The Commissioner Of Income Tax v. M/S. Narcissus Investments Pvt. Ltd

1 txa44-08.dt.31-07-19 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.44 OF 2008 The Commissioner of Income Tax, having office at Aayakar Bhavan, ….Patto Plaza, Panaji, Goa. Appellant. Versus M/s. Narcissus Investments Pvt. Ltd., Gabmar Apartments, Vasco Da Gama, Goa. ….Respondent. Ms. Amira Abdul Razaq, with Ms. Tanya Ferreira, Advocate for theAppellant. Mr. Mihir Naniwadekar, with Ms. Vinita Palyekar, Advocate for theRespondent. Coram : M.S. Sonak & Nutan D. Sardessai, JJ. Reserved on : 23/07/2019. Pronounced on : 31[st] July, 2019. JUDGMENT : (Per M.S. Sonak, J.) Heard Ms. Amira Razaq with Ms. Tanya Ferreira for theAppellant and Mr. Mihir Naniwadekar with Ms. Vinita Palyekar forthe Respondent. 2. By order dated 2[nd] June, 2008 this Tax Appeal was admittedon the following substantial questions of law : 2 txa44-08.dt.31-07-19 “A) Whether on the facts and in the circumstances of thecase the ITAT was justified in law in upholding the order ofthe CIT(A) in cancelling the income escaping assessmentpassed by the Assessing Officer through the provisions ofSec. 147 was rightly invoked to bring the escaped incometo tax ? B) Whether on the facts and in the circumstances of thecase, the ITAT was justified in holding that the AOreopened the assessment on the basis of change of opinion,without appreciating the fact that the reopening ofassessment was within four years from the end of therelevant assessment year and therefore falls withinexpression "income escaping assessment", under clause (c)of Explanation 2, to section 147 of the IT Act ? C) Whether on the facts and in the circumstances of thecase, the ITAT was justified in law in not answering thesubstantial question whether the assessee an investmentcompany was justified in making claim of deduction u/s.80HHC on the sale proceeds received in convertibleforeign exchange on the sale of 1,70,032 shares of M/s.Chowgule Steamships Ltd. to M/s. International FinanceCorporation, Washington, USA, though the business ofthe assessee company is only buying and selling of sharesand not involved in any trading or manufacturing of goodsor merchandise as per the provisions of Sec. 80HHC? 3.The challenge in this Tax Appeal is to the Judgment andOrder dated 3[rd] August, 2007 made by the Income Tax AppellateTribunal (ITAT) in proceedings ITA No.228/PNJ/2002 (impugnedJudgment and Order). By the impugned Judgment and Order, theITAT has confirmed the order dated 5/8/2002 made by the 3 txa44-08.dt.31-07-19 Commissioner (Appeals) quashing the re-opening of assessment bythe Assessing Officer in respect of the return of income filed by theRespondent-Assessee for the Assessment Year 1995-96. 4.In this case, the Respondent-Assessee filed return of incomefor the Assessment Year 1995-96 on 29/3/1996. By order dated 2[nd]June, 1997, the Assessing Officer completed the assessment underSection 143(3) of the Income Tax Act, 1961 (IT Act). However, on17/2/2000, a notice was issued to the Respondent-Assessee underSection 148 of the IT Act, seeking to reopen the assessment. TheRespondent-Assessee filed its return on 31/3/2000 in response to thenotice dated 17.2.2000, inter alia, protesting the reopening ofassessment. 5.By order dated 21[st] November, 2001, the Assessing Officercompleted the assessment under Section 143(2) of the IT Act,disallowing the Assessee's claim for deduction under Section 80HHC in respect of export of shares and determined the total incomeof the Respondent-Assessee at 1,22,60,230. ₹ 6.The Respondent-Assessee appealed to the Commissioner(Appeals), who, vide order dated 5[th] August, 2002, quashed thereopening of the assessment. The Appellant, thereupon, appealed tothe ITAT, which has, vide the impugned Judgment and Order, 4 txa44-08.dt.31-07-19 5.By order dated 21[st] November, 2001, the Assessing Officercompleted the assessment under Section 143(2) of the IT Act,disallowing the Assessee's claim for deduction under Section 80HHC in respect of export of shares and determined the total incomeof the Respondent-Assessee at 1,22,60,230. ₹ 6.The Respondent-Assessee appealed to the Commissioner(Appeals), who, vide order dated 5[th] August, 2002, quashed thereopening of the assessment. The Appellant, thereupon, appealed tothe ITAT, which has, vide the impugned Judgment and Order, 4 txa44-08.dt.31-07-19 dismissed the Appeal and confirmed the Commissioner (Appeals)order dated 5[th] August, 2002. Hence, the present the present Appealunder Section 260A of the IT Act. 7.Ms. Razaq, learned Counsel for the Appellant submits thatthere was absolutely no infirmity on the part of the Revenue inseeking to reopen the assessment. She submits that this was not at alla case of 'change of opinion' as has been held by the Commissioner(Appeals) and confirmed by the ITAT. She submits that the issue asto whether sale of shares of an Indian company to a foreign companyamounts to 'export' or not under the relevant provisions of theCustoms Act, 1962 was not at all adverted to by the Assessing Officerat the stage when the assessment was finalised in the first instancesometime in the year 1997. 8.Ms. Razaq submits that the reopening of assessment has nonexus with the audit objections, because in the present case, theAssessing Officer has independently applied his mind and onlythereafter issued the notice of reassessment. She submits that merelybecause the Assessing Office had replied to the audit objection andmaintained his earlier stance, there can be no statutory bar to suchAssessing Officer issuing a notice for reassessment. 9. Ms. Razaq submits that even, otherwise, the audit objectioncan also be construed as 'information', on the basis of which notice 5 txa44-08.dt.31-07-19 for reassessment can always be issued. She submits that if theAssessing Officer derives information from an external sourceconcerning the facts or even as to law relating to and/or having abearing on the assessment, the Assessing Officer is perfectlycompetent to reopen the assessment. She submits that this is theview taken by the Hon'ble Supreme Court in the case of Larsen andToubro Limited vs. State of Jharkhand and others[1]. 10.Ms. Razaq submits that this Court in the case of IPCALaboratories Ltd. vs. Gajanand Meena, Deputy Commissionerof Income-tax [2]had sustained a notice for reopening of assessmentwhere the Assessee had claimed excessive deduction under Section80HHC. She submits that the view taken by the Commissioner(Appeals) and the ITAT is contrary to the law laid down by theHon'ble Supreme Court in Larsen and Toubro Limited(supra)and by this Court in IPCA Laboratories Ltd. (supra). For all thesereasons, she submits that the substantial questions of law at (A) and(B) are liable to be answered in favour of the Revenue and against theRespondent-Assessee. 11.Ms. Razaq submits that in the present case, the ITAT hasnot even adverted to the issue as to whether the Assessee, who isadmittedly an investment company, was justified in claiming a 12017 (13) SCC 780 2[2001] 251 ITR 420 (Bombay) 6 txa44-08.dt.31-07-19 11.Ms. Razaq submits that in the present case, the ITAT hasnot even adverted to the issue as to whether the Assessee, who isadmittedly an investment company, was justified in claiming a 12017 (13) SCC 780 2[2001] 251 ITR 420 (Bombay) 6 txa44-08.dt.31-07-19 deduction under Section 80HHC on the sale proceeds received inconvertible foreign exchange on the sale of 1,70,032 shares of M/s.₹Chowgule Steamship Limited to M/s. International FinanceCorporation, Washington, USA even though the business of theAssessee company was only of buying and selling of shares and theAssessee company was not at all involved in trading ormanufacturing goods or merchandise as contemplated by Section80HHC of the IT Act. She submits that should this Court answerthe substantial questions of law at (A) and (B) in favour of theRevenue, then, the matter may be remanded to the ITAT in order toconsider this issue, since this issue was never even considered by theITAT, though the same was specifically raised. 12.Mr. Mihir Naniwadekar, learned Counsel for theRespondent-Assessee defended the impugned Judgment and Orderon the basis of the reasoning reflected therein. He submits that in thepresent case both, the Commissioner (Appeals), as well as the ITAThave recorded a finding of fact that the Assessing Officer in reopeningthe assessment has acted under the dictation of the Commissioner ofIncome Tax. He submits that there is no reason to disturb thisconcurrent finding of fact. He relies upon the case of Sheo NarainJaiswal vs. Income-tax Officer[3] and CIT vs. T.R. Rajakumari[4] 3[1989] 176 ITR 352 (Patna) 4[1974 96 ITR 78 7 txa44-08.dt.31-07-19 13.Mr. Naniwadekar submits that in the present case, theAssessing Officer had, in fact, rejected the objections raised in theaudit report. Thereafter, by changing his opinion, the AssessingOfficer has issued the reassessment notice. He relies uponCommissioner of Income Tax -17, Mumbai vs. Rajan N.Aswani[5] to submit that such a course of action is clearlyimpermissible in law. 14.Mr. Naniwadekar submits that in the reasons indicated bythe Assessing Officer for reassessment there is really no reference tothe issue of transaction not being 'export' for the purposes of theCustoms Act. He submits that the Revenue is not entitled to add orsupplement such reasons, but has to stand or fall on the reasons setout in the notice seeking to reopen the assessment. He submits thatthis is clear case of change of opinion based merely upon the auditobjection. Accordingly, he submits that the impugned Judgment andorder warrants no interference whatsoever. 15.The rival contentions now fall for our determination. 16.In the present case, as noted earlier, return filed by theAssessee claiming deduction under Section 80HHC of the IT Act wasinitially accepted by the Assessing Officer in terms of Section 143(1)(a) of the IT Act. The return was, thereafter, selected for scrutiny by 8 txa44-08.dt.31-07-19 issuing notice under Section 143(2) and Section 142(1) of the ITAct. In fact, notice dated 21.06.1996 was issued to the Assesseeunder Section 142(1) of the IT Act, by which the Assessing Officerrequired the Assessee to justify its claim of sale of shares to partiesoutside India as qualifying to be regarded as 'export' andconsequently deductible under Section 80HHC of the IT Act. TheAssessing Officer required the Assessee to furnish details along withreceipt of convertible foreign exchange, details of custom clearance,Reserve Bank of India clearance, if any, in relation of the transactionsin question. By a further letter dated 27[th] June, 1996, the AssessingOfficer also required the Assessee to furnish particulars, includingthe name and other details of the foreign company to whom theshares were sold and the value of the shares so sold. 17.The record indicates that the Assessee, by a letter dated31.12.1996, responded to the notice/letter and justified its claim fordeduction under Section 80HHC. The Assessee also furnished thedetails as called for by the Assessing Officer, including thecorrespondence with the Reserve Bank of India giving approval forthe transfer of shares. 18.The Assessing Officer, only after due consideration of theAssessee's response dated 31.12.1996, completed the assessmentunder Section 143(3) on 2[nd] June, 1997, accepting return of the 9 txa44-08.dt.31-07-19 income. Therefore, this is really not a case where we can accept thecontention of Ms. Razaq that the Assessing Officer had not evenadverted to the aspect of the transaction not amounting to 'export'.Once this issue was squarely considered, it was not open to theRevenue to indulge into further hair-splitting by urging that somefacet of this issue remained to be considered. 19.The record indicates that even the issue of impact of theCustoms Act upon the transaction in question was raised andconsidered by the Assessing Authority. In this case, the AssessingAuthority was quite alive to this issue. There is not even anyallegation that the Assessee had failed to disclose all the material factsin relation to the transaction in question. In such circumstances,permitting the Revenue to reopen the assessment would amount topermitting the Revenue to review its earlier order, which jurisdictionis clearly not vested in the Revenue while exercising powers underunder Sections 147 and 148 of the IT Act. 20.In this case, after the audit raised its objection, the AssessingOfficer submitted reply to the same in which the Assessing Officerresisted the audit objection and defended the completion ofassessment. From the perusal of the reply, which is at Annexure 'B'(pages 67 to 79 of the paper book), it is very apparent that theAssessing Officer, at the stage of finalisation of assessment, had very 10 txa44-08.dt.31-07-19 clearly addressed the issue as to whether the transaction of sale ofshares of an Indian company to a foreign company, in the facts andcircumstances of the present case, constituted an export andconsequently the proceeds were deductible under Section 80HHC ofthe IT Act. 21.From the reply, it is evident that the transaction wasscreened not only in the context of the Companies Act, 1956, butalso from the context of Foreign Exchange Regulation Act, 1973since, there was no definition of 'export' under the IT Act. Despite astrong reply to the audit objection, the Assessing Officer, uponreceipt of letter dated 16[th] February, 2000 from the Commissioner ofIncome Tax requiring him to take 'remedial action forthwith', videnotice dated 17[th] February, 2000 i.e. on the very next day, issued anotice under Section 148 of the IT Act, seeking to reopen theassessment. 22.Both, the Commissioner (Appeals), as well as the ITAT,have recorded concurrent findings of fact that the aforesaid action onthe part of the Assessing Officer amounts to 'acting under dictation'.The material on record does indicate that there was no independentapplication of mind on the part of the Assessing Officer and thenotice proposing reassessment was issued reeling under the dictationfrom the Commissioner of Income-tax who was, admittedly, his 11 txa44-08.dt.31-07-19 superior officer. In such circumstances, there is no good ground tointerfere with the impugned Judgment and Order. 22.Both, the Commissioner (Appeals), as well as the ITAT,have recorded concurrent findings of fact that the aforesaid action onthe part of the Assessing Officer amounts to 'acting under dictation'.The material on record does indicate that there was no independentapplication of mind on the part of the Assessing Officer and thenotice proposing reassessment was issued reeling under the dictationfrom the Commissioner of Income-tax who was, admittedly, his 11 txa44-08.dt.31-07-19 superior officer. In such circumstances, there is no good ground tointerfere with the impugned Judgment and Order. 23.In the case of Larsen and Toubro Limited(supra), theHon'ble Supreme Court has held that the expression 'information'in the context of the provisions which permit reopening ofassessment, means instruction or knowledge derived from anexternal source concerning facts or parties or as to law relating toand/or having a bearing on the assessment. This expression isrequired to be given widest amplitude and should not be construednarrowly. It comprehends not only a variety of factors, includinginformation from external sources of any kind, but also the discoveryof new facts or information available in the record of assessment notpreviously noticed or investigated. In this case, the Apex Court hasalso noted that there are a catena of judgments holding that theassessment proceedings can be reopened if audit objection points outthe factual information already available in the records and that itwas overlooked or not taken into consideration. Similarly, if auditpoints out some information or facts available outside the record orany arithmetical mistake, assessment can be reopened. 24.In the present case, as noted earlier, it cannot be said thatthe audit objection had pointed out some factual information whichhad been overlooked or not taken into consideration by the 12 txa44-08.dt.31-07-19 Assessing Officer, not only at the stage when the Assessing Officeraccepted the Assessee's return in the first instance, but also whenthe Assessing Officer accepted the Assessee's return after the case wastaken up for scrutiny. As noted earlier, a detailed set of questionswere posed to the Assessee and information called for, in order todetermine as to whether the transaction, in question, amounted to'export' or not. It is only after a detailed consideration of suchmaterial, that the Assessing Officer accepted the return of theAssessee and allowed the deduction as claimed. 25.Even in reply to the audit objection, the Assessing Officermaintained that the deduction was rightly granted after taking intoconsideration all the material on record and after adverting to thefacts and law, relevant to the issue. Thereafter, on the basis of thereasons, which are mostly vague, the Assessing Officer upon beingdirected by the Commissioner of Income Tax to take remedial action,issued a notice for reassessment. In such facts, it cannot be saidthat the observations in Larsen and Toubro Limited (supra), uponwhich considerable emphasis was placed by Ms Razaq, would assistthe case of the Revenue. In fact, in paragraph 21 of the report reliedupon by Ms. Razaq, the Apex Court has noted that mere change ofopinion or having second thought about it by the competentauthority on the same set of facts and materials on record does notconstitute information for the purposes of reopening of assessment. 13 txa44-08.dt.31-07-19 This, according to us, is a clear case of the Assessing Officer merelychanging his opinion or having a second thought on the basis ofmaterials on record and that too reluctantly and reeling under thedictation from the superior officer. Accordingly, we are satisfied thatthere is no case made out to interfere with the impugned Judgmentand Order. 13 txa44-08.dt.31-07-19 This, according to us, is a clear case of the Assessing Officer merelychanging his opinion or having a second thought on the basis ofmaterials on record and that too reluctantly and reeling under thedictation from the superior officer. Accordingly, we are satisfied thatthere is no case made out to interfere with the impugned Judgmentand Order. 26.The decision of this Court in the case of IPCALaboratories Ltd. (supra) also turns on its own facts, where theAssessing Officer had overlooked the meaning of the word 'profit' asappearing in Section 80HHC(3)(c) of the IT Act. It is in thatcontext that the Division Bench of this Court held that reopening ofthe assessment was not based upon a mere change of opinion. Thefacts in the present case, as noticed earlier, are quite different. 27.Since, on the basis of the material on record we are satisfiedthat there was no case made out for reopening of the assessment, wedo not deem it necessary to go into the larger issue as to whether theAssessing Officer is precluded from issuing a notice for reassessmentwhere such Assessing Officer has already replied to the auditobjection justifying his earlier position. No doubt, in Rajan N.Aswani (supra) there are some observations to this effect as urged byMr. Naniwadekar. However, Ms. Razaq did make attempts todistinguish the said decision. According to us, it is really not 14 txa44-08.dt.31-07-19 necessary to go into this larger issue, since, based upon the discussionas aforesaid, we are satisfied that there was no case made out forreopening of the assessment. 28.On the basis of the aforesaid discussion, we answer thesubstantial questions of law at (A) and (B) against the Revenue andin favour of the Respondent-Assessee. Since these two substantialquestions of law are being answered against the Revenue, there is nocase made out to remit the matter to the ITAT for deciding the issueraised in the substantial question of law at (C). In fact, there is nonecessity of deciding the substantial question of law at (C), because,even if such question were to be decided in favour of the Revenue,the same would make no difference to the final conclusion in thematter. 29.Accordingly, this Appeal is dismissed. There shall be noorder as to costs. Nutan D. Sardessai, J. M.S. Sonak, J.