COMMISSIONER OF INCOME-TAX v. ANAND AND COMPANY — 1990 DIGILAW 471 (CAL)

AJIT K. SENGUPTA, J. ( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, for the assessment year 1979-80, the following questions of law have been referred to this court:"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Income-tax Officer reopened the assessment under Section 147 (b) of the Income-tax Act, 1961, on the ground of mere change of opinion ? ( 2 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the conditions for reopening the assessment under Section 147 (b) of the said Act have not been satisfied in this case ? ( 3 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the Commissioner of Income-tax (Appeals) cancelling the assessment framed by the Income-tax Officer under Section 143 (3) 7148 of the said Act ?"2. The assessee is a registered firm. For the assessment year 1979-80, the original assessment was completed by the Income-tax Officer under Section 143 (3) of the Income-tax Act, 1961, on October 3, 1981, The Income-tax Officer treated the cash subsidy of Rs. 15,62,293 as non-taxable keeping in view the Tribunal's order dated June 12, 1980, for the assessment year 1974-75 and the order of the Commissioner of Income-tax (Appeals) dated Feburary 18, 1981, for the assessment year 1978-79. The assessee also claimed weighted deduction under Section 35b in respect of certain items of expenditure. The Income-tax Officer allowed relief under Section 35b keeping in view the Inspecting Assistant Commissioner's direction under Section 144b dated April 3, 1980, for the assessment year 1978-79 and the order of the Commissioner of Income-tax (Appeals) dated February 18, 1981, for the same assessment year. 3. The successor Income-tax Officer who had framed the originaf assessment, however, reopened the assessment under Section 147 (b ). ( 4 ) THE Income-tax Officer framed the assessment under Section 143 (3) read with Section 147 (b) on March 23, 1985, holding that the cash subsidy received by the assessee is taxable. He was further of the view that weighted deduction under Section 35b was not admissible on packing charges, inspection charges, bank charges, bank interest, clearing and forwarding charges and similar items. He was further of the view that weighted deduction under Section 35b was not admissible on packing charges, inspection charges, bank charges, bank interest, clearing and forwarding charges and similar items. ( 5 ) AGAINST the assessment order dated March 23, 1985, the assessee appealed to the Commissioner of Income-tax (Appeals) who, after considering the submissions made on behalf of the assessee, came to the conclusion that the entire material, on both law and facts, led to the inevitable conclusion that the reopening of a properly made assessment was made by the successor-Income-tax Officer without there being any change in the circumstances either in law or on facts. He further held that the original assessment was made by the then Income-tax Officer not only after properly applying his mind on the issues under consideration but also after taking into consideration the settled position of law as declared by the Supreme Court in the case of Shri Ambica Mills Ltd. (No. 1), as also the well-considered opinion of the Appellate Tribunal, Calcutta Bench. According to the Commissioner of Income-tax (Appeals), it was a case of a mere change of opinion given by the successor Income-tax Officer. In view of the decision of the Tribunal on the point for the earlier assessment year, the Commissioner of Income-tax (Appeals) further held that there was no escapement of income on account of cash subsidy received by the assessee. In this view of the matter, the Commissioner of Income-tax (Appeals) cancelled the assessment framed by the Income-tax Officer under Section 143 (3)/148. ( 6 ) AGAINST the aforesaid order of the Commissioner of Income-tax (Appeals), the Department appealed to the Tribunal. On behalf of the Department, it was submitted that the Commissioner of Income-tax was wholly in error in holding that there was no escapement of income on account of cash subsidy of Rs. 15,62,293 during the relevant accounting year in the course of its business and, therefore, the receipt was a revenue receipt. ( 7 ) IT was also contended on behalf of the Department that weighted deduction under Section 35 B on items like packing charges, bank charges, etc. , was not allowable in view of the decision of the Special Bench of the Tribunal in the case of J. Hemchand and Co. ( 7 ) IT was also contended on behalf of the Department that weighted deduction under Section 35 B on items like packing charges, bank charges, etc. , was not allowable in view of the decision of the Special Bench of the Tribunal in the case of J. Hemchand and Co. ( 8 ) ON behalf of the assessee, it was, inter alia, contended before the Tribunal that the conditions for reopening of the assessment under Section 147 (b) did not exist in this case. It was further contended that the question whether cash subsidy was taxable as a revenue receipt was a debatable issue. If two views on a particular issue were possible, Section 147 (b) would not be applicable. It was further contended that since the Income-tax Officer, while framing the assessment, followed the orders of the superior authorities, his order holding that cash subsidy was not taxable and giving relief under Section 35b on certain items of expenditure could not be said to be erroneous. ( 9 ) THE Tribunal, after considering the rival submissions made on behalf of the parties and the facts available on the record, held that so far as the issue relating to allowance of weighted deduction under Section 35b is concerned, the Income-tax Officer reopened the assessment only on the ground of change of opinion, The Tribunal expressed the view that this could not be a valid ground for reopening the assessment. ( 10 ) THE Tribunal held that, in the instant case, the cash subsidy was received by the assessee from a non-governmental organisation. It could not be established by the Income-tax Officer that the cash subsidy received by the assessee has any nexus or connection with its business activity. The Income-tax Officer, without ascertaining the true nature of the cash subsidy received by the assessee and without ascertaining the terms and conditions under which the subsidy was received, applied the decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448. The Tribunal held that, without ascertaining the facts and the terms and conditions under which the subsidy was granted, the decision of the Calcutta High Court in Jeewanlal (1929) Ltd. [1983] 142 ITR 448, could not have led the Income-tax Officer to believe that income has escaped assessment so far as the cash subsidy is concerned. The Tribunal held that, without ascertaining the facts and the terms and conditions under which the subsidy was granted, the decision of the Calcutta High Court in Jeewanlal (1929) Ltd. [1983] 142 ITR 448, could not have led the Income-tax Officer to believe that income has escaped assessment so far as the cash subsidy is concerned. The Tribunal further held that, in this case, there was no escapement of income so far as the cash subsidy is concerned and on this point also, the Income-tax Officer reopened the assessment on the ground of mere change of opinion. The Tribunal further held that the conditions for reopening the assessment under Section 147 (b) have not been satisfied in this case. In this view of the matter, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals ). ( 11 ) BEFORE us, the learned advocate for the Revenue has reiterated the contentions raised before the Tribunal. It is his contention that there was fresh material in the possession of the Income-tax Officer to enable him to invoke his jurisdiction under Section 147 (b) of the Act. ( 12 ) NO one has appeared for the assessce. ( 13 ) THE short question which calls for determination is whether any fresh information had come into the possession of the Income-tax Officer after the completion of the original assessment which could lead to the formation of his belief that income has escaped assessment. The Tribunal proceeded on the footing that the Income-tax Officer assumed jurisdiction on a change of view on the same set of materials without being provoked by any new information. It is, therefore, necessary for us to set out the reasons recorded by the Income-tax Officer for reopening the assessment. The Income-tax Officer on March 12, 1984, recorded his reasons in the order sheet as follows :"the assessment for the assessment year 1979-80 was completed on October 3, 1981. It is seen that the assessee claimed weighted deduction under Section 35b on packing charges (Rs. 4,60,021), inspection charges (Rs. 1,62,245), bank charges (Rs. 20,098), bank interest (Rs. 2,61,445), clearing and forwarding charges (Rs. 1,89,403), etc. No weighted deduction is allowable on expenditure incurred during the year relating to packing charges and inspection charges. It is seen that the assessee claimed weighted deduction under Section 35b on packing charges (Rs. 4,60,021), inspection charges (Rs. 1,62,245), bank charges (Rs. 20,098), bank interest (Rs. 2,61,445), clearing and forwarding charges (Rs. 1,89,403), etc. No weighted deduction is allowable on expenditure incurred during the year relating to packing charges and inspection charges. The expenses can be connected only with distribution and supply of goods ; Sub-clause (iii) specifically excluded such expenses incurred in India (Tribunal's decision in the case of J. Hemchand and Co. ). Similarly, weighted deduction is not available on bank charges, interest, clearing and forwarding charges and similar items. They are not covered by any of the clauses. The assessee-firm earned commission of Rs. 12,99,103. 94 on account of export services rendered to third parties. No details of the expenses incurred for earning of the said commission had been furnished. Deduction has been claimed and allowed on the basis of the entire expenses debited to the profit and loss account whereas deduction should have been allowed on the expenses relatable to export sales only. Cash subsidy of Rs. 15,62,293 has been treated as exempt in view of the Income-tax Appellate Tribunal's order dated June 12, 1980, in respect of the assessment year 1974-75. The Tribunal, for the assessment year 1974-75, relied on the decision of the Supreme Court in the case of Shri Ambica Mills [1973] 43 FJR 150, about the meaning of the word 'subsidy' and drew support from the decision of the Appellate Assistant Commissioner in the case of Jeewanlal (1929) Ltd. , in respect of the assessment year 1974-75. In the case of Jeewanlal (1929) Ltd. , the question at issue was whether cash assistance from the Government for export constituted a revenue receipt or not. The Income-tax Officer included the cash assistance in the total income. For the assessment year 1974-75, before the Appellate Assistant Commissioner, the assessee relied on the decision of the Supreme Court in the case of Shri Ambica Mills [1973] 43 FJR 150 and of the Income-tax Appellate Tribunal in the case of Jeewanlal (1929) Ltd. , for the assessment years 1967-68 and 1968-69. The Appellate Assistant Commissioner accepted the contention on behalf of the assessee. The Appellate Assistant Commissioner accepted the contention on behalf of the assessee. It has come to my notice that, for the assessment years 1967-68 and 1968-69, the matter went up to the Calcutta High Court and their Lordships decided the matter in favour of the Department. They referred to the decision of the Supreme Court in the case of Shri Ambica Mills [1973] 43 FJR 150 and observed that it was under the Bonus Act and the issue was not whether cash subsidy constituted a revenue receipt or not. The cash subsidy received by the assessee-firm is of the same nature. In view of the decision of the Calcutta High Court as referred to above, the cash subsidy is taxable in the hands of the assessee. It has also come to my notice that the Tribunal's decision in the case of the assessee for the assessment year 1974-75 relied upon by my predecessor has not been accepted by the Department and a petition under Section 256 (2) has been filed before the High Court. It is further seen that the learned Commissioner of Income-tax, West Bengal-IX, Calcutta, vide its Order No. Rev. 3a//wb-IX/83-84/263 dated February 14, 1984, has cancelled the assessment for the assessment year 1980-81 where cash subsidy was treated as exempt and the same points were involved. I have, in consequence of the information in my possession, reason to believe that income chargeable to tax has escaped assessment. Issue notice under Section 147 (b ). " ( 14 ) IT is now well settled that the jurisdiction of the Income-tax Officer to reassess income arises if he has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment. That information must have come into the possession of the Income-tax Officer subsequent to the completion of the original assessment but even if the information be such that it could have been obtained during the original assessment itself from an investigation of the material on record, or the facts disclosed thereby, or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected. Sufficiency of the material cannot be questioned. Sufficiency of the material cannot be questioned. It is also well-settled that, if the Income-tax Officer, initially proceeded to reopen the assessment for several items of income believed to have escaped assessment and if it is ultimately found that one of such items only has escaped assessment, that will not vitiate the proceeding. All the reasons given by the Income-tax Officer for reopening the assessment might not be tenable, but at least if one of the grounds is such that it would lead prima facie to the reasonable belief that income has escaped assessment, the jurisdiction of the Income-tax Officer to initiate proceedings cannot be successfully questioned. The question in this case is whether, having regard to the facts and circumstances of the case and the reasons recorded by the Income-tax Officer, it could be said that any fresh information has come into the possession of the Income-tax Officer subsequent to the completion of the assessment which could reasonably lead to the formation of the belief that income has escaped assessment. ( 15 ) IN this case, the Income-tax Officer was of the view that, in view of the Special Bench decision of the Tribunal, the assessee was not entitled to weighted deduction on several items ; and in view of the decision of this court in Jeewanlal (1929) Ltd. [1983] 142 ITR 448, the cash subsidy of Rs. 15,62,293 escaped assessment. Unfortunately, the Tribunal came to the finding that the link between the business and the payment of cash subsidy was not established. The Tribunal was of the view that cash subsidy was received by the assessee from a non-governmental organisation, and it could not be established by the Income-tax Officer that the cash subsidy received by the assessee has any nexus or connection with its business activity. We are of the view that the Tribunal misdirected itself in law in holding that the conditions precedent have not been satisfied. There was no dispute that the assessee was carrying on the business, inter alia, of export and subsidy was received by the assessee for the exports made. Whether the subsidy was from governmental or non-governmental organisations will not make any difference so far as the character and the quality of the receipt is concerned. There was no dispute that the assessee was carrying on the business, inter alia, of export and subsidy was received by the assessee for the exports made. Whether the subsidy was from governmental or non-governmental organisations will not make any difference so far as the character and the quality of the receipt is concerned. This court in Jeewanlal (1929) Ltd, [1983] 142 ITR 448, held that the cash subsidy as and by way of export incentive is taxable as a revenue receipt and this information which came into the possession of the Income-tax Officer led him to believe that income has escaped assessment so far as the cash subsidy is concerned. ( 16 ) IN the case of expenses allowed under Section 35b, it would also appear that some of the items have been held not to be allowable by different High Courts as well as the Special Bench of the Tribunal. We need not go into the allowability of each item of expenditure allowed in the original assessment. Suffice it to say that the Income-tax Officer, on the facts of this case, had information within the meaning of Section 147 (b) that income of the assessee had escaped assessment. ( 17 ) FOR the reasons aforesaid, the conclusion of the Tribunal cannot be sustained. We, therefore, answer all the questions in this reference in the negative and in favour of the Revenue. ( 18 ) THERE will, however, be no order as to costs.