Replika Press Private Limited And Anr v. Assistant Commissioner Ofincome Tax Circle 15(1) New Delhi

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 22.01.2013 +WP(C) 13838/2009 REPLIKA PRESS PRIVATE LIMITED AND ANR ... Petitioners versus ASSISTANT COMMISSIONER OFINCOME TAX CIRCLE 15(1) NEW DELHI ... Respondents Advocates who appeared in this case:For the Petitioners: Mr S. KrishnanFor the Respondents : Mr Kamal Sawhney CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE R.V.EASWAR JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.This writ petition impugns the notice dated 24.02.2009 issuedunder Section 148 of the Income Tax Act, 1961 (hereinafter referred to as‘the said Act’) seeking to re-open the assessment for the assessment year2005-06. 2.The learned counsel for the petitioner submitted that the provisions of Section 147 have been wrongly invoked by the revenue inasmuch asthe Assessing Officer is seeking to merely change his opinion which is not permissible in law.In order to examine this plea of the learnedcounsel for the petitioner, it would be necessary to refer to some facts. 3.The petitioner had filed its return of income for the relevantassessment year on 29.10.2005. In the said return under Schedule K, thepetitioner claimed a sum of ` 2,61,41,144/- as being exempted underSection 10B of the said Act. The nature of income was described as abusiness income of a 100% export oriented unit. Alongwith the incometax return, the petitioner had given a break-up of the export turnover andthe local turnover. The calculations for deduction under Section 10B forthe assessment year 2005-06 were, inter alia, as under:- It should be noted that under export turnover, the petitioner clearlymentioned the FOB value of exports including DTA supply. DTA supplyessentially meant supplies to the domestic tariff area. The printed books,which the petitioner was producing on behalf of its overseas publishers,were being supplied to parties in India on the instructions of the overseas publishers, wherever required. The payment in respect of the same wasreceived from the overseas publishers in convertible foreign exchange. 4.Alongwith the return of income, was also annexed an annexure tothe notes on accounts, where, also, the DTA sales were mentioned. Whatis more important is the fact that the Assessing Officer issued aquestionnaire on 22.08.2007 in respect of the said assessment year 2005- 06. Question No.11(b) of the questionnaire reads as under:- “11(b).Please give a note on DTA supply and why it has beenincluded in export turnover.” In response, the petitioner submitted a reply on 13.09.2007. As regards question No. 11(b), the reply given by the petitioner was as under:- “11.(b) The summary of sales is as follows. 1.Physical Export as per chart enclosed900303022.Constructive Export942749823.Typesetting & scanning31264642.Constructive Export942749823.Typesetting & scanning3126464 Brief Note on Constructive Exports Regarding constructive Sales purchase order is receivedfrom overseas publishers. According to copy right act the ownership & copy rightsof the title book vests with overseas publishers. The same factsare stated on the front Page of the book photocopy of a sampleis enclosed. Since the assessee company does not own copyrights therefore the company is not the owner of the books,hence they cannot make any sales. The assessee company isfollowing the delivery instructions of the Foreign publishers &that too after the permission is granted by the DevelopmentCommissioner, NEPZ Noida (UP). Since the purchase order isreceived from Foreign publishers, payment is also received inconvertibleForeignExchangethroughbankingchannel.Subsequently on the basis of the permission granted byDevelopment Commissioner the Foreign Exchange is sent tooverseas publishers in Foreign Currency by the people to whomthe company has made supplies. Reliance is placed on the Hon’ble Supreme CourtJudgment in the case of J.B. Boda & Co. Pvt. Ltd. Vs. CentralBoard of Direct Taxes, copy of the judgment is enclosed, wherethe Hon’ble Supreme Court has held that “A two way Traffic isunnecessary. To insist on a formal remittance first & thereafter to receive the commission from the Foreign reinsure, will be an””.empty formality & a meaningless ritual on facts of the case 5.The learned counsel for the petitioner pointed out that the summaryof sales given in the aforesaid reply referred to two different types ofexports. The first kind was the physical export and the second was theconstructive export. The brief note, which has been reproduced above,explains as to what is meant by constructive exports.These are thosesupplies in the domestic tariff area which have been made on theinstructions of the publishers abroad and for which the petitioner hasreceived payment in convertible foreign exchange through normalbanking channels. 6.After having received the reply from the petitioner to the detailedquestionnaire and in particular to question No. 11(b), the AssessingOfficer framed the assessment under Section 143(3) of the said Act on04.10.2007. It will be seen that the Assessing Officer specifically dealtwith the issue of constructive exports and DTA supplies. This will beapparent from paragraphs 4 and 8 of the assessment order, which read asunder:- “4.The assessee company is an export oriented unit engagedin the business of export of printed books which has been delivered as per instruction of the importer to parties situatedoutside India, as well as in India (i.e. constructive exports). Ithas also shown receipts in convertible foreign exchange, fromexport/transmission of customized electronic data by way ofscanning and typesetting charges. During the year only theEOU has been in operation, as the domestic unit was stated tobe closed down in A.Y.2004-05. The assessee has madedomestic sales which has been shown as local turnover.” “8.Export turnover as per section 1 013 Explanation 2(iii)has to be worked out exclusive of freight, telecommunicationcharges or insurance attributable to the delivery of articles orthingsorcomputersoftwareoutsideIndia.Thetelecommunicationchargesincurredontransmittingtheelectronic data (i.e. typesetting and scanning charges) have tobe excluded from the gross receipts. Assesee has taken a leasedinter-net connection from BSNL through which type-set andscanned data files are uploaded to the foreign publisher. Duringthe year the assessee has paid Rs.2,01,632/- to BSNL for thisfacility, a per reply dated 28.9.07. Accordingly, an amount ofRs.2,01,632/- is excluded from total export turnover shown atRs.18,82,74,51 II- as per report in Form 56G. So the revisedtotal export turnover would be Rs.18,80,72,879/- which isworked out as under: FOB value of exports including DTA(domestic tariff area) supply: Rs.184305284/- Along with the assessment order, was appended the calculation sheetwhich also had reference to the export turnover which reads as under:- “Annexure-A Calculation of deduction u/s 10B for the AY 2005-06 It will be seen that the figure of export turnover exactly matches thefigure of export turnover as indicated in paragraph 8 of the assessmentorder which includes the FOB value of exports including DTA (domestic tariff area) supplies. From the aforesaid, it is apparent that the AssessingOfficer had applied his mind to the question of supply to the domestictariff area made by the petitioner on instructions from the publishersabroad. 7.The impugned notice under Section 148 was followed by thesupply of the purported reasons, which read as under:- “2005-06 Along with the assessment order, was appended the calculation sheetwhich also had reference to the export turnover which reads as under:- “Annexure-A Calculation of deduction u/s 10B for the AY 2005-06 It will be seen that the figure of export turnover exactly matches thefigure of export turnover as indicated in paragraph 8 of the assessmentorder which includes the FOB value of exports including DTA (domestic tariff area) supplies. From the aforesaid, it is apparent that the AssessingOfficer had applied his mind to the question of supply to the domestictariff area made by the petitioner on instructions from the publishersabroad. 7.The impugned notice under Section 148 was followed by thesupply of the purported reasons, which read as under:- “2005-06 Reasons: The assessment of M/s Replika Press Pvt. Ltd.For the assessment year 2005-06 was completed after scrutinyin October, 2007 at an income of Rs.149.66 lacs. The assessee,which had 100% export-oriented unit status, was engaged in thebusiness of manufacturer and export of printed books. Auditnoticed that the assessee was allowed deduction under section106 for sales of printed books, which was delivered as perinstruction of the foreign buyers to parties situated in India(sales Rs.9,42,74,982), Since the supply to Domestic TariffArea (DTA) in India does not constitute export out of India,these sales also do not constitute export turnover of theassessee. In a similar case of Indian Delco (Pvt.) Ltd. Vs. DCIT[59 ITD 268], ITAT Delhi bench had rejected the claim ofassessee for considering such domestic sales as export. Thus,the allowance of deduction under section 106 for DTA salesresultedinexcessallowanceofthedeductionbyRs.1,31,65,878/-. On the facts and in the circumstances of the case asdiscussed above & for the reason of failure on the part of theassessee to disclose fully & truly all material facts necessary forassessment and in view of sub-clause (c) of Expl.2 belowsection147,IhavereasontobelievethatincomeofRs.1,31,65,878/- chargeable to tax in A.Y.2005-06 has escapedassessment.” 8.On going through the purported reasons, it is apparent that theassessment is being re-opened on the ground that the supply to domestictariff area did not amount to exports.The learned counsel for the petitioner has contended that this would amount to a mere change ofopinion and that it is also based on an audit note. The learned counsel forthe petitioner also pointed out that the audit personnel could not commenton an interpretation of Section 10B of the Income Tax Act as that wouldbe a comment on a point of law, which is not permissible in view of theSupreme Court decision in the case of Indian and Eastern NewspaperSociety v. CIT: 119 ITR 996 (SC). 9.For the sake of completing the facts, we may point out that thepetitioner had filed his return pursuant to the notice and had also givenhis objections to the said notice which had been disposed of by an orderdated 07.12.2009, rejecting the petitioner’s objections.The said orderdated 07.12.2009 is also impugned in this writ petition. 10.We have heard the counsel for the parties and we may straightaway state that this is a clear case of change of opinion as also a case whichwas beyond the jurisdiction of the revenue audit which had pointed to theso-called discrepancies on points of law, particularly, on an interpretationof Section 10B of the said Act. 11.Insofar as the change of opinion is concerned, it is writ large fromthe records of the case. The Assessing Officer had specifically raised aquery with regard to the supplies made in the domestic tariff area and thepetitioner / assessee had given a detailed reply to the same.TheAssessing Officer, after considering the reply furnished by the assessee, 10.We have heard the counsel for the parties and we may straightaway state that this is a clear case of change of opinion as also a case whichwas beyond the jurisdiction of the revenue audit which had pointed to theso-called discrepancies on points of law, particularly, on an interpretationof Section 10B of the said Act. 11.Insofar as the change of opinion is concerned, it is writ large fromthe records of the case. The Assessing Officer had specifically raised aquery with regard to the supplies made in the domestic tariff area and thepetitioner / assessee had given a detailed reply to the same.TheAssessing Officer, after considering the reply furnished by the assessee, framed the assessment order in which, as we have pointed out above, hemade specific references to exports in the domestic tariff area and / orconstructive exports.While computing the claim for exemption underSection 10B, the Assessing Officer has included the supply made in thedomestic tariff area, both in the main body of the assessment order as alsoin Annexure-A thereto, which was the calculation of the deductions.Therefore, it is absolutely clear that the Assessing Officer had applied hismind to the very issue which is now sought to be raised under Section147 of the said Act.That would mean that the present venture ofinvoking Section 147 is nothing but a mere change of opinion, which isimpermissible in law, as is well settled by a long line of decisions. Thesecond point of the petitioner is also well taken that an audit party couldnot have commented on a point of law and, particularly, on aninterpretation of Section 10B of the said Act. 12.Therefore, on both points, the petitioner is liable to succeed. Theimpugned notice dated 24.02.2009 and all proceedings pursuant thereto,including the order dated 07.12.2009, are quashed and / or set aside. Thewrit petition is allowed, as above. There shall be no order as to costs. BADAR DURREZ AHMED, J R.V.EASWAR, JJANUARY 22, 2013SR