2000-VIL-580-CAL-DT

Equivalent Citation: [2001] 247 ITR 122, 164 CTR 519, 116 TAXMANN 16

CALCUTTA HIGH COURT

Date: 24.01.2000

INCOME-TAX OFFICER AND OTHERS

Vs

JIYAJEERAO COTTON MILLS LTD.

BENCH

Judge(s)  : Y. R. MEENA., G. C. DE. 

JUDGMENT

This appeal is directed against the impugned judgment passed by the learned single judge dated March 3, 1983, whereby following the decision of the apex court in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996, the learned single judge had taken the view that the reopening of proceedings under section 148 of the Income-tax Act, 1961, was invalid, improper, baseless and without jurisdiction.

The assessment for the assessment year 1971-72 was completed under section 143(3) on March 27, 1974. Thereafter, a notice under section 148 read with section 147(b) had been issued for reopening of the assessment on the ground that the income had escaped assessment and the Income-tax Officer had information in this regard as provided under section 147(b). While issuing the notice under section 148/147(b) dated February 20, 1976, the Income-tax Officer had reasonable belief that in the original assessment, relief under sections 80-I and 80J had wrongly been allowed and the penalty which was imposed on account of shortfall in the production of controlled cloth that had been allowed under section 37 of the Act was wrong, in view of the circular of January 8, 1976.

Learned counsel for the appellants, Mr. Ram Chandra Prasad, submits that at the notice stage this court had limited jurisdiction to invoke the provision of article 226 of the writ jurisdiction. Once a bona fide belief is there regarding escapement of income, the Income-tax Officer can issue the notice under section 148 read with section 147(b), in case the Income-tax Officer has any information in his possession. He further submits that the Income-tax Officer pointed out regarding the relief under sections 80-I and 80J that had been wrongly allowed to the assessee and in view of the circular dated January 8, 1976, the penalty imposed for shortfall in the production of the controlled cloth had wrongly been allowed under section 37 of the Act. Thus, both constitute information within the meaning of section 147(b) of the Act. He further placed reliance on the decision of the apex court in the case of CIT v. P. V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13, wherein the apex court had taken the view that the reopening of the case on the basis of the factual error pointed out by the internal audit party is permissible under law. Therefore, when the audit had pointed Out the factual mistake, the reopening is justified.

Learned counsel for the assessee, Mr. Khaitan, submits that so far the information from the audit is concerned that is nothing but a change of opinion and even the issues are covered by the decision of the apex court in favour of the assessee and so far as the penalty imposed for shortfall in the production of the controlled cloth is concerned, the Income-tax Officer had relied on the circular dated January 8, 1976, issued by the Central Board of Direct Taxes, while the assessment was completed on March 27, 1974. Therefore, the circular cannot be an information within the meaning of section 147(b) of the Act.

Before we proceed we would like to refer to the decision of the apex court in this regard. In the case of Indian and Eastern Society [1979] 119 ITR 996 (SC), at page 1003, their Lordships observed as under:

"Whether it is the internal audit party of the Income-tax Department or an audit party of the Comptroller and Auditor-General, they perform essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi-judicial acts of income-tax authorities. The Income-tax Act does not contemplate such power in any internal audit organisation of the Income-tax Department; it recognises it in those authorities only which are specifically authorised to exercise adjudicatory functions. Nor does section 16 of the Comptroller and Auditor-General's (Duties, Powers and Conditions of Service) Act, 1971, envisage such a power for the attainment of the objectives incorporated therein. Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to 'information' within the meaning of section 147(b) of the Income-tax Act, 1961."

The case holds the field even as on date so far the law laid down that the internal audit cannot pronounce the law nor such pronouncement of law can be "information" within the meaning of section 147(b) of the Act.

In CIT v. P. V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13 (SC), their Lordships again have considered the issue regarding the meaning of information within section 147(b) of the Act and whether an audit report can be information, their Lordships opined that if the audit pointed out a factual error that is information within the meaning of section 147(b) of the Act for the purpose of reopening of the assessment.

Now it brings us to consider whether the audit report constitutes information within the meaning of section 147(b) of the Act and if that is not so then the Income-tax Officer had no jurisdiction and cannot issue any notice for reopening of the assessment and if a notice is issued that would be without jurisdiction and in case notice is issued without jurisdiction this court can invoke the writ jurisdiction under the Constitution. Now, we proceed with the gist of the remarks of the Assessing Officer which reads as under:

"Grant of relief under section 80-I in respect of profits referable to caustic soda, refined sodium bi-carbonate and ammonium bi-carbonate which are stated to be non-priority products.

Inclusion of machinery under installation for computing capital employed for the purposes of relief under section 80J.

Consequent to allowance of greater relief under section 80J by reason of inclusion of value of machinery under installation, the provisional certificate under section 80K was issued for a higher amount resulting in under-assessment of income in the hands of the shareholders of the assessee.

Compensation paid in respect of shortfall in production of controlled cloth was penalty and hence not allowable under section 37 in view of a circular dated January 8, 1976, of the Central Board of Direct Taxes."

For grant of relief under section 80-I, Mr. Khaitan submits that as the provision stood in the relevant year it provides the profits and gains attributable to a priority industry. Admittedly, the main product of the assessee is soda ash which is included in Schedule VI. Therefore, the assessee is a priority industry. The only fact pointed out by the audit party is that the soda ash was further processed in the same industry and manufactured into caustic soda and refined sodium bicarbonate and ammonium bicarbonate. He submits that part of the soda ash was processed further and converted into caustic soda, refined sodium bi-carbonate and ammonium bi-carbonate. That is just incidental of the main product. Therefore, that does not change the character of the priority industry.

He placed reliance on the decisions of the apex court in the case of Ashok Leyland Ltd. v. CIT [1997] 224 ITR 122 ; Vellore Electric Corporation Ltd. v. CIT [1997] 227 ITR 557; CIT v. Oil India Ltd. [1992] 196 ITR 366 (Cal) and CIT v. Straw board Manufacturing Co. Ltd. [1989] 177 ITR 431 (SC). He submits that the apex court in Ashok Leyland Ltd.'s case [1997] 224 ITR 122, while considering the issue that when Ashok Leyland Limited was manufacturing trucks which were specified in the Sixth Schedule of the Act can it claim to be a priority industry in respect of import of spare parts. Their Lordships answered in favour of the assessee. Similarly, in the case of Vellore Electric Corporation Ltd. v. CIT [1997] 227 ITR 557 (SC), the assessee was a priority industry as it was specified for its business of generation and distribution of electricity. But during the accounting year there was also interest on investment of amounts in contingencies, again the Supreme Court held that the company was a priority industry.

In the case of CIT v. Strawboard Manufacturing Co. Ltd. [1989] 177 ITR 431 (SC), the assessee was specified in the Schedule of priority industries for manufacture of "paper and pulp". The assessee was manufacturing strawboard also. Their Lordships held the paper and pulp industry included manufacture of strawboard.

Mr. Khaitan, learned counsel for the assessee, further emphasised on the phrase "attributable to". He submits that at the relevant time the words "attributable to" were there in the provision and later on it was substituted. "Attributable" has wide import and it covers incidental income and that incidental income of a by-product does not change the status of the industry. Therefore, the audit has pronounced the law. By further processing the soda ash and manufacturing part of that as caustic soda, refined sodium bicarbonate and ammonium bi-carbonate does not change the status of the assessee industry and as such the assessee industry is entitled to the relief under section 80-I of the Act.

He further submits whether the assessee is entitled to relief under section 80J on the machinery under installation. He brought to our notice the decision of the apex court in the case of CIT v. Alcock Ashdown and Co. Ltd. [1997] 224 ITR 353. At page 361, their Lordships also observed as under:

"In our opinion, the law laid down in Indian Oxygen Ltd.'s case [1978] 113 ITR 109 (Cal) and followed in the decision under appeal, Alcock Ashdown and Co. Ltd.'s case [1979] 119 ITR 164 (Bom) and other cases referred to above represents the correct law on the subject. We are of the opinion that the moment an asset is acquired or purchased for the purpose of the business, it is capital employed, though the asset as such is not actually utilised or used during the accounting year. In the chain of events, the earliest act or event is the purchase or acquisition of the asset. That by itself entitles the assessee to get the relief. The 'employment' of the capital is done or over. The subsequent or later events, including the actual user of the asset, have nothing to do in the matter. In this view, the judgment under appeal merits no interference. The appeal is accordingly dismissed with costs."

When considering the provision of section 80J, their Lordships had taken the view that the moment an asset is acquired or purchased for the purpose of the business, it is capital employed, though the asset as such is not actually utilised or used during the accounting year and the assessee is entitled to relief on account of capital employed.

The next reason given by the audit is because of higher relief in the original assessment under section 80J relief had wrongly been given as benefit to the shareholders, that is consequential to item (ii) of the audit report. Therefore, our answer is the same that the audit has no authority to pronounce the law.

When the relief was given under law, a mere change of opinion by the internal audit does not constitute "information" for reopening. The circular was issued by the Central Board of Direct Taxes on January 8, 1976. Admittedly, the assessment was completed on March 27, 1974, and the circular was issued subsequently.

Mr. Khaitan further submits and brought to our notice the decision of this court in the case of CIT v. Union Carbide Corporation [1994] 206 ITR 402, wherein this court had taken the view that the opinion of the Central Board for Direct Taxes interpreting the law does not constitute "information" within the meaning of section 147(b) of the Act.

In view of this decision, the circular of the Board cannot be treated as information for the purpose of section 147(b) of the Act.

On interpretation, the audit has expressed its views that relief under sections 80-I and 80J has wrongly been given. Similarly, in view of the Central Board of Direct Taxes circular, the amount of penalty has wrongly been allowed is based on pronouncement of the law by the audit and the Central Board of Direct Taxes circular do not constitute information.

When there was no information in the possession of the Income-tax Officer, the Income-tax Officer was not justified in issuing a notice under section 148 read with section 147(b) of the Act. The notice was without jurisdiction. Consequently, we find no reason to interfere in the impugned order and judgment of the learned single judge. Consequently, the appeal is dismissed.

 

 

 

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