DCIT 1(1), MUMBAI V. HINDUSTAN LEVER LTD, MUMBAI

ITA 1184/MUM/2009

• Counselvise Citation: 118419914 RSA 2009
• Duration Of Justice: 2 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-08-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 20-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Validity of assessment; Reason to believe
• Section: 143(3); 142(1); 80HHC; 80IB; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER. I.T.A. NOS. 1184, 1574 & 1575/MUM/2009. ASSESSMENT YEARA : 1999-2000,2001-02&2002-03. DY. COMMISSIONER OF INCOME-TAX, M /S HINDUSTAN LEVER LTD., 1(1), MUMBAI. VS. 165/166, BACKBAY RECLAMATION, MUMBAI 400 020. PAN AAACH 1004N. APPELLANT. RESPONDENT. C.O. NOS. 156, 163 & 165/MUM/2009 (ARISING OUT OF ITA NOS.1184,1574&1575/MUM/2009) ASSESSMENT YEARS : 1999-2000,2001-02&2002-03. M/S HINDUSTAN LEVER LTD., DY. COMMISSIONER OF INCOME-TAX, MUMBAI. VS. 1(1), MUMBAI. CROSS OBJECTOR. RESPONDENT. DEPARTMENT BY : SHRI PAVAN VED. RESPONDENT BY : SHRI PERCY PARDIWALA. DATE OF HEARING : 09-08-2011. DATE OF PRON OUNCEMENT : 19-08-2011. O R D E R. PER BENCH : THESE THREE APPEALS PREFERRED BY THE REVENUE AGAIN ST THREE SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-I, MUMBAI FOR AS SESSMENT YEARS 1999-2000, 2001-02 AND 2002-03 INVOLVE SOME COMMON ISSUES AND THE SAME, THEREFORE, HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS SINGLE COMPOSITE ORDER ALONG 2 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. WITH CROSS OBJECTIONS FILED BY THE ASSESSEE BEING C .O. NOS. 156, 163 & 165/MUM/2009. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 1999- 2000 BEING ITA NO. 1184/MUM/2009 WHICH IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS)-I, MUMBAI DATED 12-11-2008. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FAST MOVING CONSUMER G OODS ETC. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 1999-2000 WAS FILED BY IT ON 31-12-1999 DECLARING TOTAL INCOME OF RS.520,71,76,170/-. IN THE ASSESSME NT INITIALLY COMPLETED U/S 143(3) VIDE AN ORDER DATED 18-03-2002, THE TOTAL IN COME OF THE ASSESSEE WAS DETERMINED BY THE AO AT RS.680,92,74,560/-. SUBSEQU ENTLY NOTICE U/S 148 WAS ISSUED BY THE AO ON 30-03-2006 REOPENING THE SAID A SSESSMENT AFTER RECORDING THE FOLLOWING REASONS : THE ASSESSMENT U/S 143(3) WAS DONE ON 18.03.2002 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS.680,92,74,560/-. THE DEDUCTION ALLOWED U/S. 80HHC TO THE ASSESSEE NIL. THE ASSESSEE FILED AN APPEAL WITH THE CIT(A) AND HE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.667,00,55,311/- AFTER GIVING DEDUCTION TO THE ASSESSEE U/S. 80HHC O F RS.10,15,02,185/-. THE ABOVE WAS DONE AFTER ARRIVING AT ADJUSTED PROFITS B USINESS OF RS.1058,19,07,738/-. THE DEDUCTION U/S 80IA ALLOWED TO THE ASSESSEE WAS RS.469,30,42,339/-. THE ABOVE SHOULD HAVE BEEN REDU CED FROM THE PROFITS OF BUSINESS AS PER PROVISIONS OF SEC. 80IA(9) ACCORDIN GLY, FOR CONSIDERING PROFITS ELIGIBLE FOR DEDUCTION U/S 80HHC. AFTER EXC LUSION OF PROFIS U/S 80IA, THE DEDUCTION AVAILABLE TO THE ASSESSEE U/S. 80HHC IS NIL (WORKING ENCLOSED), THEREFORE, THE ASSESSEE HAS BEEN ALLOWED EXCESS DEDUCTION OF RS.10,15,02,185/-. THE ASSESSEE HAS FAILED TO EXCLUDE THE INCOME ELIG IBLE FOR 80IA FOR THE PURPOSES OF DETERMINING PROFITS U/S 80HHC WHICH IS A CLAIM CONTRARY TO THE PROVISIONS OF THE ACT. THE ASSESSEE HAS FAILED TO J USTIFY ITS WORKING FILED IN THE RETURN OF INCOME. THE ASSESSEE WAS ASKED VIDE N OTICE U/S 142(1) DT. 3 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. 26.12.2000 IN POINT NO. 8 TO JUSTIFY THE CLAIM UNDE R CHAPTER VIA WHICH INCLUDED DEDUCTION U/S.80HHC, U/S.80HH, U/S 80I, U/ S. 80IA AND U/S. 80O ALONG WITH NECESSARY EVIDENCES AND PAPERS IN SUPPOR T OF THEIR CLAIM. THE ASSESSEE HAD FILED A LETTER IN TAPAL ON 15.01.2001 WITHOUT GIVING ANY NECESSARY EVIDENCES IN SUPPORT OF ITS CLAIM. THE AS SESSEE HAS FAIALED TO IDENTIFY AS TO WHAT WAS THE QUANTUM OF EXPORTS EFFE CTED BY THE 80IA UNITS AND THE QUANTUM OF DEDUCTION U/S.80HHC CLAIMED ON T HE SAME BY THEM. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IA AS EVIDENT FROM ANNEXURE 12 ON VARIOUS PRODUCTS SUCH AS SOAPS, SKIN CARE, PERSONAL PRODUCTS, DETERGENT, SYNTHETIC DETERGENTS, PACKED TEA, GLYCERIN, DETERGE NTS ETC. FROM THEIR VARIOUS UNITS. IT IS FURTHER SEEN FROM THE ANNEXURE 2(I) TH AT THE ASSESSEE HAS EXPORTED THE PRODUCTS SUCH AS SYNTHETIC DETERGENTS, SOAPS, T OOTHPASTE, TEA, HAIR CARE PRODUCTS, PEARS ETC. THE ASSESSEE HAS FAILED TO DI SCLOSE THAT THE PRODUCTS ON WHICH THE DEDUCTION U/S 80IA HAS BEEN CLAIMED BY TH E ASSESSEE ARE NOT THE PRODUCTS WHICH HAVE BEEN EXPORTED BY THE ASSESSEE A ND THAT DEDUCTION U/S 80HHC HAS NOT BEEN CLAIMED ON THE SAME, AS FROM THE PERUSAL OF THE ABOVE ANNEXURE 12 AND ANNEXURE 2(I) OF THE AUDIT REPORT O F THE ASSESSEE, IT APPEARS THAT THE PRODUCTS WHICH ARE EXPORTED ARE ALSO THE P RODUCTS WHICH ARE MANUFACTURED BY THE 80IA UNITS. THUS, THE ASSESSEE HAS FAILED TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS. IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT INCOME OF RS.10,15,02,185/- BEING THE DEDUCTION U/S. 80HHC ALLOWED TO THE ASSESSEE WHICH WAS NOT ELIGIBLE, HAS ESCAPED ASSESSMENT. 4. IN THE REASSESSMENT COMPLETED U/S 143(3) READ WI TH SECTION 147 VIDE AN ORDER DATED 29-12-2006, DEDUCTION U/S 80HHC WAS ALL OWED BY THE AO TO THE ASSESSEE AT NIL AS AGAINST THE SAID DEDUCTION ALLOW ED AT RS.10,15,02,185/- ORIGINALLY. THIS ACTION OF THE AO WAS BASED ON THE WORKING MADE BY HIM WHEREIN DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 80IA AMOUNT ING TO RS.469,30,42,339/- WAS REDUCED TO COMPUTE ADJUSTED PROFIT. 5. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) RE AD WITH SECTION 147, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEA RNED CIT(APPEALS) CHALLENGING THEREIN THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISPUTING THE ADDITION MADE 4 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. THEREIN BY DISALLOWING DEDUCTION CLAIMED U/S 80HHC. AFTER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN THE L IGHT OF MATERIAL AVAILABLE ON RECORD, THE LEARNED CIT(APPEALS) HELD THAT THE REOP ENING OF ASSESSMENT MADE BY THE AO BEYOND THE PERIOD OF FOUR YEARS FROM END OF THE ASSESSMENT YEAR WAS NOT IN ACCORDANCE WITH LAW. ACCORDINGLY HE CANCELLED THE REASSESSMENT MADE BY THE AO U/S 143(3) READ WITH SECTION 147. HE ALSO DELETED T HE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/S 80HHC RELY ING MAINLY ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF SCM CREATI ONS (TAX CASE NO. 310 AND 311 OF 2008). AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON TH E FOLLOWING GROUNDS : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN CANCELLING THE NOTICE U/S 148 WITHO UT APPRECIATING THE FACT THAT THERE WAS FAILURE ON PART OF THE ASSESSEE TO DISCLOSE TOTALLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSE SSMENT WITHIN THE MEANING OF THE EXPLANATION 1 TO SEC. 147 OF THE ACT . 2. WHILE DOING SO LD. CIT(A) FAILED TO APPRECIATE T HAT ASSESSEES CLAIM OF DEDUCTION U/S 80HHC WAS NOT IN ACCORDANCE WITH T HE PROVISIONS OF LAW CONTAINED IN SEC. 80HHC R.W.S. 801A(9) OF THE A CT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN HOLDING THAT THE COMPUTATION OF DEDUCTION U/S. 80HHC AS NIL DONE BY THE ASSESSING OFFICER CANNOT BE SUPPORTED R ELYING ON CERTAIN JUDICIAL PRONOUNCEMENTS WHEREAS THE LAW ON THIS ISS UE HAS NOT REACHED ITS FINALITY AS THERE ARE CONTRADICTORY DECISIONS O N THIS ISSUE. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS REGARDS THE ISSUE RAISED IN GROUND NO. 3 OF THIS APPEAL RELATING TO ASSESSEES CLAIM FOR DEDUCTION U/S 80HH C, IT IS OBSERVED THAT THE SAME IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES P. L TD. VS. DCIT 332 ITR 42 WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF COMPUTA TION OF DEDUCTION UNDER ANY 5 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. SECTION UNDER HEADING C OF CHAPTER VI-A, PROFITS OF BUSINESS ARE NOT TO BE REDUCED BY THE PROFITS IN RESPECT OF WHICH DEDUCTION U/S 80 IA HAS BEEN ALLOWED. IT WAS HELD THAT RESTRICTION IN SECTION 80IA(9) RELATES TO THE ALLOWANCE OF DEDUCTION AND NOT TO COMPUTATION OF DEDUCTION. RESPECTFULLY FOLLOWING TH E DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES P. LTD. (SUPRA), WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEAL S) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 7. AS REGARDS THE ISSUE RAISED IN GROUND NO. 1 AND 2 OF THIS APPEAL RELATING TO VALIDITY OF ASSESSMENT MADE BY THE AO U/S 143(3) RE AD WITH SECTION 147, IT IS OBSERVED THAT THE ASSESSMENT COMPLETED BY THE AO WA S CANCELLED BY THE LEARNED CIT(APPEALS) HOLDING THE SAME TO BE INVALID FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH 3.6 AND 3.7 OF HIS IMPUGNED ORDER : 3.6 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LD. A.R. FOR A.Y. 1999-2000 THE ASSESSMENT WAS COMPLETED ON 18-2-2002 AND NOTICE HAS BEEN ISSUED AFTER FOUR YEARS FROM THE END OF THE A.Y. UN DER CONSIDERATION. UNDER THE CIRCUMSTANCES NOTICE U/S. 148 CAN BE ISSUED ONL Y IF THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT OF INCOME OF THAT YEAR. HOWEVER, THE FACTS OF THE APPELLANTS CASE DO NOT SUGGEST ANY SUCH OMISSION O R FAILURE ON THE PART OF THE APPELLANT TO MAKE A FULL AND TRUE DISCLOSURE OF ITS INCOME. THE FACTS AND FIGURES REGARDING THE APPELLANTS TURNOVER, PROFITS AND THE DEDUCTION U/S. 80IA(9) AND THE DETAILS OF CALCULATION OF DEDUCTION U/S. 80HHC WERE ALL GIVEN WITH THE RETURN OF INCOME AND DURING THE COUR SE OF ASSESSMENT PROCEEDINGS. THESE FACTS AND FIGURES WERE DULY CONS IDERED BY THE A.O. TO WORK OUT THE DEDUCTION U/S. 80HHC. THE A.O. HAS COM E TO A CONCLUSION THAT DEDUCTION U/S. 80IA SHOULD BE REMOVED FROM THE ELIG IBLE PROFITS FOR THE PURPOSE OF DEDUCTION U/S. 80HHC ON THE BASIS OF ACT ION TAKEN IN SUBSEQUENT ASSESSMENT YEAR. THIS MAY BE IN VIEW OF ANY SUPPORT ING JUDICIAL PRONOUNCEMENTS ON THIS ISSUE. 3.7 FURTHER, I HAVE GONE THROUGH THE COPY OF DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN WRIT PETITION NO. 15505 OF 200 3 IN THE APPELLANTS 6 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. OWN CASE FOR A.Y. 1996-97 WHERE UNDER SOMEWHAT SIMI LAR CIRCUMSTANCES THE HONBLE BOMBAY HIGH COURT HAD SQUASHED THE NOTICE U /S. 148 ISSUED TO THE APPELLANT. UNDER THIS CIRCUMSTANCES THE ISSUE OF NO TICE U/S. 148 AFTER MORE THAN FOUR YEARS OF THE COMPLETION OF ASSESSMENT CAN NOT BE JUSTIFIED. HENCE THE ASSESSMENT FOLLOWING THE NOTICE U/S. 148 IS CAN CELLED. 8. AS HELD BY THE LEARNED CIT(APPEALS), ALL THE REL EVANT DETAILS OF WORKING OF DEDUCTION U/S 80HHC HAVING BEEN GIVEN BY THE ASSESS EE ALONG WITH ITS RETURN OF INCOME AS WELL AS DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THERE WAS NO FAILURE ON ITS PART TO MAKE FULL AND TRUE DISCLOSU RE OF ITS INCOME AND THIS POSITION CLEARLY EVIDENT FROM THE RECORD INCLUDING ESPECIALL Y THE REASONS RECORDED BY THE AO HAS NOT BEEN DISPUTED EVEN BY THE LEARNED DR AT THE TIME OF HEARING BEFORE US. AS PER THE FIRST PROVISO TO SECTION 147, WHERE AN A SSESSMENT U/S 143(3) HAS BEEN MADE FOR THE RELEVANT ASSESSMENT YEAR, NO ACTION SH ALL BE TAKEN BY THE AO U/S 147 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 T O DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THA T ASSESSMENT YEAR. IN THE PRESENT CASE, THE ALLEGED ESCAPEMENT OF INCOME WAS NOT BY R EASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS AND EVEN THERE WAS NO SUCH CASE MADE OUT BY THE AO IN THE REASONS RECORDE D BY HIM FOR REOPENING THE ASSESSMENT. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF HE LEARNED CIT(APPEALS) HOLDING THE REOPENING OF ASSESSMENT TO BE BAD IN LAW AND CANCELLING THE ASSESSMENT MADE U/S 143(3) READ WITH SECTION 14 7. HIS IMPUGNED ORDER ON THIS ISSUE IS, THEREFORE, UPHELD DISMISSING GROUND NOS. 1 AND 2 OF THE REVENUES APPEAL. 9. IN THE CROSS OBJECTION FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 1999-2000 BEING C.O. NO. 156/MUM/2009, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS : 7 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. 1. THE RESPONDENT SUBMITS THAT IN THE EVENT GROUND NUMBER 1 AND NUMBER 3 OF THE APPELLANT ARE ALLOWED THEN IT BE HE LD THAT, SINCE NO PART OF RESPONDENTS EXPORT TURNOVER OF RS.980,60,2 3,738/-, EXCEPT TURNOVER OF RS.3,39,40,795/- (AS CERTIFIED BY A IND USTRIAL UNDERTAKINGS (NIU) ELIGIBLE FOR DEDUCTION UNDER SECTION 80IA, THE LEARNED DCIT OUGHT TO HAVE MADE ADJUSTMENTS TO THE ELIGIBLE PROF ITS BY REDUCING THEREFROM THE PROFITS PROPORTIONATE TO THE ACTUAL E XPORT TURNOVER FROM THE NIU IN CALCULATION OF DEDUCTION UNDER SECTION 8 0HHC. 2. WITHOUT PREJUDICE TO GROUND NUMBER 1, THE LEARNE D DCIT, HAVING REDUCED THE ENTIRE AMOUNT DEDUCTIBLE U/S 80-IA FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC, ERRED IN NOT REDUCING THE TOTAL TURNOVER/ADJUSTED TOTAL TUR NOVER BY THE AMOUNT OF TURNOVER IN RESPECT OF THE INDUSTRIAL UND ERTAKINGS ELIGIBLE FOR DEDUCTION U/S 80-IA. 10. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASS ESSEE BEFORE US, THE ISSUES RAISED BY THE ASSESSEE RELATE TO ITS ALTERNATIVE CL AIM WHICH WILL ARISE ONLY IF THE MAIN ISSUE INVOLVED IN REVENUES APPEAL RELATING TO ITS CLAIM FOR DEDUCTION U/S 80HHC IS DECIDED AGAINST THE ASSESSEE. SINCE THE SA ID MAIN ISSUE INVOLVED IN REVENUES APPEAL HAS ALREADY BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE, THE ISSUES RAISED IN THE CROSS OBJECTION OF THE ASSESSE E HAVE BECOME INFRUCTUOUS. WE, THEREFORE, DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE. 11. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2001- 02 BEING ITA NO. 1574/MUM/2009 WHICH IS DIRECTED AG AINST THE ORDER OF LEARNED CIT(APPEALS)-I, MUMBAI DATED 11-12-2008. 12. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEA L READ AS UNDER : 1(A) WHETHER ON THE FACT AND CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE SET OFF OF LOSS OF TEA ESTATE DIVISION/UNIT AGAINST THE PROFIT OF DOOM DOOMA UNIT WHICH IS NOT IN ACCORDANCE TO THE SPRIT ENVISA GED IN RULE 8 OF THE IT RULE. 8 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. 1(B) WHILE DECIDING SO, THE CIT(A) FAILED TO APPREC IATE THAT RULE 8 REFERS TO 40% OF THE INCOME DEEMED TO BE INCOME LIABLE TO TAX AND THEREFORE CANNOT INCLUDE LOSS. 2. WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO REDUCE THE ELIGIBLE DEDUCTION U/S 80IB FROM THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF DETERMINING DEDUCTION U/S 80HHC WHICH IS CONTRARY TO THE SPECIFIC PROVISION OF SEC. 80IB (13) AND ALSO THAT THE CONTROVERSY ON POSITION OF LAW ON THIS ISSUE HAS NOT REACHED FINAL ITY. 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY LEARNED REPRESENTA TIVES OF BOTH THE SIDES, THE ISSUE INVOLVED IN GROUND NO.1 OF THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 WHEREIN IT WAS HELD AS UNDER : 13. NOW, IT CANNOT BE DISPUTED, AS IT HAS NOT BEEN DURING THE COURSE OF THE SUBMISSIONS, THAT THE ASSESSEE HAD SO UGHT TO ADJUST 40 PERCENT OF THE OVERALL LOSS WHICH WAS SUSTAINED AS THE LOSS THAT WAS ATTRIBUTABLE TO THE BUSINESS ACTIVITY OF THE MANUFACTURE AND SALE OF TE A AT ITS TOW PLANTATION UNITS. THIS IS EVIDENT FROM THE COMPUTATION OF THE PROFITS AND GAINS OF BUSINESS MADE BY THE ASSESSEE IN RESPECT OF ITS TEA ESTATES AND THE DOOM DOOMA UNIT. IN OTHER WORDS, THE MATERIAL ON RECORD CLEARLY DEMONSTRATES THAT THE ADJUSTMENT THAT WAS SOUGHT WAS NOT IN RESPECT O F THE ENTIRE LOSS THAT WAS SUSTAINED BY THE ASSESSEE IN THE COMPOSITE ACTIVITY OF THE GROWING OF TEA LEAVES AND THE MANUFACTURE AND SALE OF TEA BUT ONLY TO THE EXTENT OF 40 PER CENT. WHICH REPRESENTED THE SEGREGATION OF THE INCO ME ATTRIBUTABLE TO THE SALE OF TEA UNDER RULE 8. 14. NOW, WHAT RULE 8 POSTULATES IS THE PROCESS OF SEGREGATING THE INCOME DERIVED FROM THE SALE OF TEA UPON ITS COMPUTATION A S IF IT WERE INCOME DERIVED FROM BUSINESS. RULE 8 CREATES A LEGAL FICTI ON, AS A RESULT OF WHICH THE INCOME WHICH IS DERIVED FROM THE SALE OF TEA WHICH IS GROWN AND MANUFACTURED BY THE ASSESSEE IS TO BE COMPUTED AS I F IT WERE INCOME DERIVED FROM BUSINESS. IT NEEDS NO LINE OF ELABORATE REASON ING TO STATE THE WELL SETTLED POSITION IN LAW THAT ONCE A LEGAL FICTION IS CREATE D BY THE LEGISLATURE OR, AS IN THIS CASE, IN SUBORDINATE LEGISLATION, THE LEGAL FI CTION HAS TO BE GIVEN FORCE 9 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. AND EFFECT SO AS TO OPERATE WITHIN THE AREA IN WHIC H IT WAS INTENDED TO OPERATE. IN APPLYING A LEGAL FICTION, IT IS TRITE L AW THAT ONE CANNOT ALLOW THE IMAGINATION TO BOGGLE. A LEGAL FICTION HAS TO BE CA RRIED TO ITS LOGICAL CONCLUSION. IN COMPUTING THE INCOME FROM THE SALE O F TEA AS IF IT WAS INCOME DERIVED FROM BUSINESS, FOR THE PURPOSES OF RULE 8, IT IS IMPOSSIBLE TO COMPREHEND AS TO HOW THE EXPENDITURE INCURRED BY AN ASSESSEE, WHOLLY AND EXCLUSIVELY, FOR THE PURPOSES OF BUSINESS SHOULD BE DISREGARDED. OBVIOUSLY, THE EXPENDITURE CANNOT BE DISREGARDED. THE PRINCIPL E WHICH MUST GOVERN IS WELL SETTLED AND ONLY A BRIEF REFERENCE TO AUTHORIT Y ON THE SUBJECT WOULD BE NECESSARY. 15. IN CIT V. HARPRASAD AND CO. P. LTD. [1975] 99 ITR 118 (SC) THE QUESTION WHICH CAME UP BEFORE THE SUPREME COURT WAS WHETHER A CAPITAL LOSS COULD BE DETERMINED AND CARRIED FORWARD, IN AC CORDANCE WITH THE PROVISIONS OF SECTION 24 OF THE ACT OF 1922, WHEN T HE PROVISIONS OF SECTION 12B WERE NOT APPLICABLE DURING THE COURSE OF THE AS SESSMENT YEAR 1955-56. THE SUPREME COURT HELD THAT FROM THE CHARGING PROVI SIONS OF THE ACT IT IS DISCERNIBLE THAT THE WORDS INCOME OR PROFITS AND GAINS SHOULD BE UNDERSTOOD AS INCLUDING LOSSES ALSO, SO THAT, IN ON E SENSE PROFITS AND GAINS REPRESENT PLUS INCOME WHEREAS LOSSES REPRESENT M INUS INCOME. THE SUPREME COURT OBSERVED S FOLLOWS (PAGE 124) : FROM THE CHARGING PROVISIONS OF THE ACT, IT IS DIS CERNIBLE THAT THE WORK INCOME OR PROFITS AND GAINS SHOULD BE UNDERSTOOD AS INCLUDING LOSSES ALSO, SO THAT, IN ONE SENSE PROFI TS AND GAINS REPRESENT PLUS INCOME WHEREAS LOSSES REPRESENT M INUS INCOME. IN OTHER WORDS, LOSS IS NEGATIVE PROFIT. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF A REVENUE CHARACTER. BOTH MUST ENTER INTO CO MPUTATION, WHEREVER IT BECOMES MATERIAL, IN THE SAME MODE OF T HE TAXABLE INCOME OF THE ASSESSEE. ALTHOUGH SECTION 6 CLASSIFIES INCO ME UNDER SIX HEADS, THE MAIN CHARGING PROVISION IS SECTION 3 WHICH LEVI ES INCOME-TAX, ON THE TOTAL INCOME OF THE ASSESSEE AS DEFINED IN SE CTION 2(15). AN INCOME IN ORDER TO COME WITHIN THE PURVIEW OF THAT DEFINITION MUST SATISFY TWO CONDITIONS. FIRSTLY, IT MUST COMPRISE T HE TOTAL AMOUNT OF INCOME, PROFITS AND GAINS REFERRED TO IN SECTION 4( 1). SECONDLY, IT MUST BE COMPUTED IN THE MANNER LAID DOWN IN THE ACT . IF EITHER OF THESE CONDITIONS FAILS, THE INCOME WILL NOT BE A PA RT OF THE TOTAL INCOME THAT CAN BE BROUGHT TO CHARGE. 10 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. 16. THE SUPREME COURT HELD THAT IF THE CAPITAL WAS NOT CHARGEABLE TO TAX DURING THE PERIOD BETWEEN APRIL 1, 1948 TO APRIL 1, 1957, THE ASSESSEE DID NOT POSSESS AN INDEPENDENT RIGHT TO CARRY FORWARD H IS CAPITAL LOSS EVEN IF IT COULD NOT BE SET OFF, OWING TO THE NON-TAXABILITY O F THE CAPITAL GAINS, AGAINST PROFITS IN SUBSEQUENT YEARS. THE DECISION OF THE SU PREME COURT EMPHASIZES THAT UNDER THE CHARGING PROVISIONS OF THE ACT, INCO ME MUST BE COMPREHENSIVELY UNDERSTOOD AS INCLUDING A LOSS. THE PRINCIPLE THAT INCOME WOULD INCLUDE A LOSS HAS ALSO BEEN REAFFIRMED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CUT V. J.H. GOLTA [1985] 156 I TR 323 (SC). 17. IN THE PRESENT CASE, THE ASSESSING OFFICER, WH ILE ISSUING A NOTICE FOR REOPENING THE ASSESSMENT OBSERVED THAT HE PROVISION S OF RULE 8 ARE APPLICABLE ONLY IN THE CASE OF INCOME AND THE CLAIM OF THE A SSESSEE TO SET OFF 40 PER CENT. OF LOSSES AGAINST NORMAL BUSINESS PROFITS COU LD NOT BE ALLOWED. ON THIS BASIS, THE ASSESSING OFFICER HAS FORMED THE OPINION THAT THE LOSS OF RS.10.84 CRORES ATTRIBUTABLE TO THE BUSINESS ACTIVITY OF THE ASSESSEE INVOLVING THE MANUFACTURE AND SALE OF TEA WAS LIABLE TO BE DISALL OWED. IT MUST BE NOTED HERE THAT IT IS NOT THE CONTENTION OF THE ASSESSING OFFICER THAT THE LOSS WHICH HAS BEEN COMPUTED BY THE ASSESSEE BY APPLYING THE P ROPORTION OF 40 PER CENT. IS NOT A FAIR ESTIMATE OF THE ACTUAL LOSS SU STAINED BY THE ASSESSEE IN ITS BUSINESS OPERATIONS. ON THE CONTRARY, IT IS ON THE BASIS OF RULE 8 THAT THE ASSESSING OFFICER SEEKS TO POSTULATE THAT THE LOSS ATTRIBUTABLE TO THE BUSINESS ACTIVITY OF THE ASSESSEE WOULD HAVE TO BE DISREGARD ED ON THE GROUND THAT IT IS NOT ALLOWABLE EXPENDITURE. THIS INFERENCE WHICH IS SOUGHT TO BE DRAWN BY THE ASSESSING OFFICER IS CONTRARY TO THE PLAIN MEANING OF THE CHARGING PROVISIONS OF THE ACT AND TO RULE 8, BESIDES BEING CONTRARY TO THE POSITION IN LAW LAID DOWN BY THE SUPREME COURT. THE ASSESSEE WAS LAWFULL Y ENTITLED TO ADJUST THE LOSS WHICH AROSE AS A RESULT OF THE BUSINESS ACTIVI TY UNDER RULE 8. 14. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION AS WELL AS ALL THE MATERIAL FACTS RELATING THERETO ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2004-05, WE RESPECTFULLY FOLLOW THE DECISION OF THE HONBLE BOM BAY HIGH COURT FOR ASSESSMENT YEAR 2004-05 AND UPHOLD THE IMPUGNED ORDER OF THE L EARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUND NO.1 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 11 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. 15. AS REGARDS GROUND NO. 2 OF THIS APPEAL, IT IS O BSERVED THAT THE ISSUE RAISED THEREIN RELATING TO ASSESSEES CLAIM FOR DEDUCTION U/S 80HHC IS SIMILAR TO THE ONE INVOLVED IN GROUND NO.3 OF REVENUES APPEAL FOR A SSESSMENT YEAR 1999-2000 WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOI NG PORTION OF THIS ORDER. SINCE ALL THE MATERIAL FACTS RELATING TO THE SAID ISSUE A S INVOLVED IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THAT OF 1999-2000, WE FOLLOW OUR DECISION RENDERED IN ASSESSMENT YEAR 1999-2000 AND UPHOLD THE IMPUGNED O RDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUND NO.2 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 16. IN THE CROSS OBJECTION FILED BY THE ASSESSEE FO R ASSESSMENT YEAR 2001-02 BEING C.O. NO. 163/MUM/2009, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS : 1. THE RESPONDENT SUBMITS THAT IN THE EVENT GROUND NUMBER 2 OF THE APPELLANT IS ALLOWED THEN IT BE HELD THAT, SINCE NO PART OF RESPONDENTS EXPORT TURNOVER OF RS.990,39,88,255/-, EXCEPT TURNO VER OF RS.3,49,95,180/- [AS CERTIFIED BY A CHARTERED ACCO UNTANT AND PRODUCED BEFORE THE CIT(A)] WAS MANUFACTURED AT THE NEW INDUSTRIAL UNDERTAKINGS (NIU) ELIGIBLE FOR DEDUCTION UNDER S ECTION 80IA, THE LEARNED DCIT OUGHT TO HAVE MADE ADJUSTMENTS TO THE ELIGIBLE PROFITS BY REDUCING THEREFROM THE PROFITS PROPORTIONATE TO THE ACTUAL EXPORT TURNOVER FROM THE NIU IN CALCULATION OF DEDUCTION U NDER SECTION 80HHC. 2. WITHOUT PREJUDICE TO GROUND NUMBER 1, THE LEARNE D DCIT, HAVING REDUCED THE ENTIRE AMOUNT DEDUCTIBLE U/S 80-IA FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC, ERRED IN NOT REDUCING THE TOTAL TURNOVER/ADJUSTED TOTAL TUR NOVER BY THE AMOUNT OF TURNOVER IN RESPECT OF THE INDUSTRIAL UND ERTAKINGS ELIGIBLE FOR DEDUCTION U/S 80-IA. 17. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASS ESSEE BEFORE US, THE ISSUES RAISED BY THE ASSESSEE RELATE TO ITS ALTERNATIVE C LAIM WHICH WILL ARISE ONLY IF THE MAIN ISSUE INVOLVED IN REVENUES APPEAL RELATING TO ITS CLAIM FOR DEDUCTION U/S 12 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. 80HHC IN THE REVENUES APPEAL IS DECIDED AGAINST TH E ASSESSEE. SINCE THE SAID MAIN ISSUE INVOLVED IN REVENUES APPEAL HAS ALREADY BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE, THE ISSUES RAISED IN THE CROSS OBJ ECTION OF THE ASSESSEE HAVE BECOME INFRUCTUOUS. WE, THEREFORE, DISMISS THE CROSS OBJEC TION FILED BY THE ASSESSEE. 18. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2002- 03 BEING ITA NO. 1575/MUM/2009 WHICH IS DIRECTED AG AINST THE ORDER OF LEARNED CIT(APPEALS)-I, MUMBAI DATED 11-12-2008. 19. THE GROUNDS RAISED BY THE REVENUE IN THIS APPEA L READ AS UNDER : 1(A) WHETHER ON THE FACT AND CIRCUMSTANCES OF THE C ASE AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE SET OFF OF LOSS OF TEA ESTATE DIVISION/UNIT AGAINST THE PROFIT OF DOOM DOOMA UNIT WHICH IS NOT IN ACCORDANCE TO THE SPIRIT ENVIS AGED IN RULE 8 OF THE IT RULE. 1(B) WHILE DELETING SO, THE CIT(A) FAILED TO APPREC IATE THAT RULE 8 REFERS TO 40% OF THE INCOME DEEMED TO BE INCOME LIABLE TO TAX AND THEREFORE CANNOT INCLUDE LOSS. 2. WHETHER ON THE FACT AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER NOT TO REDUCE THE ELIGIBLE DEDUCTION U/S 80IB FROM THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF DETERMINING DEDUCTION U/S 80HHC WHICH IS CONTRARY TO THE SPECIFIC PROVISION OF SEC. 80IB (13) AND ALSO THAT THE CONTROVERSY ON POSITION OF LAW ON THIS ISSUE HAS NOT REACHED FINAL ITY. 20. AS REGARDS GROUND NO.1, WE FIND THAT THIS ISSUE IS SIMILAR TO THE ISSUE RAISED BY THE REVENUE IN GROUND NO.1 FOR ASSESSMENT YEAR 2 001-02 WHICH WE HAVE DISCUSSED IN PARAGRAPH NO.13 ABOVE IN DETAIL. FOLLO WING THE DECISION TAKEN THEREIN, WE DISMISS GROUND NO.1 OF THE REVENUES APPEAL. 21. AS REGARDS GROUND NO. 2 OF THIS APPEAL, IT IS O BSERVED THAT THE ISSUE RAISED THEREIN RELATING TO ASSESSEES CLAIM FOR DEDUCTION U/S 80HHC IS SIMILAR TO THE ONE 13 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. INVOLVED IN GROUND NO.3 OF REVENUES APPEAL FOR A SSESSMENT YEAR 1999-2000 WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOI NG PORTION OF THIS ORDER. SINCE ALL THE MATERIAL FACTS RELATING TO THE SAID ISSUE A S INVOLVED IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THAT OF 1999-2000, WE FOLLOW OUR DECISION RENDERED IN ASSESSMENT YEAR 1999-2000 AND UPHOLD THE IMPUGNED O RDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUND NO.2 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 22. IN THE CROSS OBJECTION FILED BY THE ASSESSEE FO R ASSESSMENT YEAR 2002-03 BEING C.O. NO. 165/MUM/2009, THE ASSESSEE HAS RAISE D THE FOLLOWING GROUNDS : 1. THE RESPONDENT SUBMITS THAT IN THE EVENT GROUND NUMBER 2 OF THE APPELLANT IS ALLOWED THEN IT BE HELD THAT, SINCE NO PART OF RESPONDENTS EXPORT TURNOVER OF RS.976,98,20,600/-, EXCEPT TURNO VER OF RS.4,22,60,749/- [AS CERTIFIED BY A CHARTERED ACCO UNTANT AND PRODUCED BEFORE THE CIT(A)] WAS MANUFACTURED AT THE NEW INDUSTRIAL UNDERTAKINGS (NIU) ELIGIBLE FOR DEDUCTION UNDER S ECTION 80IA, THE LEARNED DCIT OUGHT TO HAVE MADE ADJUSTMENTS TO THE ELIGIBLE PROFITS BY REDUCING THEREFROM THE PROFITS PROPORTIONATE TO THE ACTUAL EXPORT TURNOVER FROM THE NIU IN CALCULATION OF DEDUCTION U NDER SECTION 80HHC. 2. WITHOUT PREJUDICE TO GROUND NUMBER 1, THE LEARNE D DCIT, HAVING REDUCED THE ENTIRE AMOUNT DEDUCTIBLE U/S 80-IA FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC, ERRED IN NOT REDUCING THE TOTAL TURNOVER/ADJUSTED TOTAL TUR NOVER BY THE AMOUNT OF TURNOVER IN RESPECT OF THE INDUSTRIAL UND ERTAKINGS ELIGIBLE FOR DEDUCTION U/S 80-IA. 23. AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASS ESSEE BEFORE US, THE ISSUES RAISED BY THE ASSESSEE RELATE TO ITS ALTERNATIVE CL AIM WHICH WILL ARISE ONLY IF THE MAIN ISSUE INVOLVED IN REVENUES APPEAL RELATING TO ITS CLAIM FOR DEDUCTION U/S 80HHC IS DECIDED AGAINST THE ASSESSEE. SINCE THE SA ID MAIN ISSUE INVOLVED IN REVENUES APPEAL HAS ALREADY BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE, THE 14 ITA NOS.1184, 1574&1575/MUM/2009 & C.O. NOS. 156, 163 & 164/MUM/2009 ASSTT.YEARS : 1999-2000, 2001-02&2002-03. ISSUES RAISED IN THE CROSS OBJECTION OF THE ASSESSE E HAVE BECOME INFRUCTUOUS. WE, THEREFORE, DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE. 24. IN THE RESULT, THE APPEALS OF THE REVENUE AS WE LL AS THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 19 TH DAY OF AUGUST, 2011. SD/- SD/- (R.S. PADVEKAR)) (P.M . JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED: 19 TH AUGUST, 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. (TRUE COPY ) BY O RDER ASSTT. REGISTRAR, ITAT, MUMBAI BENC HES, MUMBA I. .