Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
1 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA (सम�) �ी ऐ. ट�. वक�, �यायीक सद�य एवं डॉ. अजु�न लाल सैनी, लेखा सद�य) [Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
I.T.A. No. 2261/Kol/2017 Assessment Year: 2008-09
TCG Lifesciences Pvt. Ltd. Vs. Assistant Commissioner of Income Tax (PAN: AABCC0401D) Circle-11(2), Kolkata. Appellant Respondent
Date of Hearing 26.12.2018 Date of Pronouncement 08.03.2019 For the Appellant Shri A. K. Tibrewal, AR For the Respondent Shri A. K. Singh, CIT, DR
ORDER Per Shri A.T.Varkey, JM
This appeal preferred by the assessee is against the order of the Ld. CIT(A)-16, Kolkata dated 07.09.2017 for AY 2008-09. 2. By raising the first four grounds, the assessee has challenged the legal issue of validity of re-opening carried out by the AO in respect to original assessment u/s 143(3) of the Act which according to assessee is nothing but a change of opinion. 3. The brief facts of the case are that the assessee company filed its original return of income on 30.09.2008 declaring a total income of Rs.9,98,63,964/-. Later on, the assessee filed the revised return on 30.03.2010 declaring total income at nil. In the computation, the assessee claimed deduction u/s. 10B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) of Rs.8,09,38,342/- which was accepted by the department which is placed at pages 5 to 7 of the paper book, wherein we note that the AO while passing the original assessment u/s. 143(3) of the Act on 29.12.2011 has stated that “the assessee company was engaged in the business ‘analysis and synthesis of chemical compounds and data
2 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
processing’ during the previous year.” The AO has also noted “in support of assessee’s claim of expenditure and on various queries raised in course of hearing, the Ld. AR submitted various details, list and photo copies of documents. After examining the Balance sheet, P&L Account along with schedules, tax audit report, report u/s. 10B, revised computation (filed at the time of hearing) and other details and documents submitted during the course of hearing” and thereafter he went to discuss on three issues and then in the computation page he computes deduction u/s. 10B (allowable at Rs.17,33,68,059/-). However, restricted the same at gross total income at Rs.9,74,10,652/- of the assessee by order framed u/s. 143(3) on 29.12.2011. Thereafter, the AO issued notice u/s. 148 of the Act for reopening on 04.03.2013 and copy of the reasons recorded was furnished vide department’s letter dated 07.02.2014 wherein the reasons recorded to reopen is as under: "It was noticed that gross total income was arrived at for Rs. 9,74,10,652/- and deduction u/s 10B was allowed to the extent of full amount. Though allowable amount of deduction was computed at Rs.17,33,68,059/-. In terms of provisions of clause 2 to sec 10b this section applies to a undertaking only when it manufactures or produces any articles or things or computer software. In the column 8 of the 3CD report nature of business of the assessee was shown as 'analysis & synthesis of chemical compounds and data processing'. In the Form No. 56G Export Turnover as well as domestic turnover of the assessee was shown in respect of article or things. However, in the 'Notes on Accounts' (vide pt. 23 of Sch 12 of balance sheet), it was noted that 'the company is engaged in the business of providing contract research arising out of the contracts predominantly outside India .... It was further noted in the 'Details of sales' vide pt 9 to notes on accounts that whole income from sale was from 'Contract research operation '. In the col. 28 b & c of the Tax Audit Report in respect of quantitative details of raw materials and finished goods note 8 to Sch 12 was only referred. In the said note no details of finished goods and raw material was furnished. Contract research operation in no stretch of Imagination be held as manufacturing which generally involves definite raw material and finished goods. As such the assessee Co. was not entitled to deduction u/s. 10B.” 4. The above said reasons recorded by AO, to believe escapement of income was objected to by the assessee before the reassessment proceedings itself. However, the AO was of the opinion that the objection is not tenable and he repelled the assessee’s said objection to reopen by observing that assessee was mainly engaged in the business of contract research services i.e. inventing chemical methods and formulae as per the requirements of the clients. Income from selling of chemicals, that incidental output of the main operation, did not constitute substantial part of the income of the assessee. Further,
3 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
the “details of sales” vide point 9 to notes on accounts indicates that the whole income from sale was from “Contract Research Operation”. Hence, the business of assessee did not qualify as manufacture and thus not entitled to deduction u/s. 10B of the Act which was wrongly allowed to the assessee for the AY 2008-09 and hence, according to AO, the assessment was rightly reopened by issuing notice u/s. 148 of the Act. Aggrieved, the assessee preferred an appeal on this legal issue before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, the assessee is before us raising the legal issue.
Assailing the action of the Ld. CIT(A), the Ld. AR drew our attention to the fact that in the original assessment order dated 29.12.2011, the AO has acknowledged in the assessment order that he has gone through all the documents and the report u/s. 10B before framing the assessment u/s. 143(3) of the Act and took a conscious decision while restricting the deduction u/s. 10B from Rs.17,33,68,059/- to Rs.9,74,10,652/-. The Ld. AR also drew our attention to the query raised by the AO during the original assessment vide notes dated 25.10.2010 issued by the AO in respect of scrutiny proceedings wherein the questionnaire is as under: “8.7. We find from the questionnaire issued along with notice u/s 142(1) of the Act dated 25.10.2010 for the Asst Year 2008-09, the Ld. AO had raised separate queries with regard to claim of deduction u/s. 10B of the Act as follows:- (24) Give details of the export sales made during the year in the following format : Bill No. Name & Particulars Amount of Amount Date of Address of of the items sales Received receipt the buyer sold (1) (2) (3) (4) (5) (6) (25) Please give details of export sale proceeds not received within the period prescribed for claiming deduction u/s. 10B. Please produce evidence in case you have obtained any approval for extension of time. Please also indicate if the same was received within the extended time.” So according to Ld. AR, the AO had gone through the report u/s. 10B called for the details as aforesaid and has taken note in respect to the claim u/s. 10B and then applied his mind and has restricted the disallowance from Rs.17,33,68,059/- to Rs.9,74,10,652/-. So, therefore, according to ld. AR, the AO’s action to reopen is nothing but reviewing the decision of the original assessment order passed by the AO which power he does not enjoy. The Ld. AR further stated that the action of the AO to reopen is not on the basis of any
4 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
tangible material but it is on the very same material on which the original assessment order u/s. 143(3) of the Act was passed and, therefore, tantamount to mere change of opinion. And since the AO does not enjoy the power of review and merely on the change of opinion, the AO cannot reopen the assessment and, therefore, the reopening is bad in law as held by Full Bench of Hon’ble Delhi High Court in CIT vs. Kelvinator of India Ltd. (2002) 123 Taxman 433 (Del.). Per contra, the Ld. DR vehemently opposes the plea of the assessee and wondered as to how “Contract Research Services” can be equated to manufacturing activity and the AO has found out as a matter of fact that the assessee is not qualified for deduction u/s. 10B of the Act, and since assessee was only doing the “Contractual Research Services” to its clients and receiving payments and so was not carrying out any manufacturing activity to claim section 10B of the Act and therefore the AO rightly reopened the assessment, so he does not want us to interfere with the orders of the authorities below. 6. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee is engaged in the business of ‘analysis and synthesis of chemical compounds and data processing’ during the previous year. The assessee company filed its original return of income on 30.09.2008 declaring a total income of Rs.9,98,63,964/- for the AY 2008-09. Subsequently, the assessee filed the revised return on 30.03.2010 declaring total income at nil. In the computation the assessee claimed deduction u/s. 10B of the Act of Rs.8,09,38,342/-. The AO acknowledges in the original assessment order passed on 29.12.2011 u/s. 143(3) of the Act that he has gone through various documents including the Balance Sheet, P&L Account along with schedules, tax audit report, report u/s. 10B and revised computation and thereafter stated that deduction u/s. 10B of the Act is allowable at Rs.17,33,68,059/-, however, he restricted it to Rs.9,74,10,652/-. The assessee also disclosed book profit u/s. 115JB of the Act at Rs.19,51,85,420/- which was also supported by certificate from Chartered Accountant for claiming deduction u/s. 10B of the Act in Form 56G. The AO also u/s. 142(1) of the Act notes dated 25.10.2010 had raised a questionnaire regarding sec. 10B which is as under: “(24) Give details of the export sales made during the year in the following format : Bill No. Name & Particulars Amount of Amount Date of Address of of the items sales Received receipt the buyer sold
5 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
(1) (2) (3) (4) (5) (6) (25) Please give details of export sale proceeds not received within the period prescribed for claiming deduction u/s. 10B. Please produce evidence in case you have obtained any approval for extension of time. Please also indicate if the same was received within the extended time.” And thereafter doing all these exercises, the AO in the original assessment has taken a conscious decision to allow the deduction u/s. 10B of the Act by allowing Rs.17,33,68,059/- but restricting it to Rs. 9,74,10,652/-. We note from the assessment order framed u/s. 143(3) of the Act for the AYs 2005-06, 2006-07 and 2007-08 the issue of deduction u/s. 10B of the Act has been duly examined as under:
Asst Year 2005-06 - Deduction u/s 10B not claimed in view of loss Asst Year 2006-07 - Deduction u/s 10B allowed for Rs 22,74,230/- Asst Year 2007 -08 - Deduction u/s 10B not claimed in view of loss 7. In the Audit Report in Form 56G, the chartered accountant had stated that the assessee is engaged in the export of articles or things or computer software during the year ended 31.03.2008 and that the undertaking is a 100% export oriented undertaking located at International Biotech Park, Bio research Centre, Genesis Campus, 1st & 3rd floor, Phase II, Musshi, Hinjewadi, Pune-411057 and registered as EOU with Development Commission SEEPZ Special Economic Zone vide Registration No. SEEPZ:1A(II)PER:64(2005)/56/2005-06/10689 dated 29.11.2005 and also certified that the Asst. Year 2008-09 is the second year of claiming deduction u/s. 10B of the Act by the assessee. In the said certificate, the date of commencement of manufacture of production has been duly mentioned as 1.9.2006. The nature of business of the undertaking has been mentioned as business ‘analysis and synthesis of chemical compounds and data processing’. 8. From the aforesaid facts as well as taking note that in AY 2006-07 the deduction u/s. 10B was allowed for Rs.22,74,230/- wherein the AO had allowed the deduction u/s. 10B of the Act for the first time. In the present year, we find that the assessee had given all documents and the required certificate of Chartered Accountants to satisfy its claim of deduction u/s. 10B and the AO after raising queries and going through the documents for this relevant assessment year has taken a conscious decision to allow the deduction u/s. 10B of the Act, therefore, the impugned action of AO to reopen on the same materials before
6 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
him is akin to review of the earlier AO’s order which power he does not enjoy. This action of the AO to reopen based on the reasons recorded, supra, is nothing but mere change of opinion and cannot be the basis for reopening u/s. 148 read with sec. 147 of the Act as held in the plethora of judgments by the Hon’ble Apex Court and other Hon’ble High courts.
Hon’ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd., (2010) 310 ITR 561 (SC), wherein newly substituted provision of section 147 of the Act with effect from 01.04.1989 is interpreted by observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989 does not postulates conferment of power upon the AO to initiate reassessment proceeding upon his mere change of opinion.
Similarly, Hon’ble Supreme Court in the case of CIT Vs. Foramer France (2003) 264 ITR 566 (SC) affirmed the judgment of Hon’ble Allahabad High Court in the case of Foramer Vs. CIT (2001) 247 ITR 436 (All), wherein Hon’ble Allahabad High Court held as under: “Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed. It may be mentioned that a new section substituted section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new section 147 is as follows: “147. If the Assessing Officer, has 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, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.” This new section has made a radical departure from the original section 147 inasmuch as clauses (a) and (b) of the original section 147 have been deleted and a new proviso added to section 147…………………………………………… ……………………………………………………………………………………………………….. Moreover, the Tribunal in the appeal relating to the assessment of the petitioner’s own case, vide Deputy CIT v. ONGC [1999] 70 ITD 468 (Delhi) has considered the
7 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
decision of the Tribunal in Boudier Christian’s case. It is settled law that an appeal is a continuation of the original proceedings and hence when the Tribunal in the appeal relating to the petitioner has considered the decision of the Tribunal in Boudier Christian’s case, the impugned notice under section 147/148 would obviously be on the basis of a mere change of opinion by the income-tax authorities, which would not be valid as held by the Supreme Court in Indian and Eastern News- paper Society v. CIT [1979] 119 ITR 996 ; Gemini Leather Stores v. ITO [1975] 100 ITR 1 (SC) and Jindal Photo Films Ltd. v. Deputy CIT [1998] 234 ITR 170 (Delhi), etc. In the decision of the Tribunal in the assessee’s own case, Deputy CIT v. ONGC [1999] 70 ITD 468 (Delhi) it has been held that the income from the contract between the parties was business income and not fee for techni- cal services. Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal’s earlier decision in Boudier Christian’s case, it will obviously amount to mere change of opinion, and hence the notice under section 147/148 would be illegal.”
In the light of the aforesaid ratio laid by the Hon’ble Supreme court, we note that the AO does not have the power to review the assessment order. The action of AO in the present case in the light of facts discussed (supra) is nothing but “change of opinion”, on the issue which cannot be the basis to reopen the assessment and therefore the legal issue raised by the assessee against the validity of reopening succeeds and we hold that the reopening of assessment is legally untenable.
Coming to the merits of the case as to whether the assessee is engaged in manufacturing activity or not, we note that this aspect has been dealt in detail by the coordinate bench of this Tribunal though it was while examining the appeal filed by assessee against the revisional jurisdiction of Ld. CIT u/s. 263 of the Act wherein the Tribunal in ITA No. 1099/Kol/2014 for AY 2009-10 dated 07.07.2017 has gone into details and have noted as under:
8 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
9 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
10 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
11 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
12 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
13 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
14 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
15 ITA No. 2261/Kol/2017 TCG Lifesciences Pvt. Ltd, AY 2008-09
Thus, from a perusal of the aforesaid facts noted from pages 9 to 16 (supra) by the Tribunal in assessee’s own case for AY 2009-10 in ITA No. 1099/Kol/2014 order dated 07.07.2017, we hold that on merits also the assessee was carrying out manufacturing activity for the purpose of sec. 10B of the Act and, therefore, the assessee succeeds on merits also and the appeal of the assessee is allowed on both technical/legal issue as well as on merits.
In the result, appeal of assessee is allowed.
Order is pronounced in the open court on 8th March, 2019. Sd/- Sd/- (Dr. A. L. Saini) (A. T. Varkey) Accountant Member Judicial Member Dated: 8th March, 2019 Jd.(Sr.P.S.)
Copy of the order forwarded to:
1 Appellant – TCG Lifesciences Pvt. Ltd., (formerly known as TCG Lifesciences Ltd.), Block BN, Plot-7, Sector-V, Salt Lake Electronics Complex, Kolkata-700 091. 2 Respondent – A.C.I.T – Cir-11(2), Kolkata. 3 CIT(A)-16, Kolkata (sent through e-mail)
4 CIT, , Kolkata. DR, Kolkata Benches, Kolkata (sent through e-mail) 5
/True Copy, By order,
Assistant Registrar