CIT vs. NANDAN AUTO TECH LTD

04, 101 $10&11 * IN THE HIGH COURT OF DELHI AT NEW DELHI ITANos. 1211/2011 & 1212/2011 CT1 . Appellant Through Ms. Rashmi Chopra, Advocate. versus NANDAN AUTO TECH LTD Respondent Through Mr.Ved Jam, Advocate. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V.EAS WAR ORDER % 17.01.2012 These two appeals by Revenue under Section 260A of the income Tax Act, 1961 (Act, for short) arise out of the order dated 31st March, 2011 passed by the Income Tax Appellate Tribunal (for short, the tribunal) in two cross appeals ITA 31 66/Del/2009 and ITA 3203/Del/2009 filed by the Revenue and the respondent-assessee. These appeals pertain to the assessment year 2000-0 1. 2. After hearing learned counsel for the parties, the following substantial question of law is framed:- "Whether the Income Tax Appellate Tribunal was right in holding that the notice under Section 147/148 dated 28 March, 2007 was invalid on the ground that the Assessing Officer in the reasons recorded had not mentioned that the assessee had not made full and true disclosure?" Digitally Signed By:AMULYA Signature Not Verified

I _/ 4> We have heard learned counsel for the parties and proceed to decide the aforesaid question. On 30ti November, 2010, the respondent-assessee had filed a return of income declaring loss of Rs.66,05,500/-. Assessment order under Section 143(3) of the Act was passed on 31 " December, 2012 accepting loss of Rs. 52,74,450/-. Subsequently, information was received by the Assessing Officer from the Assistant Director of Income Tax (Inv)-III, Ludhiana vide letter dated 27th March, 2007 That as per DRI's notice No.1326 dated 3 1 October, 2002, Vinod Kumar Garg and N.D. Garg, directors of the respondent-assessee had indulged in fraudulent claims of draw back and DEPB credit by export of mis-declared goods and by showing bogus purchases. After receiving the said information, the Assessing Officer recorded reasons for re-opening, which for the sake of convenience are reproduced below:- "In this case, return declaring a loss of Rs.66,05,500/- was filed on 3011.2000. The assessment under section 143(2) of the I T Act was completed on 31.12.2002 at a loss of Rs.52,74,450/-. The Asst. Director of Income Tax (Inv)-III, Ludhiana vide letter dated 27.03.2007 has reported that as DRI' notice No.1326 dated 03.10.2002, Sh. Vinod Kumar Garg and Sh. N.D. Garg, directors of the company are indulged in fraudulent claim of drawback and DEPB crdit by way of exporting mis-declared goods through M/s Garg Forgings & Casting Ltd., Kanganwal Road, Vill Jugiana,

Ludhiana now known as M/s Nandan Auto Tech Ltd. and their allied concern. On perusal of the Profit and Loss A/c it has been observed that assessee has made export sales of Rs.65,87,812/- and indirect export of Rs.37,19,93,945/- and assessee has made huge payments to inter-related parties. In view of the above and the information detailed in the letter of Asstt. Director or incometax (Inv.)-III, Ludhiana, No.Nil dated 22.03.07, 1 have reasons to believe that the income chargeable to tax has escaped assessment to the extent of fraudulent claim of drawback and DEPB credit by way of exporting mis-declared goods. Hence, kind approval of CIT-V, New Delhi is solicited for issue of notice u/s 148 nw Sec. 147 of ( the I.T. Act, 1961." Approval was also taken from the Commissioner of Income Tax-V, who recorded that he was satisfied that it was a fit case for issue of notice under Section 147/148 of the Act. Notice under Section 147/148 of the Act was served by affixation. Thereafter, the respondent-assessee filed letter dated 6thi 1)ecember, 2007 stating, inter alia, that return filed by them under '4 Section 139 of the Act may be treated as the return filed in compliance to the notice under Section 148 of the Act. The Assessing Officer issued notice under Section 143(2) and 142(1). The Assessing Officer in the assessment order dated 31st December, 2007 held that the respondent-assessee had made bogus purchase to the extent of Rs. 16,34,83,676/- and had also shown bogus

exports of Rs.61,69,546/-. After making the aforesaid additions, t Assessing Officer held that the respondent- as sessee had earned taxable income of Rs. 16,43,78,772/-. The Commissioner of Income Tax (Appeals) (CIT (Appeals), for short) upheld the initiation of reassessment proceedings. He observed that information was received from the Investigation Wing and the Assessing Officer had "reasons to believe" for initiating reassessment proceedings. The CIT (Appeals) further held that the reassessment proceedings were not barred by limitation. On merits, the CIT (Appeals) granted some relief to the respondent-assessee, but sustained the addition of Rs.61,69,546/- as bogus exports and Rs.80,22,802/- on account of bogus purchase as against addition of Rs.16,34,83,676/- on this account made by the Assessing Officer. Both the respondent-assessee and the Revenue preferred further appeal before the tribunal. The tribunal in the impugned order has referred to the reasons for reopening and the approval given by the Commissioner. Thereafter, it has held that the "reasons to believe" do not record that there was failure on the part of theassessee to fully and truly disclose all material facts necessary for the assessment. The relevant portion of the order passed by the tribunal reads as under:- "13. If the facts of the case before us are examined in the light of the judicial pronouncements referred to above we find that the

Assessing Officer has not recorded any satisfaction that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The Assessing Officer had not even quantified the escaped income in the reasons recorded. He has simply said that the directors of the Company were engaged in misdirected export and have claimed bogus DEPB and Duty Drawback. In view of these facts, in our considered opinion, the reopening of assessment by Assessing Officer is not justified. We accordingly hold that reopening of the assessment is bad in law. Therefore, the assessment order made by the Assessing Officer is to be annulled. We order accordingly." ii. A perusal of the reasons recorded by the Assessing Officer would show that he has specifically observed that income chargeable to tax had escaped assessment due to fraudulent declaration. The figures are stated. He has further stated that the respondent-assessee had mis-declared that they were exporting goods. The aforesaid observations in the "reasons to believe" meets the requirements of Section 147. Mere reproduction of the language of Section 147 is not 4 the requirement. Grounds mentioned in the reason to believe have to be examined to decide whether the Assessing Officer was satisfied that the assessee had failed to make full and true disclosure of material facts necessary for the assessment. Observations made in the "reasons to believe" disclose that the Assessing Officer was of the view that the assessee had made false and wrong claims. Thus, the assessee had failed to disclose fully and truly all material facts necessary for

I 11 assessment. At the stage of initiation, only a prima facie and tentative view is required. The said condition is satisfied in the present case. Accordingly, the aforesaid substantial question of law is answered in negative in favour of the appellant and against the respondent-assessee. It is clarified that we have not expressed any opinion on any other aspect/ground, which is pending before the tribunal or raised by the respondent-assessee. The parties will appear before the Assistant Registrar, Income Tax Appellate Tribunal on 12th March, 2012, when a date of hearing will be fixed. The appeals are disposed of. No costs. SANJIV KHANNA, J. R.V. EAS WAR, J. 4. JANUARY 17, 2012 NA/VKR /