PAN DRUGS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX
[Citation -2008-LL-0104-14]

Citation 2008-LL-0104-14
Appellant Name PAN DRUGS LTD.
Respondent Name DEPUTY COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 04/01/2008
Assessment Year 1991-92
Judgment View Judgment
Keyword Tags opportunity of being heard • reassessment proceedings • income chargeable to tax • reopening of assessment • statutory obligation • barred by limitation • condonation of delay • memorandum of appeal • issuance of notice • additional ground • change of opinion • imported material • judicial decision • show-cause notice • foreign exchange • original return • audit objection • revenue audit • raw material • market price • audit party • new ground
Bot Summary: The assessment for this year under s. 14 3(3) was completed in March, 1994 without making any addition on account of the purpose for which the assessment was reopened. The assessee has filed the return under s. 139 and has furnished all the material information required for completion of the assessment during the course of the hearings as narrated below. In view of the above information, we have to examine whether the assessee's case falls under proviso to s. 14 7 or Explanation to s. 14 7 of the Act First of all, we will go through the show-cause notice issued in respect of reopening of assessment dt. The proviso to s. 14 7 very clearly states that where assessment under s. 14 3(3) has been completed then no action shall be taken under s. 14 7 after the expiry of four years from the end of the relevant assessment year, unless income chargeable to tax has escaped assessment for the reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Finally the Hon'ble Allahabad High Court has held as under : Although we are of the opinion that the law existing on the date of the impugned notice under s. 14 7/ 14 8 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new s. 14 7 will apply even then it will make no difference since even under the original s. 14 7 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Similarly Hon'ble Delhi High Court in the case of Jindal Photo Films Ltd. vs. Dy. CIT 154 CTR 355 : 234 ITR 170 has held that it cannot be disputed that discovery of new and important matter or knowledge of fresh facts which were not present at the time of original assessment would constitute a 'reason to believe that any income chargeable to tax has escaped assessment' within the meaning of even s. 14 7. Accordingly, assessment reopened under s. 14 7 r/w s. 14 8 is bad in law and hence reopening is quashed.


MAHAVIR SINGH, J.M.: ORDER This appeal of assessee for asst. yr. 1991-92 arises out of order of Commissioner of Income-tax (Appeals)-III [in short CIT(A) ], Baroda, in Appeal No. CAB/III-62/2000-01 dt. 27th Dec., 2000. reassessment was framed under s. 14 3(3) r/w s. 14 7 of IT Act, 1961 ('the Act' hereinafter) by Dy. CIT, Baroda vide order dt. 9th March, 2000. original assessment was completed under s. 14 3(3) of Act vide order dt. 7th Feb., 1994. 2 . At outset, learned counsel of assessee, argued for additional ground raised by assessee. "Reassessment notice as without jurisdiction and therefore reassessment is bad in law." 3. learned counsel of assessee Shri J.P. Shah, first of all argued for admissibility of this ground. He argued, that this additional ground is as regards to purely legal issue and facts are clearly emerging from within assessment records. He argued that, no new facts are necessary for adjudication of this issue and this additional ground goes to very root of matter. He briefly stated facts, that original return of income was filed by assessee on 31st Oct., 1991 and assessment was completed under s. 14 3(3) by AO vide his order dt. 7th Feb., 1994. assessment was subsequently reopened by issuance of notice under s. 14 8 of Act dt. 9th March, 1998. assessee vide its letter dt. 31st March, 1998 objected to reopening of assessment. He argued that this reopening was done only to add export price variation reserve on following counts : Value of difference of import to be done for Rs. Export already performed (profit) 2,32,412 Value of imported material used in local manufacture Rs. for which export is to be made (loss) 9,66,000 Rs. Net difference : 7,33,368 4. learned counsel of assessee referred to show-cause notice dt. 16th March, 1998 and reasons for reopening of assessment given in show-cause notice in para 2 and same is reproduced as it is : "On going through records for asst. yr. 1991-92, it is seen that while passing order under s. 14 3(3) dt. 7th Feb., 1994, deduction of Rs. 7,33,388 on account of provision for price variation in raw materials for export was allowed wrongly, by AO. In working out this liability, export market price adopted was not actual basis but was adopted on estimate basis. Thus, it was anticipated loss of price variation and therefore, liability was contingent in nature which was not allowable in asst. yr. 1991-92." 5 . In view of this, he argued, that this reopening, first of all, was done beyond 4 years and this is merely change of opinion. He argued that assessee vide letter dt. 9th Dec., 1993 during course of original assessment proceedings have filed complete detail on enquiry from AO and furnished information/clarification in regard to price variation on account of export of raw material at Rs. 7,33,388. He argued that this reopening was challenged before AO vide letter dt. 21st Feb., 2000, where AO's action of reopening under s. 14 7 was clearly challenged by holding same to be, change of opinion, and it was stated that reopening is bad in law. Further, learned counsel of assessee argued, that this issue is squarely covered by proviso to s. 14 7 of Act. In view of this learned counsel of assessee strongly argued for admission of additional ground in given facts and circumstances. 6. On other hand, learned Departmental Representative Shri H. Patidar argued, that this issue was never raised before AO or before CIT(A). Hence, assessee is not entitled to raise this additional ground as regards to jurisdiction. He argued that assessment was correctly reopened by AO, in view of audit objection raised by audit party of AG. He argued that major revenue audit objection was raised and accordingly CIT, Baroda directed AO to take remedial action under s. 14 7, which has been approved by CIT, Baroda. He argued that assessee's case falls under Expln. 1 to s. 14 7 of Act, which says that merely production of books of accounts or other evidences before AO from which material evidence could with due diligence have been discovered by AO will not necessarily amount to disclosure within meaning of proviso to s. 14 7 of Act. He argued against admission of additional ground. 7 . We have heard rival contentions, gone through relevant documents, facts and circumstances of case. As regards to admissibility of additional ground, it is seen that, this is issue is purely legal issue as regards to assumption of jurisdiction under s. 14 7 of Act. reassessment proceedings started by AO goes to very root of appeal and all material facts for deciding issue are available on record and nothing new is to be brought on record for adjudicating this issue. In similar circumstances Hon'ble Gujarat High Court in case of P.V. Doshi vs. CIT (1978) 113 ITR 22 (Guj) at p. 36 has held as under : "Therefore, if this settled position was borne in mind, Tribunal's view was clearly erroneous that matter became final when Tribunal passed earlier remand order so that this point of jurisdiction got finally settled, which could not be agitated unless assessee had come in reference to this Court at that stage. Tribunal's view was also incorrect that in restoring case to file of ITO by earlier order, only point left open was in respect of addition of Rs. 19,421 on merits and that legal or jurisdictional aspect whether reassessment proceedings were legally initiated was not kept open. Even on third question Tribunal's view was erroneous that even though this point went to root of jurisdiction and was pure question of law, merely because point was initially raised and not pressed when matter was taken before Asstt. CIT(A), it could be waived and it could not be reagitated. Therefore, in view of settled legal position our answers on question Nos. 1 and 2 are in negative, while our answer on question No. 3 is in affirmative, that is to say, all questions are answered against Revenue and in favour of assessee. reference is accordingly disposed of and CIT shall pay costs of assessee." 8. case law referred by learned counsel of assessee of Hon'ble apex Court in case of NTPC Ltd. vs. CIT (1999) 157 CTR (SC) 249 : (1998) 229 ITR 383 (SC) wherein Hon'ble apex Court has reaffirmed question and same is as follows : "Where on facts found by authorities below question of law arises (though not raised before authorities) which bears on tax liability of assessee, whether Tribunal has jurisdiction to examine same." Under s. 254 of IT Act Tribunal may after giving both parties to appeal opportunity of being heard, pass such orders thereon as it thinks fit. power of Tribunal in dealing with appeals is thus expressed in widest possible terms. purpose of assessment proceedings before taxing authorities is to assess correctly tax liability of assessee in accordance with law. If, for example, as result of judicial decision given while appeal is pending before Tribunal, it is found that non-taxable item is taxed or permissible deduction is denied, we do not see any reason why assessee should be prevented from raising that question before Tribunal for first time, so long as relevant facts are on record in respect of that item. We do not see any reason to restrict power of Tribunal under s. 254 only to decide grounds which arise from order of CIT(A). Both assessee as well as Department have right to file appeal/cross- objections before Tribunal. We fail to see why Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier. Answering this question Hon'ble apex Court held as under : "The view that Tribunal is confined only to issues arising out of appeal before CIT(A) takes too narrow view of powers of Tribunal vide e.g., CIT vs. Anand Prasad (1981) 128 ITR 388 (Del), CIT vs. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) and CIT vs. Cellulose Products of India Ltd. (1985) 44 CTR (Guj)(FB) 278 : (1985) 151 ITR 499 (Guj)(FB). Undoubtedly, Tribunal will have discretion to allow or not allow new ground to be raised. But where Tribunal is only required to consider question of law arising from facts which are on record in assessment proceedings we fail to see why such question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess tax liability of assessee. reframed question, therefore, is answered in affirmative, i.e., Tribunal has jurisdiction to examine question of law which arises from facts as found by authorities below and having bearing on tax liability of assessee. We remand proceedings to Tribunal for consideration of new grounds raised by assessee on merits." 9 . As principle laid down by Hon'ble apex Court, in case of NTPC Ltd. (supra), we feel that in present case before us facts regarding jurisdiction are very much available on assessment records and no new facts are required to be investigated. When additional ground raised by assessee does arise from facts which are on record, then there is no justification to deny such additional ground. For that purpose, there is no need to file application for condonation of delay and all that is required is that permission to raise additional ground. Where omission to raise additional ground is not wilful but inadvertent, assessee should be permitted to file additional ground. power of Tribunal to permit any party to appeal to raise question of jurisdiction, which goes to root of matter and does not involve further investigation into facts, cannot be disputed on plain reading of r. 11 of ITAT Rules, 1963. On such plea being taken Tribunal is under statutory obligation not only to entertain plea but also to decide same after providing sufficient opportunity of being heard to both sides. Hon'ble apex Court in case of CIT vs. S. Nelliappan (1967) 66 ITR 722 (SC) has held that additions were made to income disclosed in accounts and, further, two cash credits of Rs. 19,796 and Rs. 32,700 were added as income from other sources. In appeals, assessee contested only additions to book profits and not those from other sources. On case being remanded by High Court to Tribunal, assessee raised plea that cash credits should be held to be redundant in view of additions to book profits because book profit additions exceeded amount of cash credits. It was held that Tribunal was correct in permitting assessee to raise new ground in having deleted cash credits. And finally Hon'ble apex Court has given finding at p. 724 last para which reads as under : "In hearing appeal Tribunal may give leave to assessee to urge grounds not set forth in memorandum of appeal, and in deciding appeal Tribunal is not restricted to grounds set forth in memorandum of appeal or taken by leave of Tribunal. Tribunal was, therefore, competent to allow assessees to raise contention relating to cash credits which was not made subject-matter of ground in memorandum of appeal. It cannot be said that in accepting contention of assessee that cash credits represented income from business withheld from books, Tribunal made out new case inconsistent with assessee's own plea. In any event Tribunal is not precluded from adjusting tax liability of assessee in light of its findings merely because findings are inconsistent with case pleaded by assessees." In view of above case laws of Hon'ble apex Court and Hon'ble Gujarat High Court, we admit additional ground and adjudicate same. 10. briefly stated facts leading to this issue are, that original return of income was filed by assessee, on 31st Oct., 1991 and assessment was completed under s. 14 3(3) by AO vide his order dt. 7th Feb., 1994. assessment was reopened by issuing notice under s. 14 8, dt. 9th March, 1998. assessment was reopened for reason that AO while passing assessment order under s. 14 3(3) dt. 7th Feb., 1994 deduction of Rs. 7,33,388 on account of provision for price variation in raw materials for export was allowed wrongly. Accordingly, AO reopened assessment in view of provisions of s. 14 7 of Act. 11. First of all it is seen that assessee before AO had challenged reopening of assessment vide letter dt. 21st Feb., 2000. relevant context of letter reads as under : "In this connection, our client has also asked us to inform you that notice under s. 14 8 has been received by firm on 25th March, 1998. assessment for this year under s. 14 3(3) was completed in March, 1994 without making any addition on account of purpose for which assessment was reopened. assessee has filed return under s. 139 and has furnished all material information required for completion of assessment during course of hearings as narrated below. In light of these facts, notice issued on 9th March, 1998 is barred by limitation as contemplated by proviso to s. 14 7. assessment year is that which ended on 31st March, 1992 and reassessment ought to have been made before close of four years from that date. provision of s. 14 7 provides that only those items which have escaped assessment and which have subsequently come to notice of AO in course of proceedings may be reopened for purpose of reassessment. In this case, issue has been considered and dealt with at length by then AO and it is submitted that no new facts have come to light after finalising assessment to justify reopening of assessment. In this connection, we have to draw your attention to our letter dt. 9th Dec., 1993 to then AO (a copy of which is enclosed), where issue regarding allowance or otherwise of reserve has been discussed. Vide our letter dt. 6th Jan., 1994, copies of all bills for purchases made for subsequent year have been furnished to then AO, after giving careful thought to submissions made and also evidences placed before him, he considered various issues and has accepted submissions. In light of these facts, withdrawal of deduction of Rs. 7,33,388 already allowed would be change of opinion and it is submitted that any disallowance would be without foundation and bad in law." 1 2 . Further, it is seen that during course of original assessment proceedings, assessee vide letter dt. 9th Dec., 1993, has filed complete details before AO, when during course of hearing certain information/clarification were called for. In response to query, assessee filed complete details vide letter dt. 9th Dec., 1993, para 2 and relevant para is reproduced for sake of clarity : "The import policy of Government of India has provision for issue of advance licences for import of raw material against obligation by exporting manufacturer to export out of country specified goods. Similarly exporter is entitled to import raw material in respect of good exported and in respect of which advance licence has not been taken. international prices of raw material and Indian prices of same material vary considerably, imported material being cheaper than indigenous material. same is position as regards prices of finished goods which are cheaper in export market and more expensive in local market. export market therefore is economically viable only if imported materials are used to manufacture goods for export. It is for this reason only that scheme for issue of advance licences has been introduced by Government of India. When material is imported against advance licence it often happens that imported material is used in manufacture of goods sold locally. However, obligation and liability to export against said import always exists. Export price variation reserve is net balance of account as under : (A) Value of difference of import to be done for export already performed : Sod. 10,000 14 .00 12.27 1.73 17,300 Nitrate Profit (A) 2,32,612 Local Import Item Qty. Diff. Value price price P.N.C.B 4.0610 39.50 28.28 11.22 51.724 A/Anhy 2,892 38.00 26.28 11.72 33,894 14 Aerosil 880 300.00 152.62 1,29,694 7.38 prices of imports have been taken on basis of actual imports as under : P.N.C.B. May, 1991 A/Anhy July, 1991 Aerosil Sept., 1991 Sod. Nitrate June, 1991 (B) Value of imported material (against advance licence) used in local manufacture for which export is to be made. Local Import Item Qty. Diff. Value price price 32,200 x 86.00 $3.10 Paracetamol 30.00 9,66,000 1,000 tablets per jar i.e., 56 Value difference for 9,66,000 above (B) Net 7,33,388" Difference 13. In view of above information, we have to examine whether assessee's case falls under proviso to s. 14 7 or Explanation to s. 14 7 of Act ? First of all, we will go through show-cause notice issued in respect of reopening of assessment dt. 16th March, 1998, where AO has very categorically come to conclusion, on going through records for asst. yr. 1991-92 and from assessment order under s. 14 3(3) dt. 7th Feb., 1994, that AO has wrongly allowed deduction of Rs. 7,33,388 on account of provision for price variation in raw materials for export. It means that AO has considered this aspect of deduction of price variation for foreign exchange of raw material for export at stage of original assessment which is apparently clear from reply of assessee dt. 9th Dec., 1993. Provision of Expln. 1 to s. 14 7 of Act is very clear and for sake of clarity same are reproduced as under : "Production before AO of account books or other evidence from which material evidence could with due diligence have been discovered by AO will not necessarily amount to disclosure within meaning of foregoing proviso." 14 . proviso to s. 14 7 very clearly states that where assessment under s. 14 3(3) has been completed then no action shall be taken under s. 14 7 after expiry of four years from end of relevant assessment year, unless income chargeable to tax has escaped assessment for reason of failure on part of assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Hon'ble apex Court in CIT vs. Foramer France (2003) 185 CTR (SC) 512 : (2003) 264 ITR 566 (SC) affirmed decision of Hon'ble Allahabad High Court in Foramer vs. CIT (2001) 166 CTR (All) 129 : (2001) 247 ITR 436 (All), where Hon'ble Allahabad High Court has held as under : "In our opinion, we have to see law prevailing on date of issue of notice under s. 14 8, i.e., 20th Nov., 1998. Admittedly, by that date, new s. 14 7 has come into force and, hence, in our opinion, it is new s. 14 7 which will apply to facts of present case. In present case, there was admittedly no failure on part of assessee to make return or to disclose fully and truly all material facts necessary for assessment. Hence, proviso to new s. 14 7 squarely applies, and impugned notices were barred by limitation mentioned in proviso." And finally Hon'ble Allahabad High Court has held as under : "Although we are of opinion that law existing on date of impugned notice under s. 14 7/ 14 8 has to be seen, yet even in alternative even if we assume that law prior to insertion of new s. 14 7 will apply even then it will make no difference since even under original s. 14 7 notice for reassessment could not be given on mere change of opinion as held in numerous cases of Supreme Court, some of which have been mentioned above. Since Tribunal in appeal relating to assessee company had considered Tribunal's earlier decision in Boudier Christian's case, it will obviously amount to mere change of opinion, and hence notice under s. 14 7/ 14 8 would be illegal." 15. Similarly Hon'ble Delhi High Court in case of Jindal Photo Films Ltd. vs. Dy. CIT (1999) 154 CTR (Del) 355 : (1998) 234 ITR 170 (Del) has held that it cannot be disputed that discovery of new and important matter or knowledge of fresh facts which were not present at time of original assessment would constitute 'reason to believe that any income chargeable to tax has escaped assessment' within meaning of even s. 14 7 (operative from 1st April, 1989). Here also such facts which could have been discovered by AO but were not so discovered at time of original assessment may not constitute new information. In that view of matter, where AO has formed opinion that income has escaped assessment because he has allowed deduction under s. 80-I wrongly and even though in recording reasons AO has used phrase 'reason to believe', between date of original order of assessment sought to be reopened and date of forming of opinion by AO, nothing new has happened. There is no change of law. No new material has come on record. No information has been received. In such circumstances, it can be said that it is merely fresh application of mind by same AO to same set of facts. What AO has said about order of first appellate authority while recording reasons under s. 14 7 he could have said even in original order of assessment because such appellate order was before him at that time. Thus, it is case of mere change of opinion which does not provide jurisdiction to AO to initiate proceedings under s. 14 7. 16. In present case also, AO has enquired about value of price variation of liability of medicines to be exported and export particulars adopted or not, on actual basis. assessee vide letter dt. 9th Dec., 1993 has already replied exhaustively and relevant reply as reproduced in para 12 at pp. 10 and 11 of this order. Even AO while issuing show-cause notice has very clearly mentioned in show-cause notice dt. 16th March, 1998. AO has allowed deduction on account of provision for price variation in raw material for export. In show-cause notice, it was stated that working out this liability export market price adopted was not on actual basis but was adopted on estimated basis. Accordingly, it was undisputed loss of price variation and therefore liability was contingent in nature and not allowable in asst. yr. 1991- 92. assessee has already replied at time of original assessment to this query and AO has not made any addition for considering this reply which is very much part of assessment record. As learned Departmental Representative relied on Expln. 1 to s. 14 7 of Act, for this purpose as per provision of Expln. 1 to s. 14 7 production before AO of account books or other evidence from which material evidence could with due diligence have been discovered by AO will not necessarily amount to disclosure within meaning of proviso to s. 14 7, in putting expression discovery by AO with due diligence implied any expression which means for certain estimate or books of account or agreement as produced by assessee in course of his assessment and assessment is actually made on that basis by exploiting such deed or agreement to be true within reopening of assessment on ground that agreement was bogus, has to be made within period of 4 years from end of relevant assessment year as prescribed in proviso to s. 14 7 of Act. 17. In view of above discussions of facts as narrated in present case, we feel that reopening under s. 14 7 does not postulate conferment of power upon AO to initiate reassessment proceedings upon his mere change of opinion and that also beyond 4 years. In present case, assessee vide letter dt. 9th March, 1993, replied to query of AO, whereby it was narrated as per import policy of Government of India there is provision for issue of advance licences for import of raw material against obligation by exporting manufacturer to export out of country specified goods and he narrated details of pricing of local and foreign market whereby difference arises at Rs. 7,33,388. Even AO in his show-cause notice dt. 16th March, 1998 has admitted that deduction of Rs. 7,33,388 on account of provision for price variation in raw material for export was wrongly allowed by him. It means that AO while framing original assessment under s. 14 3(3) of Act has gone into details of price variation in raw material of export and allowed claim of assessee. It has disclosed all material facts for its assessment for this assessment year and there is no failure on part of assessee to disclose truly and fully all material facts necessary for its assessment. In view of these facts, where AO has formed opinion that income has escaped because he has allowed deduction wrongly and even though in recording reasons AO has used phrase "reason to believe", between date of original assessment and date of forming of opinion by AO, nothing new has happened. Accordingly, assessment reopened under s. 14 7 r/w s. 14 8 is bad in law and hence reopening is quashed. 18. As issue on jurisdiction is decided against Revenue and in favour of assessee, we do not feel it necessary to adjudicate issue on merits. 19. In result, appeal of assessee is allowed. *** PAN DRUGS LTD. v. DEPUTY COMMISSIONER OF INCOME TAX
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