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Income Tax Appellate Tribunal, BENCH ‘C’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM ]
Per Dr.Arjun Lal Saini, AM
The captioned appeal filed by the revenue pertaining to A.Y.2004-05, is directed against the order passed by the Commissioner of Income Tax –(A)-XII, Kolkata in Appeal No.337/XII/12/11-12, dated 07.10.2013, which in turn arises out of an order passed by the Ld. Assessing Officer u/s 147/143(3) of Income Tax Act, 1961 (in short, the Act), dated 14.11.2011. 2. The facts of the case are as stated in brief. The Assessee had filed its return of income on 11.10.2004 declaring the total income of Rs.22,10,62,757/-. The order u/.s 143(3) was passed on 29.12.2006 with total income of Rs.28,21,61,830/-. Thereafter, the Notice u/s 148 of the Act was issued on 30.03.2011, after recording the reasons for reopening. The assessee company has claimed deduction u/s 80-IB of the Act of Rs.10,14,76,091/- in respect of Khambalia unit and the same was allowed during the assessment proceedings. It was noticed later that the said unit has other income of Rs.55,67,723/-, from interest and trading of raw coal. This income was not eligible for deduction u/s 80-IB of the Act in the light of the decision in the case of Pandian Chemicals P. Ltd. Vs CIT. Thus Rs.55,67,723 has escaped assessment and reassessment has been completed on 14/11/2011. Aggrieved from the order of
2 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 reassessment U/s 147/148, the assessee has filed an appeal before the Ld.Commissioner of Income Tax (Appeals)-XII. Kolkata, who has viewed the reassessment to be invalid, and the disallowance made by the Assessing Officer has been deleted. Not being satisfied with the order of the ld CIT (A), the Revenue is in appeal before us. The grounds of appeal taken by the revenue read as follows :- “1.That on the facts and in the circumstances of the case and as per the Ld. CIT(A) erred in declaring the proceedings u/s 147 of I.T.Act, as in invalid proceedings. 2. That on the facts and in the circumstances of the case and as per law the Ld. CIT(A) erred in interpreting the facts and the circumstances of 80-IB wrongfully claimed by the assessee as change in opinion.”
The main grievance of the revenue is that the ld. CIT(A) has erred in declaring the proceedings u/s 147 of the Act, as invalid proceedings. As per the revenue the proceedings initiated by the AO u/s 147 of the Act is a valid re-assessment proceedings. Notice u/s 148 of the Act was issued on 30.03.2011, after recording the reasons for reopening. The assessee company has claimed deduction u/s 80-IB of the Act of Rs.10,14,76,091/- in respect of Khambalia unit and the same was allowed during the assessment proceedings. It was noticed later that the said unit has other income of Rs.55,67,723/-, from interest and trading of raw coal. This income was not eligible for deduction u/s 80-IB of the Act in the light of the decision in the case of Pandian Chemicals P. Ltd. Vs CIT. Thus Rs.55,67,723 has escaped assessment. Based on the above reasons recorded for reopening the ld. AO made the addition observing the followings :- “6.However the contention of assessee is not accepted. The other income of Rs.55,67,723/- is from interest and trading of raw coal. It is clear that deduction u/s 801 B is not allowable on the interest income and trading of raw coal because these receipts cannot be treated as profit and gains derived from business referred to in sub-section (1) of section 801B. The Chapter VI-A provides for incentives in the form of tax deduction essentially belong to the category of 'profit linked incentives'. Therefore, when sec. 80lA refers to profits derived from eligible business, it is not ownership of that business which attracts incentives. What attracts incentives u/s 80-lB is the generation of profits (operational profit). It is evident that section 80IB provides for allowing the deduction in respect of profits and gains derived from the eligible business. The words 'derived from' are narrower in connotation as compared to the words 'attributable to'. In other words, by using the expression 'derived from', Parliament intended to cover the sources not beyond the first degree. In the case of the assessee company, it has earned income on account of interest and trading of raw coal, which cannot be treated as receipts of the first degree. May be, these receipts are the profits attributable to the Industrial
3 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 Undertaking or an enterprise but the quantum of deduction specified u/s. 80-IB is restricted only to the profits derived from Industrial Undertaking. Basically, in actual, the receipts credited by the assessee on account of interest and trading of raw coal, belonged to the category of ancillary profits of the undertaking. In the case of CIT vs Menon Impex Pvt Ltd reported in 259 ITR 403 (Mad), it was held by the Hon'ble Madras High Court that the interest received by the assessee was on deposits made by it in the banks. It is that deposit which is the source of income. The mere fact that the deposits made was for the purpose of obtaining letters of credit which in turn used for the purpose of business of the Industrial Undertaking does not establish a direct nexus between the interest and the Industrial Undertaking. The similar view was taken by the Hon'ble Madras High Court in the case of India Comnet International reported in 304 ITR 322. In this case the assessee received the export proceeds and the same was deposited in the bank and the income was derived from the said deposit. It was held by the Hon'ble High Court that there was no direct nexus between the interest and the Industrial Undertaking. In the case of Shri Ram Honda Power Equipment reported in 289 ITR 475 it was held by the Hon'ble Delhi High Court that the interest earned on fixed deposits for the purpose of availing the credit facilities from the bank, does not have an immediate nexus with the export business and therefore, has to necessarily be treated as income from other sources and not business income. Recently, the Hon'ble Apex Court in the case of Liberty India vs. CIT reported in 317 ITR 218 (SC) has observed and held as under: "Duty Drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of the deduction under section 80-IA/80- IB of the Income Tax Act, 1961. The Income Tax Act, 1961, broadly provides for two types of tax incentives, viz. investment-linked incentives and profit-linked incentives. Chapter VIA of the Act which provides for incentives in the form of deductions essentially belongs to the category of "profit-linked incentives". Therefore, when section 80-IA/80-IB refers to profits derived from eligible business, it is not the ownership of that business which attracts the incentives: what attracts the incentives under section 80-IA/80-IB is the generation of profits (operational profits). It is for this reason that Parliament has confined deduction of profits derived from eligible business mentioned in sub-section (3) to (11 A) constitutes a stand-alone item in the matter of computation of profits. Sections 80-IB and 80-IA are a code by themselves as they contain both substantive as well as procedural provisions. Section 80-IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. The connotation of the words "derived from" is narrower as compared to that of the words "attributable to". By using the expression "derived from" Parliament intended to cover sources not beyond the first degree.
Sections 80-I, 80-IA and 80-IB are to be read as having a common scheme. Sub-section (5) of section 80-IA (which is required to be read into section 80-IB provides for the manner of computation of the profits of an eligible business. Such profits are computed as if such eligible business is the only source of income of the assessee. Therefore, devices adopted to reduce or inflate the profits of the eligible business have to be rejected in view of the overriding provisions of section 80-IA (5). Section 80-I, 80IA and 80-IB provides incentives in the form of deductions which are linked to profits and not investment. On analysis of sections 80-IA and 80-IB it becomes clear that any Industrial Undertaking which becomes eligible on satisfying sub-.section (2) would be entitled to deduction under sub-section (1) only to the extent of profits
4 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 derived from such industrial undertaking after the specified date. Apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of the profits. This is the importance of the words "derived from an industrial undertaking" as against "profits attributable to an industrial undertaking". DEPB/ Duty drawback are incentives which flow from the schemes framed by the Central Government or from section 75 of the Customs Act, 1962. Incentive Profits are not profits derived from eligible business under section 80-IB : they belong to the category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/ Duty drawback cannot be credited against the cost of manufacture of goods debited in the profit and loss account and they do not fall within the expression "profits derived from industrial undertaking" under section 80-IB." In view of above, on careful consideration of the facts and in law, it is clear that the other income in the form of interest and trading of raw coal, credited by the assessee in its profit and loss account cannot be treated as "derived from" industrial undertaking on the similar analogy and the principal laid down by the Hon'ble Supreme Court in the case of Liberty India (supra), it can be concluded that other income in the nature of interest and trading of raw coal, are not the profits derived from eligible business u/s 80- IB. They belong to the category of ancillary profits of such undertaking. Hence deduction of an amount RS.55,67,723/- is withdrawn.”
Aggrieved from the order of the ld. AO the assessee filed an appeal before the ld. CIT(A)-XII, Kolkata, who has deleted the addition made u/s 147 of the Act observing the followings :- “ In the case of CIT v. Kelvinator India Ltd. (2010) 187 Taxman 312 (SC), the Apex Court has observed that prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions. viz .. if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe', failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess, but the reassessment has to be based on fulfillment of certain pre-conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the grab of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 01.04.1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the
5 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words, 'reason to believe', the Parliament re- introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. In an earlier decision in the case of ITO v. Nawab Mir Barkat AIi Khan Bohodut (1974) 97 ITR 239 (SC), the Hon'ble Supreme Court has held that "having second thoughts on the same material, and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceeding under section 147" 5.1.5 In view of the facts of the case and the emerging legal position, I am of the considered view that the condition precedent for issue of notice under sec. 148 of the Act is not fulfilled in this case. Evidently, the escapement of income has not been or account of any omission or failure on the part of the appellant to disclose fully and truly, all material facts relevant for assessment. It is also clear that the initiation of reassessment proceedings in the present case by the Assessing Officer being merely or the basis of change of opinion was not permissible under sec. 147 read with section 148 of the Act and such the re-assessment proceedings are invalid. These grounds of appeal are allowed accordingly.”
Not being satisfied with the order of the ld. CIT(A), the revenue is in appeal before us.
The ld. Departmental Representative for the revenue has primarily reiterated the stand taken by the AO which we have noted already in our earlier para, therefore the same is not being repeated for the sake of brevity. 6. On the other hand, the ld. Counsel for the assessee has submitted that there is no escapement of income on account of any omission or failure on the part of the assessee to disclose fully and truly all material facts for assessment. The ld. AR submitted that the initiation of re-assessment proceedings in the present case by the AO is being merely on the basis of change of opinion which is not permissible u/s 147 r.w.s. 148 of the Act., The AO in this case did not find any tangible material. Besides the reopening has been done in this case after four years where the assessee has disclosed fully and truly all material facts at the time of original assessment. Therefore it is not a valid reassessment but it is merely a change of opinion. The assessee has used the same material which was available to him at the time of original assessment. He did not find any new material to reopen the assessment u/s 147 of the Act. This way, the ld. AR for the assessee has strongly defended the order passed by the ld. CIT(A).
6 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 7. Having heard the rival submissions we are of the view that there is merit in the submissions of the ld. AR for the assessee as he has submitted that it is not a case of any omission or failure on the part of the assessee to disclose fully and truly all material facts relevant for assessment at the time of original assessment. The assessee has submitted that all documents and evidences at the time of original assessment. AO did not find any new material and any tangible material to establish that there is escapement of income. He has used the same material which was available to him at the time of original assessment proceedings. Therefore it is a kind of review of order made by him. If the AO does review of his order himself then it is ultra vires, which is not permissible under law. The ld. AR also relied on the case law submitted before the ld. CIT(A). Based on the above factual position and the case law cited above we confirm the order of the ld. CIT(A). 9. In the result, the appeal filed by the revenue is dismissed. Order pronounced in the court on 21.09.2016.
Sd/- Sd/- [N.V.Vasudevan] [Dr.Arjun Lal Saini] Judicial Member Accountant Member Date: 21.09.2016. R.G.(.P.S.) Copy of the order forwarded to: 1. M/s. Gujarat NRE Coke Ltd., 22, camac Street, Block-C, 5th Floor, Kolkata-700016.
2 D.C.I.T., Circle-12, Kolkata. 3. CIT(A)-XII, Kolkata 4. CIT-IV, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.