DCIT, NEW DELHI vs. M/S SHARP MENTHOL INDIA LTD., DELHI

The grounds of appeal

Whether on the facts and in the circumstances of the case, the CIT(A) was correct in law and on facts in holding that the said issues had already been decided in the earlier assessment completed u/s 143(3) when the said issues had neither been considered by the Assessing Officer nor adjudicated upon by the Appellate Authorities.

Facts for A.Y. 2002-03 are that the assessee company was engaged in the business of manufacturing of Menthol oil and allied products. The return of income for the relevant assessment year was filed on 31.10.2002 at an Income of Rs.1,76,33,949/- which was processed under Section 143(1) of the Act on 18.2.2003 at the returned income. The return of income was not selected for scrutiny assessment, thereafter, and had accordingly attained finality. Subsequently, search under Section 132 of the Act was conducted upon the Assessee on 17th January, 2006. Pursuant to the search, assessment under Section 153A of the Act was completed by the assessing officer vide order dated 20.12.2007. In the said Assessment Order, the Assessing Officer reduced the amount of deduction claimed u/s 80HHC of the Act.

Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.

The Ld. AR submitted that in respect of completed assessments, the Assessing Officer cannot revise an opinion in a reassessment u/s 153A on a pure question of law without any reference to any fresh material/ or any incriminating document or statement found/seized during the search on 17.01.2006. The Ld. AR further submitted that this question arises in A.Y. 2002-03 and 2003-04. In A.Y. 2002-03 the assessment was made u/s 143(1) on 26.02.2003, whereas for A.Y. 2003-04 admittedly assessment was made u/s 143(3) on 27.09.2005. The Ld. AR submitted that the Assessing Officer has taken altogether different view from the earlier Assessment Years in the present contested Assessment years. The Ld. AR submitted that before the Assessing Officer, the assessee surrendered the total value on which the material was found, but the assessment order does not relate to the said material on account of the additions made by the Assessing Officer. In-fact, the CIT (A) treated Section 153A proceedings along with Section 147 which is not as per the prescribed provisions of Income Tax Act, 1961. The Ld. AR submitted that all the facts were disclosed by the assessee before the Assessing Officer in the completed assessment proceeding u/s 143(1) and no new facts were brought by the Assessing Officer during the course of Section 153A proceedings. The Ld. AR further submitted that the Assessing Officer has not used the statement of the Managing Director for making addition. Thus, if there is no fresh facts and the same set of facts were found during search that does not amount to incriminating material so as to attract invocation of Section 153A of the Act. The Ld. AR relied upon the following case laws on merits: i. Kabul Chawla 380 ITR 473(Del.) ii) Best Infrastructure India (P.) Ltd. 397 ITR 82(Del) iii) Aggarwal Entertainment P. Ltd. (2016) 72 Taxmann.com 340( Del. Tri.) iv) Ravneet Solutions P. Ltd. (2018) 93 Taxmann.com 59 (HN)

The Ld. DR submitted that as mentioned in Para 3 of assessment order, the assessee surrendered an amount of Rs.1,04,16,783/- u/s 132(4) for A.Y.2002-03 & Rs.6,80,35,942/- for A.Y.2003-04. The assessee filed return of income u/s 139(1) disclosing income of Rs. 1,76,33,950/-. In response to notice u/s 153A, the assessee filed return of income declaring income of Rs.2,74,03,496/- for A.Y.2002-03. Similarly, the assessee filed return of income u/s 139(1) disclosing income of Rs.6,80,35,942/-. In response to notice u/s 153A, the assessee filed return of income declaring income of Rs.10,42,52,340/- for A.Y.2003-04. In view of the above facts, decision in the case of Kabul Chawla (Delhi High Court) is not applicable, particularly in view of following decision:-

The Ld. AR submitted that the assessee’s revised return of income was specifically dealing with the export turnover and not that of import turnover. The Ld. AR submitted that all the evidences in respect of Ground No. 2 and 2.1 were produced before the Assessing Officer. All contracts were for exports which are revealed from the documents. The Ld. AR submitted that the claim of allowance u/s 80HHC of the Act involving, inter alia, the treatment to be accorded under Explanation (baa) of 80HHC(3) relating to firstly, interest earned on fixed deposits made for securing bank guarantee for obtaining release of consignment of rice from the Food Corporation of India of the same amount for export against confirmed purchase order. The Ld. AR submitted that the same cannot be netted against the interest paid to bank on overdrafts/LC negotiations etc. Secondly, the Ld. AR submitted that gain from cancellation of Forex Forward Contracts made against existing order of export sales is “independent income” or it is inextricably linked that it is integral part of export business and earned in the normal course of carrying on export business was not answered by the Revenue authorities. The Ld. AR relied upon the decision of D. Kishore Kumar.

As regards to Ground No. 2 and 2.1, relating to interest margin, the Ld. DR submitted that the issue is squarely covered by the Hon'ble Supreme Court’s decision in case of Conventional Fastners vs. CIT 2018-TIOL-SC-IT.

The Ld. AR submitted that the issue is different in the case before the Hon'ble Supreme Court as it related to Section 80IC and not that of Section 80HHC. The Ld. AR submitted that in-fact evidence was already given to the Assessing Officer.

We have heard both the parties and perused the material available on record. For Assessment Year 2002-03, notice u/s 143(2)/148 was admittedly not issued by the Assessing Officer. For Assessment Year 2003-04, assessment u/s 143(3) had already been made on 27/9/2005. For Assessment Year 2004-05, return was accepted u/s 143(1) and claim of the assessee was accepted. Thus, no assessment proceeding was pending for Assessment Year 2002-03 & 2003-04 on 17/1/2006 i.e. the date of search u/s 132 of the Act. Admittedly there was no incriminating material found during the search or in the post search enquiry. The claim of the assessee u/s 80HHC (4) was duly supported with the evidence placed before the Assessing Officer which was accepted in the completed assessment u/s 143(1). The CIT(A), however, held that since the original assessment was made u/s 143(1) for Assessment Year 2002-03, the Assessing Officer had preliminary power u/s 153A to make assessment on any issue in a case where no assessment was made u/s 143(3). But in the present case, no assessment proceeding was pending for Assessment Year 2002-03 & 2003-04 on 17/1/2006 i.e. the date of search u/s 132 of the Act. Therefore, Assessment u/s 153A itself is bad in law. The CIT (A) relied on the decision of the Hon’ble Apex court in case of CIT Vs. K. Ravindranathan Nair 295 ITR 228, but the decision clearly does not support this proposition and distinguishable on facts. The Ld. DR also relied upon the decisions in respect of Section 153A with respect to invocation to Section 153A but each judgment has its own facts and are not in consonance with the factual aspect of the present assessee’s case. In V. Kishore Kumar though, it was held that loose sheets found during the search is not the sole basis for determining the tax liability. But the said ratio does not apply in the present case as the material found during the search was very much disclosed in the original assessment by the assessee before the Assessing Officer. This aspect, at any point of time, was never doubted while passing the assessment order. In a case, where the assessment is completed, which at no point of time was disputed by the Revenue and if there is no material found which appears to be incriminating Section 153A proceedings will not be sustainable. Section 153A case comes in the picture when the initial assessments proceedings are pending on the date of initiation of search or some incriminating material was found during the course of search. Though the terminology used is incriminating material by the Revenue regarding the documents found during the search from the records of the original assessment u/s 143(1), it appears that all these materials were present during the original assessment proceedings for which entries are available in books of accounts. The decision of the Hon’ble Delhi High Court in case of CIT vs. Kabul Chawla 380 ITR 573 which lays down the entire law with regard to Section 153A has given certain conditions while proceedings with Section 153A proceedings and when there is no incriminating material. The decision in case of Kabul Chawla (supra) clearly stated that Section 153A cannot be invoked in absence of any incriminating material found /seized during the course of search. Therefore, we are allowing the additional legal ground in A.Y. 2002-03. Since the legal issue is adjudicated upon and decided in favour of the assessee in A.Y. 2002-03, there is no need to adjudicate the issues relating to the merits of the case. Therefore, Ground No. 2 to 2.1 are not adjudicated.

In result, for A.Y 2002-03 filed by the assessee is allowed.

For Assessment Year 2003-04, the CIT(A) held that Assessing Officer had no jurisdiction to revisit the claim u/s 80HHC allowed in the original assessment u/s 143(3), which was completed well before the search; it was because no incriminating material was found in search or in subsequent enquiry. Since, no evidence was found during search and there is no remote nexus with the determination of claim u/s 80HHC, the Assessing Officer had no jurisdiction to revisit the claim in re-assessment u/s 153A. Thus, for Assessment Year 2003-04, the CIT(A)’s order is in consonance with the judgment of Hon’ble Delhi High Court in the case of Kabul Chawla 380 ITR 573 and therefore there is no need to interfere with the said finding in A.Y. 2003- 04. We are not interfering with the findings of the CIT(A) and the same is not challenged by the Revenue in its appeal. Therefore, we are dismissing the appeal of the Revenue for A.Y. 2003-04 and the cross objections filed by the assessee are also stands dismissed.

As regards, Assessment Year 2004-05, the Ld. AR submitted that the CIT(A) agrees with the Assessing Officer with interest on fixed deposit for obtaining release of consignment of rice from the Food Corporation of India as income from other sources which cannot be assessed under the head profits and gains from business as it is not derived from export business. But these facts were ignored by the CIT(A) and also ignored the evidence filed before the Assessing Officer. The CIT(A) held that income from cancellation of forward contract is attributable to export business, but it is not derived from export business as there was no compulsion for the assessee to take out such contract.

As regards Assessment Year 2004-05, the CIT (A) and the Assessing Officer has ignored the evidence filed on record, and, therefore, the same may be set aside to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Therefore, the assessee’s appeal is partly allowed for statistical purpose.

In result, for A.Y. 2004-05 filed by the assessee is partly allowed for statistical purpose Order pronounced in the Open Court on 29th November, 2018.