M/S.ABAD FISHERIES,COCHIN vs. THE ACIT, COCHIN

Per CHANDRA POOJARI, AM:

This appeal filed by the assessee is directed against the order of the CIT(A)-II,

Kochi dated 27/11/2013 for the assessment year 1996-97.

1) The order of the CIT(A) is bad in law and opposed to facts and circumstances of the case to the extent objected to hereunder.

2) The CIT(A) ought not to have rejected the claim for exemption u/s. 10B. None of the reasons stated by the CIT(A) justify the confirmation of the disallowance. The main observations of the CIT(A) are contrary to the facts and circumstances of the case.

3) The CIT(A) had gone wrong in confirming income of Rs.42,266/- representing interest on income tax refund as income from other sources.

The CIT(A) ought to have held that interest on income tax refund can be assessed as income only on the respective assessments reaching finality.

4) Alternatively interest granted earlier and treated as income for the corresponding assessment years, but which has been subsequently reduced/revised should be allowed as deduction in computing the income of the assessment year in which such reduction has been effected.

5) The CIT(A) should have also given a direction to the Assessing Officer to revise the assessment adopting the correct amount of interest as finally determined for the relevant assessment years.

6) For these and other grounds that may be permitted to be adduced at the time of hearing of the case, it is prayed that the order of the lower authorities may be ordered to be modified suitably.

income tax assessment u/s. 143(3() was completed vide order dated 26/02/1999

determining the total income at Rs.1,04,19,530/-. In the said order, deduction u/s.

80HHC was not granted on exports made through export houses on the ground that

no disclaimer certificates were filed. The assessee filed an appeal against the

assessment order which was disposed of vide order dated 22/03/2000 on the

technical grounds and reasoning that since the assessee had not complied with the

provisions of sub-section (4) of section 249 of the Act, the appeal was held as not

maintainable and accordingly dismissed.

3.1 Against this order, the assessee filed an appeal before the ITAT in ITA

No.244/coch/2000 which was disposed of vide order dated 30/01/2004 by directing

the CIT(A) to consider the issue afresh if the assessee approaches with a

condonation petition. The finding of the predecessor that the assessee had not

complied with sub section 4 of section 249 was deleted by the Tribunal. The

assessment order was served on the assessee on 18/03/1999 and the appeal before

the CIT was filed on 16/04/1999. The CIT(A) dismissed this appeal on the ground

that the taxes were not paid by the assessee, however, the assessee had filed a

certificate from the Assessing Officer to the effect that as on the date of certificate

the admitted tax remained fully paid and it was further submitted that as per the

proceedings dated 24/01/2000, the assessee was even entitled to refund of

R.7,01,196/-. In compliance with the directions of the ITAT, the assessee had

submitted a petition for condonation of delay. In view of these technical reasons

and the directions of the ITAT, the delay was condoned and the appeal was

admitted for fresh consideration by the CIT(A).

3.2 In the second round, the CIT(A) adjudicated the issue of eligibility of deduction

u/s. 10B of the Act with respect to the profit of the CAPs Sea Food Unit which isa

100% export oriented unit. The CIT(A) observed that the Assessing Officer had

not made any mention of any such deduction as the same was not claimed before

the Assessing Officer. It was found that the claim for deduction u/s. 10B was not

made in the return and was not even made as an alternate claim before the

Assessing Officer. The CIT(A) observed that even in the audit report including report

u/s. 80HHC(4)/80HHC(4A) in Form No.10CCAC, the auditor had only certified

exports for the purposes of section 80HHC and the CAPs unit was also included

therein. According to the CIT(A), no claim for deduction u/s. 10B was made in the

return of income. Therefore, the CIT(A) was of the view that this ground is not

emanating from the order of the Assessing Officer. Moreover, according to the

CIT(A), for the claim of deduction under section 10B, there are certain conditions

that are required to be fulfilled In the year in which the undertaking begins to

manufacture or produce article or thing and the 10 years period is to be taken from

the first year of such operation in which the undertaking starts production and

exports. These conditions are laid down in subsection (2) of section 10B, which inter

alia include :-

"10B. (1)......

(2) This section applies to any undertaking which fulfils all the following conditions namely:-

(i) it manufactures or produces any article or thing;

(ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its export of such articles and things are not less than 75% of the total sales thereof during the previous year:

(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 338, in the circumstances and within the period specified in that section:

(iv) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

3.3 The CIT(A) noticed that the permission to set up 100% EOLJ was given to the

assessee in 1992 and according to the certificate of the Dy. Development

Commissioner dated 05.06.1995 the CAP Seafoods Division had commenced their

commercial production on 01.02.1995. Thus, according to the CIT(A), A.Y. 1995-

96 would have been the first assessment year when benefits of section 10B could

have been claimed for a period of 10 years i.e. upto A. Y. 2004-05. Without such verification by the assessing officer in the 1st year of operation of undertaking, the

CIT(A) held that deduction cannot be allowed/considered under section 10B as an

alternative claim to 8OHHC in any subsequent year.

3.4 The CIT(A) observed that the deduction once allowed to be claimed in first

year when the undertaking begins to manufacture and produce article or thing, the

assessee has to stick to that particular section/provision and it is not the case that if

in a particular year he feels that claiming 80HHC would be beneficial then

deduction is claimed under section 80HHC, and in another year deduction is claimed

under section 10B for the same undertaking. According to the CIT(A), from the

assessment records of AY 1995-96, it was verified that the assessee had not opted

for benefits u/s. 10B in that year i.e. the year of commencement of business by that

undertaking and had actually claimed deduction under section 80HHC only,

including the exports profits of CAPs unit in the total turnover for the purposes of

section 80HHC. Therefore, according to the CIT(A), the question of considering

benefits under section 10B does not arise in these assessment years. In any case,

assessee had been allowed deduction under section 80HHC by the AO on production

of disclaimer certificates to the export profits of CAP Seafoods unit, and hence there

was no requirement of considering any alternate claim of deduction u/s. 10B which

was not claimed by the assessee in the return. Hence, the CIT(A) dismissed this

ground of appeal of the assessee.

while filing the return of income, the assessee had claimed deduction u/s. 80HHC in respect of the profits of the CAP unit. While completing the assessment, it was

submitted that deduction u/s.80 HHC was denied on the reason of non production

of disclaimer certificates. Before the CIT(A), the assessee raised the ground that it is eligible for deduction u/s.10B as it is a 100% EOU but the claim was denied by the

CIT(A) for the reason that no claim for deduction u/s.10B was made in the return of

income. The Ld. AR submitted that the CIT(A) had overlooked the provisions of

section 10B, prevailing at that time. Sub-section (1) reads as follows:-

“Subject to the provisions of this section, any profits and gains derived by an assessee from a 100% Export Oriented undertaking (hereafter in this section referred to as the undertaking) to which this section applies shall not be included in the total income of the assessee”.

4.1 It was submitted that section 10B is falling under Chapter III of the Income

Tax Act "incomes which do form part of total income". The profits and gains from a

100% Export Oriented Unit therefore will not form part of the total income. It was

submitted that there was a clear distinction between deduction under Chapter VIA

where deductions are granted from gross total income and exemption u/s. 10B. As

the appellant had not opted out of the application of the provisions of section 10B

as required under sub section (7) the income of 100% Export Oriented Unit should

not have been included in the total income. 6 4.2 The Ld. AR referred to the provisions of sub-section(7) (Presently sub section

(8) which reads as follows:

“ Notwithstanding anything contained in the forgoing provisions of this section, where the assessee, before the due date for furnishing the return of his income under sub section(1) of section 139 furnishes to the assessing officer a declaration in writing that for the provisions of this section shall not apply to him for any of the relevant assessment years."

It was submitted that if an assessee chooses not to claim exemption u/s.10B, it has

to file the declaration to that effect with the assessing officer before the due date for

filing the return of income and if the assessee is not filing such declaration within the

prescribed time, the assessing officer is duty bound to give exemption under this

section. In other words, there is no requirement on the part of the assessee to make

a claim to be eligible for exemption. According to the Ld. AR, to be not eligible for

exemption it is mandatory on the part of the assessee to file declaration within the

prescribed time and if for any assessment year an assessee is making any profit

from an eligible undertaking, the profit there from cannot be included in the

computation of total income irrespective of whether the assessee had claimed the

same or not in its return.

4.3 The Ld. AR submitted that the provisions of section 10B as applicable to the

assessment year 1996-97, do not contain any requirement to file any certificate from

a Chartered Accountant. Such provisions (sub section (5)) were introduced only

subsequently and are applicable from assessment year 2001-02. Therefore, it was

submitted that the CIT(A) ought to have directed the assessing officer to grant. 7

exemption u/s.10B of the Act. The Ld. AR relied on the judgment of the Bombay High Court in the case of Pruthvi Brokers & Shareholders (P) Ltd. (349 ITR 336). It was also submitted that the eligibility of the assessee for exemption under section 10B was upheld by the High Court of Kerala for the assessment years 1997-98, 1993-99, 2001-02 and 2004-05 vide judgment dated 20.8.2010 in ITA Nos.257, 262, 253 and 218.

assessee claimed deduction u/s. 80HHC in the return of income which was duly

granted. Subsequently, before the first appellate authority, the assessee made a

claim of deduction u/s. 10B of the I.T. Act in respect of the profit of the CAPs Sea

Food Unit which is said to be 100% EOU, without withdrawing the claim u/s. 80HHC

of the Act. In our opinion, the assessee may exercise his option before the due

date of furnishing the return of income under sub-section (1) of section 139 for the assessment year commencing form 1st April, 1989, furnishes to the Assessing Officer

a declaration in writing that the provisions of sub-section (1) of section 10B may be

made applicable to it for the relevant assessment year and if it does so, then the

provisions of sub-section (1) of section 10B shall be made applicable to it for the

relevant assessment year. Accordingly, the provisions of sub-section (4) of section

10B shall also apply while computing the total income of the assessee for the

relevant assessment year immediately succeeding the last of such assessment year

or in subsequent years. In the present case, the assessee has not opted for the

deduction u/s. 10B in its return of income and also has not filed the relevant details

so as to avail deduction u/s. 10B of the Act before framing of the assessment. As

such the assessee cannot be granted deduction u/s. 10B of the Act. In other words,

so long as the assessee has not made available the audit report and other

documents pointed out by the CIT(A) in terms of section 10B of the Act before

framing of the assessment, the claim of deduction u/s. 10B cannot be granted.

Further, the assessee cannot claim the exemption u/s. 10B without withdrawing the

claim which was already granted u/s. 80HHC of the Act. The judgment of the

Bombay High Court relied on by the assessee in the case of CIT vs. Pruthvi Brokers

and Shareholders Pvt. Ltd. (349 ITR 336) was delivered on different set of facts and

cannot be applied to the facts of the present case. Being so, we do not find any

infirmity in the order of the CIT(A) in rejecting the claim of deduction u/s. 10B of

the Act and the same is confirmed. This ground of appeal of the assessee is

dismissed.

income tax refund as income from other sources.

received on income tax refund during the year under consideration. The assessee

had received a sum of Rs.42,266/- as interest u/s. 244A of the Act which was

brought to tax as income from other sources by the Assessing Officer.

as income from other sources. Since this amount of interest was actually granted to

the assessee in this assessment year, the same is taxable irrespective of finality of

any pending assessments. Therefore, he upheld the addition made on this count.

the CIT(A) rejected this ground of the assessee on the reason that since the interest

was actually granted to the assessee, the same is taxable irrespective of any

pending assessments. The Ld. AR gave the break up of the amount of Rs.42,266/-

as under:

Interest granted as per intimation u/s. 143(1)(a) Rs.33,830 Dated 22.12.1995 – assessment year 1994-95 Interest granted as per proceedings dated Rs.8,436 12.1.1996 for assessment year 1992-93

10.1 It was submitted that the assessment for assessment year 1994-95 was taken

for scrutiny and completed as per order dated 28.2.1997. Interest was reduced to

Rs.31,416/-. The assessment was reopened and completed as per order dated

19.2.2002. The interest granted as per order dated 28.2.1997 amounting to

Rs.31,416/- was withdrawn and balance tax of Rs.20,64,714/- was demanded

Therefore, it was submitted that the assessee was not eligible for any interest for

assessment year 1994-95 which could be assessed for assessment year 1996-97.

The Ld. AR submitted that for the assessment year 1992-93, interest granted as 10

per intimation u/s. 143(1)(a) dated 23.8.1993 was Rs.23,928/- and no interest was

granted when the assessment was completed u/s.143(3) as per order dated

27.9.1994. According to the Ld. AR, the assessment was again revised giving effect

to the order of the CIT(A) vide proceedings dated 19.1.1996 and interest granted

was at Rs.8,436/-.

10.2 The Ld. AR drew our attention to the departmental appeal (ITA No.204/Coch/1996) which was allowed vide order dated 30th Dec.1999. However, it

was submitted that no proceedings were issued giving effect to the orders of the

Income Tax Appellate Tribunal and if the assessment is revised the interest granted

as per proceedings dated 12.1-1996 would get further reduced. Alternatively it was

the submission of the assessee that whatever interest was assessed in the earlier

years and withdrawn during the previous year relevant to assessment year 1996-97

should be allowed as a deduction in computing the total income, otherwise, amount

which was not actually received by the assessee would be assessed to tax. It was

submitted that for the mere reason that interest was determined and added to the

refund of the assessee, it cannot be said that the assessee had actually received the

interest and only on physical receipt of the refund amount, interest can be

considered as received. It was submitted that so long as the department has the

right to withdraw the interest either through reassessment or revision orders or

orders giving effect to appellate orders, interest granted in the earlier orders does

not attain the character of income and only when it attains the character of income

it can be assessed in the hands of the assessee.

the present case, the assessee was in receipt of interest on refund. Since the

assessee was actively following the mercantile system of accounting and the income

was accrued and received by the assessee, the same is to be taxed in the

assessment year under consideration. The assessee cannot postpone the liability of

payment of tax on the income tax refund on the reason that it would be withdrawn

or reduced by the Department subsequently. If there is withdrawal or reduction by

the Department, the remedy lies to the assessee elsewhere and not at this stage.

Accordingly, this ground of appeal of the assessee is dismissed.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 8th May, 2019

GJ Copy to: 1. M/s. Abad Fisheries, Kochangadi, Kochi-2. 2. The Assistant Commissioner of Income-tax, Circle-3(1) 3. The Commissioner of Income-tax(Appeals)-II, Kochi. 4. The Pr. Commissioner of Income-tax, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. 12

By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin