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January, 25th 2013
%                                      Judgment delivered on: 22.01.2013

+      WP(C) 13838/2009



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




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


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:-

                             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
                 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 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


       "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:-

                 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


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:-

              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

             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

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

WPC 13838/2009                                                    Page 11 of 11
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