LAWS(HPH)-2012-3-18

COMMISSIONER OF INCOME TAX Vs. SAHIL KNIT FAB

Decided On March 14, 2012
COMMISSIONER OF INCOME TAX Appellant
V/S
Sahil Knit Fab Respondents

JUDGEMENT

(1.) This is the Revenue's appeal against the order passed by the learned Tribunal affirming the order in appeal preferred by the assessee-respondent partly allowing the appeal. The brief facts which we notice for the determination of this case are that the AO proceeded to assess the income of the respondent-assessee herein disallowing deductions under s. 80-IA of the IT Act, 1961 (hereinafter referred to as 'Act'). The AO holds that the respondent was engaged in business of manufacturing of knitted cloth from yarns and has thereafter discontinued his business/operations in Baddi and moved out.

(2.) The order was passed under s. 143(3)/147 of the Act. The AO noticed that the assessee had filed return for the asst. yr. 1998-99 declaring nil income after claiming deduction of Rs. 61,32,678 under s. 80-IA of the Act. The return was processed under s. 143(1) of the Act. The AO had reason to believe that the income of the respondent had escaped assessment because of the failure on the part of the assessee/respondent to disclose all material facts truly and fully which required further investigation. Consequently, the case was taken for reassessment under s. 147 and notice under s. 148 of the Act was issued to the assessee. The Asstt. CIT then noticed that neither the wages and attendance registers of the workers nor any details about their numbers and remuneration drawn have been produced and in this event, proceeded to disallow the exemption claimed this, coupled with the fact that the assessee has declared gross profit of Rs. 67,11,564 on net sales of Rs. 1,73,23,023 making the GP ratio at 38.74 per cent, he holds that this is an astonishingly high rate which is not comparable to any other similar case in the line of business of the assessee. Copy of the assessment order is filed as Annex. A-1. The entire amount of deduction claimed was taken as income of the assessee and proceedings under s. 271(1)(c) of the Act for concealment of income were directed to be initiated.

(3.) The respondent preferred an appeal before the CIT(A), who allowed the appeal partly. One of the grounds urged for adjudication was that the AO had no jurisdiction under s. 147/148 of the Act to reopen assessment after a period of six years. A number of decisions were relied upon by the assessee. The CIT(A) notes that the return was processed under s. 143(1) of the Act on 15th Oct., 1999. The Union of India had introduced this provision after reposing confidence in the taxpayers who were expected to make a fair disclosure of facts. It also exempted their personal appearance. It was urged that the grounds for invocation of jurisdiction for reopening and reassessing under s. 147/148 of the Act were ultra vires the Act. The reasons which have been reproduced by the CIT(A) in his order, as furnished by the AO, are that there is a high rate of gross profit disclosed by the assessee which may mean that the assessee is suppressing manufacturing and administrative expenses or not debiting genuine expenses in his accounts. The purchase rates of raw material and sale rates of finished goods were required to be verified, the fact that whether the assessee has fulfilled the conditions of eligibility for exemption under s. 80-IA was also required to be verified/ascertained. One fact urged was that the expenses incurred under the head wages were not sufficient to engage 10 workers throughout the year. The manufacturing expenses debited were very meager. The CIT(A) holds that the case of verification and investigation falls beyond the purview of the said provisions of the Act for the reasons he adopts. He holds that the power under s. 147 is wide but not plenary and unbridled and is hedged in with several safeguards, which have to be followed. The order then proceeds that there must be material for forming the belief and circumstances must exist and cannot be assumed for the purposes of exercise of jurisdiction for reopening assessment. The crucial words used are 'reasons to believe' and the order does not satisfy the legal requirements to invoke jurisdiction as resorted to. He takes into consideration a number of decisions on the point, namely, Sri Krishna (P) Ltd. vs. ITO, 1996 135 CTR 75, Chhugamal Rajpal vs. S.P. Chaliha & Ors., 1971 79 ITR 603, Rina Sen vs. CIT,1999 151 CTR(Pat) 672.