KOHINOOR FOODS LTD. FORMERLY SATNAM OVERSEASLTD. vs. COMMISSIONER OF INCOME TAX


IN THE HIGH COURT OF DELHI AT NEW DELHI

ITA No. 686 OF 2009

Reserved on: 25.8.2011 Pronounced on: 18.11.2011

Mr. C.S. Aggarwal,

Mr. Sanjeev Sabharwal, Sr. Through:

CORAM:-

HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE M.L. MEHTA

A.K. SIKRI, ACTING CHIEF JUSTICE:

For orders, see ITA 685 of 2009. 1.

ACTING CHIEF JUSTICE

Contres

(M.L. MEHTA) JUDGE

NOVEMBER 18,2011

skb

ITA No. 686/2009

Page 1 of 1


IN THE HIGH COURT OF DELHI AT NEW DELHI

ITA No.685 OF 2009 & ITA No. 686 OF 2009

Reserved on: 25.8.2011

Pronounced on: 18.11.2011

ITA No.685 OF 2009 (1)

C.S. Aggarwal, Through:

Mr. Sanjeev Sabharwal, Sr.

(2) ITA No. 686 OF 2009

C.S. Aggarwal, Sr.

Mr. Sanjeev Sabharwal, Sr. Through:

CORAM:-

HON'BLE THE ACTING CHIEF JUSTICE HON'BLE MR. JUSTICE M.L. MEHTA


A.K. SIKRI, ACTING CHIEF JUSTICE:

These appeals are preferred by the appellant/assessee under 1. Section 260-A of the Income-Tax Act, 1961 (hereinafter referred to as 'the Act') questioning the validity of order passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') dated 18th May, 2007 whereby two appeals of the appellant herein, involving common issues pertaining to the assessment years 1994-95 and 1995-96 have been dismissed. We may point out at the outset that the original assessment was reopened, for these years by issuing notice under Section 148 read with Section 147 of the Act on the ground that the assessee was wrongly allowed deduction under Section 80-IA of the Act. However, the assessee has failed in its attempt before the CIT (A) as well as ITAT. Before we come to the nature of the challenge led and the question of law raised by the assessee in these appeals, it would be apposite to take stock of the relevant facts. For the sake of brevity we will disclose the facts of the assessment year 1994-\$5 as on the basis of these facts, the following common question of law pertaining to both the years can conveniently be decided:-

> "Whether, the Income Tax Appellate Tribunal was correct both in law and on facts in upholding the assumption


of jurisdiction of the Assessing Officer to frame an assessment by taking recourse to the provisions contained in Section 147 of the Income Tax Act, 1961?"

The appellant Kohinoor Foods Ltd (formally known as 2. Satnam Overseas Limited) is a limited Company incorporated under the Companies Act, 1956 and is engaged in the business of manufacturing of Rice and also trades in pulses, Rice, Sesame Seed\$, groundnut etc. It is also engaged in Exports of Rice, For the instant assessment year i.e. 1994-95, the appellant company had furnished a return of total income on 30th November, 1994 declaring therein total income of ₹1,37,35,880/- alongwith its annual audited accounts. The return of income was processed under Section 143 (1) (a) of the Act on 31st March, 1995. Subsequently the appellant company revised its return of income on 30^th November, 1995 declaring gross total income of ₹7,29,24,766/-, however after claiming deduction, under Chapter VI A of the Act, net taxable income was disclosed at NIL. The reason for revision of the return of income was that n the original return deduction u/s 80 IA of the Act was claimed after reducing deduction u/s 80HHC of the Act from the profits and gains from the business and profession whereas in the revised one



order of the Tribunal) for the initiation of proceedings under . Section 147 of the Act are reproduced as under:-

"Processing IN this case was completed under Section 143 (1)(a) on 30^th September, 1996 a perusal of the profit and loss account show that the assessee has earned miscellaneous amounting to ₹1,86,39,748/-. income Deduction under Section 80-IA has been claimed on this miscellaneous income also, which cannot be said to have been derived from the industrial undertaking, in view of the Delhi High Court's decision in the case of CIT Vs. Cement Distributors, 208 ITR 355. I have reasons to believe that income has escaped assessment in as much as excessive deduction u/s 80IA has been claimed by the Issue notice u/s 148 of I.T. Act, assessee. 1961."


- 4. Being aggrieved from the order of assessment under Section 143(3) read with Section 148 of the Act dated 18^th December 2000 the appellant filed an appeal before the Commissioner of Income Tax (Appeals), challenging the initiation of proceedings under Section 147 of the Act amongst other grounds. The Commissioner of Income Tax (Appeals)-X by an order dated 25^th January, 2002, dismissed the appeal of the appellant and confirmed the order of assessment whereby he not only upheld the validity of the initiation of proceedings under Section 147 of the Act but also upheld the action of the assessing officer in excluding the amount of ₹1,86,39,748/-while calculating deduction under Section 80IA of the Act by holding that the same was not derived from industrial activity. - 5. The appellant being aggrieved from the order of the Commissioner of Income Tax (Appeals), filed an appeal before the Tribunal. The Tribunal disposed off the appeal by the aforesaid impugned order dated 19^th May, 2007 and in terms of the aforesaid order, the Tribunal upheld the initiation of reassessment proceedings under Section 147 of the Act, by holding as under:- - "4.We have considered rival submissions and the case laws cited. In the assessment U/S 143(1)(a) which do not envisage consideration of any point and formation of any opinion for assessment



- "6.We have heard the counsels. We find that amount realized on sale of licence cannot be said as income derived from industrial undertaking for the purpose of computing deduction u/s 80-IA in view of the authoritative pronouncement by Hon'ble Supreme Court I the case of Sterling Foods (supra). 6.1 Similarly, the rent received and weighbridge income cannot be considered as income derived from an industrial undertaking. Reliance is placed on the decision of Hon'ble Karnataka High Court in the case of Siddaganga Oil Extraction P. Ltd. 201 ITR 968. - 6.2 As regards miscellaneous income no details were furnished before the AO or CIT (A). We accordingly decline to interfere with the order of CIT (A) in this regard. - 6.3 As regards insurance claim, the matter has been remitted back for re-examination with proper direction." - 7. The appellant thereafter moved Misc. Application under Section 254 (2) of the Act which was also dismissed by the Tribunal vide orders dated 24^th April, 2009. Thereafter, the present appeals were preferred. In ITA 685/2009, the assessee has assailed the order of the Tribunal whereby the Tribunal has upheld the initiation of reopening of the assessment. In the second appeal, the issue on merit is questioned.



Relying upon the judgments, it was argued that such a course of action was not permissible.

"The neat question which arises before us is on the commencement whether assessment proceedings must they first be brought to their logical conclusion by framing an assessment before embarking on the proceedings envisaged Sections as in 147/148 of the IT Act; or more precisely stated, can resort to Section 147 be made even whilst the normal assessment proceedings are pending conclusion. To find the answer we must keep in perspective that every Return of Income filed under Section 139 may not result in its active and in-depth perusal or consideration by the AO as it may receive an automatic onward passage under Section 143(1). However, once an inquiry has been initiated by the AO, it cannot but result in either the Return being accepted as having been correctly computed by the concerned assessed, or for an Assessment being conducted and concluded thereon by the AO. The provisions of Section 147 would have no role to play at this stage of the proceedings. Once a Return of Income attracts the attention and scrutiny of the AO, it is his bounden duty to delve into every AO is aspect thereof. The sufficiently empowered to ask for all information necessary for framing the Assessment. The only fetter on the amplitude of his discretion is that the Assessment must be framed within the time limit set-down by Section 153 which, in substance, is two years from the end of the Assessment Year in which the income was first assessable or one year from


the end of the Financial Year. A perusal of its second sub-section makes it clear that proceedings Section 147 under are altogether different to those under Section This distinction appears escaped the attention of the Revenue. Subsection (2) stipulates that no order under Section 147 shall be made after the expiry of one year from the end of the Financial Year in which notice under Section 148 was served.

$X \times X \times X \times X$

Applying this line of decisions to the facts of the present case, the inescapable conclusion that would have to be reached is that while assessment proceedings remain inchoate, no 'fresh evidence or material' could possibly be unearthed. If any such material or evidence is available, there would be no restrictions or constraints on its being taken consideration by the AO for framing the then current assessment. If the assessment is not framed before the expiry of the period of limitation for a particular AY, it would have to be assumed that since proceedings had not been opened under Section 143(2), the Return had been accepted as correct. It may be argued that thereafter recourse could be taken to Section 147, provided fresh material had been received by the AO after the expiry of limitation fixed for framing the original assessment. So far as the present case is concerned we are of the view that it is evident that, faced with severe paucity of time, the AO had attempted to travel the path of Section 147 in the vain attempt to enlarge available the time for framing assessment. This is not permissible in law."


"There is no indication as to on what information or on what material the Assessing Officer harboured the recorded in the order of the Commissioner of Income-Tax Appeals, no new material is on record after the filing of the return and till the issuance of the notice under Section 147. The proceedings under Section 147 are not to be invoked at the mere whim and fancy of an Assessing Officer and it has to be seen in every case as to whether the invocation is arbitrary or reasonable. The decision of the Supreme Court in Chhugamal Rajapal's case (supra) is clearly applicable to the facts of the present case. In the case the Supreme Court, the purported recorded for reopening reasons assessment were inter alia:-

"It appears that these persons are name lenders and the transactions are bogus. Hence, proper investigation regarding these loans is necessary"

The Supreme Court did not find that these were sufficient reasons for reopening the assessment. With regard to the sentence 'hence, proper investigation regarding these loans is necessary', the Supreme Court observed that this conclusion that there is a case for investigation as to the truth of the alleged transactions is not the same thing as saying that there are reasons to issue a notice under Section 148."


that case new material in the form of audit objection had come to the notice of the Assessing Officer which constituted fresh material and became the basis of issuance of notice under Section 148 of the Act. Learned Senior Counsel further argued that if the Assessing Officer wrongly allowed the claim under Section 80-IA of the Act, it was merely an error of judgment which would not confer any jurisdiction on the Assessing Officer to reopen the assessment, as held by the Division Bench of this Court in its decision dated 22^nd November, 2010 in Writ Petition (C) 7515/2010 in the case entitled Ritu Investments Private Limited Vs. Dy. Commissioner of Income Tax in the following words:-

"It is also worth noting, an error of judgment also does not confer such a jurisdiction on the assessing officer. In this context, we may fruitfully refer to decision Gemini Leather Stores v. in Income-Tax Officer, B-Ward, Agra others,[1975] 100 ITR (SC) wherein it has been held that when the Income-tax Officer had all the material facts before him when he had framed the original assessment, he could not make recourse to Section 147(a) to remedy the error resulting from his own oversight. Similar view was expressed in Indian and Eastern Newspaper Society v. Commissioner of Income-Tax, New Delhi [1979]119 ITR 996 (SC)."


Aggarwal pointed out that details of claim under this provision were furnished. He also pointed out that even in succeeding years when the assessment was made under Section 143 (2). After issuance of notice under Section 143(2) of the Act, deduction under Section 80 IA was allowed which would further demonstrate that the issue was dealt with.


of assessment under Section 153(1) clearly provides for 2 years time limit for assessment in view of sub clause (a) from end of years of assessment i.e. upto 31st March, 1995 for assessment year 2004-05 or 1 year under sub clause (b) in case revised Return was filed i.e Revised return filed on 30^th November, 1995 and hence time frame was upto 31st March, 1996. Keeping in view the time frame available for reassessment i.e. on the date of issue of notice for reassessment on 8th march, 1999 neither the notice under Section 143(2) could have been sent nor there was time limit available under Section 153 of the Act. In this regard he submitted that the Supreme Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) has clearly laid down that keeping in view Amendment to Section 147 post 1989 now only condition to be satisfied is limited to "Reason to believe' - 'for any reason whatsoever' besides if conditions of Section 147 are satisfied then it does not matter if after Section intimation has led to assessment under Section 143 (3) in following words:-

.....The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the as they stood prior to such substitution. Under the old provisions of Section 147, separate clauses (a) and (b) laid down the circum-stances under which income escaping assessment for the


past assessment years could be assessed or reassessed. To confer jurisdiction under Section 147 (a) two conditions were required to be satisfied: firstly the assessing officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under Section 148 read with section 147 (a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at the hand is covered by the main provision and not the proviso.

So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under Section 147 and failure to take steps under Section 143 (3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under Section 143 (1) had been issued.

The inevitable conclusion is that the High Court has wrongly applied Adani's case [1999] 240 ITR 224 (Guj) which has no application to the case on the facts in view of the conceptual difference between Section 143(1) and section 143(3) of the Act....


issuance of notice under Section 143 (2) of the Act and, therefore, it was not permissible for him to take advantage of the same for enlarging the time for assessment by issuing notice under Section 147 of the Act. Relying upon the decision Rajesh Jhaveri (supra) wherein it is held that as long as provisions of Section 147 are satisfied, the Assessing Officer is entitled to initiate reassessment proceedings. He further argued that it was misconceived on the part of the assessee to challenge the reassessment proceedings on the ground that no new material was found by the Assessing Officer. His submission in this behalf was that there was new material and it makes no differences as to whether the material is unearthed from the existing record. It is further submitted that new material should not be extraneous and further that even when the material was existing on record, the important fact is to see as to whether such material is considered by the Assessing Officer or not.



documents accompanying thereto. It cannot be said that any opinion was formed by the Assessing Officer as regards allowability or otherwise of the deduction u/s 80-IA in respect of various miscellaneous income like sale of import licence, rent, insurance claim, weighbridge charges etc. Therefore, it cannot be said that it is a case of mere "change of opinion" when no opinion was formed in the first instance. We also do not find any merit in the submission of learned counsel for the assessee that there was no new material found for initiation of the proceedings. Sabharwal, is correct in his submission that new material need not be extraneous to the record and the touchstone is not where the material is to be found i.e. within the existing record outside. What is important is whether such material was considered by the Assessing Officer or not. When the issue was not considered on merits and having regard to the judgment of this Court in Cement Distributor (supra) as per which such a claim under Section 80 IA was not admissible.

- 16. In A.L.A. Firms Vs. CIT, 189 ITR 285 the Supreme Court was explained the legal position as under:- - ".....This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas [1986] 21 S.T.C. 326. Even making


allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law:-

"The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start proceedings for the reassessment. Where, however, the Income-tax Officer had considered the material subsequently come by the material from the record itself, then such a case would fall within the scope of Section 147(b) of the Act."

- 17. To the same effect is the judgment of this Court in Consolidated Photo and Finvest Ltd. Vs. Asst. Commissioner of Income Tax 281 ITR 391 holding that it makes no difference as to whether the material is unearthed from the existing record. The judgment relied upon by the learned counsel for the assessee are not applicable to this case. - 18. In K.L.M. Royal Dutch (supra) and Ved and Co. (supra) the proposition laid down by this Court is that during the original assessment proceedings, reassessment notice should not be


issued. In the instant case the original proceedings were not pending but already over and, therefore, the recourse under Section 147/148 of the Act was valid and justified.

- 19. Insofar as denial of claim under Section 80 IA of the Act, on merits, is concerned, no grievance was raised by the appellant nor any question of law framed thereupon. We may only reiterate that the Tribunal has rightly held that such a claim was not admissible on miscellaneous income like sale of import licence, interest, weighbridge income, insurance claim etc. It is rightly disallowed having regard to the judgment of this Court in Cement Distributor (supra). - 20. The questions of law are decided against the assessee resulting into the dismissal of these appeals. - 21. No order as to costs.

ACTING CHIEF JUSTICE

(M.L. MEHTA)

NOVEMBER 18,2011 skb