SAFEPACK INDUSTRIES LIMITED,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE - 6, PUNE

आदेश / ORDER

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the order passed by the CIT(A)-4, Pune on 02-01-2017 in relation to the assessment year 2003-04.

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furnished return which was processed u/s. 143(1) of the Act.

The AO initiated re-assessment proceedings on the ground that

the calculation of claim of deduction u/s. 80HHC should have

been made after the reduction of the amount of deduction u/s.

80IB of the Act. During the course of reassessment

proceedings u/s 147 of the Act, the assessee unsuccessfully

objected to the initiation of re-assessment. The AO completed

the assessment by reducing the amount of deduction u/s.

80HHC to Rs.5,66,035/- as against the original claim of the

assessee at Rs.9,46,897/- Reduction in the amount of

deduction took place not only on account of reducing the

amount of deduction u/s. 80IB from the amount of eligible

profits for the purpose of computation of deduction u/s.

80HHC but the AO also made certain adjustments to the

amount of export turnover and profits etc. The assessee could

not convince the ld. CIT(A) on its point of view, who not only

affirmed the initiation of re-assessment proceedings but also

the reduction of deduction on merits.

material on record. The reasons for re-opening the re-

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assessment, a copy of which is available at page 12 of the

paper book, are reproduced as under :

“The assessee company is engaged in manufacture and sale of protective packing materials and trading in special packaging items. In the computation of income, the assessee has claimed deductions u/s.80HHC of Rs.9,46,897/- and Rs.12,17,501/- u/s.80IB. As per clause (9) below sec.80IA, the profit allowed as claimed for 80IA deduction should not be considered for allowing any other deduction under Chapter-VIA deduction. As such, the deduction of Rs.12,17,501/- relating to sec.80IB is to be reduced from adjusted profit of business worked out as under : Adjusted profit as per form 10CCAC Rs.42,26,406 Less : Ded. Claimed u/s.80IB Rs.12,17,501 ------------------ Rs.30,08,905/- Deduction u/s.80HHC = Adj. profit X Export/Total turnover – 30,08,905 x 2,11,75,584 = 15,07,775 4,22,57,839 50% thereof (for A.Y.2003-04) = 7,53,887 As against Rs.7,53,887, the assessee has claimed deduction u/s.80HHC amounting to Rs.9,46,897/-. The return was processed u/s.143(1). In view of the above, I have reason to believe that the income chargeable to tax amounting to Rs.1,93,010/- has escaped assessment within the meaning of clause (b) under Expln. (2) to sec.147 of the Act.”

dissatisfied with the assessee’s computation of deduction u/s

80HHC by not reducing the amount of deduction u/s.80IB at

Rs.12,17,501/- from the amount of eligible profits. That is

how, he sought to reduce the amount of deduction u/s.80HHC

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at Rs.7,53,887/- in the reasons for initiation of re-assessment

proceedings.

meant for claiming deduction u/s. 80IB, a copy placed at page

27 of the paper book, that the assessee computed eligible profit

at Rs.44,94,739/- and claimed deduction u/s. 80IB @ 30% at

Rs.12,17,501/-. Apart from that, assessee also claimed

deduction u/s. 80HHC in terms of audit report in Form

10CCAC amounting to Rs.9,46,897/- which calculation is

available on page 19 of the paper book. Thus, the assessee

claimed deduction u/s. 80IB as well as section 80HHC. The

AO has not denied the otherwise availability of deduction

under two sections. The only point of view of the AO, at the

stage of initiation of re-assessment proceedings, was that the

amount of deduction u/s. 80IB should have been reduced from

the amount of eligible profits for the purpose of computing

deduction u/s. 80HHC. For this proposition, the AO took

support from sub-section (9) of section 80IA, which reads as

under :-

`(9) Where any amount of profits and gains of an undertaking or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such

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profits and gains shall not be allowed under any other provisions of this Chapter under the heading"C.—Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be. ‘

that where an amount of profit is allowed as deduction under

the section, then no further deduction to the ‘extent of such

profits’ shall be allowed under any other provisions of Chapter

VIA-C. This shows that the cap or the ceiling as put up in

sub-section (9) of section 80IA is on the amount of eligible

profits. To put it simply, if deduction u/s. 80IA has been

allowed at the rate of 100% on the amount of eligible profit at

Rs.100/-, then no further deduction under any of the sections

contained in Chapter VIA-C, shall be allowed. If, however,

the amount of deduction u/s. 80IA is less than 100%, as in the

case under consideration it is 30%, the deduction under other

sections of Chapter VIA-C can be allowed but not exceeding

Rs.70/-. (Rs.100/-, being the amount of eligible profit minus

Rs.30/-, being the amount of deduction u/s. 80IA). The nitty-

gritty of the matter is that total amount of deductions under all

the eligible sections of Chapter VI-A-C should not cross the

amount of eligible income. Sub-section (9) of section 80IA

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does not lay down that if `deduction’ has been allowed u/s

80IA with reference to `profits’ of the eligible business, then

such `profits’ cannot be considered for the purpose of any

other deduction under Chapter VIA-C. The Hon’ble Bombay

High Court in the case of Associated Capsules (P) Ltd. Vs.

DCIT and another (2011) 332 ITR 42 (Bom.) has held that sec.

80-IA(9) does not affect the computability of deduction under

various provisions under heading ‘C’ of Chapter VI-A and

only affects the allowability of such deductions under other

provisions so that the aggregate deduction under s. 80-IA and

other provisions under heading ‘C’ of Chapter VI-A do not

exceed 100 per cent of the profits of the business. It rejected

the submission of the Department that deduction allowable

under s. 80HHC has to be computed on the profits of the

business as reduced by the profits allowed as deduction under

s. 80-IA. It is further relevant to note that the Hon’ble

Supreme Court in the case of ACIT vs. Micro Labs Ltd. (2016)

380 ITR 1 (SC) has referred this matter to the larger bench

after considering the judgment of Hon’ble jurisdictional High

Court in the case of Associated Capsules (P) Ltd. (supra). The

Hon’ble Bombay High Court in CIT Vs. Merck Ltd. (2016)

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389 ITR 70 (Bom.) was once again confronted with the same

controversy. After considering the pendency of the matter

before the larger bench of the Hon’ble Supreme Court in the

case of Micro Labs (supra), the Hon’ble High Court followed

its earlier decision in the case of Associated Capsules (P) Ltd.

(supra) and refused to admit similar question raised by the

Revenue in its appeal. In view of the foregoing discussion, I

am of the considered opinion that no fault can be found with

the assessee in claiming the amount of deduction u/s. 80IB at

Rs.12.71 lakhs and u/s. 80HHC at Rs.9.46 lakhs against the

total eligible income of Rs.44.94 lakhs. I, therefore, overturn

the impugned order and direct not to reduce the amount of

deduction u/s. 80IB while computing the deduction u/s.

80HHC of the Act.

the computation of deduction u/s. 80HHC, namely, the

adjustments in the amount of turnover and profits etc.,

AO resorted to the re-assessment on account of one reason,

which has been extracted above. While discussing it, I have

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held that the AO was not justified in reducing the amount of

deduction u/s 80IB while calculating the amount of deduction

u/s 80HHC of the Act.

reason to believe that any income chargeable to tax has

escaped assessment for any assessment year, he may, subject

to the provisions of sections 148 to 153, assess or reassess

such income and also any other income chargeable to tax

which has escaped assessment and which comes to his notice

subsequently in the course of the proceedings under this

section…’. A bare perusal of the above provision manifests

that the AO is fully empowered to bring to tax any other

income which has escaped assessment and which comes to his

notice subsequently in the course of proceedings u/s 147, apart

from the income escaping assessment on which the AO

formed reason to believe about the escapement of income and

issued notice u/s 148. The use of words ‘and ’ between the

income escaping assessment forming reasons to believe for

issuing notice u/s 148 and other income chargeable to tax

which escaped assessment and comes to the notice of the AO

in the course of the proceeding, amply shows that the

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existence of the former is a pre-condition for taxing the latter.

To put it simply, if the grounds set out in the re-assessment

notice are non-existent, i.e., either no addition is made on such

grounds or the addition so made does not pass the scrutiny by

the appellate forums, then, obviously, no further addition can

be made for income which comes to his notice during the

course of proceedings u/s 147. Without there being such a

deterrent, the AO could have got unhindered powers to initiate

re-assessment at the drop of a hat without any legally

sustainable reasons and then made other additions resulting in

multiplicity of proceedings, which the legislature has sought

to curb. Any lawful jurisdiction to make addition on account

of other incomes coming to the notice of the AO during the

course of proceedings u/s 147 can be acquired only on the

foundation of a validly acquired jurisdiction on legally

sustainable items of income escaping assessment forming

reasons for issuing notice u/s 148. In other words, if the AO

fails to acquire a valid jurisdiction to make re-assessment on

the basis of his reasons, then, he is also debarred for making

additions for other incomes chargeable to tax which escaped

assessment and come to his notice subsequently in the course

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of proceedings u/s 147. The Hon’ble Bombay High Court in

CIT vs. Jet Airways (I) Ltd. (2011) 331 ITR 236 (Bom) has

held to this extent. Similar view has been taken by the

Hon’ble Delhi High Court in CIT vs. Chiel Communications

India Pvt. Ltd. (2013) 354 ITR 549 (Del).

of the principle as discussed hereinabove, it turns out that the

only reason taken note of by the AO before issuing notice u/s

148 is non-existent and, resultantly, there is no question of

making any other addition or adjustment to the amount of

income. I, therefore, set aside the assessment order passed by

the AO u/s 147 read with section 143(3) of the Act. As such,

there is no need to discuss other adjustments made by the AO

in the computation of deduction u/s 80HHC of the Act. As the

AO is not competent to make any other addition/disallowance

in the instant case, all other adjustments made by the AO to

different limbs in the computation of the amount of deduction

u/s 80HHC are liable to be set aside.

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Order pronounced in the Open Court on 11th December, 2018.

Sd/- (R.S.SYAL) उपा�य�/ VICE PRESIDENT उपा�य� उपा�य� उपा�य�

पुणे Pune; �दनांक Dated : 11th December, 2018 सतीश

आदेश आदेश क� आदेश आदेश क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत / Copy of the Order is forwarded to : क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

ITA No.2376/PUN/2017 Safepack Industries Limited

Date 1. Draft dictated on 11-12-18 Sr.PS 2. Draft placed before author 11-12-18 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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