS VITIATED IN VIEW OF THE HON'BLE 13 SUPREME COURT DECISION IN THE CASE OF GKN DRIVESHAF T VS. I.T.O. 179 CTR 11(SC). 10.1 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBM ISSIONS OF THE ASSESSEE, OBSERVED THAT THE LETTER OF THE ASSESSEE DATED 08/08/2008, THROUGH WHICH THE ASSESSEE RAISED THE OBJECTION WAS VERY MUCH PART OF THE ASSESSMENT RECORDS. HE WAS OF THE VIEW THAT IF THE ASSESSEE OBJECTS TO THE REOPENING OF THE CASE, THE ASSESSING OFFICER WA S BOUND TO DISPOSE OF THE SAME BY PASSING A SPEAKING ORDER. HOWEVER, ON PERUSAL OF THE CASE RECORDS, IT WAS FOUND THAT THE ASSESSING OFFICER HA D NOT PASSED ANY ORDER DISPOSING OF THE AFORESAID OBJECTIONS OF THE ASSESS EE BEFORE TAKING UP THE ASSESSMENT PROCEEDINGS, INSTEAD THE ASSESSING OFFIC ER STRAIGHTWAY PASSED THE ASSESSMENT ORDER DATED 08/08/2008 AND EV EN THE OBJECTIONS OF THE ASSESSEE WITH RESPECT TO THE REOPENING HAD NOT BEEN DISCUSSED IN THE SAID ASSESSMENT ORDER. THUS, THE NON COMPLIANCE WI TH THE RULING OF SUPREME COURT IN THE CASE OF GKN DRIVESHAFT VS. I.T .O. (SUPRA), WOULD VITIATE THE ENTIRE ASSESSMENT PROCEEDINGS. THE LEA RNED CIT (A) FURTHER POINTED OUT THAT THE NOTICE HAD BEEN ISSUED BEYOND A PERIOD OF 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR WHICH WAS AGAINST THE PROVISIONS CONTAINED IN FIRST PROVISO TO SECTION 14 7 OF THE I.T. ACT. HE CATEGORICALLY STATED THAT IN THE PRESENT CASE IT WA S UNDISPUTED POSITION THAT 14 THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR THE RELEVANT ASSESSMENT YEAR AND THAT THE REASONS RECORDED WERE SILENT AS R EGARDS TO ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT FOR THE RELEVANT ASSES SMENT YEAR. THE LEARNED CIT (A) POINTED OUT THAT THE ASSESSING OFFI CER ISSUED THE NOTICE U/S 148 OF THE I.T. ACT WITH A VIEW TO EXAMINE THE NATU RE OF EXPORT INCENTIVES SHOWN BY THE ASSESSEE AND THERE WAS NOT A WHISPER I N THE REASONS RECORDED THAT THE INCOME CHARGEABLE TO TAX HAD ESCA PED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON TH E PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR THE ASSESSMENT FOR THAT ASSESSMENT YEAR. THE LEARNED CIT (A) WAS OF THE VIEW THAT THE PROVISO TO SECTION 147 COMES TO THE AID OF THE ASSE SSEE AND WOULD RENDER THE ISSUE OF NOTICE U/S 148 AFTER THE EXPIRY OF 4 Y EARS AS VOID AND ILLEGAL. THE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: (I) ORDER OF HON'BLE GUJRAT HIGH COURT IN THE CASE OF SADBHAV ENGINEERING LTD. VS. DCIT (DATE OF ORDER 20/07/2010 , SPL. CIVIL APPLICATION NO. 5846 OF 2010). (II) GARDEN SILK MILLS VS. DCIT 222 ITR 27 (GUJ.) (III) FORAMER VS. CIT 247 ITR 436 (ALL) (IV) FORAMER VS. CIT 264 ITR 566 (SC) 15 10.2 THE LEARNED CIT (A), WHILE LOOKING TO THE ISSU E, DE HORS THE REASONS RECORDED, FOUND THAT WHEN THERE IS A STATUTORY AMEN DMENT WITH RETROSPECTIVE EFFECT, THE STATUTORY AMENDMENT HAS T O OPERATE AS IF LAW AS AMENDED WAS THERE ON THE STATUTE BOOK, HOWEVER, ON THE QUESTION WHETHER THE ASSESSEE HAD ACTUALLY FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, IT WAS OBVIOUS THAT WHEN THE ASSESSEE FILED ITS RETURN OF INCOME IN THE YEAR 2001 IT COULD NOT HAVE ASSUMED THAT SUCH A LEGISLATIVE AMENDMENT WAS GOING TO BE MADE WITH RET ROSPECTIVE EFFECT FROM THE YEAR 1998. THE LEARNED CIT (A) CATEGORICA LLY STATED THAT IN THE PRESENT CASE WHEN THE ASSESSEE HAS CLEARLY DISCLOSE D ALL THE EXPORTS INCENTIVES BY ENTERING THEM ON THE CREDIT SIDE OF T HE PROFIT & LOSS ACCOUNT, IT COULD NEVER BE SAID BY ANY STRETCH OF IMAGINATION T HAT IN THE YEAR 2001, WHEN THE ASSESSEE FILED ITS RETURN CLAIMING DEDUCTI ON U/S 80HHC ON THE EXPORT INCENTIVES INCLUDING THAT ON DEPB, THE ASSES SEE HAS FAILED TO DISCLOSE ALL MATERIAL FACTS. HE, THEREFORE, HELD T HAT IN VIEW OF NON FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY AND FULL Y ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, FOR THAT ASSESSMENT YEAR, THE CONDITION PRECEDENT FOR INVOCATION OF THE POWERS UNDER SECTIO N 147 WAS NOT FULFILLED. THUS, THE IMPUGNED NOTICE U/S 148 WAS WITHOUT ANY S ANCTION OF LAW AND, 16 THEREFORE, THE ASSESSMENT MADE IN PURSUANCE TO SUCH NOTICE, WAS LIABLE TO BE ANNULLED. HE ACCORDINGLY ANNULLED THE ASSESSMEN T. NOW THE DEPARTMENT IS IN APPEAL. 11. THE LEARNED D. R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT SINCE THERE WAS AMENDMENT IN LAW WITH RETROSPECTIVE EFFECT, THEREFORE, THE ASSESSING OFFI CER WAS JUSTIFIED IN REOPENING THE ASSESSMENT AFTER ISSUING THE NOTICE U/S 148 OF THE I.T. ACT. 12. IN HIS RIVAL SUBMISSIONS THE LEARNED COUNSEL FO R THE ASSESSEE STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT (A) AND FURTHER SUBMITTED THAT THE ASSESSEE DISCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT WHILE FILING THE ORI GINAL RETURN OF INCOME ON 31/10/2001 AND THE ASSESSING OFFICER, AFTER APPLYIN G HIS MIND, PASSED THE ASSESSMENT ORDER U/S 143(3) OF THE I.T. ACT ON 18/0 3/2004. THEREFORE, THE ISSUANCE OF NOTICE U/S 148 OF THE I.T. ACT DATED 31 /03/2007 WAS BEYOND THE TIME LIMIT PRESCRIBED IN THE FIRST PROVISO TO SECTI ON 147 OF THE I.T. ACT. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: (I) VISHWANATH PRASAD ASHOK KUMAR VS. CIT & OTHERS 327 ITR 190 (ALLD) (II) INDIAN OIL CORP. VS. DY. CIT 327 ITR 272 (BOM) (III) HINDUSTAN PETROLEUM CORP. VS. DY. CIT 328 ITR 534 (BOM) 17 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE INSTANT CASE, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE FURNISHED THE RET URN OF INCOME ON 31/10/2001 AND THE ASSESSMENT WAS FRAMED BY THE ASS ESSING OFFICER U/S 143(3) OF THE I.T. ACT VIDE ORDER DATED 18/03/2004. THE ASSESSING OFFICER ISSUED THE NOTICE U/S 148 OF THE I.T. ACT DATED 31/ 03/2007 WHICH WAS SERVED UPON THE ASSESSEE ON 20/04/2007. IN THE SA ID NOTICE, THE ASSESSING OFFICER NOWHERE STATED THAT THE ASSESSEE FAILED TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT. THE ASSESSING OFFICER STATED IN THE REASONS RECORDED THAT THE NOT ICE U/S 148 IS REQUIRED TO BE ISSUED FOR RECOMPUTING THE CORRECT AMOUNT OF ASS ESSMENT U/S 80HHC ALLOWABLE TO THE ASSESSEE IN THE LIGHT OF THE AMEND ED PROVISIONS OF SECTION 28 AND SECTION 80HHC BROUGHT ABOUT BY THE TAXATION LAWS (SECOND AMENDMENT) ACT, 2005. ACCORDINGLY, THE NOTICE U/S 148 WAS ISSUED TO REASSESS THE INCOME U/S 147 OF THE I.T. ACT. THE P ROVISIONS CONTAINED IN FIRST PROVISO TO SECTION 147 ARE APPLICABLE IN SUCH TYPE OF CASES. THE SAID PROVISION STATES AS UNDER: PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TA X HAS 18 ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB- SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR. 13.1 FROM THE ABOVE PROVISIONS IT IS CLEAR THAT NO ACTION U/S 147 OF THE I.T. ACT SHALL BE TAKEN WHERE AN ASSESSMENT U/S 143(3) H AS BEEN COMPLETED AFTER THE EXPIRY OF 4 YEARS FROM THE END OF THE REL EVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASS ESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT Y EAR. IN THE INSTANT CASE THERE WAS NO FAILURE ON THE PAR T OF THE ASSESSEE TO MAKE THE RETURN U/S 139 OF THE I.T. ACT AND THE ASS ESSING OFFICER NOWHERE STATED IN THE REASONS RECORDED THAT THE ASSESSEE FA ILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT. THE ASSESSING OFFICER ISSUED THE NOTICE U/S 148 OF THE I.T. ACT W ITH A VIEW TO EXAMINE THE NATURE OF EXPORT INCENTIVES SHOWN BY THE ASSESSEE A ND THERE WAS NO WHISPER IN THE REASONS RECORDED THAT THE INCOME CHA RGEABLE TO TAX HAD ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS 19 NECESSARY FOR THE ASSESSMENT FOR THAT ASSESSMENT YE AR I.E. ASSESSMENT YEAR 2001-2002. 13.2 ON A SIMILAR ISSUE THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDIAN OIL CORPORATION LTD. VS. CIT AND OTHERS [ 2010] 327 ITR 190 HAS HELD AS UNDER: (I) THAT THE NOTICES FOR BOTH YEARS WERE ISSUED AF TER THE EXPIRY OF FOUR YEARS. THE NOTICES UNDER SECTION 148 OF THE ACT COULD BE ISSUED BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR ONLY WHERE THE INCOME CHAR GEABLE TO TAX HAD ESCAPED ASSESSMENT BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OF THE ACT OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SEC TION (1) OF SECTION 142 OR SECTION 148 OF THE ACT, OR TO DISCLO SE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSME NT. NEITHER HAD ANY FINDING IN THIS REGARD BEEN RECORDED IN THE REASONS RECORDED NOR HAD ANY SUCH CASE BEEN MADE OUT. 13.3 SIMILARLY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDIAN OIL CORPORATION LTD. VS. DY. CIT AND OTHERS [2010] 327 ITR 272 (BOM) HAS HELD AS UNDER: WHERE AN ASSESSMENT HAS BEEN MADE UNDER SUB-SECTIO N (3) OF SECTION 143 OF THE INCOME-TAX ACT, 1961, FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION CAN BE TAKEN AFTER THE E XPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS INTER ALIA THERE HAS BEEN A FAILURE OF THE A SSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. THIS IS A COND ITION PRECEDENT. 20 13.4 THE RATIO LAID DOWN IN THE AFORESAID REFERRED TO CASES IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE I N THE PRESENT CASE THE NOTICE U/S 148 DATED 31/03/2007 HAS BEEN ISSUED BEY OND 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 2001-2002 AN NOTHING HAS BEEN MENTIONED IN THE REASONS RECORDED BY THE ASSESSING OFFICER THAT THE ASSESSEE FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. THEREFORE, THE CONDI TIONS PRECEDENT FOR INVOCATION OF THE POWERS U/S 147 OF THE I.T. ACT WE RE NOT FULFILLED IN THE PRESENT CASE. AS SUCH, THE NOTICE ISSUED U/S 148 O F THE I.T. ACT WAS NOT VALID AND THE ASSESSMENT FRAMED ON THE BASIS OF INV ALID NOTICE WAS LIABLE TO BE ANNULLED. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY INFIRMITY IN THE ORDER PASSED BY THE LEARNED CIT (A). ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. IN THE RESULT, T HE APPEAL IS DISMISSED. 14. IN THE RESULT, BOTH THE APPEALS OF THE DEPARTME NT ARE DISMISSED. (THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17/0 3/2011) SD/. SD/. ( H. L. KARWA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 17/03/2011 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR