AI Insights
The case involves Ethix Healthcare, which appealed against the orders of the AO and CIT(A) concerning the assessment year 2012-13. The primary contention was the incorrect application of section 147 of the Income Tax Act, 1961, leading to a reassessment that included income from endorsement and packing charges for which deductions under section 80IC were claimed. The AO had initially allowed these deductions but later disallowed them in the reassessment, considering the income as not directly derived from manufacturing activities. The CIT(A) upheld this decision, leading to the appeal before the Tribunal. The Tribunal found that the reassessment was based on a change of opinion rather than new facts, which is not permissible, and thus set aside the orders of the lower authorities.
Appeal Details
Counselvise Citation
[2024] 140 COUNSELVISE.COM (IT) 107639 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-12-2024
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2012-2013
Judgement Text
"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “ए” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE ŵी िवŢम िसंह यादव, लेखा सद˟ एवं ŵी परेश म. जोशी, Ɋाियक सद˟ BEFORE: SHRI. VIKRAM SINGH YADAV, AM & SHRI. PARESH M. JOSHI, JM आयकर अपील सं / ITA NO. 501/Chd/2024 िनधाŊरण वषŊ / Assessment Year : 2012-13 ETHIX HEALTHCARE 179-180, Kalsi Building, 3rd Floor, Sector 17C, Chandigarh बनाम The DCIT Circle, Parwanoo ˕ायी लेखा सं./PAN NO: AACFE6311L अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से /Assessee by : Shri Parikshit Aggarwal, C.A राजˢ की ओर से / Revenue by : Shri VivekVardhan, JCIT, Sr. DR सुनवाई की तारीख /Date of Hearing : 09/12/2024 उदघोषणा की तारीख /Date of Pronouncement : 17/12/2024 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(A)/ NFAC, Delhi dt. 03/03/2024 pertaining to Assessment Year 2012-13. 2. In the present appeal, the Assessee has raised the following grounds of appeal: 1. That on the facts, circumstances and legal position of the case, Worthy CIT(A), NFAC in Appeal No. CIT A SHIMLA/10148/2017-18 has erred in passing order u/s 250 dtd. 03.03.2024 as the same is in contravention of provisions of s. 250 of the Income Tax Act, 1961 (hereinafter referred to as \"Act\"). 2. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the actions of Ld. AO in initiating, continuing and then concluding the impugned assessment u/s 148 r.w.s. 147/143(3) and hence the impugned assessment order deserves to be quashed. 3. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming addition of Rs. 30,37,241/- made by Ld. AO by erroneously denying deduction u/s 80IC. 4. That on facts, circumstances and legal position of the case, Worthy CIT(A) has erred in confirming the addition of Rs. 30,37,241/- made by Ld. AO by erroneously holding that the appellant is running unit from Chandigarh and hence not eligible for deduction u/s 80IC. 2 5. That on facts, circumstances and legal position of the case, the order passed by Ld. AO and then by Worthy CIT(A) deserves to be quashed since the same have been passed without affording reasonable opportunity of being heard to the appellant. 6. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.” 3. Briefly the facts of the case are that the assessee firm filed its return of income on 24/09/2012 after claiming deduction under section 80IC of the Income Tax Act, 1961. The case of the assessee was selected for scrutiny and thereafter the assessment was completed under section 143(3) dt. 27/02/2015 at an assessed income of Rs. 4,45,286/- after making various additions including the addition of Rs. 48,149/- on account of endorsement and packing charges. Thereafter, proceedings under section 147 were initiated after recording the reasons and issuance of notice under section 148 dt. 22/07/2016 and the reasons so recorded reads as under: “The assessee firm filed its return of income for the asstt year 2012-13 declaring income of Rs.NIL after claiming deduction u/s 80IC of the Income Tax Act, 1961 amounting to Rs.77,79,305/. In this case, original assessment was made on 27.02.2015 at an income of Rs.4,45,286/-. The assessee firm is engaged in manufacturing of Pharmaceutical formulations. Reasons: On perusal of Trading and Profit & Loss Account, it has been noticed that asssessee firm has credited an amount of Rs.30,85,390/- under the head 'Endorsement and packaging charges and other receipts' and also claimed deduction u/s 80 IC of the Act on this receipt. During the course of assessment, AO has made an addition of Rs. 48,149/- under the same head with a view that there is no first degree nexus between profit and industrial undertaking. Accordingly receipts Rs.30,37,241/-(30,85,390-48149) under the same head not directly derived from manufacturing activities of the industrial undertaking and hence is not eligible for deduction u/s 80IC of the Income Tax Act 1961. Thus, the income of Rs. 30,37,241/- has escaped assessment, needs to be added back. In view of the above, I have reason to believe that the due to failure/omission on the part of the assessee to disclose fully and truly all necessary facts essential for his assessment, income to the extent of Rs. 30,37,241/- has escaped assessment under section 147 of the Income Tax Act, 1961 for the A.Y. 2012-13.” 4. In response to the notice under section 148, the assessee submitted that return filed earlier under section 139 may be taken as due compliance to the notice under section 148. Thereafter, after supplying copy of the reasons sought 3 by the assessee and basis information and documentation submitted by the assessee, the reassessment was completed under section 147 r.w.s 143(3) wherein an addition of Rs. 30,37,241/- was made holding that the income derived on account of endorsement and packing charges and other receipts amounting to Rs. 30,85,390/- is not eligible for deduction under section 80IC of the Act. 5. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who has since sustained the said addition. 6. Against the said findings and the directions of the Ld. CIT(A), the assessee is in appeal before us. 7. During the course of hearing, the Ld. AR submitted that the AO has erred in exercise of jurisdiction under section 147 of the Act as no new fact or information has come to his knowledge to form a belief that income has escaped assessment as all the relevant facts and information basis which the reassessment has been initiated were already available on record and considered at length by AO while framing the original assessment under section 143(3) of the Act. It was submitted that it is clearly a case of change of opinion which is not permissible for invocation of jurisdiction under section 147 of the Act and in support reliance was placed on the decision of the Full Bench of the Delhi High Court in case of CIT vs. Kelvinator of India Ltd. 256 ITR 1. Elaborating further, it was submitted that the amount of Rs. 30,85,390/- was received by the assessee towards packaging material etc as per the requirement of the party and corresponding expenses have been debited in the P&L Account and during the course of original assessment proceedings, the AO has examined the said fact and duly verified the record produced before him and after due verification of sales as well as purchase invoices, out of the receipt of Rs. 30,85,390/- after allowing for corresponding expenses, the AO had made the addition of Rs. 48,149/-, being the net income which is apparent from the assessment order passed under section 143(3) dt. 27/02/2015 and our reference 4 was drawn to the relevant findings which are contained at para 3 & 4 of the assessment order passed under section 143(3) and the contents thereof read as under: “3. As per information given in Form No. 10CCB, the assessee started its business activity / operation on 03/02/2009 and initial Asst. Year for claim of deduction u/s 80-IC of the Act was Asst. Year 2009-10 accordingly the assesssee has claimed deduction u/s 80-IC to the extent of the 100% eligible profit being current year is 4th year. During the course of assessment proceedings, assessee’s counsel was asked to justify its claim for deduction under section 80-IC. After verification of documents furnished, it has been observed that the assessee firm fulfills all the requisite conditions as laid under the Income tax Act for claiming deduction under section 80-IC of the Income Tax Act. 4. On perusal of the P & L account, it was noticed that the assessee has credited an amount of Rs.48,149/- under the head 'packing and other receipt also claimed deduction u/s 80IC of the Act on this receipt. The assessee was asked to explain the same, to which it was stated that the said income is consequential to business and hence, deduction u/s 80-IC of the Act was rightly claimed on the same. The contention of the assessee' counsel is not found to be acceptable in view of the judgment of the Hon'ble Supreme Court in the case of M/s. Liberty India Ltd. Vs CIT (317 ITR 218) wherein it has been held by the Hon'ble Court that income in the nature of duty drawback and DFPB benefits does not have a nexus of the first degree with the industrial undertaking and is therefore not eligible for deduction u/s 801B of the Act. In this judgment, the Hon'ble Court also considered the question as to whether such remissions should be set off against the cost of purchases. The Court held that duty drawback, rebates etc. cannot be credited against the cost of manufacture for the purposes of section 80-IC of the Act, as such, credits would constitute individual sources of income beyond the first degree nexus between profits and industrial undertaking. This part of the judgment indicates that even credits like trade discounts. rebates cannot be considered as income derived from the industrial undertaking. In view of the above referred judgment of Hon'ble Supreme Court, it is held that the income on account of interest cannot be said to be directly derived from manufacturing activities of the industrial undertaking and hence is not eligible for deduction u/s 80-IC of the Income Tax Act 1961. Accordingly, the deduction claimed u/s 80-IC amounting to Rs.48,149/- is disallowed and the same is added to its total income of the assessee firm.” 8. It was accordingly submitted that the proceedings have been wrongly initiated under section 147 of the Act and the same deserves to be set aside as no new material or information has came to the notice of the AO and the subject matter of the reasons so recorded was already examined and additions have been made in the original assessment order. 9. Further on merits, it was submitted that as part of its regular business activity, the assessee raise invoices on its customers which includes the amount 5 towards packing and labelling charges etc amounting to Rs. 30,85,390/- and has incurred corresponding expenditure of Rs. 30,50,389/- debited under the head “purchases” resulting in gross profit of only Rs. 35,001/- and therefore the question that arise for consideration is whether the said profit of Rs. 35,001/- is eligible for 80IC deduction or not and not the whole of the gross receipt of Rs. 30,85,390/- which has been brought to tax by the AO. It was submitted that the assessee has not claimed deduction under 80IC on the amount credited in the P&L account but on the profit derived out of the transaction i.e, Rs. 35001/- as so acknowledged by the ld CIT(A). It was further submitted that in any case, the AO in the original assessment proceedings has already made a disallowance of Rs. 48,149/- on the said transaction and therefore, there is no question of further disallowance of the said amount. It was accordingly submitted that the addition so made be directed to be deleted. 10. It was further submitted that as far as the assessee’s eligibility for claim of deduction under section 80IC is concerned, the same was never disputed by the AO and in fact, it is not the first year of claim of said deduction and the said deduction has been claimed and allowed since A.Y. 2009-10 as evident from Form No. 10CCB wherein it has been stated that the eligible business/undertaking is located in notified specified area in the state of Himachal Pradesh at Khasra No. 82/33, Kalka Shimla Highway, Deonghat, Saproon, Solan and therefore, where the AO for the impugned assessment year has not questioned the assessee’s eligibility for claim of deduction, the ld CIT(A) has exceeded his jurisdiction and that too, without issuing any notice to the assessee or allowing any opportunity to the assessee. 11. Per contra, the Ld. DR has relied on the findings of the lower authorities. 12. We have heard the rival contentions and purused the material available on record. In the reasons so recorded before the exercise of jurisdiction u/s 147, the AO states that on perusal of Trading and Profit & Loss Account, it has been noticed that asssessee firm has credited an amount of Rs. 30,85,390/- under the 6 head 'Endorsement and packaging charges and other receipts' and also claimed deduction u/s 80 IC of the Act on this receipt. This fact is thus emerging from the existing information and infact, reflected on the face of the profit/loss account and no new information has come on record and the AO’s reasons are limited to claim of deduction on Rs 30,85,390/-, being in the nature of endorsement and packing charges and not on the whole of the deduction which has been claimed and allowed in the original assessment proceedings. Further, the AO stated that during the course of original assessment proceedings, his predecessor AO has made an addition of Rs. 48,149/- under the same head for the reasons that there is no first degree nexus between profit and industrial undertaking. Therefore, basis the existing information, the AO records the fact that an opinion has already been formed by his predecessor and where the AO now seeks to review the said decision, it is a clear case of change of opinion which is not permissible as per the settled legal position as so laid down by the Courts from time to time. As far as the quantum of income which is sought to be held not eligible for deduction u/s 80IC is concerned, the AO has wrongly considered the gross receipts without allowing for corresponding expenses as it is only the net income which is eligible for deduction and which infact has been claimed by the assessee. In the original assessment proceedings, the assessee has submitted details workings regarding the receipts and corresponding expense debited under the head “purchases” and basis the same, the AO has already disallowed net income of Rs 48,149/- on this account as not eligible for deduction u/s 80IC and therefore, there cannot be further disallowance of the said amount again during the reassessment proceedings. 13. We therefore agree with the contention of the ld AR that the AO has erred in exercise of jurisdiction u/s 147 as no new information has come on record and matter has already been examined by the AO in the original assessment proceedings and it clearly amounts to change of opinion and taxing the income twice which has already suffered a disallowance in the original 7 assessment proceedings. Except for the same, as far as assessee’s eligibility and claim of deduction u/s 80IC is concerned, the same has been accepted in the original as well as reassessment proceedings and the findings of the ld CIT(A), therefore, have to be seen in limited context of claim of deduction of Rs 30,37,241/- and in view of the aforesaid discussion, the same are hereby set- aside. 14. In the result, both on the exercise of jurisdiction u/s 147 and on merits of the case, the order of the AO as well as the ld CIT(A) is hereby set-aside and matter is decided in favour of the assessee. 15. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 17/12/2024. Sd/- Sd/- परेश म. जोशी िवŢम िसंह यादव (PARESH M. JOSHI) ( VIKRAM SINGH YADAV) Ɋाियक सद˟ / JUDICIAL MEMBER लेखासद˟/ ACCOUNTANT MEMBER AG आदेश की Ůितिलिप अŤेिषत / Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकरआयुƅ/ CIT 4. िवभागीय Ůितिनिध, आयकरअपीलीयआिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 5. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar "
Other Referred Cases
CIT vs. Kelvinator of India Ltd. 256 ITR 1, M/s. Liberty India Ltd. Vs CIT (317 ITR 218)
Laws Referred To
Income Tax Act, 1961
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