Delhi High Court

Replika Press Private Limited & ... vs Deputy Commissioner Of Income Tax ... on 5 August, 2013

Author: Sanjiv Khanna

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI

                                   Date of decision: 5th August, 2013

+                     W.P.(C) 7452/2010

      REPLIKA PRESS PRIVATE LIMITED & ANR ..... Petitioner
                   Through   Mr. S. Krishnan, Advocate.

                          versus

      DEPUTY COMMISSIONER OF INCOME TAX CIRCLE
                                       ..... Respondent
                  Through    Mr. Kamal Sawhney, Sr.
                  Standing Counsel.

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J. (ORAL)

The petitioner has challenged reassessment proceedings initiated

in respect of assessment year 2006-07 vide notice dated 31st March,

2010 issued under Section 148 of the Income Tax Act, 1961 (Act, for

short).

2. Reassessment proceedings have been initiated within four years

from the end of the assessment year and, therefore, the first proviso to

Section 147 is not applicable.

3. The petitioner had filed its return for the assessment year 2006-

07 on 19th October, 2006 and the return was selected for scrutiny.

Assessment order under Section 143(3) of the Act was passed on 25th

August, 2008.

4. The petitioner had claimed and were allowed deduction under

Section 10B of the Act amounting to Rs.6,72,28,255/- on the ground

that they were 100% export oriented unit and had fulfilled the

conditions of Section 10B. This is an undisputed position.

5. The "reasons to believe" to justify reopening recorded by the

Assessing Officer under Section 147 of the Act read as under:-

"The assessment of M/s Replika Press (P) Ltd. for the A.Y. 2006-07 was completed after scrutiny on 25.08.2008, determining an income of Rs. 60, 07,205/-. Thereafter, it was observed that the assessee is engaged in the business of printing of text books (export as well as domestic sales) which does not made (sic) it eligible for claiming deduction u/s 108. It has been made clear in the case of Addl CIT WB-III, Calcutta Vs. A Mukherjee & Co. (P) Ltd. (113 ITR 718) that "a publisher may get the books printed from any printer, but the printer is a mere contractor and the publisher carries on the business of manufacturing and processing goods". A circular has also been issued by the CBDT (Circular No.347 dated 07/07/1982) on this matter. Thus the assessee is not a manufacturer for the purpose of claiming deduction u/s 10B. This mistake has resulted in under-assessment of income by Rs.6,72,28,255/-.

In view of the above facts, I have reason to believe that income of Rs.6,72,28,255/- has escaped assessment by virtue of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for assessment in this year in this case and the same is to be brought to tax under section 147/148 of the I.T. Act."

6. A reading of the said reasons makes it apparent and crystal clear

that the Assessing Officer has referred to the business of the assessee

i.e. printing of textbooks, and has recorded a prima facie opinion that

this activity was not eligible for claiming deduction under Section 10B.

Reliance has been placed upon an earlier decision of the Calcutta High

Court in Additional CIT WB-III, Calcutta Vs. A Mukherjee & Co. (P)

Ltd. (1978) 113 ITR 718 (Calcutta). A portion of the said judgment has

also been quoted.

7. A bare perusal of the original assessment order dated 25 th

August, 2008 would indicate that there was no doubt or dispute about

the business activity undertaken i.e. the petitioner was a printer of text

books. The assessment order itself records that business of the

assessee was to print and export books which used to be delivered as

per instructions of the overseas importer to parties situated outside

India as well as in India (i.e. constructive exports). The petitioner had

shown receipts in convertible foreign exchange from

export/transmission of customized electronic data by way of scanning

and type setting charges. The assessee had shown domestic sales as

local turnover. It is clear that the Assessing Officer was fully aware

and conscious of the activities undertaken by the petitioner i.e. printing

of books in India as per instructions of the overseas third parties.

8. The petitioner in objections had submitted that the reassessment

proceedings have been initiated in view of the audit objections. It was a

case of „change of opinion‟ and the nature and character of the

business activities undertaken by the petitioner were examined at the

first round and the Assessing Officer was satisfied that Section 10B

was applicable to the said activities i.e. the petitioner had carried on

business of manufacture or production.

9. The Assessing Officer in his order dated 28th September, 2010

has referred to the said contention of the petitioner in the objections but

after referring to the judgment of the Supreme Court in CIT Vs. P.V.S.

Beedies (P) Ltd. (1999) 237 ITR 13 (SC) and the Delhi High Court in

New Light Trading Co. Vs. CIT (2001)170 CTR 138, rejected the said

contention recording that the audit objection was in respect of a new

information and not law.

10. It cannot be disputed and questioned that the nature of activities

being undertaken by the assessee were in the knowledge of the

Assessing Officer in the first round. The nature and character of the

said activities i.e. printing of books has been mentioned in the

assessment order itself. It is also recorded that these books were

printed and supplied to different parties as per the instructions of the

overseas importer. Thus, it is incorrect and wrong that any fresh or

new factual information came to the knowledge of the Assessing

Officer after passing of the first assessment order dated 25th August,

2008. No new fact came to the knowledge of the Assessing Officer,

which made him believe that the petitioner was carrying on another

activity and was not printing books. The audit objections in the present

case reflects and indicates that the auditors were of the opinion that the

Assessing Officer had erred in accepting the legal position that printing

of book amounts to manufacture or production. In the present case, the

Assessing Officer as per the "reasons to believe" had formed an

erroneous legal opinion in the original assessment order. Such cases

cannot be covered and cannot be made subject of reassessment

proceedings under Section 147 of the Act. Appropriate remedy

available to the Revenue was to initiate proceedings under Section 263

of the Act, as it is their stand that the assessment order was erroneous

and was prejudicial to the interest of the Revenue.

11. Learned counsel for the respondent-assessee has drawn our

attention to the full bench decision of this Court in Commissioner of

Income Tax Vs. Usha International Ltd., [2012] 348 ITR 485 (Delhi)

wherein, reference is made to the judgment of the Supreme Court in

ALA Firm Vs. CIT, (1991) 189 ITR 285 (SC). Our attention was

drawn to proposition No.4; that information as required by Section

147(b) can relate to an earlier decision on the point of law but that

information should have come to the knowledge of the Assessing

Officer by his own efforts. Such information may be gathered after

examination of the assessment records. Decision in ALA Firm (supra)

was referred to in Usha International (supra) in a different context and

purpose. Observations made by the Supreme Court was with reference

to the term "information" and conceptually there is a difference

between the scope and ambit of the reassessment provisions

incorporated with effect from 1st April, 1989. The new statutory

provisions do not refer to the word "information" and nature, type or

character of information. No doubt, the scope and ambit of the

amended reassessment provisions is wider, but what is relevant and

important is that cases of "change of opinion" are not covered or

protected under the re-enacted reopening provisions. In this

connection, it would be appropriate to reproduce paragraphs 15 and 16

of the decision of the Full Bench in Usha International Ltd. (supra):-

"15. Thus where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to Section 263 of the Act is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion.

16. Here we must draw a distinction between erroneous application/ interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The 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 the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. 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. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment."

12. After quoting the said paragraphs, the full bench had made

reference to New Light Trading Co. Vs. CIT (supra) and P.V.S.

Beedies (P) Ltd.(supra).

13. We have also examined the judgment of the Calcutta High Court

in A. Mukherjee and Company Private Limited (supra). The said

judgment does not support the Revenue and the Assessing Officer in

the „reasons to believe‟ has quoted one sentence, which in fact is a

misquote and does not state or convey what the Assessing Officer has

understood. The full paragraph in A. Mukherjee and Company

Private Limited (supra) reads:-

"In order that a publisher of books should be a manufacturer of books it is wholly unnecessary

for him either to be an owner of a printing press or to be a book-binder himself. A paper is not a book, though it is printed on papers. A publisher may get the books printed from any printer but the printer is not the manufacturer but a mere contractor. The findings of the Tribunal in our opinion conclusively show that the assessee was carrying on the activity of manufacturing and also of processing of books which are also goods."

14. In the said case, the respondent was a publisher of books but did

not have a printing press. He would procure manuscripts, hit upon a

suitable format, get it printed from third parties under his supervision,

get the book bound and put it out for sale. The Calcutta High Court

dismissed the appeal of the Revenue and held in favour of the assessee

therein that he was engaged in manufacturing and also processing of

books, which were goods. The activity undertaken by the petitioner

herein, as accepted in the original assessment order, is that the

petitioner had printed text books and bound them and as per the

instructions of the importer dispatched them to parties outside India or

within India. The petitioner has set up an undertaking for printing and

production of books.