KARTIKEYA INTERNATIONAL Vs. COMMISSIONER OF INCOME TAX KANPUR

JUDGEMENT

(1.) By means of the present writ petitions the Petitioner is challenging the validity of the notices under Section 148 of the Income-tax Act, 1961 (called the "Act" for short) for the assessment years 2005-06 and 2006-07, both dated February 9, 2010.

(2.) The Petitioner is a partnership firm and is carrying on the business of manufacturing and export of leather harness, saddlery and shoes. The factory is situated at Unnao (Uttar Pradesh). For the assessment years 2005-06 and 2006-07, the Petitioner has filed income-tax returns. The assessing authority passed the assessment orders for both the assessment years under Section 143(1) of the Act, accepting the disclosed income. The assessment order, in the form of intimation, has been passed without any enquiry and scrutiny of the books of account. It appears that in the profit and loss account the Petitioner has claimed deduction of "duty drawback" under Section 80-IB of the Act treating the receipt of the amount towards "duty drawback" as income derived by the industrial undertaking. The said deduction has been allowed without any scrutiny and enquiry by passing the assessment order/intimation under Section 143(1) of the Act.

(3.) Both for the assessment years 2005-06 and 2006-07, the assessing authority had issued the notices dated February 9, 2010 under Section 148 of the Act. The notices have been issued within four years from the date of expity of the assessment years. There is no dispute in this regard. On receipt of the notices under Section 148 of the Act, the Petitioner asked the assessing authority to let it know the reason for reopening of the assessment. Accordingly, the Petitioner was informed that the profit and loss account revealed that deduction at the rate of 25 per cent, under Section 80-IB of the Act has been claimed on the "duty drawback" while such deduction is not allowable and, therefore, there is escaped assessment. On receipt of the reasons for reopening of the assessment, the Petitioner filed a letter dated May 7, 2010, with the Assistant Commissioner of Income-tax submitting therein that from the reasons recorded it is not clear as to on what basis the inferential opinion has been formed to the effect that deduction under Section 80-IB is not allowable. It is also submitted that the above position may be clarified to enable the Petitioner to file objection to the notices in the light of the law laid down by the apex court in the case of GKN Drive shafts Ltd. v. ITO, 2003 259 ITR 19. After filing the aforesaid letter, the Petitioner filed writ petitions challenging the validity of the initiation of proceeding under Section 148 read with Section 147 of the Act. The writ petitions have been disposed of, vide order dated May 20, 2010, with a direction to the assessing authority to give reply to the letter dated May 7, 2010 to enable the Petitioner to file reply. The assessing authority, vide order dated June 10, 2010, has disposed of the application dated May 7, 2010. In the letter dated June 18, 2010 the assessing authority submitted that the Supreme Court in Civil Appeal arising out of S.L.P. (C) No. 5827 of 2007 in the case of Liberty India , [2009] 317 ITR 218 has held that the term "duty drawback" refers to duty of customs or excise repaid or repayable as a drawback to any person against the exports under the Customs and Central Excise Duties Drawback Rules, 1971 and the amount received under the said scheme cannot be said to be profit derived from the business of industrial undertaking eligible for deduction under Section 80-IB of the Act. In this view of the matter it is informed that the opinion that "duty drawback" is not eligible for deduction under Section 80-IB has been formed on the basis of the decision of the apex court, referred to hereinabove.