Delhi High Court

General Exporters vs Assistant Commissioner Of Income ... on 9 February, 1999

Equivalent citations: (2000) 67 TTJ Del 119

ORDER

Miss Moksh Mahajan, A.M.

In an appeal filed the assessee has challenged the order of the assessing officer on as many as eight grounds of appeal as under:

"1. The learned assessing officer earned in denying the appellant the benefit of section 80HHC of Income Tax Act, 1961 on the income of Rs. 1,87,67,770 assessed in its hands even after holding that it has directly arisen from export of goods.

2. The learned assessing officer has further erred in holding that the appellant had not made any regular export and even if the goods had been genuinely exported, the exporter is M/s A.V. Thomas & Co. and not the appellant. He failed to appreciate the voluminous evidence placed before him by the appellant to show that the exports had been both in law and in fact made by the appellant.

3 Without prejudice to the above contentions and in any case, if the learned assessing officer was of the view that the exports were made by M/s A.V. Thomas & Co., he ought to have assessed the above income in the hands of that concern. The assessment of an income arising for exports as the undisclosed income of the appellant, without allowing the statutory relief under section 80HHC of the Act, is illegal and contrary to the finding of the learned assessing officer himself.

4. Without prejudice to the above, the observations of the learned assessing officer as contained in para 5(e) of the assessment order are uncalled for, illegal and irrelevant and against the facts of the case and deserve to be deleted.

5. The assessment made by the learned assessing officer on 28-11-1997 is illegal, void and even against the facts of the case in as much as the learned assessing officer has failed to serve on the appellant the mandatory notice as required under section 158BC(a)(i) of Income Tax Act, 1961, after the transfer of its case from Chennai to New Delhi vide Commissioner, Tamilnadu's order dated 14-10-1997, effective from 15-10-1997.

6. The learned assessing officer failed to appreciate that the earlier notices including that issued on 30-6-1997, had become invalid in view of the order of Madras High Court dated 11-9-1997, which had quashed the order dated 10-6-1997 passed by the learned Commissioner transferring the case of the appellant from Chennai to New Delhi. It is, therefore, prayed that the impugned assessment order may also be quashed.

7 The levy of tax of Rs- 1,12,60,664 on the appellant is thus illegal and highly unjust.

8. The appellant seeks permission to amend and/or add any ground or grounds of appeal as the circumstances of the case might require to justify. "

During the course of appellate proceedings the assessee also raised an additional ground of appeal which reads as under :

"The learned assessing officer has also erred in making the assessment under section 158BC of the Act when the appellant had already filed its return of income for the assessment year 1995-96 and which had also been processed by him under section 143(1)(a) of the Act"

2. Shri Prakash Narain and Shri K.S.V.S. Manian appeared on behalf of the assessee. In justification for additional ground of appeal it was submitted that searches under section 132 of the Act were conducted in the office premises of the assessee on 6-11-1996, at Chennai. Certain books of accounts along with documents were seized as listed in Panchnama. The documents and the books of accounts were examined and the assessee's claim of deduction under section 80HHC of the Act which already stood allowed to the assessee in the proceedings under section 143(1)(a) of the Act was held to be not allowable. This was for the reasons given in the order. Since the return for assessment year 1995-96 had been processed under section 143(1)(a) of the Act no assessment under Chapter XIV- B could have been framed. The issue being a legal one could be raised at any time and as such should be admitted. In support reliance was placed on the decision of Delhi High Court in the case of Tailor Instrument Co. (India) Ltd. v. CIT (1992) 198 ITR 1 (Del) and Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), The learned Departmental Representative on the other hand, vehemently opposed the admission of the additional ground of appeal and submitted that as held in the case of National Thermal Power Co. Ltd. (supra), before additional ground of appeal could be admitted, it must be shown that the ground raised is bona fide and the same could not be raised earlier for the good reasons. Any and every ground of appeal cannot be admitted without satisfying the court that there existed sufficient reasons for not raising the grounds before the lower authorities. Reliance was placed on the decision of CIT v. Stepwell Industries Ltd. (1997) 228 ITR 171 (SC) and Addl. CIT v. Gurjargravures (P) Ltd. (1978) 111 ITR 1 (SC). Responding to the arguments of the learned Departmental Representative it was submitted by Shri Prakash Narain that in case the judgment of Supreme Court in the case of National Thermal Power Co. Ltd. (supra) is gone through, it would be clear that their Lordships of Supreme Court have clearly observed that in case non-taxable item is taxed or a permissible deduction is denied there is no reason that the assessee be denied an opportunity of raising question before the Tribunal for the first time. Since after allowing deduction under section 80HHC of the Act, the same was denied to the assessee, the assessee's case is covered by the observations of their Lordships of Supreme Court and as such the additional ground required to be admitted. The decisions rendered in the cases of Gurjargravures (P) Ltd. (supra) and Stepwell Industries Ltd. (supra) were on the facts as available in these cases and as such they could not be applied to the assessee's case.

3. We have carefully considered the rival submissions and have also gone through the decisions as cited. On the facts and circumstances as explained by the learned authorised representative we are of the opinion that the additional ground needs to be admitted which we do. Incidentally it may be mentioned that, this is the first forum of appeal in the cases where the assessment has been finalised under Chapter XIV-B of the Act. This further strengthen the assessee's assertion that in the interest of justice the ground needs to be admitted. The legal issue raised by the assessee goes to the root of the matter and as such needs to be admitted for examination of the issue. No further ascertainment of facts are required.

4. Before we revert to the issues it would be necessary to state facts in brief. The facts in brief are that the assessee filed its return for assessment year 1995-96 on 30-10-1995. It declared net profit at Rs. 1,87,67,774. From the aforesaid income deduction claimed under section 80HHC of the Act was Rs. 1,87,67,774. The income declared was thus at 'Nil'. Subsequently searches took place in the business premises of the assessee on 6-11-1996. In pursuance of the order passed under section 127 of the Act the assessee's case was transferred to Delhi. The assessee filed a writ before the Hon'ble High Court at Chennai and vide their order dated 4-9-1997 writ petition was allowed. It was however held that it was open to the respondent or other competent authority to pass fresh orders in terms of section 127 of the Act by complying with the requirements of the said provision. The same was done and the assessment finalised at Delhi. During the course of proceedings the assessee was issued a questionnaire which was duly replied too with necessary evidence in support. The explanation of the assessee was rejected and the assessments were framed for block period from 1-4-1986 to 6-12-1996 as appearing on p. 5 of the order. The income for assessment year 1995-96 was taken at Rs. 1,87,67,774 and tax on the same was levied at Rs. 1,12,60,662. There was no income assessed for assessment years 1987-88 to 1994-95.

5. On the facts as stated above it was submitted by Shri Prakash Narain that since the assessment for assessment year 1985-86 was framed the assessing officer could not have framed another assessment for the same assessment year under section 158BC of the Act. This was more so when there was no undisclosed income for which the proceeding's under section 158B could have been taken. Chapter XIV-B relates to special procedure for assessment of search cases. As per definition on undisclosed income given in section 158B(b) of the Act, undisclosed income includes any money, bullion, jewellery or valuable article, etc, based on any entry in the book of accounts or documents which has not been or would not have been for the purposes of this Act. As per section 158BB the income already has to be excluded. The assessee has already been assessed under section 143(1)(a) of the Act. During the course of the original proceedings the assessee had declared all the facts relevant for assessment year 1995-96. The claim of the assessee in respect of section 80HHC was accepted and deduction was allowed. There was no fresh material discovered during the course of searches which could have led to the denial of the claim in the proceedings taken under Chapter XIV-B of the Act, As would be evident from the material on record detailed questionnaire issued to the assessee was duly replied to by the assessee. It was shown that there was no undisclosed income discovered as a result of search for which the framing of assessment under section 158B could have, been justified. Reliance was placed on various decisions as under

(1) Prakash Food Ltd. v. CIT (1998) 64 ITD 396 (Pune-Trib),

(2) Sunder Agencies v. CIT (1998) 1 DTC 166 (Mum-Trib) : (1997) 63 ITD 245 (Mum-Trib)

(3) Express Movers (P) Ltd, v. Dy. CIT (1997) 61 ITD 528 (Del-Trib)

(4) L. R. Tata & Ors. v. Union of India (1992) 194 ITR 32 (Del), and

(5) Vijayashanthi Investments (P) Ltd. v. Chief Commissioner (1991) 187 ITR 405 (AP).

'The thrust of the argument was that since there was no undisclosed income discovered as a result of searches, the assessment framed under section 158BC of the Act could not be upheld. On merit it was submitted that the material brought on record clearly showed that it was the assessee who exported goods abroad for which the receipts were earned in convertible foreign exchange. The profits were appropriated by the partners and as such it could not be said that the assessee was not a genuine exporter and as such the deduction could not be allowed in his hands. The learned Departmental Representative on the other hand, opposed the stand of the assessee. It was submitted that proceedings under Chapter XIV and XIV-B are mutually exclusive and can be exercised simultaneously. The fact that the return for assessment year 1985-86 was processed under section 143(1)(a) of the Act would not bar the assessing officer from framing assessment under section 158BC of the Act. This has been so held by their Lordships of Gujarat High Court in the case of N. R.. Paper & Board Ltd. & Ors. v. Dy. CIT (1998) 4 DTC 29 (Guj-HC) : (1998) 234 ITR 733 (Guj). Reading of the assessment order would clearly show that the assessee was not a genuine exporter and as the contract for export of tea was procured by M/s A.V. Thomas & Co. it was the aforesaid party which was the actual exporter. No party would part with the profitable venture without considerations. M/s A.V. Thomas & Co. not only gave the aforesaid contract to the assessee but it did not receive any consideration for the same. This apart, no rent was charged for the premises from which the business was carried. The assessee had no experience of the exports and this was the only contract which was executed by it. Subsequently no further business was carried on by the assessee. As per the reasons given on p. 4 of the order the assessing officer clearly held that deduction under section 80HHC of the Act was wrongly allowed to which the assessee was not entitled.

6. We have carefully considered the rival submissions. We have also gone through the specific material to which our attention was drawn. We have also gone through the relevant decisions as cited on both sides. Chapter XIV-B lays down special procedure for framing assessments in the cases of search. Amongst special features are the concept of block period consisting of 10 years and special procedure for framing assessment in relation to undisclosed income as a result of search. Income assessable under the chapter is the one which is discovered as a result of searches conducted after a specific date. The undisclosed income can be either in the form of money, bullion, jewellery or any other valuable article or thing or any income based on any entry in the books of accounts or other documents or transactions, etc. The aforesaid income is to be the one which has not been disclosed for the purpose of the Act Thus, the prerequisite condition for bringing the income to tax under the aforesaid chapter is that it has to be undisclosed income in terms of definition given in section 158B(b) of the Act. The aforesaid undisclosed income stands in direct contrast to the disclosed income. The former is the one which is not recorded in the books of accounts or other documents maintained in the normal course relating to such previous years. What flows from the aforesaid provisions is the fact that the assessment made under the aforesaid chapter is in addition to the regular assessment proceedings undertaken under Chapter XIV of the Act. Thus as held by their Lordships of Gujarat High Court in the case of N.R. Paper & Board Ltd. & Ors. v. Dy. CIT (supra) while the block assessment is for assessment of undisclosed income of block period, regular assessment is for assessment of total income of the year. Both are for different purposes and there is no double assessment. The assessing officer is competent to proceed with regular assessment as well for framing assessment under section 158BC of the Act. These are mutually exclusive.

7. Thus even if there has been a regular assessment framed for a particular assessment year or years, there is no bar in framing the assessment under section 158BC of the Act, the only condition being that for the latter there has to be undisclosed income which is again to be a result of searches conducted in the premises of the assessee after a specific date. Before any income can be covered under the aforesaid chapter it has to be shown that there is an undisclosed income resulting from the documents or material discovered during the course of searches. Applying the aforesaid principle to the case of the assessee, we find that the documents discovered as listed in Panchnama were vouchers, file of general exporters, register of delivery notes, purchase file, general ledger, file relating to P&L a/c, bunch of loose papers, etc.

Despite specific opportunity given to the Departmental Representative no specific document was produced before us to show that the income assessed at Rs. 1,87,67,774 was a direct result of those documents but for discovery of which it could not have been brought to tax. In this context, we find that the aforesaid income was shown to have been earned from exports made to Russia

This was as a result of orders for export of tea to Russian Federation bagged by M/S A.V. Thomas Group. As per material on record the orders were originally procured by M/s A.V.T. & Gen. Exporters for which necessary LC was opened. Subsequently the same was transferred to the assessee and for that purpose the assessee made use of the ware houses/godowns of M/s AVT Group of Companies. The initial rent agreed to be paid was not paid in the end. Rent of Rs. 45,994 represented the warehouse charges paid to various parties for temporarily using their ware houses/godowns for sorting and repacking of tea. The exports made by the assessee were supported by the documents namely evidence in the form of invoices for exports, packing list for invoices, export order copies, bill of lading, shipping bills, insurance cover, inspection report, certificate of origin, GR declaration forms, Lab test certificates, weight measurement certificate, masters receipt, confirmation of receipt of goods by the buyer, export realisation certificate, bank statements where exports proceeds credited, purchase invoices for tea, purchase invoices for packing materials & transport bills and other documents. The banking facilities were availed of on the strength of the personal property of the managing partner Shri M.A. Karim Material was also brought to show that the benefit of exports was ultimately enjoyed by the partners of the firm by way of drawings. Against this no evidence was brought on record by the learned Departmental Representative. The mere fact that the rent was not paid and that the export orders were transferred without consideration while could constitute the material for making a further probe but cannot by itself be the basis for holding that the exports were not made by the assessee and that the assessee was benamidar of somebody else who was the real exporter. As stated earlier no document found in the course of searches was produced before us to show that this was the real position despite legal formalities gone through by the assessee. Reference made to the questionnaire issued by the assessing officer reveal that certain queries were raised in respect of the seized documents which were replied to by the assessee. For example in case of Annexure S-9 reference was made to net profit shown at Rs. 1,88,41,934 as against Rs. 1,87,67,774 shown by the assessee. The difference was stated to be due to audit fees of Rs. 65,000 and other minor expenses of Rs. 9,160. Similar was the case in regard to Annexure S-7, and S-4 referred to in question No. 14, S-6 in question No. 16, S10 in question Nos. 17 and 18, S-11 in question No. 19, etc. These documents referred to the investment made, cheque books of M.A. Karim, demand drafts reflected and amounts received and given to certain parties. These have been duly explained by the assessee in its reply and the very facts that these have not been made basis for holding a conclusion shows that the income as assessed is not a result of the documents as discovered during the course of searches.

8. As referred to earlier the assessee declared income of Rs. 1,87,67,774 in the return filed for assessment year 1995-96. It is the same income which has been brought to tax under section 158BC of the Act. The only difference is that while deduction under s, 80HHC of the Act was allowed while processing the return under section 143(1)(a) of the Act, this was denied under section 158BC of the Act. This is not justified specifically when the assessee has furnished Form No. 10CCAC (p. 3 of the paper-book) relating to report under section 80HHC(4) of the Income Tax Act, 1961. Annexure 'A' contains details of total turnover of the business, total profits of the business, export turnover in respect of trading goods, direct cost of trading goods exported and adjusted profit business. P&L a/c contains the details and the schedule forming part of P&L a/c shows the expenses incurred, the balance sheet shows amongst others details in respect of security loans, instalments and Form No. 3CB gives particulars as requisitioned therein. We fail to understand as to what fresh material was discovered as a result of search which necessitated dubbing the income from exports as undisclosed income when the same duly stood disclosed in the return filed for assessment year 1995-96. This apart, there are no basis for disallowing the claim of the assessee which again stood allowed by the assessing officer in the course of processing the return. There is no material to show that the assessee did not furnish the entire facts or hide certain facts which were discovered as a result of searches.

9. On the facts as stated above we are of the considered view that this is one case where there was no justification for holding income of Rs. 1,87,67,774 as income from undisclosed sources. In the circumstances, we would delete the addition as brought to tax under section 158BC of the Act.

10. In the result, the assessee succeeds.