Jawand Sons, Ludhiana v. Commissioner Of Income Tax (Appeals)-Ii, Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No. 479 of 2009DATE OF DECISION : 18.11.2009 Jawand Sons, Ludhiana .... APPELLANT Versus Commissioner of Income Tax (Appeals)-II, Ludhiana ..... RESPONDENT CORAM :- HON'BLE MR. JUSTICE SATISH KUMAR MITTALHON'BLE MR. JUSTICE MEHINDER SINGH SULLARHON'BLE MR. JUSTICE MEHINDER SINGH SULLAR Present:Mr. Pankaj Jain and Mr. D.K. Goyal, Advocates,for the appellant-assessee.for the appellant-assessee. * * * SATISH KUMAR MITTAL , J. The assessee has filed the instant appeal under Section 260-Aof the Income Tax Act, 1961 (hereinafter referred to as `the Act') against theorder dated 26.2.2009, passed by the Income Tax Appellate Tribunal,Chandigarh Bench “B”, Chandigarh (hereinafter referred to as `the ITAT')in ITA No. 568/Chd/2008, pertaining to the assessment year 2001-02,raising the following substantial question of law :- (i)Whether on the true and correct interpretation of Section147 Proviso the initiation and conclusion of theproceedings is sustainable without discharging thedepartment onus for bringing on record the materialgoing to show “disclosure not made fully and truly”?147 Proviso the initiation and conclusion of theproceedings is sustainable without discharging thedepartment onus for bringing on record the materialgoing to show “disclosure not made fully and truly”? The brief facts of the case are that the assessee-appellant firm is engaged in the business of manufacture and export of hosiery goods. On20.10.2001, the assessee filed Income-tax return for the assessment year2001-02, declaring the total income at Rs. 5,61,096/- along with the auditreport under Section 44-AB of the Act. The audit report for claim ofdeduction under Section 80 HHC of the Act in form 10 CCAC and the auditreport for claim of deduction under Section 80 IB of the Act were attachedwith the Income-tax return. The assessment was completed under Section143 (3) of the Act on 27.3.2003 at Rs. 5,86,096/-. Subsequently, a noticeunder Section 148 of the Act was issued for re-assessment on the groundthat some income has escaped assessment. After considering the objectionsfiled by the assessee to the issuance of notice under Section 148 of the Act,the Joint Commissioner of Income Tax (Appeals) Range VI, Ludhiana,proceeded with the re-assessment and vide order dated 28.12.2006(Annexure A-3), while following the decision of the Supreme Court inCITv. Sterling Foods(1999) 237 ITR 579 and a decision of this Court inLiberty Indiav. Commissioner of Income-Tax(2007) 293 ITR 520,disallowed the deduction claimed by the assessee on account of the exportincentives and interest received under Section 80-IB of the Act.Accordingly, an amount of Rs.24,79,620/- received by the assessee asexport incentives was reduced from the net profit declared by the assessee inthe profit and loss account for the purposes of determination of correctdeduction under Section 80-IB of the Act. Regarding the claim of theassessee for deduction of Rs.17,67,256/- under Section 80 HHC of the Act, it was held that the said deduction was rightly claimed and no addition onthat account was made. The aforesaid order was affirmed in appeal by theCommissioner of Income Tax (Appeals)-II, Ludhiana, vide order dated31.3.2008, as well as by the ITAT vide its order dated 26.2.2009. it was held that the said deduction was rightly claimed and no addition onthat account was made. The aforesaid order was affirmed in appeal by theCommissioner of Income Tax (Appeals)-II, Ludhiana, vide order dated31.3.2008, as well as by the ITAT vide its order dated 26.2.2009. During the course of arguments, learned counsel for theappellant-assessee could not controvert the legal position that in view of thedecision of the Supreme Court in Sterling Foods' case (supra)and thedecision of this Court in Liberty India's case (supra), no deduction onaccount of the Duty Draw Back and the Duty Entitlement Pass BookScheme (hereinafter referred to as `DEPB') under Section 80-IB of the Actcan be allowed. It is also conceded position that the judgment of this Courtin Liberty India's case (supra)has been affirmed by the Apex Court inLiberty Indiav.Commissioner of Income-Tax, (2009) 317 ITR 218. Fromthis, it is clear that in the initial assessment, the benefit of deduction of theDuty Draw Back and DEPB under Section 80-IB of the Act was wronglygranted to the appellant-assessee, for which he was not entitled. However,learned counsel for the appellant-assessee argued that initiation of the re-assessment proceedings was not in consonance with the requirement ofSections 147 and 148 of the Act. Learned counsel argued that the AssessingOfficer was not justified in re-opening the assessment, merely on the basisof change of opinion, and while framing the opinion that some incomechargeable to tax has escaped assessment on account of non-disclosure offully and truly all material facts necessary for assessment for the relevant assessment year. Therefore, he submitted that as far as the assessee isconcerned, he has fully disclosed all the material facts necessary forassessment. The audit report as well as the accounts were shown and in noway, it can be said that the assessee had not disclosed the relevant facts.Thus, the initiation of proceedings of re-assessment itself was bad and theorders passed in the said proceedings are liable to be set aside. Learnedcounsel argued that while taking the wrong interpretation of the proviso toSection 147 of the Act, the ITAT has wrongly come to the conclusion thatthe re-assessment proceedings were rightly initiated, whereas the revenuehas not discharged the onus for bringing on record the material to show thatdisclosure was not made fully and truly. After hearing learned counsel for the appellant-assessee andgoing through the order passed by the ITAT, we do not find any ground tointerfere in this appeal, as in our opinion no substantial question of law isarising in this appeal, because a pure finding of fact has been recorded tothe effect that the re-assessment proceedings have rightly been initiatedafter framing the opinion that some income chargeable to tax has escapedassessment. Under Section 147 of the Act, after its amendment with effectfrom 1.4.1989, wide power has been given to the Assessing Officer even tocover the cases where the assessee had fully disclosed the material facts.The only condition for action is that the Assessing Officer should havereason to believe that the income chargeable to tax had escaped assessment.Such belief can be reached in any manner, and is not qualified by a pre- condition of faith and true disclosure of material facts by the assessee ascontemplated in the pre amended Section 147 (a) of the Act. In the instantcase, as far as merits of the case is concerned, with regard to the permissiblededuction under Section 80-IB of the Act, it is clear position that theassessee was not entitled to claim deduction on account of Duty Draw Backand DEPB incentives, as these incentive profits do not fall withinexpression “profits derived from industrial undertaking” in Section 80-IB ofthe Act. Therefore, Duty Draw Back and DEPB do not form part of netprofits of the industrial undertaking for the purposes of Section 80-IB of theAct. condition of faith and true disclosure of material facts by the assessee ascontemplated in the pre amended Section 147 (a) of the Act. In the instantcase, as far as merits of the case is concerned, with regard to the permissiblededuction under Section 80-IB of the Act, it is clear position that theassessee was not entitled to claim deduction on account of Duty Draw Backand DEPB incentives, as these incentive profits do not fall withinexpression “profits derived from industrial undertaking” in Section 80-IB ofthe Act. Therefore, Duty Draw Back and DEPB do not form part of netprofits of the industrial undertaking for the purposes of Section 80-IB of theAct. In view of the above, we do not find any illegality in theimpugned order and in our opinion, no substantial question of law is arisingfrom the impugned order of the ITAT. Dismissed. ( SATISH KUMAR MITTAL )JUDGEJUDGE ( MEHINDER SINGH SULLAR )JUDGEJUDGE