Madras H.C : Was second reassessment proceedings validly initiated

High Court Of Madras

CIT Vs. Baer Shoes (India) (P) Ltd.

Assessment Year : 1999-2000

Section : 147

F.M. Ibrahim Kalifulla And M.M. Sundresh, JJ.

Tax Case (Appeal) No. 706 Of 2010

August 3, 2010

JUDGMENT

M.M. Sundresh, J.—The Revenue has come on appeal challenging the order of the Tribunal passed in ITA No. 2486 of 2007, by raising the following substantial question of law :

“Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the second reassessment proceedings were not validly initiated and thereby quashing the reassessment proceedings ?”

2.1. Facts in brief :

For the asst. yr. 1999-2000, the assessee filed return showing ‘nil’ income by claiming deduction under s. 80HHC of the IT Act, 1961. The assessee’s return was initially processed under s. 143(1) of the Act. The assessee was engaged in manufacturing, trading and exporting of leather goods.

2.2. The AO reopened the assessment by invoking the provisions under s. 147 of the Act. The reopened assessment was completed on 18th March, 2003. Accordingly, the deduction claimed by the assessee under s. 80HHC of the Act, was scaled down to Rs. 73,42,876. In the said reassessment order, the loss from the export business was adjusted in accordance with the provisos to s. 80HHC(3)(c) of the Act. However, the AO reopened the assessment, which was already reopened, by once again invoking the provisions of s. 147 of the Act. Accordingly, a notice under s. 148 of the Act, was issued to the assessee on 4th Aug., 2005. The said proceedings have been initiated by the AO on the ground that the assessee was wrongly allowed deduction under s. 80HHC of the Act, after netting the negative business profits with the export incentive. Thereafter, the AO has passed an order rejecting the case of the assessee by disallowing the deduction under s. 80HHC.

2.3. Challenging the same, the assessee filed a further appeal to the CIT(A). Since the said appeal was dismissed, the assessee preferred a further appeal to the Tribunal, which was allowed in favour of the assessee and hence, the present appeal by the Revenue.

3. Mr. Arun Kurian Joseph, learned standing counsel for the Revenue submitted that the proceedings have been initiated for the second time under s. 147 of the Act, only based upon the judgment of the apex Court, wherein the Hon’ble Supreme Court was pleased to hold that the deduction under s. 80HHC could be allowed only if there were positive profits from export operations. The learned counsel also made reliance upon the decision rendered by this Court in Asstt. CIT v . Apollo Hospitals Enterprises Ltd. [2008] 215 CTR (Mad) 460 : [2008] 4 DTR (Mad) 274 : [2008] 300 ITR 167 (Mad). The learned counsel therefore submitted that in as much as the order passed in the earlier reassessment proceedings having been done by taking into consideration of the negative business profits, the order passed by the Tribunal will have to be set aside. The learned counsel further submitted that as per the proviso to s. 147, the order passed by the AO is well within the period of limitation.

4. We are not able to countenance the said submission made by the learned standing counsel for the appellant. In the present case on hand, the assessee at the time of filing return for the asst. yr. 1999-2000 has disclosed all the materials before the AO and claimed deduction under s. 80HHC. Even before the earlier proceedings initiated under s. 147, it is not the case of the Revenue that the assessee has not disclosed the materials. Therefore, on a consideration of the materials available on record, the AO passed an order on the earlier two occasions. Thereafter, the AO has sought to reopen the assessment once again invoking the power under s. 147 of the Act, which, in our considered opinion, is not permissible in law on the facts of the case.

5. The judgment rendered by the Hon’ble Supreme Court is an expression of opinion on the interpretation of statute. The power under s. 147 will have to be invoked by the AO in accordance with the said provision. In other words, merely because a judgment has been rendered, the same cannot be a ground for reopening the assessment under s. 147 of the Act. The Hon’ble Gujarat High Court in Austin Engineering Co. Ltd. v . Jt. CIT [2009] 223 CTR (Guj) 405 : [2008] 9 DTR (Guj) 268 : [2009] 312 ITR 70 (Guj) has taken the view that in a case where the material facts were fully disclosed and the assessment was completed allowing deduction under s. 80HHC on export incentive, such an assessment cannot be reopened based upon a subsequent decision of the Supreme Court, since it merely would amount to a change of opinion. We are in respectful agreement with the judgment of the Gujarat High Court on the proposition of law laid down therein.

6. Regarding the other contentions, it is not in dispute that the first reassessment was done by the AO under s. 147 of the Act on 18th March, 2003. Thereafter, notice for reopening the assessment for the second time was issued to the assessee on 4th Aug., 2005. The assessment in the present case on hand is for the asst. yr. 1999-2000. The four year period of limitation for invoking the power under s. 147 expired on 31st March, 2004. As observed earlier, in the present case on hand, the assessee has disclosed all the material facts and he has also filed the return within the time. Therefore, the proceedings initiated by the AO for the second time under s. 147 are barred by limitation. Therefore, we are of the considered opinion that even the proviso to s. 147 does not come into play on the facts of the case.

7. We also perused Expln. 1 to proviso to s. 147, which is extracted hereunder :

“Explanation 1—Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso.”

8. In our considered view, the said Explanation also does not apply to the present case on hand. A perusal of the said Explanation would show that a mere production of accounts books and other evidence from which material evidence could have been discovered by the AO would not amount to disclosure within the meaning of the provision. Therefore, the said Expln. 1 should be considered in the context of the provision, in as much as the same is applicable only for the production of the records and other evidence. Hence, we are of the opinion that the same will not be applicable to the case of filing of a return with adequate particulars fully disclosing all the materials for the purpose of assessment.

9. Considering the above said factual and legal position, we are of the opinion that the question of law raised will have to be answered against the Revenue and accordingly, the same is answered against the Revenue. Consequently, this tax case appeal stands dismissed.

[Citation : 331 ITR 435]

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