In this writ petition, the petitioner has challenged the impugned communication dated 01.12.2010, overruling the objection of the petitioner against re-opening of the assessment completed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the IT Act') vide a notice dated 26.11.2009.
2. The facts of the case are that originally the petitioner had filed returns on 01.11.2004 and intimation assessment was completed under Section 143(1) of the IT Act on 27.06.2005 accepting the returns filed by the petitioner. In the returns filed by the petitioner, the petitioner had claimed a deduction for a sum of Rs.22,81,74,356/- under
Section 80HHC of the IT Act and exemption on the Export Oriented Unit (EOU) for a sum of Rs.84,40,581/- under
Section 10B of the IT Act. The returns which was accepted by the Income Tax Officer under Section 143(1) of the IT Act was sought to be rectified under
Section 154 of the IT Act, 1961.
3. On 19.12.2005 an order was passed under
Section 154 of the 2/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 IT Act, 1961. The total income of the petitioner was revised as follows:-
The petitioner's appeal against the said order was rectified by the Commissioner of Income Tax (Appeals).
4. On further appeal to the Income-Tax Appellate Tribunal in I.T.A.Nos.780, 781 & 1786/MDS/07 dated 28.03.2008 for the Assessment year 2001-2002, 2004-2005 and 2002-2003, the Tribunal disposed the petitioner's appeal in I.T.A.No.780/MDS/07 for the 3/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 Assessment Year 2004-2005 was disposed by observing that the petitioner has filed an appeal before the Commissioner of Income Tax (Appeals) and that the issue dealt with by the Assessing Officer was debatable and cannot be done under the guise of rectification under
Section 154 of the IT Act. The Tribunal accepted the case of the petitioner by holding that the issue dealt by the Assessing Officer in the proceedings under
Section 154 of the IT Act was debatable and in its opinion deduction under Section 80 HHC and 10B cannot be dealt with the proceedings under
Section 154 of the IT Act for determining the book-profit under Section 115 J of the IT Act. While holding so, the appeal filed by the petitioner came to be allowed.
5. During the pendency of the said appeal before the Income Tax Tribunal, a Scrutiny Assessment Order dated 22.12.2006 came to be passed by the Deputy Commissioner of Income Tax under Section 143(3) of the Income Tax Act, 1961, wherein, while computing the book-profit, the deduction claimed by the petitioner under Section 4/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 80HHC of the IT Act was denied. As far as the exemption under
Section 10B of the IT Act was concerned, the petitioner declared a sum of Rs.84,40,581/- but squared off the same by bringing forward a loss for an equal amount and therefore stated that there was a total loss from the EOU operation.
6. In the above background, the issued impugned notice under
Section 148 of the IT Act was issued on 11.11.2009 to the petitioner under
Section 148 of the IT Act, 1961. The reasons for reopening of the assessment as communicated by letter dated 23.04.2010 bearing Company Circular.No.V(1)/2010-11 reads as under:-
“... For Asst. Year 2004-05, the assessee has claimed deduction u/s 80 HHC to the tune of Rs.22,81,74,356/- and deduction u/s 10B of Rs.84,40,581/- which was disallowed u/s 154 of the Act. The same issues were also dealt with, in scrutiny assessment order u/s 143(3) completed on 22-12-2006.
On appeal by the assessee before ITAT against order u/s 154, the same was held in favour of the assessee.
However it is seen from records for the year under 5/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 consideration and also the scrutiny assessment for Asst.Year 2005-2006 that the assessee is in the habit of claiming deduction u/s 10B by reporting higher Profit in EOU unit by way of expenditure that are relatable to both EOU and non-EOU units. Deduction u/s 10B can be allowed only on the total income of the assessee and not on individual units. Thus for the Asst.Year 2004-05, the deduction claimed by the assessee of Rs.84,40,581/- needs to be disallowed.
Further, it is seen from records that the net result of profits from non-EOU Division and EOU Division was a loss. As per the ratio of Supreme Court judgment in the case of Ipka Laboratories, deduction u/s 80HHCC in this case cannot be allowed, both for section 115JB and normal provisions of the Act, which is to the extent of Rs.23 crores.
Under the above circumstances, I have reason to believe that income of more than Rupees Twenty Three Crores chargeable to tax in this case for Asst.Year 2004- 05 has escaped assessment, consequent to the order of ITAT. I am satisfied that this is a fit case for issue of notice u/s 148 read with
section 149(i) (b) so as to reassess the income chargeable to tax that has escaped assessment...”
7. It is in the background of the above, the impugned communication dated 01.12.2010, bearing Ref.No.AAACO 0402B/2010-11/82 has been issued by the respondent/Deputy 6/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 Commissioner of Income Tax, which is sought to be assailed in this writ petition.
8. The learned counsel for the petitioner submits that as far as the issue relating to deduction under
Section 80HHC of the IT Act is concerned, the issue was dealt by the Assessing Officer originally while passing an assessment order dated 27.06.2005, under
Section 141(1) of the IT Act, which was sought to be rectified by an order dated 19.12.2005 which culminated in the order of the Tribunal in ITA.No.781/MDS/07 dated 28.03.2008.
9. It is submitted that during the interregnum, the assessment order passed under Section 143(3) of the IT Act has also disallowed the deduction under
Section 80HHC of the IT Act. Therefore, the purported reasons for reopening of the assessment cannot be countenanced. As far as the proposal to deny exemption under
Section 10B of the IT Act on the ground that the petitioner was in the habit of 7/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 claim deduction under
Section 10B of the IT Act by reporting higher profit in EOU unit by way of expenditure that are relatable not on EOU units and that deduction under
Section 10B of the IT Act can be allowed only on the total income of the assessee and not on individual units is concerned. It is submitted that it is based on change of opinion.
10. It is submitted that similar issue for the Assessment Year 2005-2006 went up to the Tribunal and the Tribunal by its order dated 30.08.2013 in ITA.No.2165/Mds/2010 dismissed the department's appeal. It is further submitted that against the order of the Tribunal, the Income Tax Department had also filed statutory appeal before this Court under Section 260A of the IT Act, 1961 in T.C.A. No. 519 of 2014 which was withdrawn by the Income Tax Department on 12.10.2018 though on the ground of monitory policy in terms of Circular No.3/2018 dated 11.07.2018.
8/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010
11. In this connection a reference was made on the following cases:-
(i) Seimens Information System Ltd., Vs Assistant Commissioner of Income-tax, [2008] 168 Taxman 209 (Bombay).
(ii) Commissioner of Income-tax Vs Gupta Abhushan (P.) Ltd., [2009] 178 Taxman 473 (Delhi)
(iii) Asteriods Trading and Investments (P.) Ltd., Vs Deputy Commissioner of Income-tax, [2009] 308 ITR 190 (Bombay)
(iv) Commissioner of Income-tax-5 Vs Jet Airways (I) Ltd., [2010] 195 Taxman 117 (Bombay)
(v) Commissioner of Income-tax, Delhi Vs Kelvinator of India Ltd., [2010] 187 Taxman 312 (SC).
(vi) Scientific Atlanta India Technology (P.) Ltd., Vs Assistant Commissioner of Income-tax, Company Circle VI(1), Chennai, [2010] 38 SOT 252 (Chennai).
(vii) Ajanta Pharma Ltd., Vs Commissioner of Income-tax, Mumbai, [2010] 194 Taxman 358 ISC.
9/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010
(viii) Income Tax Officer Vs TechSpan India, [2018] 92 Taxman.com 361 (SC).
(ix) Tractors & Farm Equipment Ltd., Vs Assitant Commissioner of Income-tax, [2019] 102 Taxman.com 130 (Madras)
(x) Sterlite Industries (India) Ltd., Vs Assistant Commissioner of Income-tax, [2012] 18 taxman.com 351 (Madras)
12. The learned counsel for the respondent has relied on the following case laws:-
(i) Kalyanji Mavji & Co. Vs Commissioner of Income-tax, [1976] 102 ITR 287.
(ii) Phool Chand Bajrang Lal Vs Income-tax Officer, [1993] 69 Taxman 627 (SC)
(iii) Raymond Woollen Mills Ltd., Vs Income-tax Officer, [1999] 236 ITR 34 (SC)
(iv) Assistant Commissioner of Income-tax, Vs Appollo Hospitals Enterprises Ltd., [2008] 171 Taxman 397 (Madras) 10/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010
(v) Jayaram Paper Mills Ltd., Vs Commissioner of Income- tax, [2019] 191 Taxman 38 (Madras)
13. Defending the impugned order, the learned counsel for the respondent submits that as far as the issue relating to deduction under Section 88HC is decided, the impugned order itself has stated that the issue will be decided in the light of the Hon'ble Apex Court in Ajanta Pharma Ltd., Vs Commissioner of Income-tax, [2010] 194 Taxman 358 (SC), 327 ITR 305 (SC) rendered on 09.09.2010 and in the case of Ipca Laboratary Ltd., Vs Deputy Commissioner of Income Tax, 266 ITR 521.
14. It is therefore submitted that the reopening of the assessment qua proposed denial of deduction/exemption under
Section 10B alone survives even if the submission of the petitioner is to be accepted. She submits that speaking order passed by the respondents is well considered and all the defences that are available to the petitioner 11/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 should be raised and therefore that the petitioner should participate in the said proceedings and therefore prays for dismissal of the writ petition.
15. By way of Rejoinder, the learned counsel for the petitioner submits that the order passed under Section 143(1) of the IT Act as rectified merged with the order passed by the Tribunal and order with the order passed under
Section 141(3) of the IT Act and therefore there is no case made out for reopening of the assessment and therefore prayed for allowing the writ petition.
16. I have considered the arguments of the learned counsel for the petitioner and the learned senior standing counsel for the respondent/Income Tax Department.
17. The case of the respondent is that the petitioner was in the habit of making an excess claim under
Section 10B of the IT Act, 1961 12/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 and this fact came to be knowledge of the Department only when a survey was conducted during March 2010. It is submitted that, this information was not available earlier when the assessment orders were passed both under Section 143(1) on 27.06.2005 in respect of which there was an proceeding under
Section 154 of the IT Act, 1961 which eventually culminated in the order dated 30.08.2013 of the Tribunal in ITA.No.2165/Mds/2010, Assessment Year:2005-2006 and when order dated 22.12.2006 was passed under Section 143(3) of the IT Act, 1961.
18. Prima facie, therefore reopening of the assessment appears to be an order. Therefore, I do not find any merits in the present writ petition. If the accounts were castled to distort the income to show higher profit from EOU operation to claim deduction under
Section 10B of the IT Act, 1961, the Income Tax Department would be justified in reopening the assessment under
Section 148 of the IT Act, 1961, for the purpose of the proviso to
Section 147 of the IT Act, 1961. 13/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010
19. The facts also indicate that an order was passed for the assessment year 2005-2006 as is evident from the preamble to be final order dated 30.08.2013 of the Tribunal. The Tribunal has noted that the submission of the Respondent that this was not the first time the petitioner had claimed deduction under
Section 10B of the IT Act, 1961. It appears that for the aforesaid year, CIT(Appeals)-IV vide order dated 21.09.2010, had observed that, “Since transfer cost of materials between the EOU and all EOU units has been wrongly recorded the deduction u/s 10B should be restricted to the profits of the EOU units after recording the transfer of the material at the correct cost.”.
20. From a reading of the above decision of the Tribunal, it appears that the issue on merits is apparently covered in favour of the petitioner in the case of Scientific Atlanta India Technology Private Ltd vs ACIT, TTJ 273 (SB) similar views in Changpond Technologies (P) Ltd vs ACIT [2008] 119 TTJ 18 and Enercon Wind 14/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 Farm (Krishna) Ltd vs ACIT, 21 SOT 29 (Mum). It is therefore for the petitioner to substantiate its case before the respondent by citing the above decisions and get the issue decided on merits in its favour.
21. Therefore, this writ petition is dismissed. The Respondent is therefore directed to pass appropriate orders in accordance with law on merits within a period of sixty days from the date of receipt of a copy of this order. It is made clear that the order to be passed will have to be in consonance with the order of the Tribunal if no other contra decisions of the Tribunal. No costs. Consequently, connected miscellaneous petition is closed.
27.05.2021 arb Index: Yes/ No Internet : Yes/No To:
The Deputy Commissioner of Income Tax, Company Circle V (1), 121, Mahatma Gandhi High Road, Chennai – 600 034.
15/16 https://www.mhc.tn.gov.in/judis/ W.P.No. 28052 of 2010 C.SARAVANAN, J.
arb W.P. No. 28052 of 2010 and M.P. No. 1 of 2010 27.05.2021 16/16 https://www.mhc.tn.gov.in/judis/