Chief Commissioner (Admn.) (U.P.) vs Kanhaiya Lal Kapoor and Sons

The Income Tax Appellate Tribunal, Allahabad has referred the following question of law u/s 256(1) of the Income Tax Act, 1961, hereinafter referred to as ''the Act'', for opinion to this Court.

"Whether on the facts and in the circumstances of the case, the Tribunal was, in law, justified in upholding the decision of the A.A.C. Cancelling the re-opening of assessment u/s 147(b) on the basis of the decision of Hon''ble Supreme Court of India in the case of Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, ?

The Reference relates to the assessment year 1975-76.

Briefly stated the facts giving rise to the present Reference are that the respondents is a registered firm and carry on the business of manufacture and sale of garments. It also exports garments to foreign countries. Originally, the assessment was made on a total income of Rs. 15,810. The total turnover of the assessee was of Rs. 15,87,736 out of which the sales within India were of Rs. 6,22,144 and the exports were for Rs. 9,65,593. Thus, the export turnover was approximately 60.82 per cent of the total turnover. The respondent had claimed weighted deduction of Rs. 54,574 u/s 35B of the Act on account of Export Market Development Allowance. The respondent submitted details of the expenditure incurred on export and claimed weighted deduction amounting to Rs. 54,574 which was allowed by the assessing officer. Subsequently on the basis of audit objection/report to the effect that the deduction u/s 35B of the Act had been excessively allowed, the proceedings u/s 147(b) of the Act were initiated and on re-assessment weighted deduction u/s 35B of the Act was allowed only in respect of the expenditure of Rs. 48,881 which was incurred on foreign travel expenses and telephone calls made to foreign countries. In appeal the Appellate Assistant Commissioner had set aside the reassessment order which order has been upheld by the Tribunal.

We have heard Sri A.N. Mahajan, learned Standing counsel appearing for the revenue. Nobody appears for the respondents.

We find that the Apex Court in the case of Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, has held that the opinion of the audit party on a point of law could not be regarded as an information for initiating reassessment proceedings u/s 147(b) of the Act and in the present case the audit report for excessive deduction u/s 35B of the Act is an information on point of law and, therefore, the Income Tax Officer could not initiate reassessment proceedings u/s 147(b) of the Act as the same did not constitute information.

In this view of the matter we are of the considered opinion that the Tribunal was justified in upholding the order of the Appellate Assistant Commissioner cancelling the re-assessment u/s 147(b) of the Act. Consequently, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. However, there shall be no order as to costs.