Commissioner of Income Tax vs Devi Marine Food Exports Pvt. Ltd.

R. Jayasimha Babu, J.—The assessee is operating a cold storage plant, wherein frozen sea food is preserved. That there is no manufacture

in the activity of processing of sea food which is frozen and preserved in the cold storage plant is now well settled, having regard to the decisions of

the Supreme Court in the case of Sterling Foods v. State of Karnataka [1986] 63 STC 239, as also the decision of the Supreme Court in the case

of Deputy CST v. Pio Food Packers [1980] 46 STC 63. The test laid down in those cases was held to be applicable to cases arising under the

Income Tax Act by the Supreme Court in the case of Commissioner of Income Tax, Orissa and Others Vs. N.C. Budharaja and Company and

Others, . This court in the case of Commissioner of Income Tax Vs. George Maijo, , has held that for the purpose of Section 80HH of the Income

Tax Act, the processing of shrimps for export did not amount to production or manufacture. Similar reasoning would apply to a claim for

investment allowance as well.

The assessment year with which we are concerned here is 1982-83. The assessment granting investment allowance was initially completed on

September 16, 1992, but it was later reopened by the Assessing Officer in the light of the decision of the Madhya Pradesh High Court in the case

of Mittal Ice and Cold Storage Vs. Commissioner of Income Tax, , which had held that investment allowance cannot be claimed for a cold storage

plant, as there is no change in the stored articles by reason of the cold storage, and that, no new article comes into existence as a result of

manufacture or production.

The Tribunal has held that such reopening was not justified, as in its view the reopening was only as a consequence of a change of opinion which

was not warranted having regard to the fact that the assessee had furnished all the information required at the time of the original assessment.

Learned counsel for the assessee sought to support the view so taken by the Tribunal by relying on certain observations of the Supreme Court in

the case of Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, . At page 448 of that judgment, the court observed as under :

As stated earlier, the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief.

Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer

and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his

failure to disclose fully and truly all material facts ... The reason for the formation of the belief must be held in good faith and should not be a mere

pretence.

In this ease, the reopening was not on the ground that the assessee had failed to disclose all the relevant materials fully and completely. It was on

the ground that the information which came to the notice of the Assessing Officer subsequently led to the belief that there had been escapement of

income to tax. That information was the decision of the Madhya Pradesh High Court. There is no dispute about the fact that the reopening was

done within the time allowed by law. The reopening of the assessment, in the circumstances, was justified. It was not a case of mere pretence of

having received the information even when the reality was one of change of opinion.

Counsel submitted that the facts which arose for consideration in the decision of the Madhya Pradesh High Court were distinguishable from the

facts of this case. Having gone through the judgment, we are unable to agree. The essential facts in the cases are similar, and the law laid down

there was law which was relevant to the consideration of the case of the assessee. The Income Tax Officer cannot be said to have acted in bad

faith, or pretended to form an opinion on the basis of that judgment even when that judgment was not the cause for the view taken by the

Assessing Officer in reassessment.

The view taken by the Tribunal that the reopening was not justified, and also that even on the merits, the assessee was entitled to investment

allowance, cannot be sustained.

The two questions referred to us, viz.,

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the Income Tax Officer did

not have valid jurisdiction to reopen the assessment u/s 147 of the Income Tax Act, 1961, for withdrawing the investment allowance ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee is entitled to

benefit of investment allowance on merits also ?"" are, therefore, answered in favour of the Revenue, and against the assessee.