Sita World Travels (India) Ltd. vs Commissioner Of Income Tax And Anr. on 27 May 2004

Delhi High Court
Sita World Travels (India) Ltd. vs Commissioner Of Income Tax And Anr. on 27 May, 2004
Equivalent citations: (2005)193CTR(DEL)84, [2005]274ITR186(DELHI)
Author: Badar Durrez Ahmed
Bench: Badar Durrez Ahmed
JUDGMENT

B.C. Patel, C.J.

1. This writ petition has been filed by the petitioner, inter alia, challenging the action of the respondent, whereby in exercise of powers Under Section 147 of the IT Act, 1961 (hereinafter referred to as the ‘Act’), the AO reopened the assessment, and ultimately made the reassessment for years 1996-97 and 1997-98.

2. The petitioner is a company which is engaged in the business of travel agency as a tour operator and is providing related services. The service rendered by the petitioner includes booking with hotels, airlines, railways and other transporters for tourists. For rendering such services, the petitioner receives commission from airlines.

3. For the year ending on 31st March, 1996 as also 31st March, 1997, returns declaring income of Rs. 2,63,32,380 and Rs. 3,18,17,220 were filed on 29th Nov., 1996 and 28th Nov., 1997, respectively. In computation of the income for the aforesaid assessment years, claim was made Under Section 80HHD of the Act. For asst. yr. 1996-97 a deduction of Rs. 7,12,62,547 and for the asst. yr. 1997-98 deduction of Rs. 7,90,29,899 was claimed.

4. It is the case of the petitioner that the returns as required by Sub-Section (6) of Section 80HHD were accompanied by the report of the chartered accountant and the said claim was in conformity with the amendment made by the Finance Act, 1994. It was indicated as to on what items deductions are claimed. On the basis of the returns submitted by the assessed for the relevant years, the assessments were made Under Section 143(3) of the Act, after examining various issues including the claim of deduction Under Section 80HHD of the Act. For the asst. yr. 1996-97 against the claim of Rs. 7,12,62,527 Under Section 80HHD, deduction was allowed at Rs. 2,50,46,133. In the assessment order for the year 1996-97 at p. 46 of the paper book, there is a discussion with regard to the claim Under Section 80HHD. The discussion for claim made for the aforesaid year in the assessment order is as under:

“Now, a most important point of the case is discussed. This is with regard to the claim of deduction claimed by the assessed Under Section 80HHD. During the year, the assessed has claimed a total sum of Rs. 7,12,62,527 as deduction Under Section 80HHD. The assessed was Mowing a peculiar method of accounting for the purpose of computation of deduction Under Section 80HHD. The assessed has taken the advances for providing the services to the foreign tourist as part of the total receipt in foreign exchange receipt of Rs. 64.70 crores. Out of this amount, the assessed had passed on Rs. 24.83 crores to other concerns who have provided services to the foreign tourists. For Rs. 24.82 crores, Forms 10CCAE have been issued. Therefore, the total receipt of foreign exchange during the year is Rs. 39.87 crores which includes substantial amount of advances in foreign exchange for which services have not been provided so far during the year by the assessed to the foreign tourists. The entire amount of Rs. 39.87 crores has not been included as gross income of the assessed in the P&L a/c.”
The same discussion is found for the other assessment year as well.

5. The matter was carried in appeal and what the CIT(A) has noted is as under :

“Total convertible foreign exchange from foreign tours received during the year (-) amount of convertible foreign exchange received on account of exchange rate fluctuation (-) payments referred to in Section 80HHD(2A) (+) customers at credit at the beginning of the year (-) customers at credit at the closing of the year.”
6. The CIT(A) disposed of the appeal on 28th Aug., 2001 and, thereafter, no further appeals have been preferred on this issue by either side. It is, thereafter, on 24th March, 2003, i.e., after expiry of more than four years from the end of the relevant assessment year, that notices were issued Under Section 148 of the Act for the assessment years, inter alia, stating that the AO had reason to believe that the petitioner’s income for respective years has escaped assessment within the meaning of Section 147 of the Act. The notices are produced at Annex. P-8. In response to the same, the petitioner on or about 10th April, 2004 refiled a copy of the original IT return, inter alia, requesting the same may be treated in compliance with the notices. The request was also made to furnish the reasons recorded. On 19th May, 2003, the respondent furnished the reasons. For the asst. yr. 1996-97, the reasons recorded are as under:

“During the financial year relevant to asst. yr. 1996-97, the assessed had received foreign exchange receipts of Rs. 86.97 crores out of which Rs. 24.88 crores were in respect of receipts, for which certificates were given to other hoteliers and transporters. The amount of Rs. 24.88 crores was excluded by the assessed from total receipt of the business while computing deduction Under Section 80HHD of the IT Act. In the order Under Section 143(3) as also before the CIT(A), this amount was not included in total receipts for computing deduction Under Section 80HHD.
However, as per Sub-Section (3) of Section 80HHD, the deduction equals (eligible foreign exchange/total receipts of the business) x business income. Total receipts (which forms the denominator in the above formula) should include the foreign exchange receipts of Rs. 24.82 crores, since it is very much a part of the total receipts of the business carried on by the assessed. However, the assessed had excluded it from total receipts and in the order Under Section 143(3) as well, this position did not change. This matter was also not before the CIT(A) and is also not presently before the Tribunal. Had this amount of Rs. 24.82 crores been included in the total receipts, the deduction Under Section 80HHD would have been much lower than that claimed by the assessed and determined in the various orders passed, as mentioned above. This would go to increase the total income of the assessed.
I, therefore, have reason to believe that income chargeable to tax has escaped assessment within the meaning of cl. (c) to Expln. 2 of Section 147 of the IT Act.”
7. Identical reasons were recorded for asst. yr. 1997-98. The petitioner vide its letter dt. 16th June, 2003 objected to the assumption of jurisdiction, inter alia, pointing out that there was full and complete disclosure on the basis of computation of the deduction Under Section 80HHD and that the deduction was allowed on the basis of figures of profit shown in the P&L a/c, where the petitioner claimed deduction on the actual foreign exchange and actual receipt. It was also contended that merely on the change of opinion, the proceedings cannot be initiated for reassessment.

8. The petitioner approached this Court by preferring a writ petition, inter alia, requesting the Court to quash the notices issued for the asst. yrs. 1996-97 and 1997-98. However, a Division Bench of this Court in WP{C) No. 4487 of 2003 by an order dt. 18th July, 2003, issued direction in view of the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO and Ors. (2003) 259 ITR 19 (SC), to dispose of the objections filed by the petitioner with regard to his jurisdiction to reopen the assessment Under Section 147/148 of the Act, by a speaking order, before proceedings with the reassessment proceedings.

9. It is required to be noted that instead of passing a separate sneaking order on objections raised, in gross violation of the order made by this Court, a regular order of assessment was passed. The said assessment orders were again challenged by the petitioner since the AO, instead of passing a speaking order before proceeding with the reassessment proceedings in respect of assessment of the relevant years, made the assessment and passed the order. The Court on 10th March, 2004 disposed of the writ petition by setting aside the assessment orders with the direction to the AQ to pass a speaking order within a period of eight weeks. It is, thereafter, the AO made the speaking order and that is under challenge before this Court. The said order was made on 27th April, 2004. Immediately after passing the aforesaid speaking order, the AO made assessment order also. In fact, after filing of the writ petition, the assessment orders were made and with the permission of the Court the assessed has also challenged the said assessment orders. It was contended on behalf of the learned counsel for the petitioner that this is a case of change of opinion only and all the material was placed on the record and no new or other material has been placed on record.

10. It is contended by the learned counsel for the petitioner that the AO had formed an opinion when the assessment was made Under Section 143(3) on 25th Feb., 1999, that the deduction was to be allowed by dividing turnover as reduced by turnover passed to others Under Section 80HHD(2A) by the total turnover as reduced by the same figure. It is also pointed out that the fact of deduction is noted by the AO in the assessment order itself. This clearly indicates that the AO while framing the assessment had examined the factual aspect as well as applicability of the provisions of the Act and, particularly, Section 80HHD of the Act and had, thereafter, arrived at a conclusion about the extent of availability of the benefit Under Section 80HHD of the Act.

11. Learned counsel for the assessed has relied on the decision in the case of Jindal Photo Films v. Dy. CIT, (1998) 234 ITR 170 (Del) for the proposition that change of opinion cannot be the basis of a reassessment even in the context of the law as changed from 1st April, 1989. It was further contended that to confer the jurisdiction Under Section 147 of the Act and for issuance of notice in respect of the assessment beyond the period of four years from the end of the relevant assessment year, it must be shown that there was an escapement of income on account of failure of the petitioner to disclose fully and truly all primary facts. It was contended before us that no such allegations were made in the reasons recorded while issuing the notices Under Section 147 of the Act,, but in the counter-affidavit filed before this Court it was alleged that there was a failure on the part of the assessed to disclose fully and truly all primary facts.

12. From the original assessment orders as well as order made by the appellate authority, it is very clear that the AO was well aware about the primary facts, namely, the claim made by the assessed, the circumstances urder which the claim was made and the provisions of law which could be applied while granting the benefits. A decision may be wrong or right is none of the concern of the subsequent officer. If the primary facts were not available or there was concealment or there was no application of the mind at all then a case for reopening the assessment could be made out. But, when all the facts were placed before the AO and the AO consciously considered the facts and arrived at a decision, then can it be reopened merely because subsequently he changes his opinion or some other officer takes a different view ? We think not.

13. Our attention was invited to the decision of the case namely, Sheth Brothers v. Jt CIT, (2001) 251 ITR 270 (Guj) which points out as to the manner in which the AO is required to proceed while making an assessment. While allowing the petition in the case of Sheth Brothers (supra), the Court pointed out the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO and Anr. wherein it was pointed out as under :

“There are three stages involved in every assessment, (i) disclosure of primary facts; (ii) inferences of facts to be drawn from the primary facts disclosed; and (iii) legal inferences to be drawn from the primary facts disclosed and the inferences of facts drawn from them. The duty of the assessed relates to disclosure of primary facts alone. The duty to find the inferential facts from the primary facts disclosed as well as the duty of drawing inferences of law from the facts found are both on the AO. The disclosure which is required to be made by the assessed should not only be full but also true. The conjunction “and” is an important one and has been interpreted as a strict prescription of law. In case of absence of one of the elements, either in part or in whole, it will grant jurisdiction to the officer.”
14. Giving this decision, the Court pointed out in the facts of that case that the petitioner had disclosed all the primary facts necessary for the purpose of the assessment, (ii) on the facts there was no material for holding a belief and the respondent could not have reason to believe that there was any escapement of income chargeable to tax, (iii) the reasons recorded showed that instead of independent application of mind, the AO merely chose to adopt the line of action pointed out by the internal revenue audit, (iv) the entire affidavit-in-reply goes to show that though the respondent was aware that there was no omission or failure on the part of the petitioner, the recording of reasons was a colourable exercise for assumption of jurisdiction. The relevant facts were taken into consideration by the AO while making the assessment which we have indicated hereinabove and, therefore, there is no question of any escapement of income chargeable to income-tax. Therefore, in our opinion, this is a case of wrongful assumption of jurisdiction and as such the notices, the speaking orders and the assessment orders made in pursuance to the notices are required to be quashed and set aside and are accordingly set aside.

The petition is allowed with no order as to costs.