ITO, NEW DELHI vs. M/S NEETEE CLOTHING (P) LTD.,, NEW DELHI

PER A.T. VARKEY, JUDICIAL MEMBER :

This appeal, at the instance of the revenue, is directed against the

order of the Commissioner of Income-tax (Appeals)-XVI, New Delhi

dated 30.10.2012 for the assessment year 2002-03.

“1. Whether on the facts & in the circumstances of the case, the Ld. CIT (A) has erred in deleting disallowance u/s 80-IA/80-IB of the Act amounting to Rs.44,95,392/- u/s 148/150(1) of the Act. 2. Whether on the facts & in the circumstances of the case, the Ld. CIT (A) has erred in holding that no notice can be issued u/s 148

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to the assessee relevant to A.Y. 2002-03 even though the same was issued to carry out the order of the Hon’ble Delhi High Court in the case of the assessee relevant for A.Y. 2003-04. 3. Whether on the facts & in the circumstances of the case, the Ld. CIT (A) has erred in holding that the provisions of section 150 (1) of the I.T. Act were not applicable in this case.”

disposed of together as under.

attached with the return of income for the year under consideration i.e. AY

2002-03, gross total income had been computed at Rs.1,47,16,979/-. Out

of this total income, the assessee has claimed two deductions under chapter

VIA as under:-

U/s 80HHC Rs.1,02,21,587/-

U/s 80-IA/B @ 30% Rs. 44,95,392/-

The notice u/s 148 read with section 150 of the Income-tax Act, 1961

(hereinafter ‘the Act’) dated 15.03.2011 was issued to the assessee. In

reply vide letter dated 24.03.2011, the assessee had submitted that no

appeal had been preferred before any authority for the year under

consideration i.e. AY 2002-03, therefore, no notice could be issued u/s 148

beyond the time limit mentioned in section 149 and submitted that as per

section 149(1) (b) notice can be issued only within six years from the end

of the assessment year, therefore, last date for the issue of notice was 31-

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03-2009 whereas notice was issued on 15.03.2011. It was submitted by

the assessee that since the notice issued was not legally valid, since being

time barred, the proceedings for AY 2002-03 may be dropped. The AO

noticed that both the deductions had been claimed on the total amount of

gross total income, whereas, according to him, as per the provisions of

section 80-IA(9), deduction u/s 80HHC was to be computed after

deducting from the gross total income, the amount already allowed as

deduction u/s 80-IA/80IB. The AO observed that though no scrutiny

assessment u/s 143(3) or any proceeding was initiated u/s 147 was made

in the assessment year 2002-03 of the assessee, therefore, the entire

amount of deductions claimed by the assessee were incorrectly allowed u/s

143(1) of the Act. However, he observed that in the assessment for AY

2003-04, the AO acting on the provisions of section 80-IA(9), computed

the amount of deduction u/s 80HHC after deducting from the gross total

income, the amount of deduction allowed u/s 80-IA/IB of the Act and the

assessee had contested this issue up to the Hon’ble High Court stage and

the Hon'ble Delhi High Court vide its order dated 29.11.2010 had clearly

held in paras 42 & 43 of its order that the deduction under any other

section of chapter VI-A shall be computed only after deducting from the

gross total income the deduction already allowed u/s 80-IA/IB of the Act. .

The AO observed that in the P&L account for the year under

consideration, it had been noticed that the gross total income of

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Rs.1,47,16,979/- had been reached after including receipts on account of

Duty Draw back (DDB) of as much as Rs.3,21,28,469/-. He observed that

as per the decision of the Hon'ble Supreme Court in the case of CIT Vs.

Sterling Foods 237 ITR 579 and several other cases, any receipt/income on

account of DDB or other export incentives is not to be treated as income

derived from the business of industrial undertaking and thus, not eligible

for deduction u/s 80IA/IB. He further observed that in a number of cases,

Hon'ble Supreme Court had held that income on account of DDB and other

export incentives is income resulting from some schemes given by the

Government, and these cannot be considered as derived from the eligible

business of the industrial undertaking, thus, any receipt on account of Duty

draw Back was liable to be excluded for the purposes of computation of

deduction/s 80-I. The AO noticed that the assessee failed to exclude the

receipts/income on account of Duty Draw back while computing deduction

u/s 80-IB in this case. He observed that if this amount of Rs.3,21,28,469/-

was excluded, the resultant figure would be a huge loss of over

Rs.1,74,11,490/-. Thus, there would be a loss of over Rs.1.74 crores from

the Industrial Undertaking rendering the assessee ineligible for any

deduction u/s 80-IA/IB of the Act. The assessee vide letter dated

07.11.2011 pointed out to the AO that in the Hon'ble High Court’s order,

there was no such direction that deduction u/s 80IA needs to be

recomputed and the issue of deduction u/s 80IA after duty back or before

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duty drawback was not at all raised by the department and not even

discussed in the Hon'ble High Court order. The assessee pleaded before

the AO that in the absence of any such clear direction, deduction u/s 80 IA

was not to be recomputed. But the AO did not accept the assessee’s reply

and following the decisions of the Hon'ble Supreme Court, the AO

observed that this aspect was also covered by the provisions of section

150(1) of the Act. The AO held that no deduction at all was allowable to

the assessee u/s 80-IB whereas, the amount of Rs.44,95,392/- had been

allowed to the assessee u/s 143(1) because the said amount was claimed

by the assessee in the return of income.

before the first appellate authority and the ld. CIT (A) deleted the addition

made by the AO as under :-

“6.1 I have considered the facts of the case, the findings of the AO and the submissions made by the appellant. There is no dispute in the instant appeal that no assessment u/s 143 (3) or u/s 147 was ever made in the case of the appellant for the A.Y. 2002-03 and only processing u/s 143 (1) was completed before the issue of notice u/s 148. Therefore, no appellate order was also ever passed in the case of the appellant for A.Y. 2002-03. There is also no dispute in the instant case that notice u/s 148 issued on 15.03.2011 is beyond the time limit of six years from the end of the assessment year as provided in see 149. Therefore, the notice issued u/s 148 is barred by limitation provided u/s 149. The AO issued the notice u/s 148 taking the shelter of see 150 (1) of the I.T. Act. 6.2 The AO initiated the proceeding u/s 147 on the ground that Hon'ble Delhi High Court has given the finding dated 29111/2010 in the case of the assessee for A. Y. 2003-04 that the deduction under any other section of chapter VIA shall be computed only after deducting from the gross total income, the deduction already

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allowed u/s 80IA/IB of the Act. Since no assessment was made in the assessment year 2002-03, therefore, the entire amount of deduction claimed by the assessee were allowed u/s 143 (1) of the IT Act. In view of the findings for A.Y. 2003-04 by the Hon'ble High Court and as per the provisions u/s 150 (1) of the IT Act, the case for the A.Y. 2002-03 has been reopened by the AO. Therefore, there is also no dispute that the proceeding u/s 147 were initiated for the A.Y. 2002-03 on the bases of order of Hon'ble High Court for AY. 2003-04. In other words, there is no order of High Court order for A.Y. 2002-03.

6.3 Before considering the issue as to whether AO is justified in taking the shelter of sec 150, it is pertinent to analyse the section 150.

"Provision for cases where assessment is in pursuance of an order on appeal, etc.

(2) The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken"

The object of enacting s. 150 (1) is to really give effect to the orders made by the superior authorities/courts under the Act or the Constitution and thus bring the assessments for the year or years, as the case may be, in conformity with those orders without any time- limit. In a case covered by s. 150 (1), the question of limitation applicable to reopening of assessment or escaped assessment does not apply. The words "in consequence of or to give effect to any finding or direction contained in an order passed by any authority in

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any proceeding under this Act by way of appeal, reference or revision" must necessarily relate to an order made with reference to a particular assessment year or years and that must necessarily be by a superior authority or court competent to make the same. The words "any proceeding under this Act by way of appeal reference or revision" cannot be read as to give effect to an order made in any case and for any period and of any person. These words should be so construed as referable to an order made for a particular year or years of that particular assessee and not of others. Reliance is placed on Consolidated Coffee Ltd. vs. ITO, 155 ITR 729 (Kar.). In the instant case, there is no dispute at the cost of repetition that the particular order of the court relates to A.Y. 2003-04 and not to A.Y. 2002-03 which is the year of appeal.

6.4 Further, sub-section (2) of s. 150 enacts the situation where the provisions of sub-s. (1) will not be applicable. Accordingly, the provisions of sub-so (1) shall not apply where the reassessment proceedings would have been barred by time even at the time when the order, which was the subject-matter of appeal, revision, etc., was passed. In other words, sub-s (2) provides a rider as if in the nature of a proviso to sub-s. (1) providing that the provisions of sub-s (1) shall not apply where by virtue of any other provision limiting the time within which action for assessment, reassessment or recomputation may be taken, such assessment, reassessment or recomputation is barred on the date of the order which is the subject- matter of the appeal, reference or revision in which the finding or direction is contained. It would, thus, mean that an appellate or revisional authority cannot give a direction for assessment or reassessment which goes to the extent of conferring jurisdiction upon the Assessing Officer if his jurisdiction had ceased due to the bar of limitation. If the issuing of a notice for assessment or reassessment for a particular assessment year had become time- barred at the time of the order, which was the subject-matter of the appeal, the provisions of s. 150 (1) cannot be invoked for making an assessment or reassessment. It follows, therefore, that if the original order which was the subject-matter of appeal, reference or revision could not have been passed, when it was purported to have been passed by reason of its being barred by limitation, the same could not be revived u/s 150 (1). Reliance is placed on Gauri Shankar Choudhary v. Addl. CIT (1998) 234 ITR 865 (Pat) & CIT v, Vaikundom Rubber Co. Ltd., (2001) 249 ITR 19 (Ker.)

6.5 A three-judge bench of the Hon'ble Apex Court in K.M. Sharma vs. ITO, 254 ITR 772 (SC) points out that sub-so (2) aims at putting an embargo on reopening assessments, which have attained finality on the expiry of the prescribed period of limitation. Sub-

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section (2), in putting such embargo, refers to the whole of sub-s (1), meaning thereby to insulate all assessments, which have become final and may have been found liable to reassessments or recomputation either on the basis of orders in proceedings under the Act or orders of courts passed under any other law. On a combined reading of sub-so (1) as amended w.e.f. April 1, 1989, and sub-so (2) of S. 150 as it stands, a fair and just interpretation would be that the authority under the Act has been empowered only to re-open assessments, which have not already been closed and attained finality due to the operation of the bar of limitation u/s 149. 6.6 To sum up section 150 is in the nature of a proviso to S. 149. A reading of sub-s. (1) of S. 150 shows that where the reassessment proceedings are initiated in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under the Act by way of appeal, reference or revision, the time-limits prescribed in S. 149 shall not apply, and that notice u/s 148 can be issued at any time. Sub-section (2), however, is again in the nature of a proviso to sub-s. (1). It says that the provisions of sub-s. (1) shall not apply where, by virtue of any other provision limiting the time within which action for assessment, reassessment or recomputation may be taken, such assessment, reassessment, or recomputation is barred on the date of the order which is the subject-matter of the appeal, reference or revision in which the finding or direction is contained. Reliance is placed on CIT V. G. Vishwanatham, (1998) 172 ITR 401 (AP). In view of the above as the order of Hon'ble High Court is not in respect of AY 2002-03, as no proceeding is pending for the said assessment year and as the proceeding initiated u/s 147 for the A.Y. 2002-03 are barred by limitation provided u/s 149, therefore, the AO is not empowered to reopen the same u/s 150(1), considering the restrictions placed by section 150 (2) of the IT Act. The action of the AO is beyond the jurisdiction enshrined under the IT Act.”

was not justified in deleting the disallowance u/s 80IA/80IB amounting to

Rs.44,95,392/- u/s 148/150 (1) of the Act. He submitted that the CIT (A)

has also erred in holding that no notice can be issued u/s 148 to the

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assessee for AY 2002-03 even though the same was issued pursuant to the

order of the Hon’ble Delhi High Court in the case of the assessee for AY

2003-04. So, therefore, he wants us to reverse the order of the CIT (A) and uphold the order of the AO.

made before the AO and CIT (A). The substance of the submissions of the

ld. AR is as under :-

(i) The notice u/s 148 read with section 150 was issued to the assessee. As no appeal had been passed by any authority in the year under consideration (AY 2002-03), therefore, no notice could be issued u/s 148 beyond the time limit mentioned in section 149. As per section 149(1) (b), notice can be issued only within six years from the end of the assessment year, therefore, last date for the issue of notice was 31-03-2009 whereas notice was issued on 15.03.2011 and, therefore, the notice is time barred. (ii) For the AY 2003-04 in the assessee’s case, the Hon'ble Delhi High court held that deduction u/s 80HHC shall be computed only after deducting from the gross total income the deduction already allowed u/s 80-IA/IB of the Act. This order was for AY 2003-04 and there was no direction to reopen the case for any other year and despite that AO reopened the case for AY 02-03 u/s 150(1). Even the Department did not raise this issue before the Tribunal or Hon’ble High Court. (iii) Pursuant to reopening of the assessment for AY 2002-03 u/s 150(1), assessment order was passed and surprisingly

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deduction u/s 80IB was recomputed as per the findings of Hon'ble Supreme Court in the case of CIT vs. Sterling Food 237 ITR 579. The AO erred in interpreting section 150(1) of the Act since the order of the Hon'ble High Court was for AY 2003-04 and not for AY 02-03. The object of enacting section 150(1) is to really give effect to the orders made by the superior authorities/Courts under the Act or the Constitution and, thus, bring the assessments for the year or years, as the case may be, in conformity with those orders without any time limit. However, the words ‘in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under this Act by way of appeal, reference or revision,' used in section 150(1) must necessarily relate to an order with reference to a particular assessment year or years and that must necessarily be by a superior authority or Court competent to make the same. The words 'any proceedings under this Act by way of appeal, reference or revision' cannot be read as to give effect to an order made in any case and for any period and of any person. In the scheme and context, these words should be so construed as referable to an order made for a particular year or years of that particular assessee and not of others. Further, while dealing with the second proviso to section 34(3) of the 1922 Act, which is equally applicable in construing section 150(1) of the 1961 Act which is somewhat analogous and corresponds to that provision, the Supreme Court in the case of ITO v. Murlidhar Bhagwan Das [1964 52 ITR 335 & Rajinder Nath v. CIT [1979] 120 ITR 14 has also taken the same view. Same opinion was also expressed by Karnatka

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High court in the case of consolidated Coffee Ltd - 155 ITR 729 & High Court of Calcutta in the case of Peico Electronics 210 ITR 991.

So, therefore, the ld. AR wants us not to interfere with the order of the ld.

CIT (A) and the same may be upheld.

available on record and also gone through the orders relied upon. We find

that there is no dispute in the instant appeal that no assessment u/s 143 (3)

or u/s 147 was ever made in the case of the assessee for the year under

consideration (AY 2002-03) and only processing u/s 143 (1) was

completed before the issuance of notice u/s 148, therefore, question of any

appellate order being passed in this case does not arise We also find that

there is also no dispute that notice u/s 148 issued on 15.03.2011 which is clearly beyond the outer time limit of six years and is, therefore, hit by

limitation. However, we find that the AO initiated the proceeding u/s 147

on the basis of the judgment of Hon'ble jurisdictional High Court in

assessee’s own case for AY 2003-04 wherein, it was held that the

deduction under any other section of chapter VIA shall be computed only

after deducting from the gross total income, the deduction already allowed

u/s 80IA/IB of the Act. We find that on the said finding of the Hon’ble

High Court, the AO relied upon the provisions u/s 150 (1) of the Act to

reopen the case for the A.Y. 2002-03. We take note of the fact that there is

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also no dispute about the fact that the proceeding u/s 147 was initiated for

the assessment year 2002-03 on the basis of order of Hon'ble High Court

for assessment year pertains to 2003-04 and there is no order for the relevant A.Y. 2002-03 which is before us. After going through the

provisions of Section 150, the ld CIT(A) has rightly interpreted that the

object of enacting section 150 (1) is to give effect to the orders made by

the superior authorities/Tribunals under the Act or the Constitutional

Courts; and to bring the assessments for the year or years, as the case may

be, in conformity with those orders without any prescribed time-limit; and

in a case covered by section 150 (1), the question of limitation does not

arise. The ld CIT(A) rightly observed that the words "in consequence of or

to give effect to any finding or direction contained in an order passed by

any authority in any proceeding under this Act by way of appeal, reference or revision" must necessarily relate to an order made with reference to a

particular assessment year or years and that must necessarily be by a

superior authority or court competent to make the same from proceedings

before it as per law. Further, we concur with the opinion of the ld CIT(A)

that the words "any proceeding under this Act by way of appeal reference

or revision" cannot be read as to give effect to an order made in any case

and for any period and of any person. These words should be so construed

as referable to an order made for a particular year or years of that particular

assessee and not of others.

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9.1 Further, we take note the ld CIT(A) has rightly observed that sub-

section (2) of section 150 enacts the situation where the provisions of sub-

section (1) will not be applicable. Accordingly, we find that the provisions of sub-section (1) shall not apply where the reassessment proceedings

would have been barred by time even at the time when the order, which

was the subject-matter of appeal, revision, etc., was passed. In other words,

sub-section (2) provides a rider as if in the nature of a proviso to sub-

section (1) providing that the provisions of sub-section (1) shall not apply

where by virtue of any other provision limiting the time within which

action for assessment, reassessment or recomputation may be taken, such

assessment, reassessment or recomputation is barred on the date of the

order which is the subject-matter of the appeal, reference or revision in

which the finding or direction is contained. It would, thus, mean that an appellate or revisional authority cannot give a direction for assessment or

reassessment which goes to the extent of conferring jurisdiction upon the

Assessing Officer if his jurisdiction had ceased due to the bar of limitation.

If the issuing of a notice for assessment or reassessment for a particular

assessment year had become time-barred at the time of the order, which

was the subject-matter of the appeal, the provisions of section 150 (1)

cannot be invoked for making an assessment or reassessment. It follows,

therefore, that if the original order which was the subject-matter of appeal,

reference or revision could not have been passed, when it was purported to

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have been passed by reason of its being barred by limitation, the same could not be revived u/s 150 (1). 9.2 As afore stated, the order of Hon’ble High Court was passed for AY 2003-04 and the year before us for consideration is AY 2002-03. Since the order of Hon'ble High Court is not in respect of AY 2002-03; and it is not in dispute that no proceeding is pending for the year under consideration; in the said factual scenario, the proceedings initiated u/s 147 for the AY 2002-03 are impermissible and, therefore, the AO is not empowered to reopen the same u/s 150(1), considering the restriction placed by section 150 (2) of the Act. Accordingly, we do not find any infirmity in the order of the CIT (A) and the same is upheld. The grounds taken by the revenue are dismissed. 10. In the result, the appeal of the revenue is dismissed. Order pronounced in open court on this 21st day of October, 2015. Sd/- sd/- (O.P. KANT) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 21st day of October, 2015 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-XVI, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.