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Income Tax Appellate Tribunal, Hyderabad ‘ ‘ Bench, Hyderabad
Before: Shri R.K. Panda & Shri Laliet Kumar
ITA Nos 121 and 146 of 2019 and COs 7 and 27 of 2019
आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA Nos.121 & 146/Hyd/2019 Assessment Years: 2010-11 & 2011-12 Dy. C.I.T Vs. Bhagiradha Chemicals & Circle 1(2) Industries Ltd, Hyderabad Hyderabad PAN:AAACB9723G C.O Nos.7 & 27/Hyd/2019 A.Ys 2010-11 & 2011-12 Bhagiradha Chemicals & Vs. Dy. C.I.T Industries Ltd, Hyderabad Circle 1(2) PAN:AAACB9723G Hyderabad (Appellant) (Respondent) Assessee by: Shri S. Ravi, Sr. Advocate/A.V. Raghuram, Advocate Revenue by: Shri P. Chandrasekhar, DR Date of hearing: 03/10/2022 Date of pronouncement: 11/10/2022 ORDER Per R.K. Panda, A.M
The above two appeals filed by the Revenue and the two cross objections filed by the assessee are directed against the separate orders dated 23.1.2018 & 11.1.2019 of the learned CIT (A)-1, Hyderabad relating to A.Ys 2010-11 & 2011-12 respectively. Since identical issues are involved in the above appeals, therefore, for the sake of convenience, these appeals and cross
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objections were heard together and are being disposed of by this common order. ITA No.121/Hyd/2019 – A.Y 2010-11 2. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing of chemicals & intermediaries, it filed its return of income declaring total income for the A.Y 2010-11 on 22.9.2010 admitting a loss of Rs.9,93,73,748/- under the normal provisions and book loss of Rs.4,27,57,236/- u/s 115JB of the I.T. Act, 1961. The original assessment u/s 143(3) was completed on 28.03.2013 determining the total loss at (-) Rs.6,12,69,693/- after allowing deduction u/s 10B of Rs.12,91,80,370/-. Subsequently, the Assessing Officer reopened the assessment by recording the following reasons. "The assessee-company is engaged in the business of manufacturing of chemicals & intermediaries. The assessee filed return of income for the Asst. Year 2010-11 on 22/09/2010 admitting a loss of Rs.9,93,73,748/- under normal provisions and book profit of Rs.4,27,57,236/- u/s 115JB. This case Was selected for scrutiny under CASS and the scrutiny assessment was completed u/s 143(3) on 28/03/2013. During the scrutiny proceedings. the assessee had claimed that it had maintained separate set of books of accounts for its two units, i.e. DTA (Domestic Tariff Area) unit & EOU (Export Oriented Unit) unit and incomes were also offered separately. In the return of income, the assessee had claimed deduction u/s 10B of Rs. 4,22,76.832/- in respect of EOU unit. However, in the Scrutiny assessment, in respect of DTA unit, an amount of Rs. 2,50,05,624/- being provision for expenses was disallowed. Apart from this, indirect expenditure pertaining to DTA and EOU units was reallocated (as per the respective turnovers in the ratio of 43:57. After the above two adjustments, the loss from DTA unit was restricted o Rs.6,34,03,178/- and in respect of EOU unit, the claim of deduction u/s 10B was also re-worked and restricted to Rs. 12,91,80,370/-. Subsequently, it has come to the notice of the Department that the assessee has falsely claimed deduction u/s 0B by furnishing inaccurate particulars. The assessee had started business of manufacturing of agro chemicals from the Asst. Year 1994-95 onwards from its plant located at Cheruvukommupalem Vilalge, Ongole Manda, Prakasann District, Andhra Pradesh. The assessee-company was manufacturing two products i.e. triclopyr and throxypyr from the above plant under DTA unit. Later on, the assessee filed an application before Development Commissioner, Visakhapatnan Special Economic Zone and obtained approval vide letter No. Per:327/EOU/VSEZ/2005, dated 09/12/2005 for conversion of existing DTA nit into 100% EQU unit for manufacturing triclopyr and fluroxypyr products. Further, as per the Director's Report of Page 2 of 13
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Annual Report 2006-07, it is clearly mentioned that the existing weedicides unit man1jacturing triclopyr and fluroxypyr for export is registered as a 100% EOU with effect from February, 2007. As per CBDT's Circular No. 1/2005, dated 06/01/2005, the assessee is eligible to claim deduction u/s 10B even in respect of an undertaking set up in Domestic Tariff Area (DTA) and subsequently converted into a EOU. However, as per the above circular "the deduction is available only from the year in which it has got approval as 100% EOU and shall be available only for the remaining period of ten consecutive assessment years beginning with the assessment year relevant to the pervious year in which the undertaking begins to manufacture or produce articles on things or computer software, as a DTA unit. The assessee had started manufacturing operations from DTA unit in the Asst. Year 1994-95. The assessee made application for permission under the Therefore, EOU Scheme on 03/12/2005 and obtained approval on 09/12/2005. Therefore, the assessee was eligible to claim deduction u/s 10B from Asst. Year 2006-07 onwards, but only for the remaining 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 on things or computer software, as a DTA unit. Since the assessee has started manufacturing operations from DTA unit in Asst. Year 1994-95, it had the benefit of claiming deduction u/s 10B only upto Asst. Year 2003-04. The assessee has got approval for existing DTA unit into an EOU unit in December, 2005 and as stated above, it is not entitled to exemption u/s 10B for Asst. Year 2010-11. During the scrutiny proceedings, the assessee has submitted vide letter dated 28/03/2013 that it had established new EOU unit by constructing building and purchasing new plant & machinery and claimed deduction u/s 1OB. However, as per the Development Commissioner, Visakhapatnam Special Economic Zone approval letter No.Per: 327/E()U/VSEZ/2005, dated 09/12/2005, the approval is granted for the existing DTA Unit and not the newly constructed EOU unit. Therefore. the claim of assessee is totally incorrect and an income of Rs.12,91.80,370/- has escaped tax.”
Accordingly, notices u/s 148 of the I.T. Act dated 27.10.2016 was issued and served on the assessee on 29.10.2016. In response to notice u/s 148, the assessee requested the Assessing Officer vide letter dated 14.11.2016 to treat the return of income filed on 22.9.2010 as return filed in response to notice u/s 148 of the I.T. Act.
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During the course of the assessment proceedings, the Assessing Officer asked the assessee to explain as to why the deduction claimed u/s 10B of Rs. 12,91,80,370/- should not be disallowed. The assessee submitted that it had established two Domestic Tariff Units (DTA) i.e. one in the financial year 1994-95 and the other in financial year 2004-05. It was submitted that for production of Triclopyr & Fluroxypr products, a new DTA unit was established in financial year 2004-05 which was subsequently converted into 100% Export Oriented Unit (EOU) vide license No.PER:327/EOU/SEZ/2005, dated 9.12.2005 granted by Visakhapatnam Special Economic Zone (VSES) Visakhapatnam. Accordingly, the assessee has claimed deduction u/s 10B of the Act.
However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He referred to the provisions of section 10B of the I.T. Act, obtained a letter from VSEZ clarifying whether the assessee has constructed new unit and to which unit, the license was granted and came to the conclusion that there is only one-unit i.e., DTA Unit which was established in 1994 and as per the clarification given by the SEZ Vizag, only one unit was constructed by the assessee. He further noted that the Vizag SEZ has clarified that the approval granted by it vide letter dated 9.12.2005 was in response to DTA Unit established in the year 1994. Rejecting the various explanation given by the assessee and observing that the assessee does not fulfil the conditions prescribed under the provisions of sub section 2(ii) of section 10B of the I.T. Act, the Assessing Officer rejected the claim of deduction u/s 10B of the I.T. Act.
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ITA Nos 121 and 146 of 2019 and COs 7 and 27 of 2019
Before the learned CIT (A) the assessee apart from challenging the addition on merit challenged the validity of the re- assessment proceedings initiated u/s 148 of the I.T. Act. The learned CIT (A) dismissed the validity of the re-assessment proceedings by observing as under: “4.3 With regard to the above grounds, I have carefully considered the facts of the case, assessment order and submissions of the appellant. In this case, the original assessment order u/s.143(3) was passed on 28.03.2013 by allowing the deduction u/s. 10B. Later on the case was reopened u/s.147 and the assessment u/s.143(3) r.w.s. 147 was completed on 29.12.2017 by disallowing the deduction u/s. 10B. It is clear from Section 149(1)(b) that : “if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year." The proceedings initiating u/s. 147 by the Assessing Officer is justified, as it fulfils time limit U/s. 149(1)(b). Therefore, the submissions of the appellant is not accepted. These grounds are not sustainable, hence dismissed”.
So far as the merits of the case is concerned, the learned CIT (A) allowed the claim of deduction u/s 10B of the I.T. Act by observing as under: “5.3.3 As submitted by the appellant, the completed unit has come into commencement from 26.02.2007 i.e., AY 2007-08, but the deduction u/s. 10B claimed rom AY 2008-09 onwards. Further, the appellant explained that the deduction u/s. 10B was accepted by the Assessing Officer for the AY 2008-09 to AY 2011-12. But for this AY 2010-11, even though deduction u/s. 1OB was allowed originally in the assessment order u/s. 143(3) dated 28.03.2013, the assessment was reopened u/s.147 and deduction u/s.10B was disallowed in the assessment order u/s. 143(3) r.w.s. 147 dated 29.12.2017. Therefore, the Assessing Officer already examined and allowed the deduction u/s. 10B for this AY 2010-11 in the original assessment and also in the earlier AYs 2008-09 and 2009-10. 5.3.4 Hence, due to the discussions above, I am convinced with the submissions of the appellant that the appellant was eligible to claim deduction u/s 10B. Therefore, directed the Assessing Officer to allow the claim of deduction u/s 10B and therefore, the total taxable income remains as per original assessment order u/s 143(3) dated 28.03.2013”.
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Aggrieved with such order of the learned CIT (A), the Revenue is in appeal before the Tribunal by raising the following grounds: “1. The learned CIT(A) erred in deleting the disallowance u/s. 10B of Rs. 12,91,80.370/- 2. The Learned CIT(A) erred in accepting the claim of assessee that it had established a new unit at existing factory premises without verifying approval, if any, granted by AP State Government for starting a new unit. 3. The Learned CIT(A) erred in accepting the claim of assessee that it has established a new unit at existing factory premises without verifying nature/purpose of capital expenditure incurred towards buildings machinery and without ascertaining it was in fact for new unit . 4. The Learned CITA) erred in disregarding the letter dt. 29.05.2017 issued by the Assistant Development Commissioner, VSEZ, Visakhapatnam which categorically stated that permission issued on 09.12.2005 was tor conversion of the existing DTA unit into EOU (and not for establishing new unit). 5. Any other ground that may be urged at the time of hearing of appeal.”
The assessee also filed cross objection by raising the following grounds: “1. The Commissioner of Income Tax (Appeals) erred in sustaining the reassessment order of AO who had reopened the assessment undersection 148 of the Act on a mere change of opinion or audit objection and dehors of any tangible material, in respect of an assessment which was concluded by determining the income of the under section 143(3) of the Act 2) The Commissioner (Appeals) failed to appreciate that the assessment was reopened in respect of an assessment concluded under section 143(3) of the Act in respect which four (4) years has elapsed from the end of the relevant asst year and without recording in the reasons that the "reopening of assessment is on account of reasons attributable to the Appellant as envisaged in proviso to section 147 of the Act 3) The authorities below failed to appreciate that this being a case where the deduction u/s 10B of the Act was allowed to the Appellant commencing for AY 2008-09 and for every subsequent asst year after detailed scrutiny under section 143(3) of the Act. including the present asst year, there cannot be a presumption that the alleged reasons for escapement is on account of the reason attributable to the Appellant. Page 6 of 13
ITA Nos 121 and 146 of 2019 and COs 7 and 27 of 2019
4) On the facts and in the circumstances of the case, the reassessment order Is bad in law and unsustainable as the authorities below failed to provide the tangible material which has come to his possession subsequent to the scrutiny assessment being made. The authorities below ought to have appreciated that the letter dated 29/05/2017 issued by Development Commissioner, SEZ, Visakhapatnam cannot be the basis for issuing notice dated 14/11/2016 issued under section 148 of the Act. 5) Without prejudice to above grounds, the Commissioner (Appeals) failed to appreciate that the reassessment order is illegal and unsustainable in law as the AO has not passed a speaking order meeting/overruling various objections raised by the appellant, to enable the Appellant to challenge the same”.
The learned Counsel for the assessee at the outset submitted that despite various submissions made by the assessee challenging the validity of the re-assessment proceedings, the learned CIT (A) dismissed the grounds challenging the validity of re-assessment proceedings. He submitted that in the original proceedings, full details were given and the Assessing Officer after considering various submission allowed the claim of deduction u/s 10B of the I.T. Act. He submitted that the Assessing Officer without any tangible material available on record, has reopened the assessment beyond a period of 4 years from the end of the relevant A.Y without pointing out any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. He further submitted that in the A.Y 2008-09 and 2009-10 the claim of deduction u/s 10B has already been allowed to the assessee and therefore, without disturbing the claim of deduction in the preceding year, claim of deduction for the impugned A.Y could not have been denied by the Assessing Officer. He submitted that since the learned CIT (A) while deciding the appeal in favour of the assessee on merit has passed a speaking order and has held that the assessee is eligible
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to claim deduction u/s 10B of the I.T. Act, therefore, the grounds raised by the Revenue should be dismissed.
The learned DR, on the other hand, referring to the order of the learned CIT (A) submitted that the learned CIT (A) has not at all passed a speaking order giving reasons for relief granted to the assessee u/s 10B of the I.T. Act. He drew the attention of the Bench to the various findings of the Assessing Officer as well as the reasons recorded while reopening the assessment. He submitted that the learned CIT (A) while deciding the issue in favour of the assessee on merit has simply relied on the submissions made by the assessee without giving any independent finding on her own regarding the false claim. Therefore, the order of the learned CIT (A) on merit being not in accordance with law should be reversed and that of the Assessing Officer be restored.
11.1 So far as the grounds challenging the validity of the re- assessment proceedings are concerned, he submitted that the learned CIT (A) has given justifiable reasons while upholding the validity of such re-assessment proceedings. He accordingly relied on the same.
We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the assessee in the instant case filed the original return of income on 22.09.2010 declaring loss of Rs.9,93,73,748/- under the normal provisions and book loss of Rs.4,27,57,236/- u/s Page 8 of 13
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115JB of the I.T. Act. We find the original assessment was completed u/s 143(3) dated 28.3.2013 determining the total loss of Rs. Rs.6,12,69,693/- after allowing deduction u/s 10B of Rs.12,91,80,370/-. We find the Assessing Officer reopened the assessment by recording the reasons u/s 147 of the I.T. Act on the ground that the assessee had claimed deduction u/s 10B of Rs. 12,91,80,370/- by furnishing false and inaccurate particulars and accordingly notice u/s 148 dated 27.10.2017 was issued. We find the Assessing Officer after considering the submissions of the assessee, clarification issued by Visakhapatnam SEZ, Vizag on 29.5.2017 who have clarified that no new unit was constructed by the assessee and the approval granted by it vide letter dated 9.12.2015 was in respect of DTA Unit established in the year 1994 came to the conclusion that the assessee does not fulfill the conditions prescribed under the provisions of sub section 2(ii) of section 10B of the I.T. Act. We find the learned CIT (A) while upholding the validity of the re-assessment proceedings allowed the claim of deduction under section 10B of the I.T. Act, the reasons of which have already been reproduced in the preceding paragraph. It is the submission of the learned Counsel for the assessee that since the orders for the A.Y 2008-09 and 2009-10 have attained finality where such claim of deduction u/s 10B has been granted, therefore, without disturbing the order for the preceding years, the Assessing Officer could not have disallowed the claim of deduction u/s 10B of the I.T. Act. It is also his submission that when in the original assessment proceedings, the assessee had already filed the requisite documents and the Assessing Officer after considering the details passed the order u/s 143(3), therefore, such reopening of the assessment after a period of 4 years from the end of the relevant A.Y is not valid in view of the proviso to section 147 of the I.T. Act. It is the Page 9 of 13
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submission of the learned DR that each A.Y is a separate A.Y and merely because some wrong has been done in the preceding year, such wrong cannot be perpetuated in the subsequent years. It is also his submission that when the assessee has claimed deduction u/s 10B of the I.T. Act by furnishing false and inaccurate particulars, the learned CIT (A) without addressing such findings given by the Assessing Officer could not have allowed the claim of deduction u/s 10B of the I.T. Act.
We find the order of the learned CIT (A) is a very skechy and a cryptic one. The order of the learned CIT (A) neither addresses the grounds raised by the assessee challenging the validity of the re-assessment proceedings nor addresses the allowability of claim of deduction under section 10B on account of such false and inaccurate particulars. On a pointed query raised by the Bench, the learned Counsel for the assessee submitted that he has no control over the reasons given by the learned CIT (A) while allowing the deduction especially when the assessee has filed all requisite details before the Assessing Officer as well as before the learned CIT (A). We find neither the learned CIT (A) has addressed the various issues raised by the assessee challenging the validity of the re-assessment proceedings nor the CIT (A) has addressed the issues raised by the Assessing Officer while denying the claim of deduction u/s 10B of the I.T. Act. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the learned CIT (A) with a direction to adjudicate the issue of validity of re-assessment proceedings as well as the claim of deduction u/s 10B of the I.T. Act by passing a speaking order giving pointwise reasonings on both the issues. Needless to say the
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learned CIT (A) shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the Revenue as well as the grounds raised by the ass in the cross objection are accordingly allowed for statistical purposes. ITA No.146/Hyd/2019 – A.Y 2011-12 14. The grounds raised by the Revenue are as under: “i. The CIT(A) erred in deleting the addition under section 108 of Rs.1,74.52.217/-. ii. The CIT(A) erred in accepting the claim of the assessee that it has established a new unit at existing factory premises without verifying approval, if any, granted by Andhra Pradesh State Government for the starting a new unit. iii. The CIT(A) erred in accepting the claim of the assessee that it has established a new unit at existing factory premises without verifying nature/purpose of capital expenditure incurred towards building, machinery and without ascertaining it was in fact for new unit. iv. The CIT(A) erred in disregarding the letter dated 29-05-2017 issued by Assist Commissioner, SEZ, VSP which categorically stated that permission issued on 09 2005 was for the conversion of the existing DTA unit into EOU (and not for establishing the new unit).”
v. Any other ground that may be urged at the time of hearing. C.O. 126/Hyd/2019 – A.Y 2011-12 15. The ground raised by the assessee in the C.O reads as under: “1) The Commissioner of Income Tax (Appeals) erred in not considering the issue of reopening. The CIT(A) ought to have appreciated that the reassessment is bad in law as the AO had reopened the assessment undersection 148 of the Act on a mere change of opinion or audit objection and dehors of any tangible material, in respect of an assessment which was concluded by determining the income of the under section 143(3) of the Act. 2) The Commissioner (Appeals) failed to appreciate that the assessment was reopened in respect of an assessment concluded under section 143(3) of the Act in respect which four (4) years has elapsed from the end of the relevant asst. year, and without recording in the reasons that the "reopening of assessment is on account of reasons attributable to the Appellant" as envisaged in proviso to section 147 of the Act. 3) The authorities below failed to appreciate that this being a case where the deduction u/s.10B of the Act was allowed to the Appellant
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commencing from Ay. 2008-09 and for every subsequent asst. year, after detailed scrutiny under section 143(3) of the Act, including the present asst. year, there cannot be a presumption that the alleged reasons for escapement is on account of the reason attributable to the Appellant. 4) On the facts and in the circumstances of the case, the reassessment order 4) is bad in law and unsustainable as the authorities below failed to provide the tangible material which has come to his possession subsequent to the scrutiny assessment being made. The authorities below ought to have appreciated that the letter dated 29.05.2017 issued by Development Commissioner, SEZ, Visakhapatnam cannot be the basis for issuing notice dated 14.11.2016 issued under section 148 of the Act. 5) Without prejudice to above grounds, the Commissioner (Appeals) failed to appreciate that the reassessment order is illegal and unsustainable in law as the AO has not passed a speaking order meeting/overruling various objections raised by the appellant, to enable the Appellant to challenge the same”. 16. After hearing both sides, we find the grounds of appeal raised by the Revenue and the grounds of appeal raised by the assessee in the Cross Objection are identical to the grounds of appeal raised by the Revenue and the grounds of appeal raised by the assessee in the C.O for the A.Y 2010-11. We have already decided the issue and the appeal filed by the Revenue and the Cross Objection filed by the assessee have been restored to the file of the learned CIT (A) for fresh adjudication with certain directions. Following similar reasonings, we restore the issue to the file of the learned CIT (A) for A.Y 2011-12 also for fresh adjudication. 17. In the result, appeals filed by the Revenue and the Cross Objections filed by the assessee are allowed for statistical purposes. Order pronounced in the Open Court on 11th October, 2022. Sd/- Sd/- (LALIET KUMAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 11th October, 2022. Vinodan/sps
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Copy to: S.No Addresses 1 Dy. CIT, Circle 1(2), Room No.724, 7th Floor, B Block, IT Towers Hyderabad 2 M/s. Bhagiradha Chemicals & Industries Ltd, 8-2-269/S/3/A Plot No.3, Sagar Society, Road No.2, Banjara Hills, Hyderabad 3 CIT (A)-1 ,Hyderabad 4 Pr. CIT-1, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File
By Order
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