PR COMMISSIONER OF IT-1 JAIPUR vs. M/S BHANSALI TRADING CORP

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 32 / 2017 Principal Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus M/s Bhansali Trading Company, 2654, Shah Bhawan, Ghee Walon Ka Rasta, Johari Bazar, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Mahendra Gargieya with Mr. Lokesh Taylor _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 13/12/2017 1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby the tribunal has dismissed the appeal of the department where order of the CIT(A) was confirmed. 2. This court while admitting the appeal on 24.4.2017 framed following substantial question of law:- “Whether the Tribunal was justified in allowing deduction u/s 10B of the Act amounting to Rs.1,34,31,888/- in the 11th assessment year, when the provisions of Section 10B(1) specifically entitles the assessee for the said deduction only for period of 10 consecutive assessment years beginning with the Assessment year relevant to the previous in which the undertaking commences its manufacturing, which in the present case A.Y. 2001-02 as the manufacturing started from 12.3.2001?”

(2 of 8) [ITA-32/2017] 3. The facts of the case are that the assessee commenced its production from 12.3.2001 relevant for the assessment year 2001-02 and thus, was entitled for deduction u/s 10B for 10 consecutive assessment years starting from the A.Y. 2001-02 till A.Y. 2010-11. Considering the same, the claim of the assessee in the 11th assessment year was denied. 4. Counsel for the appellant Mr. Singhi has taken us to the provisions of Section 10B(1) sub-section 8 which reads as under:- “Special provision in respect of newly established hundred per cent export- oriented undertakings' 10B (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export- oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.” 4.1 He contended that the tribunal and CIT(A) have committed serious error in ignoring the observations made by the AO that no declaration was made by the assessee prior to filing of the return and benefit u/s 10B(1) which are conferred cannot be allowed.

(3 of 8) [ITA-32/2017] 4.2 He has taken us to the judgment of the Supreme Court in Smt. Tarulata Shyam & ors. vs. CIT reported in (1977) 108 ITR 345 wherein Supreme Court observed as under:- “We have given anxious thought to the persuasive argument of Mr. Sharma. His arguments, if accepted, will certainly soften the rigour of this extremely drastic provision and bring it more in conformity with logic and equity. But the language of Sections 2(6A)(e) and 12(1B) is clear and unambiguous. There is no scope for importing into the statute words which are not there. Such import would be, not to construe, but to amend the statute. Even if there be a casus omissus, the defect can be remedied only by legislation and not by judicial interpretation. To us, there appears no justification to depart from the normal rule of construction according to which the intention of the legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J. in Cape Brandy Syndicate vs. IRC (1921) 1 KB 64 (KB) at page 71, that: “…. in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be.” 5. However, counsel for the respondent Mr. Gargieya has supported the order of the Tribunal and contended that the assessee was rightly granted the benefit in view of the decision of Madras High Court in CIT vs. Tamil Nadu Jai Bharath Mills Ltd. reported in (2006) 287 ITR 512 wherein it has been held as under:-

(4 of 8) [ITA-32/2017] “5. Section 10B(8) which opens with non obstante clause, clearly confers a right on the assessee to declare that the provisions of the Act (sic-section) may not be made applicable to the assessee, provided such a declaration is given on or before the due date for furnishing the return under Section 139(1) of the Act. It was therefore, open to the assessee, notwithstanding the fact that the assessee had exercised the option to have Section 10B made applicable, to withdraw that option, provided such withdrawal was made on or before the due date for filing the return. 6. This Court in assessee's own case in Tax Case No. 302 of 2001 held that in this case, the withdrawal was made along with the return which return had been filed before the expiry of the due date. Hence, applying the ratio laid down by this Court in the abovesaid decision, we do not see any question of law much less substantial question of law that arises for consideration. Accordingly, both the appeals stand dismissed. Consequently, TCMP No. 1347 of 2005 is also dismissed.” 5.1 Another decision of Delhi High Court in CIT vs. Nestor Pharmaceuticals Ltd. reported in (2010) 322 ITR 631 wherein it has been held as under:- “21. When we carefully examine the ratio laid down in various judgments noted above while dealing with IT Appeal No. 1154 of 2009, we arrive at irresistible conclusion that the decision rendered by the Tribunal is without blemish and does not call for any interference. The provisions of IT Act use the word "manufacture". Trial production is not regarded as beginning to manufacture or to produce articles because of the reason that the assessee has to produce trial production to verify whether it can be used ultimately in the manufacture of the final article. These are, therefore, "trial runs". The article is tested to find out as to whether it can be launched as a final product in the market or not. Therefore, with mere trial production, the manufacture for the purpose of marketing the goods has

(5 of 8) [ITA-32/2017] not started which starts only with commercial production namely when final product to the satisfaction of the manufacturer has been brought into existence and is now fit for marketing.” 5.2 He also relied upon the decision of Supreme Court in CIT vs. G.R. Govindarajulu & Sons reported in (2015) 378 ITR 1 (SC) wherein Supreme Court held as under:- “6. Insofar as second issue is concerned, as mentioned above, the Assessee set apart a sum of Rs. 32 Lacs. This was, however, denied by the Assessing Officer on the ground that no option for this purpose was exercised by the Assessee before the filing of the return. Though the Assessee had stated so in the return itself, that was not treated as exercising the option in a valid manner. Admittedly, in the present case, no amount is invested in any Government securities and, therefore, the Assessing Officer held that there was no question of giving any further deduction on the balance income. In this manner taxable income was assessed. 7. The Assessee filed the appeal against the aforesaid order before the Commissioner of Income Tax (Appeals). The submission was that since it has set apart Rs. 32 Lacs in terms of Section 11A Explanation-II, by exercising this option in the return itself that should be treated as valid option. The CIT (Appeals) accepted this contention, which view has been upheld by the Income Tax Appellate Tribunal as well as the High Court. 8. Insofar as this aspect, viz., exercising the option in the return filed by the Assessee is concerned, we are of the opinion that the High Court and the Authorities below are right in their approach. The law does not mention any specific mode of exercising the option. The said option has to be exercised before filing of the return. According to us, if the option is exercised when the return is filed, that would be treated as in conformity

(6 of 8) [ITA-32/2017] and comply with the provisions contained in Section 11 of the Act.” 5.3 He also relied on the Circular No.1/2016 [F.No.200/31/2015- ITA-I] dt. 15.2.2006 which reads as under:- "Section 80IA of the Income-tax Act, 1961 ('Act'), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100% of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 80IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides as under - "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment

year

for

which

the determination is to be made". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ manufacturing activity had commenced and are considering such first year of commencement/operation etc. itself as the first year for granting deduction,

(7 of 8) [ITA-32/2017] ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from sub- section (2) that assessee who is eligible to claim deduction u/s 80IA has the option to choose the initial/first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub- section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in the section. Hence, the term 'initial assessment year' would mean the first year opted for by the assessee for claiming deduction u/s 80IA. However, the total number of years for claiming deduction should not transgress the prescribed slab of fifteen or twenty years, as the case may be and the period of claim should be availed in continuity. The Assessing Officers are, therefore, directed to allow deduction u/s 80IA in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section for which the Standing Counsels/D.R.s be suitably instructed. The above be brought to the notice of all Assessing Officers concerned.” 6. We have heard counsel for the parties. 7. On plain reading of Section 10B(1), two things which emerge are that the benefit will start from the date of manufacturing and admittedly in this case, manufacturing activity started on

(8 of 8) [ITA-32/2017] 12.3.2001, in that view of the matter, the benefit will follow for the year 2001-02 and not for the year 2010-11. 8. Admittedly, 10 years is taken to be consecutive and if the exemption or benefit of Sub-section (8) as claimed by the assessee, he has made declaration prior to filing of return letter in 2013 and mentioning in return will not help the assessee. In our considered opinion, declaration is not there and so called declaration in the return is not permissible because Section 8 envisaged that declaration is to be made prior to filing of the return which has not been done, therefore, in that view of the matter, the issue is answered in favour of the department and against the assessee. 9. The incentive benefit is to be interpreted keeping in mind the taxing statute and the court has no power to do charity as desired by the assessee. 10. The appeal stands allowed. (VIJAY KUMAR VYAS) J. (K.S. JHAVERI)J. Brijesh 157