VENUS INDUSTRIAL CORPORATION VS ASSISTANT COMMISSIONER OF INCOME-TAX, 2000 PTD-PUNJAB-AND-HARYANA-HIGH-COURT-INDIA 2559 (1998)

Income-tax---

----Reassessment---Income escaping assessment ---Assessee engaged in manufacturing and export of hand tools (spanners)---Incentive given by Government to exporter to bring down cost of raw material (steel) purchased from foreign country under International Price Reimbursement Scheme (IPRS)---Assessee not utilising imported raw material though receiving incentive money---Income-tax Officer reopening assessment on ground deduction under S.80HHC wrongly allowed to assessee on incentive received under IPRS---Reassessment valid---Indian Income Tax Act, 1961, Ss.147 & 148.

The petitioner was engaged in the business of manufacturing and export of hand tools (spanners). For the assessment year 1992-93, the petitioner filed a return showing income at Rs.22,650 after claiming deduction under section 80HHC at Rs.64,34,244. Subsequently, a revised return was filed declaring the same income but claiming deduction under section 80HHC at Rs.69,35,182. The Assessing Officer, however, allowed deduction under section 80HHC at Rs.54,78,739 in the- assessment order, dated December 20, 1994. The assessee filed an application under section 154 of the Income Tax Act, 1961, pointing out that deduction under section 80HHC should have been allowed at Rs.69,49,555 instead of Rs.54,78,739. The petitioner also filed, on January 5, 1995, an appeal before the Commissioner of Income-tax (Appeals) as certain expenditure had also been disallowed by the Assessing Officer. The Assessing Officer decided on January 13, 1995, the petitioner's application filed under section 154 and allowed deduction under section 80HHC at Rs.57,66,165 in place of Rs.54,78,739. The petitioner, on February 3, 1995, filed another appeal before the Commissioner of Income-tax (Appeals) against the order passed under section 154, whereby deduction under section 80HHC was not allowed at the amount as claimed by the petitioner. The Commissioner of Income-tax (Appeals), by order dated July 4, 1995, directed the Assessing Officer to re-determine the deduction under section 80HHC after holding that the amount received by the petitioner, as an incentive under IPRS (International Price Reimbursement Scheme), formed part of the petitioners income under section 28 of the Act. The Department went in appeal against the order of the Commissioner before the Tribunal but no ground was raised on deduction: under section 80HHC and the said order was challenged on the view taken by the Commissioner in respect of bogus purchases of furnace oil. The Assessing Officer issued a notice, dated July 16, 1996, to the petitioner under section 148 of the Act relating to the assessment year 1992-93, because he wanted to re-examine the deduction under section 80HHC as the petitioner-firm had wrongly claimed the deduction in the next assessment year (1993-94) and it was necessary to again examine the deduction in respect of the assessment year 1992-93. On a writ petition challenging the notice for reassessment:

Held, that the Assessing Officer had found that there was non -utilisation of the imported raw material, though the petitioner had received incentive .money from the Government, claiming the use of the raw material in the manufacture of the export item. This aspect was never under examination before the assessing authority and was altogether a new material available now. This new material came to the notice of the Assessing Office: while examining the case of the petitioner for the subsequent assessment year (1993-94). Therefore, the notice issued under, section 148 or reassessment was valid.

A. K. Mittal for Petitioner.

R. P. Sawhney, Senior Advocate and Rajesh Bindal for Respondent.

JUDGMENT

N. K. AGRAWAL, J.---This is a petition by Venus Industrial Corporation, partnership firm, finder article 226/227 of the Constitution, for quashing the notice, dated July 16, 1996, issued to the petitioner by the Assistant Commissioner of Income-tax, Central Circle 11, Ludhiana, under section 148 of the Income tax Act, 1961 ("the Act"), on the ground that income of the petitioner has escaped assessment for the assessment year 1992-93.

The petitioner-firm is engaged in the business of manufacturing and export of hand tools (spanners). The return of income, declaring net income, at Rs.22,650 for the assessment year 1992-93, was filed by the petitioner after claiming deduction under section 80HH of the Act at Rs.64,34,244 Subsequently a revised return was filed, declaring the same net income but claiming deduction under section 80HHC at Rs.69,35,182. The Assessing Officer, however allowed deduction under section 8OH14C at Rs.54,78,739 in the assessment order, dated December 20, 1994. The petitioner fled an application under section 154 of the Act on December 29, 1994, pointing out that deduction under section 80HHC should have been allowed at Rs.69,49,555 instead of Rs.54,78,739. The petitioner also filed on January 5, 1995, an appeal before the Commissioner of Income-tax (Appeals) as certain expenditure had also been disallowed by the Assessing Officer.

The Assessing Officer decided on January 13, 1995, the petitioner's application filed under section 54 and allowed deduction under section 80HHC at Rs.57,66,165 in place of Rs.54,78,739. The petitioner, on February 3, 1995, filed another appeal before the Commissioner, of Income tax (Appeals) against the order passed under section 154, when by deduction under section 80HHC, was not allowed at the amount as' claimed by the petitioner.

The Commissioner of Income-tax (Appeals), by order, dated July 4, 1995, directed the Assessing Officer to re-determine the deduction under section 80HHC after holding that the amount received by the petitioner,. as an incentive under IPRS (International Price Reimbursement Scheme), formed part of the petitioner's income under section 28 of the Act. The Department went in appeal against the order of the Commissioner before the Income-tax Appellate Tribunal but no ground was raised on deduction under section 80HHC and the said order was challenged on the view taken by the Commissioner in respect of bogus purchases of furnace oil.

The Assessing Officer sent a notice dated July 16, 1996, to the petitioner under section 148 of the act relating to the assessment year 1992-93. The Assessing Officer wanted to re-examine the deduction under section 80HHC on the ground that petitioner-firm had wrongly claimed the deduction in the next assessment year (1993-94) and it was necessary to again examine the deduction in respect of the assessment year 1992-93.

Shri A. K. Mittal, learned counsel for the petitioner, has argued that the notice sent by the Assessing Officer under section 148 is wholly without jurisdiction because the matter regarding deduction under section 80HHC had already been examined by the Commissioner of Income-tax (Appeals). The Assessing Officer had, therefore, no jurisdiction or authority to by-pass the appellate order by way of reassessment. The Commissioner of Income-tax (Appeals) had already held that the petitioner was entitled to the benefit of section 80HHC and it was only to be quantified again by the Assessing Officer. The Revenue did not challenge the first appellate order before the Income-tax Appellate Tribunal. Therefore, the Assessing Officer had no power in law to nullify the effect of the appellate order of the Commissioner. The Assessing Officer could not take recourse to the action under section 148 and reopen the assessment on a change of opinion. Deduction had earlier been allowed by the Assessing. Officer, though quantification was not correctly done by him. The matter had been adjudicated upon by the appellate authority and had reached finality.

Shri R. P. Sawhney, learned senior counsel for the respondent, has, on the other hand, contended that the taxability of the amount received by way of incentive under the International Price Reimbursement Scheme was not in dispute any more. The incentive was given by the Government to an exporter so to bring down the cost of raw material (steel) purchased from a foreign country. The Assessing Officer, while issuing notice under section 147, had recorded reasons which make out a case of the income having escaped assessment. Para. 5 of Annexure P-12 containing reasons is as under:

"After completion of assessment in this case, as per information received from EIPC and that brought on record in the assessment year 1993-94, it was noticed that the assessee-firm had wrongly claimed IPRS in respect of usage of EN-8 Steel in the manufacturing of spanners. In the assessment year 1993-94, the assessee, has specifically stated that no spanners have ever been manufactured out of EN-8. The actual raw material used is a lower costing material called C-38. In view of this and the fact that the cost price paid by the assessee, is much less than that claimed in the IPRS statement furnished to EEPC, the price differential claimed by the assessee for purposes of IPRS in the claim statement to EEPC is not legally admissible to the assessee. The IPRS claimed by misrepresentation of facts to concerned authorities is; therefore, assessable only as income from other sources and the deduction under section 80HHC, which has been allowed to the assessee in respect of this is not admissible as per, law needs to be corrected. Consequently, the income to this extent has escaped assessment. "

Shri Sawhney has argued that the reasons recorded by the Assessing Officer before issuing notice under section 148 are explicit and also clear so as to make out a case for reopening of the assessment. If certain income has escaped on account of a deduction wrongly allowed, the Assessing Officer was, within his jurisdiction, to ask the assessee to explain the same. Since the Assessing Officer wanted to look into the utilisation of the raw material imported by the assessee, on which amount of incentive had been received by the assessee from the Government, and this aspect was neither considered by the Assessing Officer nor by the appellate authority. There was a suspicion that the assessee had received incentive money on the cost of raw material imported from a foreign county for manufacturing export item but had actually not utilised the imported raw material for the manufacture of the spanners meant to be exported.

On a consideration of the matter, it is, found that the reasons recorded by the Assessing Officer, while issuing notice to the petitioner under section 148, are entirely in a different context. The Assessing Officer has developed certain suspicion on the non-utilisation of the imported raw material, though the assessee had received incentive money from the Government, claiming the use of the raw material in the manufacture of export item. This aspect was never under examination before the assessing authority and was altogether a new material available now. This new material came to the notice of the Assessing Officer while examining the case of the petitioner for the subsequent assessment year 1993-94. 1n these circumstances, the notice issued under section 148 of Act cannot be faulted. The petitioner has only been asked to appear before the Assessing Officer and to show-cause as. to why the assessment be not reopened. It is for the assessee to explain that the material imported, under the incentive scheme, had been duly utilised for the manufacture of the export item and the deduction under section 80HHC, in respect of the incentive amount, had been correctly claimed from the Government.

In the result, the writ petition is found to be devoid of merit. It is, therefore, dismissed.

M.B.A./4163/FCPetition dismissed.