Eleganza Jewellery Ltd. vs Commissioner of Income Tax

Rule, returnable forthwith. By consent of the parties, the petition is taken up for final disposal. By this petition under article 226 of the Constitution of India the petitioner assails the notice issued u/s 148 of the income tax Act, 1961 ("the Act") dated March 25, 2013. By the impugned notice dated March 25, 2013, the Deputy Commissioner of income tax (Assessing Officer) seeks to reopen the petitioner''s assessment for the assessment year 2008-09.

The petitioner is established as a 100 percent export oriented unit (EOU) in the special economic zone (SEZ) at Andheri (W), Mumbai, engaged in the business of manufacture and export of gold and diamonds jewellery. The petitioner is entitled to a deduction u/s 10AA of the Act in respect of its income.

On September 29, 2008, the petitioner filed its return of income for the assessment year 2008-09 declaring income of Rs. 34.75 lakhs. Thereafter, on May 18, 2010, the Assessing Officer passed an assessment order u/s 143(3) of the Act assessing the petitioner''s income at Rs. 39.35 lakhs. This was after granting benefit of deduction u/s 10AA of the Act to the extent of Rs. 28.74 crores in respect of its income under the head "Profits and gains of business or profession".

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

Reasons recorded for initiation of reassessment proceedings u/s 147 and satisfaction for issuance of notice u/s 148 of the income tax Act, 1961.

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

Subsequently, it is observed that as per the audit report in Form No. 56F, dated September 27, 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 Circular No. 91 dated April 1, 2003, issued by the RBI for removing the stipulation of time limit for bringing in convertible foreign exchange. However, as per clause (iv) below Explanation 2 to section 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 six months from the end of the previous year. In view of this, the assessee-company was eligible for deduction u/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-clause (iii) of clause (c) below Explanation 2 to section 147 of the Act.

Further, as per Form No. 29B, the book profit has been shown at Rs. nil after reducing by the amount of profits of section 10AA unit. However, as per the amended provision with effect from the assessment year 2008-09, the amount of income as per section 10A/10B will not been reduced while computing the book profit. It is further observed that clauses 12 and 13 of Form No. 29B was not calculated correctly with reference to the figures appearing in clauses 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 u/s 115JB of the Act within the meaning of the provisions of section 147 of the Act.

Issue of notice u/s 148 of the income tax Act, 1961.

On September 24, 2013, the petitioner filed its objection to the reasons recorded by the Assessing Officer for issuing a notice u/s 148 of the Act seeking to reopen the assessment for the assessment year 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 u/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 Assessing Officer. Besides for the earlier assessment years as well as for the subsequent assessment years the petitioner''s claim for deduction u/s 10AA of the Act has been allowed. Further, reliance was placed upon the RBI Circular No. 91, dated April 1, 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 dated March 25, 2013, u/s 148 of the Act is without jurisdiction and be recalled/withdrawn.

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

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 the jurisdiction. It was pointed out that the petitioner is entitled to the benefit of section 10AA of the Act as the claim for the same had been filed with the Assessing Officer along with the petitioner''s return of income. In its claim the petitioner had indicated that the total export turnover was Rs. 114 crores and the amount received in convertible foreign exchange for the exports made was to the tune of Rs. 100 crores. Moreover, it was pointed out that the requirement of receiving convertible foreign exchange within a period of six months of exports from the end of the relevant assessment year has been done away with by the Reserve Bank of India Circular No. 91 dated April 1, 2003. Consequently, the reason for reopening that the convertible foreign exchange in respect of goods exported should be brought into India within six months from the end of the previous year was already a subject matter of consideration by the Assessing Officer while passing the assessment order dated May 18, 2010, for the assessment year 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 section 10A of the Act is being sought to be introduced while interpreting section 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 dated March 25, 2013, is completely without jurisdiction.

As against the above, Mr. Pinto, learned counsel appearing for the Revenue, submits that the reopening of assessment done by notice dated March 25, 2013, for the assessment year 2008-09 is within a period of four 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, the 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 dated May 18, 2010, for the assessment year 2008-09. In view of the above, no interference is called for by this court.

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., assessment year 2008-09 by a notice dated March 25, 2013, is less than four 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 four 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 u/s 147/148 of the Act for reopening of an assessment.

Therefore, in this particular case the only thing to be examined is whether or not the Assessing Officer had reason to believe that income chargeable to tax has escaped assessment while issuing the impugned notice dated March 25, 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 Assessing Officer while passing the assessment order dated May 18, 2010, in respect of the assessment year 2008-09. This is evident from the fact that during the assessment proceeding no query was raised by the Assessing Officer with regard to the grounds/reasons now recorded for reopening the assessment u/s 147/148 of the Act. Therefore, there was no occasion for the Assessing Officer 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 Corporation of India Ltd. Vs. Additional Commissioner of Income Tax and Others, that reopening of an assessment is permissible when the original assessment order passed u/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 the absence of application of mind to the tangible material.

In this case, non-receipt of convertible foreign exchange within a period of six 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 deductions u/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 dated May 18, 2010. In the above view, it is permissible for the Assessing Officer to have a reasonable belief that income chargeable to tax has escaped assessment and the same does not stem from a change of opinion.

The petitioner may have a good case on the merits. However, the same would be considered by the Assessing Officer 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 the assessment order. It is trite law that at this stage only a prima facie view of the Assessing Officer 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 dated March 25, 2013, issued u/s 148 of the Act. In the above circumstances, we see no reason to interfere with the impugned notice dated March 25, 2013. Accordingly, petition is dismissed with no order as to costs.