ORAL JUDGMENT

S.H. KAPADIA, J.

By this petition, the assessee-Export House seeks to challenge the impugned Notice dated 17th March, 1999 under section 148 of the Income-Tax Act, 1961 issued by respondent No.1 seeking to reassess the petitioners income for the assessment year 1994-1995.

2.The facts giving rise to this Writ Petition are as follows:

(i) Petitioner is a company, registered under the Companies Act. It is engaged in the manufacture of bulk drugs and formulations.

(ii) The Assessee filed its return of income for the assessment year 1994-1995 on November 30, 1994. In its return of income, the petitioner-assessee claimed a deduction of Rs. 3.08 crores under section 80HHC by filing along with its return of income, Form 10CCAC prescribed under the Rules. The said Form showed that the petitioner had exported goods manufactured by it as also goods purchased from others. The petitioner also filed along with its return of income, Disclaimer Certificates in favour of the supporting manufacturers of the trading goods.

(iii) The assessment of the petitioners was taken up for scrutiny and during the scrutiny, respondent No. 1 had raised various queries including the query in respect of petitioners claim under section 80HHC. All the queries were fully answered.

(iv) On 26th March, 1997, respondent No.1 completed the assessment for the assessment year 1994-1995 under section 143(3). By his Assessment Order, respondent No.1 disallowed the revised claim of Rs.3.20 crores made under section 80HHC and allowed the original claim for Rs.3.08 crores under the said section 80HHC.

(v) Being aggrieved, the assessee preferred an Appeal to Commissioner of Income-tax (Appeals). By his order dated 15th July, 1998 the C.I.T. (Appeals) directed the Assessing Officer to reconsider the revised claim of the assessee.

(vi) On 17th March, 1999, respondent No.1 issued the impugned Notice under section 148 alleging that he had reason to believe that the petitioners income chargeable to tax for the assessment year 1994-1995 had escaped assessment and accordingly, the assessee was called upon to file its return of income within 35 days from the date of the service of the Notice.

(vii) By letter dated 19th March, 1999, assessee requested respondent No. 1 to furnish to it, the reasons recorded prior to the issuance of the notice.

(viii) On 16th April 1999, the assessee filed, under protest, its return of income for the assessment year 1994-1995.

(ix) In the meantime, a similar claim of the petitioner for deduction under section 80HHC was denied by the department for the assessment year 1996-1997. Being aggrieved, the assessee appealed to the C.I.T. (Appeals) and, thereafter, to the Tribunal. By order dated 29th December, 2000, the Tribunal dismissed the Appeal of the assessee. Being aggrieved by the decision of the Tribunal dated 29th December, 2000, the assessee preferred Income-tax Appeal No. 131 of 2001 to this Court under section 260A of the Income-tax Act. The contention of the assessee in the said Income Tax Appeal No. 131 of 2001 was that the losses incurred by the assessee in respect of export of trading goods should be ignored while determining the assessees entitlement to deduction under section 80HHC(3)(c). The said Income-tax Appeal No. 131 of 2001 has been disposed of by this Court on 2nd July, 2001. The contention of the assessee has been rejected. The judgment of the Tribunal has been confirmed. Accordingly, the said Income Tax Appeal No. 131 of 2001 came to be dismissed.

(x) In the meantime, the assessee filed Writ Petition No. 438 of 2001 challenging the impugned Notice under section 148 dated 17th March, 1999, i.e. the present petition which was filed by the petitioner pending their Appeal in this Court being Income-tax Appeal No. 131 of 2001.

ARGUMENTS:

3.Mr. Trivedi, learned senior counsel appearing on behalf of the petitioner assessee urged before us that in the present case, the reopening of the assessment is sought by the impugned Notice well within the period of four years. However, he contended that even under the law as of present, reassessment cannot be based on change of opinion. He contended that the original assessment got completed on 26th March, 1997. He contended that although the impugned Notice was well within four years, it was based on mere change of opinion. He contended that the subsequent events viz. the decision of the Tribunal and the decision of this Court, rejecting the assessees contentions, have taken place much after the Assessing Officer issued the impugned Notice dated 17th March, 1999 and, therefore, there were no supervening events between the date of completion of original assessment on 26th March, 1997 and 17th March, 1999 when the impugned Notice was issued by the Assessing Officer. He contended that even after the amendment to the provisions of sections 147 and 148, it is well settled that mere change of opinion cannot be a ground for reopening the assessment. He contended that in the present case, the reasons given for reopening the assessment clearly show mere change of opinion. It was, therefore, contended that the impugned Notice was invalid and it was liable to be set aside. He contended that the subsequent events of this Court deciding the matter against the assessee in Appeal cannot give validity to the impugned Notice under section 148 which has been issued without jurisdiction. He contended that the jurisdictional fact, supporting reassessment, does not exist in this case. He relied upon the judgment of the Gujarat High Court in the case of Garden Silk Mills (P) Ltd. vs. Deputy Commissioner of Income-tax reported in (1999) 151 CTR page 533. This judgment has been cited in support of his above contentions. He also relied upon the judgment of the Delhi High Court in the case of Jindal Photo Films Ltd. vs. Deputy Commissioner of Income-tax and another, reported in 234 ITR Page 170. He also relied upon the judgment of the Gujarat High Court in the case of Birla VXL Limited vs. Assistant Commissioner of Income-tax reported in 217 ITR Page 1.

According to the learned counsel, all the aforestated judgments have interpreted the provisions of law as in existence after 1st April, 1989. According to the learned counsel for the assessee, the position is that even after 1st April, 1989, the Officer must have material before him, which material must have nexus with the formation of belief that mere change of opinion will not constitute such material. Hence he contended that even after 1st April, 1989, the position in law remains the same to the above extent.

4.Mr. Desai learned senior counsel appearing on behalf of the department contended that the present case falls under Explanation 2 to section 147 which lays down certain cases which are deemed to be cases where income chargeable to tax has escaped assessment. In particular, he relies upon sub-clause (c)(iii) in support of his contention that in the present case, the assessee has got the benefit of excessive relief under section 80HHC(1) by reason of the assessee ignoring the losses in completing the net profits under section 80HHC(3)(c). He contended that this case falls under Explanation 2 and, therefore, the judgments cited on behalf of the assessee have no application to the facts of the present case. He also relied upon the judgment of the Gujarat High Court in the case of Praful Chunilal Patel vs. Assistant Commissioner of Income-tax reported in 236 ITR Page 832, in support of his contention that where the Assessing Officer made the mistake of overlooking something which he ought to have taken into account at the time of the original assessment and if such error has led to escapement of income from assessment, then section 148 Notice could be sustained. He contended that in the present matter, the Assessing Officer has found that the assessee had claimed excessive relief under section 80HHC(1) by ignoring the losses on export of trading goods while computing net profits under section 80HHC(3)(c). He, therefore, contended that on the ground of error, the department was entitled to reassess the income of the assessee for the assessment year 1994-1995.

FINDINGS:

5. We find merit in the case of the department. The impugned Notice has been issued within four years. In the present case, it is the case of the department that the assessee has obtained excessive relief in the Order dated 26th March, 1997; that the assessee was not entitled to ignore the losses in computing the net profits under section 80HHC(3)(c); that by virtue of ignoring the losses, the assessee as well as the supporting manufacturer claimed benefits despite 100% export turnover being disclaimed. In the reasons given at Exhibit K to the Affidavit-in-reply, the Officer has clearly stated that as per the provisions of section 80HHC(3)(c), profit from exports was required to be calculated in a composite manner. That in the present case, on aggregation, there was loss of Rs. 3.55 crores from the export of trading goods and the resultant amount was a net loss and since the resultant amount was a loss, the assessee was not entitled to claim the relief under section 80HHC(1). That, in order to become eligible for deduction under section 80HHC(1), the resultant amount calculated under section 80HHC(3)(c) cannot be a figure of loss. That, an ingenious method for claiming deduction was adopted by the assessee which has gone unnoticed by the Assessing Officer who passed the Order of Assessment on 26th March, 1997 under section 147(3) of the.

In view of the said reasons, we are of the view that the Assessing Officer-respondent No. 1 herein was right in giving the impugned Notice. In the present case, the impugned Notice has been given within a period of four years. The present case falls clearly under explanation 2(c)(iii). Therefore, the present case is one of those cases which the legislature, by a deeming section, has said that such cases would constitute cases of income escaping assessment. This is demonstrated by the reasons given by the Assessing Officer. Hence, the aforestated judgments cited on behalf of the assessee do not apply to the facts of the present case. We may also mention that the expression "reason to believe" refers to the belief which prompts the Assessing Officer to apply section 147 to a particular case; that it will depend on the facts of each case; that the belief must be of honest and reasonable person, based on reasonable grounds; that the Assessing Officer is required to act, not on mere suspicion, but on direct or circumstantial evidence; that the expression "reason to believe" does not mean a subjective satisfaction on the part of the Assessing Officer. In the present case, we are satisfied that the reasons for the belief have a rational connection with the formation of the belief. Hence the validity of the impugned Notice is sustained.

In the case of Garden Silk Mills Pvt. Ltd. (supra). the assessee sought adjustment in the valuation of the closing stock as disclosed in the audited Books of Accounts on the ground of applicability of section 43B. On that basis, the inquiry was made and the claim was allowed. In those set of circumstances, the Gujarat High Court came to the conclusion that the Assessing Officer was not justified in initiating proceedings under section 147. The Gujarat High Court examined the reasons given by the Assessing Officer on the ground that the said reasons were based on mere change of opinion. It was a case of under assessment. It was not a case falling under Explanation 2. This has been noted even by the aforestated judgment of the Gujarat High Court. In the said judgment, the Gujarat High Court found on facts that the Assessing Officer, while passing the original Order of Assessment, did not exercise due diligence. The Gujarat High Court further laid down that had it been a case of lack of application of mind or a mistake, the matter would have stood on a different footing. Therefore, the judgment of the Gujarat High Court, on facts, has no application to the present case. The present case is similar to the case reported in 236 ITR Page 832 in the case of Prafull C. Patel vs. Assistant Commissioner of Income-tax (supra). In that matter, it has been laid down that where the Assessing Officer has overlooked something at the time of the original assessment, which he ought to have looked into and which has resulted in the income escaping assessment, then reassessment with four years was permissible. The ratio of the said judgment applies to the facts of the present case. The present case is not based on change of opinion. It is based on the Assessing Officer overlooking the meaning of the word "profit" in section 80HHC(3)(c).

6.Before concluding, we may mention that in the case of the same assessee in respect of the assessment year 1996-1997 in Income-tax Appeal No. 131 of 2001, this Court has come to the conclusion that in calculating the profits under section 80HHC(3)(c), the assessee was not entitled to ignore the losses in respect of export of trading goods and that if the net result of the computation under the section is a loss, then the assessee is not entitled to claim the relief under section 80HHC(1). For the aforestated reasons, the following Order is passed:

ORDER

There is no merit in this Writ Petition. The Writ Petition fails. The same is dismissed. No order as to costs.