Karamchand Appliances P. Ltd. v. Deputy Commissioner of Income
[Citation -2017-LL-1116]

Citation 2017-LL-1116
Appellant Name Karamchand Appliances P. Ltd.
Respondent Name Deputy Commissioner of Income
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 16/11/2017
Judgment View Judgment
Keyword Tags initiation of reassessment • industrial undertaking • computing deduction • tangible material • change of opinion • reason to believe • interest income • revenue loss • time barred
Bot Summary: The interest income of Rs. 1,73,09,543/- is in the nature of income from other sources and it has not been derived from the industrial undertaking. The assessee has not disclosed the true particulars regarding this interest income and has claimed it as business income derived from industrial undertaking and consequently has claimed excess deduction u/s 80IB on it. As per the provision of section 80IB where any deduction under chapter VI-A is to be allowed in respect of any income of the nature specified in that section which is included in the gross total income of the assessee notwithstanding anything contained in that section, for the purpose of computing deduction under that section, the amount of income of that nature as computed in accordance with the provision of this Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income. The assessee incorrectly claimed chapter VI-A deductions on income which included income from other sources i.e. interest income amounting to Rs. 1,73,09,453/- instead of restricting the deduction to the extent of income from the profits and gains of business as has been prescribed in the provisions of section 80AB. This action of the assessee has resulted in under assessment of other income by Rs. 1,73,09,453/-. Rational connection postulates that there must be a direct nexus or W.P.(C) 422/2006, 2794/2008, 2795/2008 8177/2008 Page 4 of 10 live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. In W.P.(C) 8177/2008, the reassessment notice issued to the assessee by the revenue on 31.03.2008 premises itself on the circumstance that in the original assessment, the assessee had claimed interest income as part of its exempt income, miscellaneous income and interest income, to the extent of 1,02,59,261/- which was not permissible, given the language of Section 80IA. Therefore, the revenue stated that the assessment had to be re-opened. The expression material facts' means those facts which if taken into account would have an adverse affect on the assessee by a higher assessment of income than the one actually made.


* IN HIGH COURT OF DELHI AT NEW DELHI Decided on: 16.11.2017 + W.P.(C) 422/2006 KARAMCHAND APPLIANCES P.LTD. ..... Petitioner versus DEPUTY COMMISSIONER OF INCOME ..... Respondent + W.P.(C) 2794/2008, C.M. APPL.5381/2008 S.C. JOHNSON PRODUCTS PVT LTD & ANR ..... Petitioners versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 5(1) ..... Respondent + W.P.(C) 2795/2008, C.M. APPL.5383/2008 S.C. JOHNSON PRODUCTS P. LTD. & ANR ..... Petitioners versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 5 (1), NEW DELHI ..... Respondent + W.P.(C) 8177/2008 S.C.JOHNSON PRODUCTS P.LTD. FORMERLY KARAMCHAND APPLIANCES P.LTD. & ANR. ..... Petitioners versus DEPUTY COMMISSIONER OF INCOME TAX ..... Respondent Through : C.S. Aggarwal, Sr. Advocate with Sh. Prakash Kumar, Advocate, for petitioners. Sh. Ashok. K. Manchanda, Sh. Raghvendra Singh and Sh. Anand. K. Chaudhuri, Advocates, for Revenue. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE SANJEEV SACHDEVA MR. JUSTICE S. RAVINDRA BHAT % 1. In these proceedings under Article 226 of Constitution of India, assessee has questioned orders issued by Assessing Officer (AO) W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 1 of 10 proposing to re-open completed assessments for previous years. For AY 2000-01 (which is subject matter of W.P.(C) 422/2006) reasons to believe given by AO, under Section 148 of Income Tax Act ( Act ) are inter alia, as follows: It has been judicially held by Supreme Court in cases of CIT Vs Sterling Foods 237ITR 579 (SC), Cambay Electric Supply Industrial Co. Ltd. Vs CIT 113 ITR 84 (SC), CIT Vs Pandian Chemicals Ltd. 233 ITR 497 (SC) and by Madras High Court in cases of CIT Vs Sundaram Industries Ltd. 253 ITR396 (Mad.) and in case of CIT vs Menon Impex (P) Ltd. (2003) 259 ITR 403 (Mad.) and by Kerala High Court in case of CIT Vs Cochin Refineries Ltd. (1982) 135 ITR 278 (Ker) that used of term "derived from" in relevant provision of Act indicates restricted meaning to cover only profits and gains directly accruing from conduct of business undertaking. 5. interest income of Rs. 1,73,09,543/- is in nature of "income from other sources" and it has not been derived from industrial undertaking. assessee has not disclosed true particulars regarding this interest income and has claimed it as business income derived from industrial undertaking and consequently has claimed excess deduction u/s 80IB on it. 6. As per provision of section 80IB where any deduction under chapter VI-A is to be allowed in respect of any income of nature specified in that section which is included in gross total income of assessee, then, notwithstanding anything contained in that section, for purpose of computing deduction under that section, amount of income of that nature as computed in accordance with provision of this Act ( before making any deduction under this chapter) shall alone be deemed to be amount of income of that nature which is derived or received by assessee and which is included in his gross total income. W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 2 of 10 7. assessee incorrectly claimed chapter VI-A deductions on income which included income from other sources i.e. interest income amounting to Rs. 1,73,09,453/- instead of restricting deduction to extent of income from profits and gains of business as has been prescribed in provisions of section 80AB. This action of assessee has resulted in under assessment of other income by Rs. 1,73,09,453/-. 2. In W.P.(C) 2794/2008 and W.P.(C) 2795/2008 reassessment notice issued by respondent assessee for AY 2003-04 and 2005-06 (both of which had been settled during regular proceedings as scrutiny assessments) was issued. notice for AY 2003-04 observed that return was filed, disclosing income at 26,93,63,940/-; it had claimed deduction under Section 80-IB of Act at 77,89,40,725/ assessee manufactures mosquito repellants and has also traded, during year in aerosols, oil spray, hand pumps, mats and coils. It had claimed deduction u/s 80-IB in respect of three units. AO stated, in impugned notice that: (a) in Para- (i) of notes of unit wise Profit and Loss Account, assessee had stated that trading sales have also been accounted for on basis of actual sales to customers. AO said that no separate particulars of trading sales were filed. Therefore, profits derived from trading business was not eligible for deduction u/s 80-lB of Act in respect of any unit though entire profits were taken as eligible for such deduction; (b) assessee s P & L account stated that unit-wise sale was allocated in ratio of production cost and clearance made by each unit and further, in Notes that various expenses have been allocated on basis of domestic sales. However, there were certain expenses claimed in consolidated Profit and Loss Account which catered to needs of all units uniformly since there is one business of Assessee Company and are not unit specific. Such expenses are advertisements and sales promotion 29,45,33,370/-. These expenses have to apportion according W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 3 of 10 to sales which has not been done resulting in excess claim of deduction in certain units and increased loss in certain units. total sales of all units have been declared at 246,11,90,504/- (c) Besides, there were other items which had been wrongly claimed as expenses and disallowance under Section 14A was not worked out. 3. In W.P.(C) 2795/2008 (for AY 2005-06) allegations and grounds of reassessment notice were identical. AO felt that mixing up of trading sales and absence of unit specific profit and loss accounts led to excess deduction under Section 80IB to extent of 1,73,77,558/-. In this petition, it is urged that notice under Section 143 (2) was issued on 28.07.2006, but was not pursued. assessment, therefore, was time- barred. Consequently reassessment is impermissible. Learned counsel relied on Principal Commissioner v. Silver Line (2016) 383 ITR 455 (Delhi)(HC) in this regard. 4. In three writ petitions, assessee argues that without any new or tangible materials, AO could not have issued impugned notices, upon re-examination, as it were, of existing record. It is contended that there is no suggestion in two impugned notices that returns did not make full disclosure; rather materials on record showed that assessments were completed after due inquiry into relevant issues, including issues which AO highlighted as relevant grounds for re-opening assessments. 5. It is argued that Income Tax Officer v Lakhmani Mewal Dass (1976) 103 ITR 437 (SC) holds that reasons for formation of belief must have rational connection with or relevant bearing on formation of belief. Rational connection postulates that there must be direct nexus or W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 4 of 10 live link between material coming to notice of Income Tax Officer and formation of his belief that there has been escapement of income of assessee from assessment in particular year because of his failure to disclose fully and truly all material facts. powers of Income Tax Officer to reopen assessment, though wide, are not plenary. words of statute are "reason to believe" and not "reason to suspect". reopening of assessment after lapse of many years is serious matter. Learned counsel argued that in all cases, reassessment notice was clearly issued, merely to reassess and recalculate existing materials, without benefit of any extrinsic evidence or material that came to knowledge of AO. Therefore, reassessment notices were unsustainable. 6. In W.P.(C) 8177/2008, reassessment notice issued to assessee by revenue on 31.03.2008 (for AY 2001-2002) premises itself on circumstance that in original assessment, assessee had claimed interest income as part of its exempt income, miscellaneous income and interest income, to extent of 1,02,59,261/- which was not permissible, given language of Section 80IA. Therefore, revenue stated that assessment had to be re-opened. 7. Mr. C.S. Aggarwal, learned senior counsel for petitioners relied on documents placed on record of assessment proceedings and argued that AO did not examine original record; had he done so, it would have been apparent that not only was material relied on in re-assessment proceeding not different from what was relied on originally, but even that AO had directed material and relevant queries in original proceeding. Learned senior counsel relied upon decision of Supreme Court in W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 5 of 10 Commissioner of Income Tax v Kelvinator (India) Ltd (2010) 320 ITR 561, to say that in absence of fresh tangible material revenue is precluded from second look at assessment order as it would amount to opinion. It is also argued that for year 2005-06 decision in Principal Commissioner v. Silver Line (2016) 383 ITR 455 (Delhi)(HC) is squarely applicable, because notice under Section 143(2) was not issued 8. revenue contends and its counsel, Mr. Ashok. K. Manchanda argues that reassessment notices in three petitions does not suffer from any infirmity. revenue realized that excess deduction claimed by assessee led to substantial revenue loss; before matter could get barred, notices under Section 147/148 were issued. Reliance was placed on Phool Chand Bajrang Lal & Anr v Income Tax Officer & Anr [1993] 203 ITR 456 (SC), where Supreme Court held as follows: "27..Since belief is that of Income- tax Officer, sufficiency of reasons for forming belief, is not for Court of judge but it is open to assessee to establish that there in fact existed no belief or that belief was not at all bona fide one or was based on vague, irrelevant and non- specific information. To that limited extent, court may look into conclusion arrived at by Income-tax Officer and examine whether there was any material available on record from which requisite belief could be formed by Income-tax Officer and further whether that material had any rational connection or live link for formation of requisite belief......................." 9. It is submitted that AO acted within jurisdiction in seeking to re- open assessment, given fact that assessments based on original returns, concealed crucial relevant particulars, which were not gone into by W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 6 of 10 authorities below. Whenever income escapement comes to light, AO can look into records to see whether disclosure made was full and contained material particulars. Learned counsel relied on decision of this court in Commissioner of Income Tax v Usha International 348 ITR 485 (Del), particularly following observations: If new facts, material or information comes to knowledge of Assessing Officer, which was not on record and available at time of assessment order, principle of change of opinion will not apply. reason is that opinion is formed on facts. Opinion formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under principle of change of opinion . Factual information or material which was incorrect or was not available with Assessing Officer at time of original assessment would justify initiation of reassessment proceedings. requirement in such cases is that information or material available should relate to material facts. expression material facts' means those facts which if taken into account would have adverse affect on assessee by higher assessment of income than one actually made. They should be proximate and not have remote bearing on assessment. omission to disclose may be deliberate or inadvertent. question of concealment is not relevant and is not precondition which confers jurisdiction to reopen assessment. 17. Correct material facts can be ascertained from assessment records also and it is not necessary that same may come from third person or source, i.e., from source other than assessment records. However, in such cases, onus will be on Revenue to show that assessee had stated incorrect and wrong material facts resulting in Assessing Officer proceeding on basis of facts, which are incorrect and wrong. W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 7 of 10 Analysis and Findings 10. Section 147, to extent it is relevant, is reproduced below: "147. - Income Escaping Assessment - If Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as relevant assessment year): Provided that where assessment under sub-section (3) of section 148 or this section has been made for relevant assessment year, no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under section 139 or in response to notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Explanation 1.--Production before Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by Assessing Officer will not necessarily amount to disclosure within meaning of foregoing proviso. Explanation 2. - xxxxx xxxxx xxxxx xxxxx".. 11. This Court notices that Phool Chand Bajrang Lal (supra) is authority for proposition that acquisition of fresh information, specific in nature and reliable in character, relating to concluded assessment W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 8 of 10 which exposes falsity of assessee s statement during original statement is legitimate basis for re-opening (the asssessment). Supreme Court pointedly noted that mere disclosure of that transaction at time of original assessment proceedings, cannot be said to be disclosure of "true" and "full" facts in case and I.T.O. would have jurisdiction to reopen concluded assessment in such case. That decision had taken note of Lakhmani Mewal Dass (supra) and Calcutta Discount Ltd. v. ITO [1961] 41 ITR 191. In Calcutta Discount Co. (supra) it was held that assessee s prime obligation is to disclose fully and truly all material and relevant facts. This obligation does not extent to responsibility to disclose what inferences can be drawn from such facts by authorities. 12. subsequent ruling of three judge bench decision of Supreme Court in Commissioner of Income Tax v Kelvinator India Ltd (2010) 320 ITR 561 (SC) crystallizes acceptable standard for upholding reassessment notice (under Section 147/148) as something beyond existing record, in form of tangible material available to AO which provides live link to formation of legitimate belief that reassessment is called for. 13. What is tangible material which compelled AO, in all these four cases, to issue impugned reassessment notices? None absolutely. This is not case of kind visualized, in Phoolchand (supra), where something relating to past year comes to light in course of assessment in later assessment year; nor is revenue arguing that some new and significant information about concealment of income brought to light. revenue is indulging in fishing, by way of scrutinizing again, something that had been specifically gone into, i.e character of income and extent of W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 9 of 10 deduction claimed. Now, Usha International (supra) referred to by revenue itself points out that if some aspect, vital or important, is overlooked during assessment, per se remedy are not reassessment, but rather, corrective jurisdiction under Section 263. That such jurisdiction cannot be exercised for some reasons, would not entitle revenue to resort to reassessment, which in this case, is nothing but impermissible review. Considering that reassessment is premised on reasons which were explicitly gone into (evident from queries to assessee during original assessment) for previous years, in three writ petitions, notices are clearly unsustainable. 14. As far as one year, covered by W.P.(C) 8177/2008, goes additionally, court notices that reassessment is not permissible, for reasons articulated in Silverline (supra). There is no dispute that revenue had issued notice under Section 143 (2) but failed to complete assessment. In these circumstances, notice is not sustainable on this ground as well. 15. For above reasons, impugned reassessment notices and all subsequent proceedings are hereby quashed. writ petitions are allowed in above terms, without order on costs. S. RAVINDRA BHAT (JUDGE) SANJEEV SACHDEVA (JUDGE) NOVEMBER 16, 2017 W.P.(C) 422/2006, 2794/2008, 2795/2008 & 8177/2008 Page 10 of 10 Karamchand Appliances P. Ltd. v. Deputy Commissioner of Income
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