Citation Codes

Equivalent Citations

citation codes

Case Number

Writ Peti. No. 2763 of 2013 , 2763 of 2013

Advocates

Pramod K. ParidaSanjukta Choudhury

Judges

Mohit S. ShahM.S. SANKLECHA

Acts

s. 148 of the IT Act, 1961."6. 24th Sept., 2013,
s. 148 of the IT Act, 1961 ("the Act")
s. 148 of the IT Act, 1961.The

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Smart Summary

Summary of Court Opinion

Factual and Procedural Background

The petitioner is a 100% Export-Oriented Unit (EOU) located in a Special Economic Zone (SEZ) at Andheri (West), Mumbai, engaged in manufacture and export of gold and diamond jewellery and claiming deductions under s.10AA of the Income Tax Act, 1961 ("the Act").

The petitioner filed its return of income on 29 September 2008 for assessment year 2008-09 declaring total income of Rs. 34.75 lakh. The Assessing Officer (AO) completed a scrutiny assessment under s.143(3) on 18 May 2010 assessing total income at Rs. 39.35 lakh after allowing a deduction under s.10AA of Rs. 28.74 crore.

On 25 March 2013 the AO issued a notice under s.148 seeking to reopen the assessment for AY 2008-09 on the ground that income chargeable to tax had escaped assessment. The reasons recorded by the AO (furnished to the petitioner) alleged (i) that export consideration in convertible foreign exchange as per Form 56F was lower than export turnover and, applying cl. (iv) of Explanation 2 to s.10A, the petitioner was eligible for a smaller deduction (resulting in alleged excess allowance of Rs. 3,36,63,661), and (ii) that Form No.29B showed book profit as nil after reducing by the amount of s.10AA profits, which the AO contended was incorrect for AY 2008-09 and indicated escapement of income under s.115JB.

The petitioner objected to the reopening on 24 September 2013, contending that the notice was based on a change of opinion, that the s.10AA claim and related facts had been placed before the AO during the original assessment, and relying on RBI Circular No. 91 dated 1 April 2003 to argue there was no six-month requirement for bringing in convertible foreign exchange. The AO rejected the objections by order dated 12 November 2013. The petitioner filed a petition under Article 226 challenging the notice dated 25 March 2013. By consent the petition was taken up for final disposal and the Court issued a rule returnable forthwith.

Legal Issues Presented

Whether the notice under s.148/147 of the Income Tax Act, 1961 dated 25 March 2013 reopening AY 2008-09 was validly issued (i.e., whether the AO had "reason to believe" that income chargeable to tax had escaped assessment) or whether the reopening amounted to an impermissible change of opinion.
Whether the fact of full and true disclosure by the assessee precluded reopening in a case where the notice is issued within four years from the end of the relevant assessment year.
Whether the specific grounds relied upon by the AO (receipt of convertible foreign exchange within six months and the computation in Form No.29B affecting book profits under s.115JB) were matters that had already been considered in the original s.143(3) assessment order or were new issues justifying reassessment.

Arguments of the Parties

Petitioner's Arguments (Mr. Parida)

The reopening is based on a change of opinion and therefore is beyond jurisdiction.
The petitioner had made full disclosure and claimed s.10AA relief in the original return and provided relevant details (export turnover and amounts realized in convertible foreign exchange) during the original assessment proceedings.
The RBI Circular No. 91 dated 1 April 2003 removes any requirement to receive consideration within six months of export, which was relied upon by the petitioner before the AO during the original assessment.
The AO had already considered the issues regarding s.10AA in the original assessment order dated 18 May 2010, so reopening amounts to a change of opinion.
Interpreting s.10AA by importing the definition of "export turnover" from s.10A (as alleged by the AO) is not permissible.

Revenue's Arguments (Mr. Pinto)

The reopening notice dated 25 March 2013 was issued within four years from the end of the relevant assessment year, hence it is permissible even if there had been full and true disclosure.
Revenue contends there was a reasonable belief that income chargeable to tax had escaped assessment.
The grounds on which reassessment is sought (differences relating to receipt in convertible foreign exchange and computation of Form No.29B/book profit) were not a subject-matter of examination during the original assessment proceedings.
Accordingly, the AO was entitled to issue the reassessment notice and the Court should not interfere at this stage.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Export Credit Guarantee Corpn. of India Ltd. v. Addl. CIT [2013] 350 ITR 651 / 30 taxmann.com 211	Reopening of assessment is permissible when the original assessment order under s.143(3) is silent on the issue/point on which reassessment notice is issued; absence of any query during the original assessment on the subject indicates absence of application of mind to the tangible material.	The Court relied on this ruling to support the conclusion that reopening was permissible because the issues relied upon by the AO were not considered in the original assessment order and no queries had been raised during the original proceeding.

Court's Reasoning and Analysis

The Court proceeded in a stepwise manner, based strictly on the material and arguments before it:

The Court accepted that the petitioner had made a full and true disclosure of relevant material during the original assessment proceedings.
However, it noted that the impugned notice was issued less than four years from the end of the relevant assessment year; therefore the requirement of a failure to make full and true disclosure (which would bar reopening beyond four years) is not applicable. In short, being within the four-year period means reopening can be initiated even where there was full disclosure.
The key question became whether the AO had "reason to believe" that income chargeable to tax had escaped assessment when issuing the s.148 notice. The Court reiterated the well-settled principle that "reason to believe" cannot be founded merely on a change of opinion.
The Court examined whether the issues on which reassessment was proposed (non-receipt in convertible foreign exchange within six months affecting s.10AA entitlement; and the computation of book profit in Form No.29B affecting s.115JB liability) were matters that had been considered in the original s.143(3) assessment order. The Court found they were not: no queries were raised during the original proceedings concerning these points and the original assessment order was silent in respect of them.
Applying the principle in Export Credit Guarantee Corpn. (cited in the opinion), the Court concluded that where the original assessment order is silent on an issue and there was no occasion for the AO to apply his mind to the tangible material on that issue during the original assessment, the AO may legitimately form a "reason to believe" and issue a reassessment notice. The absence of prior examination of these specific grounds meant the reassessment did not simply amount to a change of opinion.
The Court observed that the petitioner might have a good case on merits, but at the stage of judicial review of the issuance of a notice, only a prima facie view by the AO is required; a conclusive or "cast-iron" case of escapement of income is not necessary. The merits would be open to full examination during reassessment proceedings where evidence can be produced.

Holding and Implications

Core Ruling: Petition dismissed.

Direct effect on the parties: The Court declined to interfere with the notice dated 25 March 2013 issued under s.148 of the Income Tax Act, 1961, thereby permitting the Revenue to proceed with reassessment proceedings for assessment year 2008-09. The petitioner remains entitled to raise all merits and evidentiary points before the AO during the reassessment proceedings.

Broader implications: The Court's order reiterates that where a reassessment notice is issued within four years from the end of the relevant assessment year and the issue on which reassessment is sought was not considered in the original s.143(3) assessment (i.e., the original order is silent and no queries were made), reopening may be validly founded on a reasonable belief of escapement of income and does not necessarily amount to an impermissible change of opinion. The opinion does not indicate that it is laying down any new legal precedent beyond applying the cited authority.

End of summary. This summary is based exclusively on the text of the provided court opinion and does not add information not present therein.

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Eleganza Jewellery Ltd. v. Commissioner of Income-tax

ORDER

1. Rule, returnable forthwith. By consent of the parties, the petition is taken up for final disposal.

2. By this petition under Art. 226 of the Constitution of India the petitioner assails the notice issued under s. 148 of the IT Act, 1961 ("the Act") dt. 25th March, 2013. By the impugned notice dt. 25th March, 2013 the Dy. CIT (AO) seeks to reopen the petitioner's assessment for asst. yr. 2008-09.

3. The petitioner is established as a 100 per cent Export-Oriented Unit (EOU) in Special Economic Zone (SEZ) at Andheri (West), Mumbai, engaged in the business of manufacture and export of gold and diamond jewellery. The petitioner is entitled to a deduction under s. 10AA of the Act in respect of its income.

4. On.29th Sept., 2008, the petitioner filed its return of income for asst. yr72008-09 declaring income of Rs. 34.75 lakh. Thereafter on 18th May, 2010 the AO passed an assessment Order under s. 143(3) of the Act assessing the petitioner's income at Rs. 39.35 lakh. This was after granting benefit of deduction under s. 10AA of the Act to the extent of Rs. 28.74 crore in respect of its income under the head 'Profits and gains of business or profession'.

5. On 25th March, 2013, the AO issued a notice under s. 148 of the Act to the petitioner seeking to reopen the assessment for asst. yr. 2008-09. The reopening was sought on the ground that the AO has reason to believe that the income chargeable to tax has escaped assessment. On petitioner's application the AO furnished to the petitioner the grounds /reasons recorded for reopening the assessment under s. 147/148 of the Act and the same read as under :

"Reasons recorded for initiation of reassessment proceedings under s. 147 and satisfaction for issuance of notice under s. 148 of the IT Act, 1961.

The return of income for asst. yr. 2008-09 was e-filed by the assessee on 29th Sept., 2008, declaring total income at Rs. 34,75,940. The case was scrutinized under s. 143(3) vide order dated 18th May, 2010, assessing the total income at Rs. 39,35,650.

2. Subsequently, it is observed that as per audit report in Form No. 56F dt. 27th Sept., 2008, the assessee had received the exports proceeds in convertible foreign exchange amounting to Rs. 100,74,49,184 as against the export turnover of Rs. 114,10,82,258. The assessee-company had relied on the Circular No. 91 dt. 1st April, 2003 issued by the RBI for removing the stipulation of time-limit for bringing in convertible foreign exchange. However, as per cl. (iv) below Expln. 2 to s. 10A of the Act, "export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in. or brought into, India by the assessee in convertible foreign exchange within the period of 6 months from the end of the previous year. In view of this, the assessee company was eligible for deduction under s. 10AA amounting to Rs. 25,37,87,678 (1007449184/1150912684 x 2899237733) only and not Rs. 28,74,51,339 as allowed in the assessment order. Thus, there is an excess allowance of deduction of Rs. 3,36,63,661, resulting into escapement of income to that extent. Therefore, I have reason to believe that income of Rs. 3,36,63,661 chargeable to tax has escaped assessment within the meaning of sub-cl. (iii) of cl. (c) below Expln. 2 of s. 147 of the Act.

3. Further, as per Form No. 29B, the book profit has been shown at Rs. nil after reducing by the amount of profits of s. 10AA unit. However, as per the amended provision w.e.f. asst. yr. 2008-09, the amount of income as per s. 10A/10B has not been reduced while computing the book profit It is further observed that the els. 12 and 13 of Form No. 29B was not calculated correctly with reference to the figures appearing in els. 9, 10 and 11 of the report in Form No. 29B. Thus, I have reason to believe that there is an escapement of income to the extent of book profit of Rs. 28,74,91,271 under s. 115JB of the Act within the meaning of provision of s. 147 of the Act.

4. Issue of notice under s. 148 of the IT Act, 1961."

6. 24th Sept., 2013, the petitioner filed its objection to the reasons corded by the AO for issuing a notice under s. 148 of the Act seeking to reopen the assessment for asst yr- 2008-09. In its objection the petitioner submitted that the reopening notice is without jurisdiction inasmuch as reasons recorded are based on change of opinion and therefore, without jurisdiction. In particular, the petitioner pointed out that the original assessment was completed under s. 143(3) of the Act and in view of which all material pertaining to the grounds raised had been provided/furnished by the petitioner before the AO. Besides, for the earlier assessment years as well as for the subsequent assessment years the petitioner's claim for deduction under s. 10AA of the Act has been allowed. Further reliance was placed upon RBI Circular No. 91, dt. 1st April, 2003 to indicate that there is no requirement to receive consideration within six months of the exports. In view of the above, it was submitted that the reopening notice dt. 25th March. 2013 under s. 148 of the Act is without jurisdiction and be recalled /withdrawn.

7. By an order dated 12th Nov., 2013, the AO rejected the petitioner's objection to the reasons for reopening of assessment for asst. yr. 2008-09. It was noted that the objections raised are on merits of the matter and the same would be considered on the basis of documents and evidence produced during the reassessment proceeding.

8. Mr. Parida, learned counsel for the petitioner in support of the petition submits that the reopening is only ,in view of change of opinion and therefore, beyond jurisdiction. It was pointed out that the petitioner is entitled to the benefit of s. lOAA of the Act as the claim for the same had been filed with the AO along with petitioner's return of income. In its claim the petitioner had indicated that the total export turnover was Rs. 114 crore and the amount received in convertible foreign exchange for the exports made was to the tune of Rs. 100 crore. Moreover, it was pointed out that the requirement of receiving convertible foreign exchange within a period of 6 months of exports from the end of the relevant assessment year has been done away with by RBI Circular No. 91, dt. 1st April, 2003. Consequently, the reason for reopening that the convertible foreign exchange in respect of goods exported should be brought into India within 6 months from the end of the previous year was already a subject-matter of consideration by the AO while passing the assessment order dt. 18th May, 2010 for asst. yr. 2008-09. In view of the above, the proposed reopening of the assessment was only on account of change of opinion. Besides, it was submitted that the export turnover as defined in s. 10A of the Act is being sought to be introduced while interpreting s. 10AA of the Act under which the petitioner is claiming the deduction. This is ex facie not permissible. Therefore, it was submitted that the notice dt. 25th March, 2013 is completely without jurisdiction.

9. As against the above, Mr. Pinto learned counsel appearing for the "Revenue submits that the reopening of assessment done by notice dt. 25th March, 2013 for asst. yr. 2008-09 is within a period of 4 years from the end of the relevant assessment year. In these circumstances, even if there has been full and true disclosure of all material particulars done by the assessee. Revenue is not prohibited from reopening an assessment in case there is a reasonable belief that income chargeable to tax has escaped assessment. It is further submitted that the grounds on which the reassessment is being sought to be done, were not a subject-matter of examination during the original proceeding leading to the assessment order dt. 18th May, 2010 for asst. yr. 2008-09. In view of the above, no interference is called for by this Court.

10. We have considered the rival submissions. We find that, in this case, there has been a full and true disclosure of all relevant material necessary by the petitioner for the purpose of assessment. However, as the assessment sought to be reopened i.e., asst. yr. 2008-09 by a notice dt. 25th March, 2013 is less than 4 years from the end of the assessment year, the jurisdictional requirement of there being a failure to make full and true disclosure would not be applicable. In such cases of less than 4 years from the end of the relevant assessment year even if there has been no failure to make full and true disclosure of all relevant material necessary for assessment, there is no bar/prohibition for issuing a notice under s. 147/148 of the Act for reopening of an assessment.

11. Therefore, in this particular case the only thing to be examined is whether or not the AO had reason to believe that income chargeable to tax has escaped assessment while issuing the impugned notice dt. 25th March, 2013. It is well-settled that the reason to believe cannot be founded merely on change of opinion, in this case the grounds/reasons recorded for reopening the assessment were not the issues which were considered by the AO while passing the assessment order dt. 18th May, 2010 in respect of asst yr. 2008-09. This is evident from the fact that during the assessment proceeding no query was raised by the AO with regard to the grounds /reasons now recorded for reopening the assessment under s. 147/148 of the Act. Therefore, there was no occasion for the AO to apply his mind to the tangible material to form any opinion with regard to it during the original assessment proceeding. It has been held by this Court in Export Credit Guarantee Corpn. of India Ltd. v. Addl. CIT [2013] 350 ITR 651/30 taxmann.com 211 that reopening of an assessment is permissible when the original assessment order passed under s. 143(3) of the Act is silent in respect of the issue/point on which reassessment notice is issued. Further, no query with regard, to the above issue having been made during the assessment proceeding would also indicate, absence of application of mind the tangible material.

12. In this case non-receipt of convertible foreign exchange within a. period of 6 months from the end of the assessment year was not the Subject-matter of consideration nor the fact that the petitioner had declared its book profits after reducing the amount of deduction under s. 10AA of the Act during the original proceedings. Both these issues were not the subject-matter of consideration during the original assessment proceedings leading to assessment order dt. 18th May, 2010. In the above view, it is permissible for the AO to have a reasonable belief that income chargeable to tax has escaped assessment and the same does not stem from a change of opinion..

13. The petitioner may have a good case on merits. However, the same would be considered by the AO during the reassessment proceeding and it is likely that on the basis of the evidence produced by the petitioner the Revenue may come to the same conclusion that it had come in the earlier proceeding leading to assessment order. It is trite law that at this stage only a prima facie view of the AO is necessary to issue notices and not a. cast iron case of escapement of income. Therefore, no fault can be found with the impugned notice dt. 25th March, 2013 issued under s. 148 of the Act.

14. In the above circumstances, we see no reason to interfere with the impugned notice dt. 25th_Mamh_2013. Accordingly, petition is dismissed with no order as to costs.

VARSHA

Eleganza Jewellery Ltd. v. Commissioner of Income-tax

Summary of Court Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments (Mr. Parida)

Revenue's Arguments (Mr. Pinto)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Eleganza Jewellery Ltd. v. Commissioner of Income-tax

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