THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 22.01.2013
+ WP(C) 13838/2009
REPLIKA PRESS PRIVATE LIMITED AND ANR ... Petitioners
versus
ASSISTANT COMMISSIONER OF
INCOME TAX CIRCLE 15(1) NEW DELHI ... Respondents
Advocates who appeared in this case:
For the Petitioners : Mr S. Krishnan
For the Respondents : Mr Kamal Sawhney
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition impugns the notice dated 24.02.2009 issued
under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as
`the said Act') seeking to re-open the assessment for the assessment year
2005-06.
2. The learned counsel for the petitioner submitted that the provisions
of Section 147 have been wrongly invoked by the revenue inasmuch as
the Assessing Officer is seeking to merely change his opinion which is
WPC 13838/2009 Page 1 of 11
not permissible in law. In order to examine this plea of the learned
counsel for the petitioner, it would be necessary to refer to some facts.
3. The petitioner had filed its return of income for the relevant
assessment year on 29.10.2005. In the said return under Schedule K, the
petitioner claimed a sum of ` 2,61,41,144/- as being exempted under
Section 10B of the said Act. The nature of income was described as a
business income of a 100% export oriented unit. Alongwith the income
tax return, the petitioner had given a break-up of the export turnover and
the local turnover. The calculations for deduction under Section 10B for
the assessment year 2005-06 were, inter alia, as under:-
"CALCULATION OF DEDUCTION U/S 10B FOR THE ASSESSMENT
YEAR 2005-2006
A. EXPORT TURNOVER
FOB value of Export including DTA Supply 134305284.00
Add: Income from Typesetting & Scanning 3126484.00
Add: Exchange Fluctuation Gain 842763.00
188274511.00
LOCAL TURNOVER
Sale 30529807.00
Add: Sale of wastage 2002090.00
B. 32531897.00
TOTAL TURNOVER
Sale Export Turnover 188274511.00
Add: Local Turnover 32531897.00
C. 220806408.00
PROFIT OF THE UNDERTAKING
Profit as per Computation of Assessable Income 30868064.00
Business Profit 30658064.00"
(emphasis supplied)
WPC 13838/2009 Page 2 of 11
It should be noted that under export turnover, the petitioner clearly
mentioned the FOB value of exports including DTA supply. DTA supply
essentially meant supplies to the domestic tariff area. The printed books,
which the petitioner was producing on behalf of its overseas publishers,
were being supplied to parties in India on the instructions of the overseas
publishers, wherever required. The payment in respect of the same was
received from the overseas publishers in convertible foreign exchange.
4. Alongwith the return of income, was also annexed an annexure to
the notes on accounts, where, also, the DTA sales were mentioned. What
is more important is the fact that the Assessing Officer issued a
questionnaire on 22.08.2007 in respect of the said assessment year 2005-
06. Question No.11(b) of the questionnaire reads as under:-
"11(b). Please give a note on DTA supply and why it has been
included in export turnover."
In response, the petitioner submitted a reply on 13.09.2007. As regards
question No. 11(b), the reply given by the petitioner was as under:-
"11.(b) The summary of sales is as follows.
1. Physical Export as per chart enclosed 90030302
2. Constructive Export 94274982
3. Typesetting & scanning 3126464
WPC 13838/2009 Page 3 of 11
4. Exchange Fluctuation Gain 842763
(A)Export Turnover 188274511
5. Domestic Sales 30529807
6. Wastage Sales 2002090
(B) Local Turnover 32531897
(A) Export Turnover 188274511
(B) Local Turnover 32531897
_________
Total Turnover (A) + (B) 220806408
Brief Note on Constructive Exports
Regarding constructive Sales purchase order is received
from overseas publishers.
According to copy right act the ownership & copy rights
of the title book vests with overseas publishers. The same facts
are stated on the front Page of the book photocopy of a sample
is enclosed. Since the assessee company does not own copy
rights therefore the company is not the owner of the books,
hence they cannot make any sales. The assessee company is
following the delivery instructions of the Foreign publishers &
that too after the permission is granted by the Development
Commissioner, NEPZ Noida (UP). Since the purchase order is
received from Foreign publishers, payment is also received in
convertible Foreign Exchange through banking channel.
Subsequently on the basis of the permission granted by
Development Commissioner the Foreign Exchange is sent to
overseas publishers in Foreign Currency by the people to whom
the company has made supplies.
Reliance is placed on the Hon'ble Supreme Court
Judgment in the case of J.B. Boda & Co. Pvt. Ltd. Vs. Central
Board of Direct Taxes, copy of the judgment is enclosed, where
the Hon'ble Supreme Court has held that "A two way Traffic is
unnecessary. To insist on a formal remittance first & thereafter
WPC 13838/2009 Page 4 of 11
to receive the commission from the Foreign reinsure, will be an
empty formality & a meaningless ritual on facts of the case.""
5. The learned counsel for the petitioner pointed out that the summary
of sales given in the aforesaid reply referred to two different types of
exports. The first kind was the physical export and the second was the
constructive export. The brief note, which has been reproduced above,
explains as to what is meant by constructive exports. These are those
supplies in the domestic tariff area which have been made on the
instructions of the publishers abroad and for which the petitioner has
received payment in convertible foreign exchange through normal
banking channels.
6. After having received the reply from the petitioner to the detailed
questionnaire and in particular to question No. 11(b), the Assessing
Officer framed the assessment under Section 143(3) of the said Act on
04.10.2007. It will be seen that the Assessing Officer specifically dealt
with the issue of constructive exports and DTA supplies. This will be
apparent from paragraphs 4 and 8 of the assessment order, which read as
under:-
"4. The assessee company is an export oriented unit engaged
in the business of export of printed books which has been
WPC 13838/2009 Page 5 of 11
delivered as per instruction of the importer to parties situated
outside India, as well as in India (i.e. constructive exports). It
has also shown receipts in convertible foreign exchange, from
export/transmission of customized electronic data by way of
scanning and typesetting charges. During the year only the
EOU has been in operation, as the domestic unit was stated to
be closed down in A.Y.2004-05. The assessee has made
domestic sales which has been shown as local turnover."
"8. Export turnover as per section 1 013 Explanation 2(iii)
has to be worked out exclusive of freight, telecommunication
charges or insurance attributable to the delivery of articles or
things or computer software outside India. The
telecommunication charges incurred on transmitting the
electronic data (i.e. typesetting and scanning charges) have to
be excluded from the gross receipts. Assesee has taken a leased
inter-net connection from BSNL through which type-set and
scanned data files are uploaded to the foreign publisher. During
the year the assessee has paid Rs.2,01,632/- to BSNL for this
facility, a per reply dated 28.9.07. Accordingly, an amount of
Rs.2,01,632/- is excluded from total export turnover shown at
Rs.18,82,74,51 II- as per report in Form 56G. So the revised
total export turnover would be Rs.18,80,72,879/- which is
worked out as under:
FOB value of exports including DTA
(domestic tariff area) supply : Rs.184305284/-
Add: Income from typesetting & scanning : Rs. 3126464/
Add: Exchange fluctuation gain : Rs. 842763/-
Less: Telecommunication charges paid to BSNL: Rs. 201632/-
_____________
Export Turnover Rs.188072879/-"
WPC 13838/2009 Page 6 of 11
Along with the assessment order, was appended the calculation sheet
which also had reference to the export turnover which reads as under:-
"Annexure-A
Calculation of deduction u/s 10B for the AY 2005-06
Export turnover : Rs.188072879/-
Local turnover : Rs.32531897/-
Total turnover : Rs.220604776/-
Profit of the undertaking as per
Computation of total income
in para 10 : Rs.30808337/-
Deduction :
(Business profit) Export turnover/ Total turnover.
Deduction u/S 10B = Rs.26265128/-"
It will be seen that the figure of export turnover exactly matches the
figure of export turnover as indicated in paragraph 8 of the assessment
order which includes the FOB value of exports including DTA (domestic
tariff area) supplies. From the aforesaid, it is apparent that the Assessing
Officer had applied his mind to the question of supply to the domestic
tariff area made by the petitioner on instructions from the publishers
abroad.
WPC 13838/2009 Page 7 of 11
7. The impugned notice under Section 148 was followed by the
supply of the purported reasons, which read as under:-
"2005-06
Reasons: The assessment of M/s Replika Press Pvt. Ltd.
For the assessment year 2005-06 was completed after scrutiny
in October, 2007 at an income of Rs.149.66 lacs. The assessee,
which had 100% export-oriented unit status, was engaged in the
business of manufacturer and export of printed books. Audit
noticed that the assessee was allowed deduction under section
106 for sales of printed books, which was delivered as per
instruction of the foreign buyers to parties situated in India
(sales Rs.9,42,74,982), Since the supply to Domestic Tariff
Area (DTA) in India does not constitute export out of India,
these sales also do not constitute export turnover of the
assessee. In a similar case of Indian Delco (Pvt.) Ltd. Vs. DCIT
[59 ITD 268], ITAT Delhi bench had rejected the claim of
assessee for considering such domestic sales as export. Thus,
the allowance of deduction under section 106 for DTA sales
resulted in excess allowance of the deduction by
Rs.1,31,65,878/-.
On the facts and in the circumstances of the case as
discussed above & for the reason of failure on the part of the
assessee to disclose fully & truly all material facts necessary for
assessment and in view of sub-clause (c) of Expl.2 below
section 147, I have reason to believe that income of
Rs.1,31,65,878/- chargeable to tax in A.Y.2005-06 has escaped
assessment."
8. On going through the purported reasons, it is apparent that the
assessment is being re-opened on the ground that the supply to domestic
tariff area did not amount to exports. The learned counsel for the
WPC 13838/2009 Page 8 of 11
petitioner has contended that this would amount to a mere change of
opinion and that it is also based on an audit note. The learned counsel for
the petitioner also pointed out that the audit personnel could not comment
on an interpretation of Section 10B of the Income Tax Act as that would
be a comment on a point of law, which is not permissible in view of the
Supreme Court decision in the case of Indian and Eastern Newspaper
Society v. CIT: 119 ITR 996 (SC).
9. For the sake of completing the facts, we may point out that the
petitioner had filed his return pursuant to the notice and had also given
his objections to the said notice which had been disposed of by an order
dated 07.12.2009, rejecting the petitioner's objections. The said order
dated 07.12.2009 is also impugned in this writ petition.
10. We have heard the counsel for the parties and we may straightaway
state that this is a clear case of change of opinion as also a case which
was beyond the jurisdiction of the revenue audit which had pointed to the
so-called discrepancies on points of law, particularly, on an interpretation
of Section 10B of the said Act.
WPC 13838/2009 Page 9 of 11
11. Insofar as the change of opinion is concerned, it is writ large from
the records of the case. The Assessing Officer had specifically raised a
query with regard to the supplies made in the domestic tariff area and the
petitioner / assessee had given a detailed reply to the same. The
Assessing Officer, after considering the reply furnished by the assessee,
framed the assessment order in which, as we have pointed out above, he
made specific references to exports in the domestic tariff area and / or
constructive exports. While computing the claim for exemption under
Section 10B, the Assessing Officer has included the supply made in the
domestic tariff area, both in the main body of the assessment order as also
in Annexure-A thereto, which was the calculation of the deductions.
Therefore, it is absolutely clear that the Assessing Officer had applied his
mind to the very issue which is now sought to be raised under Section
147 of the said Act. That would mean that the present venture of
invoking Section 147 is nothing but a mere change of opinion, which is
impermissible in law, as is well settled by a long line of decisions. The
second point of the petitioner is also well taken that an audit party could
not have commented on a point of law and, particularly, on an
interpretation of Section 10B of the said Act.
WPC 13838/2009 Page 10 of 11
12. Therefore, on both points, the petitioner is liable to succeed. The
impugned notice dated 24.02.2009 and all proceedings pursuant thereto,
including the order dated 07.12.2009, are quashed and / or set aside. The
writ petition is allowed, as above. There shall be no order as to costs.
BADAR DURREZ AHMED, J
R.V.EASWAR, J
JANUARY 22, 2013
SR
WPC 13838/2009 Page 11 of 11
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