GARDEN SILK MILLS LTD. VS DEPUTY COMMISSIONER OF INCOME-TAX (N0.2)
1998 P T D 2389
[222 I T R 68]
[Gujarat High Court (India)]
Before B. C. Patel and S.M. Soni, JJ
GARDEN SILK MILLS LTD.
versus
DEPUTY COMMISSIONER OF INCOME-TAX (N0.2)
Special Civil Applications Nos.1189 and 1190 of 1995, decided on 26/06/1996.
Income-tax------
----Reassessment---Information that income had escaped assessment---Mere change of opinion is not sufficient---Original assessment after considering explanation of assessee---No new information that income had escaped assessment---Reassessment was not valid---Indian Income Tax Act, 1961, S.147.
Held, that the Assessing Officer cannot take any action under section 147 of the Income Tax Act. 1961, merely because he happens to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. From the assessment order, it clearly appeared that at the time of original assessment, the Assessing Officer had applied his mind to the computing of income. There was nothing to indicate that the Assessing Officer in consequence of information in his possession had reason to believe that income had escaped assessment. The reassessment proceedings were not valid and were liable to be quashed.
CIT v. Canara Bank Ltd. (1967) 63 ITR 328 (SC); CIT v, Tata Locomotive and Engineering Co. Ltd. (1966) 60 ITR 405 (SC); Lakhanpal National Ltd. v. ITO (1986) 162 ITR 240 (Guj.); State Bank of India v. CIT (1986) 157 ITR 67 (SC); Universal Radiators v. CIT (1993) 201 ITR 800 (SC) and Vania Silk Mills (P.) Ltd. v CIT (1991) 191 ITR 647 (SC) ref.
J.P. Shah for Petitioner.
Mihir Thakore for M.R. Bhatt of R.P. Bhatt & Co. for Respondent.
JUDGMENT
B.C. PATEL, J.---The petitioner, a public limited company (hereinafter referred to as "the company" or "the assessee"), by filing these petitions under Article 226 of the Constitution of India has prayed for issuance of a writ of certiorari or any other appropriate writ, order or direction to quash and set aside the notice at Annexure "A", dated February 3, 1995, under section 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
In Special Civil Application No. 1190 of 1995 for the assessment year 1993-94, notice vide Annexure "D", dated February 3, 1995, came to be issued by the Assessing Officer under section 148 of the Act. The notice is issued on identical facts which are referred to in Special Civil Application No. 1189 of 1995. Except the change in figures, we find no changes. At the request of learned counsel, we have heard both the matters together and have disposed of them by a common judgment.
The short facts of the case as they emerge from Special Civil Application No. 1189 of 1995 are as under:
The company submitted the computation of income for the assessment year 1992-93, vide Annexure. "A" and claimed deduction of various items including: (i) Rs.2,96,04,082 being the surplus on cancellation of forward contracts, and (ii) Rs.10,06,50,438 being excise duty paid on yarn, yarn used in cloth and engineering components included in closing stock. The Assessing Officer, during the course of assessment raised questions regarding the aforesaid items and the company was called upon to explain. The company, by its letter, dated March 8, 1994, explained in detail as to how the amount was received. It was pointed out that the company has entered into forward exchange contracts and on cancellation of the same, an amount of Rs.8,54,42,806 was received. Out of the aforesaid amount Rs.4,68,36,094 came to be credited to plant and machinery account, Rs.90,02,630 came to be credited to roll over premium expense account and Rs.2,96,04,082 came to be credited to the profit and loss account. It was pointed out that the company being a manufacturer of textile fabrics imports various machinery and equipment against loans in foreign currency. Against the instalments of loans payable and interest payable on such loans, the petitioner-company entered into contracts covering the foreign exchange contracts to guard against the fluctuation in the rate of foreign currency. In view of the policy, the Reserve Bank of India permits companies to enter into forward contracts for the foreign exchange to be drawn by the companies with a view to limit or regulate exposure of the Indian companies. It was specifically pointed out that the company is not engaged in financing business or dealing in foreign exchange.
With regard to excise duty, it was pointed out that the petitioner--?company has claimed deduction under section 43-B of the Act in respect of excise duty with respect to closing stock of cloth and engineering components on the ground of payment of excise duty amounting to Rs.10,06,50,438. It was pointed out that the petitioner-company has inventory of yarn of Rs.20,73,76,667 cloth of Rs.39,77,43,368 and of engineering components of Rs.21,33,34,204 as on March 31, 1992. This inventory includes excise duty paid by the company on yarn purchased by the company and lying in the closing stock in the heading of yarn, of cloth and engineering components, respectively. It was pointed out that the excise duty paid on purchase of raw material would make the company entitled to get the deduction under the provisions of section 43-B of the Act.
Mr. P.K. Kedia, the then Deputy Commissioner of Income-tax (Assessment), Special Range-I, Surat, on March 24, 1994, considering the submissions assessed the company assessee. In paragraph 4.5 of the assessment order, the Assessing Officer has discussed in detail about the amount received by the assessee on cancellation of forward exchange contracts. It also clearly indicates that the Assessing Officer has considered the law laid down by the apex Court in the case of CIT v. Canara Bank Ltd. (1967) 63 ITR 328 and in the case of State Bank of India v. CIT (1986) 157 ITR 67, respectively. The Assessing Officer also considered the decision rendered by the apex Court in the case of Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR 647. The assessee contended that the cancellation of forward exchange contracts does not involve "transfer" of a capital asset within the meaning of section 2(47) of the Act. The assessee also contended that surplus arising on cancellation of the forward exchange contracts in the case of a manufacturing company like the assessee-company would not be liable to pay tax on such surplus. The assessee placed reliance on the decision of the apex Court in the case of CIT v. Tata Locomotive and Engineering Co. Ltd. (1966) 60 ITR 405 and Universal Radiators v. CIT (1993) 201 ITR 800.
In paragraph 4.8 of the assessment order, the Assessing Officer has, after considering the submissions made by the assessee and having gone through the decisions, held that the assessee is not a banking company and is not engaged in the business of purchasing foreign exchange or dealing in the same by entering into forward exchange contracts. After following the decisions of the apex Court, the Assessing Officer held that there is no transfer of a capital asset on cancellation of the forward exchange contracts.
Even with regard to the claim of the assessee for deduction of excise duty, in paragraph 4.10 of the assessment order, the Assessing Officer has considered the decisions pointed out by the assessee, and particularly, the case of Lakhanpal National Limited v. ITO (1986) 162 ITR 240 (Guj.) and after a detailed discussion, has held that there is no difficulty in accepting the contention raised by the assessee. Thus, after considering the various decisions cited before him, the Assessing Officer passed an order of assessment.
It appears that the new incumbent in place of the Deputy Commissioner of Income-tax (Assessment), Special Range-I, Surat, issued a notice under section 148 of the Act, Shah and Thakore, learned counsel, have taken us through the record and the decision referred to hereinabove and some other decisions to which reference need not be made. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned. The Assessing Officer is required to record his reasons in every case before issuing a notice and accordingly, in the instant case, reasons recorded by the Assessing Officer are placed on record. There is nothing to indicate that there was failure on the part of the assessee to make a return of its income and to disclose fully and truly all the material facts necessary for his assessment. In the reasons, there is nothing to indicate that the Assessing Officer in consequence of information in his possession has reason to believe that the income has escaped assessment. It is well-known that the Assessing Officer is entitled to act on information received after the original assessment. Such information may have been gathered from the record of assessment itself. The Assessing Officer cannot take any action under this section merely because he happens to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. From the assessment order, it clearly appears that the Assessing Officer applied his mind to the computation of income and, therefore, in a case like this, it would not be open for the Assessing Officer to issue a notice under section 148 of the Act. The reasons which are placed on record are perused by us. Learned counsel for the Revenue could not point out anything from the said reasons that after the order of assessment by the Assessing Officer considering all the decisions, any further information has been received by the Assessing Officer which would enable him to exercise the powers. Reading the reasons recorded by the Assessing Officer, it clearly transpires that there is no new information but there is change of opinion. In the operative part of the reasons, it is recorded as under:
"On scrutiny of records, it was found that the assessee had made incorrect claims and the same were allowed. Because of these incorrect claims, it is concluded that the income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose income truly and fully."
If it had been the case that the facts were not disclosed fully and truly, then it could be said that by not disclosing the facts claims were made and were allowed. But the facts are mentioned by the assessee and with regard to the subject-matter, we find detailed discussion in the assessment order. The assessment order clearly indicates that the assessee was required to address with regard to the subject-matter before the assessment and the Assessing Officer was satisfied about factual and legal aspect and following the judgments of the apex Court and of this Court assessed the assessee. In reply, the respondent has not dealt with the specific contention raised by the assessee that it has fully and truly disclosed all the relevant facts. Even before this Court is was not suggested by learned counsel for the Revenue that relevant facts for assessment have been concealed or have not been fully and. truly disclosed.
In our opinion, it is a mere change of opinion and that would not amount to escapement of income. On this ground, these petitions are required to be allowed and are hereby allowed. Notices issued under section 148 Annexure "D", dated February 3, 1995, in both the Special Civil Applications are hereby quashed and set aside. Rule made absolute accordingly with no order as to costs.
M.B.A./1516/FC???????????????????????????????????????????????????????????????????????????????? Petition allowed.