Garden Silk Mills Ltd. vs Deputy Commissioner of Income Tax (No. 2)

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, u/s 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 u/s 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. 90,02,650 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 u/s 43B 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 43B 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 Commissioner of Income Tax, Mysore Vs. The Canara Bank Ltd., and in the case of State

Bank of India v. CIT : [1986]157ITR67(SC) , respectively. The Assessing Officer also considered the decision rendered by the apex court in the

case of Vania Silk Mills (P) Ltd. Vs. Commissioner of Income Tax, Ahmedabad [OVERRULED], . 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

Commissioner of Income Tax, Bombay City Vs. Tata Locomotive and Engineering Co., Ltd., and Universal Radiators, Coimbatore Vs.

Commissioner of Income Tax, Tamil Nadu, .

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 Ltd. Vs. Income Tax Officer, 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

u/s 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 u/s 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 could enable him to exercise the powers. Reading the reasons recorded by the Assessing Officer, it

clearly transpires that there is no now information but there is a 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, if

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 it 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 u/s 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.