Jawand Sons vs Commissioner of Income Tax

Satish Kumar Mittal, J.—The Assessee has filed the instant appeal u/s 260A of the Income Tax Act, 1961 (''the Act'') against the order dated 26-2-2009, passed by the Income Tax Appellate Tribunal, Chandigarh Bench "B", Chandigarh (''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 Section 147 Proviso the initiation and conclusion of the proceedings is sustainable without discharging the department onus for bringing on record the material going 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. On 20-10-2001, the Assessee filed Income Tax return for the assessment year 2001-02, declaring the total income at Rs. 5,61,096 along with the audit report u/s 44AB of the Act. The audit report for claim of deduction u/s 80HHC of the Act in Form 10CCAC and the audit report for claim of deduction u/s 80-IB of the Act were attached with the Income Tax return. The assessment was completed u/s 143(3) of the Act on 27-3-2003 at Rs. 5,86,096. Subsequently, a notice u/s 148 of the Act was issued for reassessment on the ground that some income has escaped assessment. After considering the objections filed by the Assessee to the issuance of notice u/s 148 of the Act, the Joint Commissioner of Income Tax (Appeals), Range VI, Ludhiana, proceeded with the reassessment and vide order dated 28-12-2006 (Annexure A-3), while following the decision of the Supreme Court in Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore, and a decision of this Court in Liberty India Vs. Commissioner of Income Tax, , disallowed the deduction claimed by the Assessee on account of the export incentives and interest received u/s 80-IB of the Act. Accordingly, an amount of Rs. 24,79,620 received by the Assessee as export incentives was reduced from the net profit declared by the Assessee in the profit and loss account for the purposes of determination of correct deduction u/s 80-IB of the Act. Regarding the claim of the Assessee for deduction of Rs. 17,67,256 u/s 80HHC of the Act, it was held that the said deduction was rightly claimed and no addition on that account was made. The aforesaid order was affirmed in appeal by the Commissioner of Income Tax (Appeals)-II, Ludhiana, vide order dated 31-3-2008, as well as by the ITAT vide its order dated 26-2-2009.

During the course of arguments, learned Counsel for the Appellant - Assessee could not controvert the legal position that in view of the decision of the Supreme Court in Sterling Foods'' case (supra) and the decision of this Court in Liberty India''s case (supra), no deduction on account of the Duty Draw Back and the Duty Entitlement Pass Book Scheme (hereinafter referred to as ''DEPB'') u/s 80-IB of the Act can be allowed. It is also conceded position that the judgment of this Court in Liberty India''s case (supra) has been affirmed by the Apex Court in Liberty India Vs. Commissioner of Income Tax, . From this, it is clear that in the initial assessment, the benefit of deduction of the Duty Draw Back and DEPB u/s 80-IB of the Act was wrongly granted to the Appellant - Assessee, for which he was not entitled. However, learned Counsel for the Appellant - Assessee argued that initiation of the reassessment proceedings was not in consonance with the requirement of Sections 147 and 148 of the Act. Learned counsel argued that the Assessing Officer was not justified in re-opening the assessment, merely on the basis of change of opinion, and while framing the opinion that some income chargeable to tax has escaped assessment on account of non-disclosure of fully and truly all material facts necessary for assessment for the relevant assessment year. Therefore, he submitted that as far as the Assessee is concerned, he has fully disclosed all the material facts necessary for assessment. The audit report as well as the accounts were shown and in no way, it can be said that the Assessee had not disclosed the relevant facts. Thus, the initiation of proceedings of reassessment itself was bad and the orders passed in the said proceedings are liable to be set aside. learned Counsel argued that while taking the wrong interpretation of the proviso to Section 147 of the Act, the ITAT has wrongly come to the conclusion that the reassessment proceedings were rightly initiated, whereas the revenue has not discharged the onus for bringing on record the material to show that disclosure was not made fully and truly.

After hearing learned Counsel for the Appellant - Assessee and going through the order passed by the ITAT, we do not find any ground to interfere in this appeal, as in our opinion no substantial question of law is arising in this appeal, because a pure finding of fact has been recorded to the effect that the reassessment proceedings have rightly been initiated after framing the opinion that some income chargeable to tax has escaped assessment. u/s 147 of the Act, after its amendment with effect from 1-4-1989, wide power has been given to the Assessing Officer even to cover the cases where the Assessee had fully disclosed the material facts. The only condition for action is that the Assessing Officer should have reason 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 as contemplated in the pre-amended Section 147(a) of the Act. In the instant case, as far as merits of the case is concerned, with regard to the permissible deduction u/s 80-IB of the Act, it is clear position that the Assessee was not entitled to claim deduction on account of Duty Draw Back and DEPB incentives, as these incentive profits do not fall within expression "profits derived from industrial undertaking" in Section 80-IB of the Act. Therefore, Duty Draw Back and DEPB do not form part of net profits of the industrial undertaking for the purposes of Section 80-IB of the Act.

In view of the above, we do not find any illegality in the impugned order and in our opinion, no substantial question of law is arising from the impugned order of the ITAT.

Dismissed.