Veeteejay Exports (P) Ltd. vs Deputy Commissioner of Income Tax

P.R. Ramachandra Menon, J.—Petitioner is the same in both the cases. While the notice issued for reopening the assessment under s. 147 of the IT Act (hereinafter referred to as the ''Act'') is under challenge in the former case, the consequential proceedings leading to the assessment and the dismissal of the revision petition by the revisional authority under s. 264 of the Act are under challenge in the latter case. The petitioner company, who is engaged in the business of export of marine products submitted ''nil'' return in respect of the asst. yr. 1989-90. In fact, the petitioner had disclosed the total income of Rs. 12,40,546.55 and claimed deduction of the entire amount under s. 80HHC of the Act. But the total income computation statement filed along with the return revealed that the actual amount eligible for deduction under s. 80HHC for the year 1989-90 was Rs. 15,83,836.56. The return was accepted under s. 143(1)(a) of the Act and intimation was conveyed by the AO on 20th March, 1990. The said return came to be selected for scrutiny and after final assessment under s. 143(3), an assessment order was passed holding that total assessable income was ''nil'' and hence, no demand.

While so, pursuant to some instructions stated as obtained from the Dy. Director of Investigation, Ernakulam, the assessment was proposed to be reopened under s. 147 and a notice under s. 148 was issued on 27th Sept., 1991. The reason was that, the dealer by name M/s. Indo Pacific Corporation, to whom the goods were supplied by the petitioner during 10th July, 1987-22nd March, 1988, had claimed deduction under s. 80HHC in respect of the export of Rs. 27,06,916 made by the petitioner and the said claim had been allowed in the assessment of the export house, which hence was not admissible again in the case of supporting manufacturer, i.e., the petitioner. It was accordingly, that a liability was cast upon the petitioner, demanding a sum of Rs. 1,53,055, as per the assessment order dt. 31st March, 1994. The above scrutiny assessment was subjected to challenge by filing appeal and was pending. Meanwhile, the CIT, Cochin, invoking the revisional power under s. 263 set aside the above order, for the purpose of determining afresh, the permissible deduction under s, 80HHC of the Act, as per the order dt. 1st March, 1996. Nearly three months thereafter, the very same order which was challenged in the statutory appeal was set aside by the appellate authority for the reason that the order was not a valid one for want of signature of the Asstt. CIT/AO. This made the petitioner to challenge the order passed by the revisional authority under s. 263 by approaching the Tribunal who held that the revisional order was only on a limited aspect, as to the fixation under s. 80HHC, which otherwise was valid in all other respects and since the entire order itself was set aside by the appellate authority in the regular first appeal for want of signature of the assessing authority, nothing remained to be considered and the appeal filed before the Tribunal was declared as infructuous.

In the meanwhile, pursuant to the order passed under s. 263, the assessing authority had proceeded with further steps by issuing Exts. P6 and P6(a) notices (in Original Petn. No. 10560 of 2001), which made the petitioner to approach this Court by filing Original Petn. No. 72 of 1998, wherein Ext. P7 interim order was passed. Later, the said original petition was disposed of, in view of the challenge raised against the order passed by the revisional authority before the Tribunal and the verdict passed by the Tribunal.

While so, a fresh notice was issued by the Dy. CIT/respondent in Original Petn. No. 10560 of 2001 to reopen the assessment for 1989-90 on 29th Nov., 1999, as borne by Ext. P8 therein, to which the petitioner submitted Ext. P9 reply on 27th Dee., 1999, seeking to treat the original return of the income filed by the petitioner as the return in response to the said notice. Exhibit P8 notice in Original Petn. No. 10560 of 2001 is under challenge, stating that it is barred by limitation and further that, there was absolutely no lapse or suppression in any manner on the part of the petitioner to have extended application of the time factor and to have reopened the assessment.

When the original petition came up for consideration before this Court, an interim order was passed on 27th March, 2001 in the following manner:

Notice. Assessment may go on and the petitioner will be entitled to request for any further materials in the matter. But any proceedings for recovery will be stayed till such time further orders are passed by this Court.

In the said circumstance, the proceedings were finalised by the concerned authority, who passed the order dt. 22nd March. 2002 [Ext. PS in Writ Petn. (Civil) No. 30192 of 2004] casting a liability to the tune of Rs. 9,58,334 upon the petitioner. Being aggrieved of the same, the petitioner preferred statutory revision under s. 264 of the Act before the CIT, Cochin, as borne by Ext. P9. After considering the same, it was dismissed as per Ext. P11 order dt. 16th Dec, 2003. The petitioner is challenging the said original order dt. 22nd March, 2002 and the revisional order dt. 16th Dec. 2003 (Exts. P8 and P11 respectively) in Writ Petn. (Civil) No. 30192 of 2004.

The basic challenge, as raised by the petitioner is on the ground of limitation to have reopened the assessment under s. 147. The learned counsel for the petitioner submits that the petitioner had submitted all the requisite materials for the assessment before the concerned authority, who had accepted the same, followed by scrutiny assessment, whereupon also, no liability was sought to be mulcted upon the petitioner, it was thereafter, that the assessment was sought to be revised under s. 147, which was set aside by the appellate authority and the order passed by the CIT under s. 263 to facilitate fresh assessment to fix the extent of liability/deduction under s. 80HHC, has been declared as not liable to be proceeded with, in view of the declaration made by the Tribunal vide Ext. P5 order in Original Petn. No. 10560 of 2001. The learned counsel for the petitioner submits that the only circumstance where the prescribed period of ''four'' years could be sought to be extended, can only be with reference to the lapse/failure on the part of the assessee, which circumstance is conspicuously absent in the instant case. Further, it is pointed out that the said period is also over. The attempt made by the concerned respondent to have the assessment reopened is for want of necessary disclaimer certificate, which is a mandatory requirement for granting the deduction under s. 80HHC. The said requirement was not admittedly satisfied by the petitioner, though the factual particulars were given and the respondents were satisfied by the same, pursuant to which, the return was accepted and ''nil'' demand was raised, followed by scrutiny assessment with ''nil'' demand. As such there was no lapse or failure on the part of the petitioner and the period of limitation under s. 147 cannot be stretched under any circumstance submits the learned counsel.

It is also pointed out by the learned counsel for the petitioner that the entire materials were very much available with the respondents as submitted by the petitioner and as such, if at all any mistake was there for having granted exemption under s. 80HHC in spite of absence of disclaimer certificate, it could only be an error apparent on the face of the record, which could have been sought to be rectified within four years as stipulated under s. 154 of the IT Act, The scope and meaning of the words "error apparent on the face of the record" is sought to be explained with reference to the law declared by a Division Bench of this Court in Commissioner of Income Tax Vs. Kesaria Tea Co. Ltd., and so also, the judgment passed by a Division Bench of the Karnataka High Court in Additional Commissioner of Income Tax Vs. India Tin Industries (P) Ltd., . Pointing out that there is no whisper as to the alleged lapse/failure or suppression in disclosing the entire materials on the part of the petitioner, the learned counsel also seeks to explain the meaning of the words ''omission/failure to disclose fully or truly all material facts'', with reference to the law declared by a Constitution Bench of the Supreme Court in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, . The mistake which is liable to be corrected under s. 154 is not liable to be dealt with by reopening the assessment under s. 147, is the next submission, placing reliance on the decision of the Madras High Court in The Commissioner of Income Tax Vs. Sri Chamundeswari, . With regard to the merits also, the learned counsel submits that the orders passed by the concerned respondents as per Exts. P8 and P11 in Writ Petn. (Civil) No. 30192 of 2004 are not correct or sustainable and the benefit of s. 80HHC ought to have been granted to the petitioner in the light of the position discernible from the available materials on record, contending that the ''export incentive'' shown in Ext. P2 should have been added to the profit of the business, on which event, no liability would have been there, as now fixed.

The learned counsel for the Department however submits that there is absolutely no merit or bona fides in the writ petition insofar as there is no dispute for the petitioner that the petitioner did not submit the disclaimer certificate, which is a mandatory requirement to claim the benefit of exemption under s. 80HHC. Mere filing of the return, pointing out that the petitioner had effected the export through the export house is not sufficient to declare and extend the benefits to the petitioner. The learned counsel submits that the idea and understanding of the petitioner as to the period of limitation is also quite wrong and misconceived. Reliance is sought to be placed on s. 149 and in particular. ''Explns. 1 and 2'' thereunder. It is submitted that the assessee had not revealed the true and full particulars for the purpose of assessment, while it was given to understand that the petitioner was doing ''own export'' and no disclaimer certificate was produced, which led to finalisation of the proceedings and reopening of the assessment under s. 147.

Referring to the mandate under s. 149, as it then existed, the learned standing counsel submits that the period of limitation in the present case is ''10 years'' and that the proceedings have been finalised well within time. The learned counsel also submits that in view of the law declared by a Division Bench of this Court in Commissioner of Income Tax, Cochin Vs. National Tyres and Rubber Co. of India Ltd., , based on the apex Court verdict in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., , it was very much open for the respondents to have reopened the assessment under s. 147, even in respect of any mistake committed by any officer, which could be corrected under s. 154. The entire aspects were considered by the revisional authority leading to Ext. P11 order. In respect of the contention raised as to the ''export incentive'' and the profit of the business reckoned, it is pointed out that, there cannot be any claim otherwise than by way of proper returns, in view of the law declared by the apex Court in Goetze (India) Ltd. Vs. Commissioner of Income Tax, .

Coming to the first question with regard to the ground of limitation under s. 147, the position is discernible from s. 149 which deals with issuance of notice under s. 148. The said provision, as was in existence on the relevant date, enables to have such a course, with reference to the quantum of income chargeable to tax, which has escaped assessment and which amounts to or is likely to amount to Rs. one lakh or more, within ''10'' years. The learned counsel for the petitioner fairly concedes the above legal provision, however stating that the question is whether there was any fault/lapse for non-disclosure of the full and true facts on the part of the petitioner, in connection with the assessment. Explanations 1 and 2 under s. 147 are relevant to the case in hand, which read as follows:

Explanation 1.--Production before the AO of account books or other evidence from which material evidence could, with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:

(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income tax;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

(c) where an assessment has been made, but--

(i) income chargeable to tax has been under-assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.

The specific case of the petitioner is that the petitioner had disclosed everything by filing the returns. But going by the Expln. 1, this is not enough. Coming to the Expln. 2, it is specified under cl. (c)(iii) that any excessive relief made under the Act is a fact liable to be considered for reopening the assessment under s, 147. It is the admitted position, that the petitioner did not file ''disclaimer certificate'', which is a mandatory requirement. It also remains a fact, as discernible from the materials on record, that, the supplier to whom the supply was effected by the petitioner had claimed exemption under s. 80HHC, which has been allowed by the Department, as pointed out in Ext. P8, with regard to which there is no dispute or challenge. As such, there cannot be any ''double benefit'' under this head.

When the petitioner did not produce the disclaimer certificate and sought for the benefit of exemption under s. 80HHC, the authority concerned proceeded with and finalised the matter, as if it were ''own export'' and the lapse/failure was brought to light only subsequently, Since the petitioner did not comply with the statutory requirement, but for merely filing the return, filling up the figures and furnishing the particulars as to the transactions, it cannot be said that there was a true and full disclosure on the part of the petitioner, so as to have resulted in proper assessment, sustaining the deduction under s. 80HHC. The deduction granted by the officer concerned under this head, notwithstanding the non-production of disclaimer certificate under s. 80HHC, though partly attributable as a mistake of the AO, the same could very well be corrected, in view of the law declared by a Division Bench of this Court in CIT vs. National Tyres & Rubber Co. of India (supra). The decisions cited by the petitioner do not come to the rescue of the petitioner in extending any relief, more so, when there is no case for the petitioner that he is eligible to have the benefit of s. 80HHC, when he has not produced the disclaimer certificate and when the counter-part (to whom the supply was effected by the petitioner) has already claimed the said benefit. There is a specific case for the petitioner that the amount of Rs. 23,44,923 shown as ''export incentive'' in Ext. P8 order impugned in the writ petition, should have been added to the figures given against the profit of the business of Rs. 15,58,326, based on the law declared by the apex Court in Commissioner of Income Tax, Thiruvananthapuram Vs. Baby Marine Exports, Kollam, , upon which the petitioner will stand eligible for substantial benefits and the liability would be scaled down to substantial extent. Though this aspect was sought to be projected in the statutory revision and was dealt with by the revisional authority in para 6 of Ext. P11 order, the reliance sought to be placed on the cut off date does not appear to be fully justified. Same is the position with regard to the eligibility to have heavy loss sustained by the petitioner in respect of the previous years particularly 1986-87 and 1988-89, duly reckoned. It is contended on the part of the respondents that there was no such claim, which is pointed out as not correct and that the petitioner had already made a claim in this regard, to be carried forward and set off against s. 80HHC claim. This Court finds that this matter requires to be considered by the respondents. As such, Exts. P8 and P11 in the writ petition are sustained in all other respects, except on this limited question. It is open to the petitioner to file a detailed statement as to the above claim before the respondents within ''two weeks'' from the date of receipt of a copy of the judgment, on which event, it shall be considered and disposed of, in accordance with law, as expeditiously as possible. Recovery proceedings, if any, shall be kept in abeyance till such time.

In the above facts and circumstances, this Court finds that except to the above extent, no interference is called for. Original petition (O.P. No. 10560 of 2001) is dismissed as devoid of any merit. The writ petition [W.P. (Civil) No. 30192 of 2004] is disposed of in the manner as specified hereinbefore.