ACIT, CHENNAI V. M/s. I P Rings Ltd., CHENNAI

ITA 1338/CHNY/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64239 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-09-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 16-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Difference of opinion; Change of opinion
• Section: 143(3); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 1338/MDS/2010 (ASSESSMENT YEAR : 1997-98) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI - 600 034. (APPELLANT) V. M/S I.P. RINGS LTD., ARJAY APEX CENTRE, 24, COLLEGE ROAD, CHENNAI - 600 034. PAN : AAACI0908C (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADV OCATE DATE OF HEARING : 10.09.2012 DATE OF PRONOUNCEMENT : 10.09.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT CIT(APPEALS) HELD THE REOPENING DONE FOR THE IMPUGN ED ASSESSMENT YEAR TO BE WITHOUT JURISDICTION. 2. FACTS APROPOS ARE THAT ASSESSEE, A MANUFACTURER AND SELLER OF PISTON RINGS, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR ON I.T.A. NO. 1338/MDS/10 2 28.11.1997 DECLARING AN INCOME OF ` 5,65,81,499/-. ASSESSMENT UNDER SECTION 143(3) OF INCOME-TAX ACT, 1961 (IN SH ORT 'THE ACT') WAS ORIGINALLY COMPLETED ON 9.3.2000 AFTER EXAMINING TH E DETAILS FILED BY THE ASSESSEE ALONG WITH RETURN OF INCOME AS ALSO DE TAILS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ASSESSEE HAD MADE A CLAIM FOR DEDUCTION OF ` 2,43,17,786/- UNDER SECTION 80-IA OF THE ACT. ASSESSING OFFICER, WHILE VERIFYING THE ELIGIBILITY OF THE ASSESSEE FOR SUCH DEDUCTION, MADE AN OBSERVATION THAT INTEREST I NCOME OF ` 88,86,750/- ON DEPOSITS WITH BANK WOULD NOT BE ELIG IBLE FOR SUCH DEDUCTION. HE, THEREFORE, COMPLETED THE ASSESSMENT RESTRICTING THE CLAIM OF DEDUCTION BY EXCLUDING THE INTEREST INCOME . THEREAFTER, ASSESSING OFFICER ISSUED NOTICE ON 26.3.2004 PROPOS ING A REOPENING FOR THE IMPUGNED ASSESSMENT YEAR FOR A REASON THAT ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80-IA ON OTHER INC OME ALSO. AS PER THE A.O., THE MISCELLANEOUS INCOME ON WHICH ASS ESSEE CLAIMED 80-IA DEDUCTION, INCLUDED DIVIDEND INSURANCE CLAIM, SUPPLIERS DISCOUNT, RENT RECOVERY, REFUND OF INTEREST, EXCHAN GE GAIN, ETC., WHICH HAD NO NEXUS WITH THE BUSINESS OF THE ASSESSEE. TH E RE-ASSESSMENT WAS COMPLETED ACCORDINGLY CURTAILING THE CLAIM OF D EDUCTION UNDER SECTION 80-IA BY EXCLUDING THE ABOVE ITEMS. I.T.A. NO. 1338/MDS/10 3 3. ASSESSEE IN ITS APPEAL BEFORE CIT(APPEALS) AGAIN ST THE RE- ASSESSMENT, ARGUED THAT THE REOPENING WAS WITHOUT J URISDICTION. AS PER THE ASSESSEE, IT HAD FILED ALL PARTICULARS IN T HE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, AND AS PER FIRST PROVISO TO SECTION 147, ASSESSMENT COULD NOT BE OPENED ON CHANGE OF OPINION . RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT V. KELVINATOR INDIA LTD. (320 ITR 561). 4. CIT(APPEALS) WAS APPRECIATIVE OF THE CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, ORIGINAL ASSESSMENT WA S COMPLETED TAKING INTO CONSIDERATION ALL THE ASPECTS OF CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT. THE RE-ASSESSMENT WAS IN ITIATED ONLY BASED ON CHANGE OF OPINION ON THE PART OF THE ASSESSING O FFICER. HE, THEREFORE, HELD THE RE-ASSESSMENT PROCEEDINGS INVAL ID. 5. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT MISCELLANEOUS INCOME H AD NO DIRECT NEXUS WITH BUSINESS OF INDUSTRIAL UNDERTAKING AND W AS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IA OF THE ACT. JUST BEC AUSE ASSESSEE PRODUCED BEFORE THE ASSESSING OFFICER BOOKS AND OTH ER EVIDENCE, IT COULD NOT BE PRESUMED THAT ASSESSEE MADE A PROPER D ISCLOSURE. AS PER THE LEARNED D.R., EXPLANATION TO SECTION 147 AP PLIED. THUS, I.T.A. NO. 1338/MDS/10 4 ACCORDING TO HIM, CIT(APPEALS) FELL IN ERROR IN QUA SHING THE RE- ASSESSMENT PROCEEDINGS. 6. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF CIT(APPEALS). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WITHOUT DOUBT, THE REOPENING WAS RESORTED TO AFTER FOUR YEARS FROM THE END OF THE IMPUGNED ASSESSMENT YEAR. ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. WITH RE GARD TO THE CLAIM OF DEDUCTION UNDER SECTION 80-IA IN THE ORIGINAL AS SESSMENT, ASSESSING OFFICER HAD MADE THE FOLLOWING OBSERVATIO N:- 3.2 I HAVE CONSIDERED THE ASSESSEES EXPLANATION AN D SUBMISSION. THE MADRAS HIGH COURT HAS HELD IN THE CASE OF CIT V. PANDIAN CHEMICAL LTD. 233 ITR 477, THAT PROFITS AND GAINS ELIGIBLE FOR DEDUCTION U/S 80-HH MUST BE DERIVED FR OM THE ACTUAL CONDUCT OF BUSINESS OF INDUSTRIAL UNDERTAKIN G AND UNLESS THE PROFITS AND GAINS ARE DERIVED FROM THE ACTUAL C ONDUCT OF BUSINESS AND RECEIPTS HAS EMANATED DIRECTLY FROM TH E INDUSTRIAL UNDERTAKING, IT CANNOT BE CONSIDERED ELIGIBLE FOR D EDUCTION. IMMEDIATE EFFECTIVE SOURCE OF RECEIPT SHOULD BE THE INDUSTRIAL UNDERTAKING ITSELF AND THE RECEIPTS / INCOME SHOULD HAVE BEEN ENGENDERED BY THAT INDUSTRIAL UNDERTAKING SO AS TO CLAIM DEDUCTION. IN THE CASE OF THE ASSESSEE, THE SOURCE OF INTEREST INCOME IS NOT THE INDUSTRIAL UNDERTAKING, BUT CERTA IN DEPOSITS WITH BANKS. THEREFORE, THE INTEREST EARNED IS NOT TREATED PART OF THE INCOME DERIVED FROM BUSINESS AND THE SAME IS EXCLUDED FROM THE BUSINESS INCOME FOR THE PURPOSE OF DEDUCTI ON U/S 80- IA. IN THE CASE OF SOUTH INDIA SHIPPING CORPORATIO N LTD. V. CIT 240 ITR 24, IT HAS BEEN CLEARLY HELD THAT THE INTER EST ON DEPOSITS HAS TO BE TAXED UNDER THE HEAD, INCOME FRO M OTHER I.T.A. NO. 1338/MDS/10 5 SOURCES. SIMILAR ADDITION HAS BEEN CONFIRMED BY TH E CIT(A) IN ASSESSMENT YEAR 1996-97. 8. REOPENING WAS RESORTED TO FOR A REASON THAT ASSE SSEE HAD CLAIMED DEDUCTION UNDER SECTION 80-IA ON OTHER INC OME ALSO. INTEREST EARNED ON BANK DEPOSITS WAS ALSO A PART OF OTHER INCOME. OUT OF VARIOUS ITEMS COMING UNDER OTHER INCOMES, ASSESSING OFFICER DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, CONSIDE RED ONLY INTEREST INCOME TO BE NOT ELIGIBLE FOR A CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT. ASSESSEE WAS ALSO, IN THE COURSE OF OR IGINAL ASSESSMENT PROCEEDINGS, ASKED TO GIVE REASONS FOR PREFERRING T HE CLAIM, AND IN RESPONSE TO SUCH QUERY, ASSESSEE HAD ON 7 TH MARCH, 2000, REPLIED TO THE ASSESSING OFFICER, AS UNDER:- AN INDUSTRIAL UNDERTAKING IS INVOLVED IN VARIOUS AC TIVITIES INCLUDING PURCHASES, ENGINEERING, SALES, FINANCE ET C. THEREFORE, THE PROFIT DERIVED FROM THE UNDERTAKING SHOULD INCL UDE AND ENCOMPASS DERIVED FROM ALL THE ACTIVITIES WHICH FOR M PART AND PARCEL OF THE UNDERTAKING. IN THE COURSE OF THE BU SINESS OF THE UNDERTAKING SURPLUS FUNDS ARE GENERATED AND FOR A S HORT PERIOD BEFORE THEY ARE UTILIZED AND AGAIN THEY ARE INVESTE D TO MAXIMIZE THE RETURNS OF THE UNDERTAKING. THIS IS ALSO PART OF THE ACTIVITY OF THE UNDERTAKING WHEREIN THE PROFITS DERIVED ARE MAXIMIZED. THIS IS SIMILAR TO REDUCING THE EXPENDITURE LIKE BO RROWING AT A LOWER RATE OR PURCHASE AT A LOWER RATE. ONE OF THE RESOURCES OF THE COMPANY VIZ., MONEY HAS BEEN PUT TO BETTER USE AND INCOME THEREFROM SHOULD BE TREATED AS PROFIT DERIVED FROM THE UNDERTAKING. THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF TAMIL NADU DAIRY DEVELOPMENT CORPORATION LTD. (2 16 ITR 533) SUPPORTS THIS VIEW. SIMILARLY THE MADRAS HIGH COUR T IN THE CASE I.T.A. NO. 1338/MDS/10 6 OF SOUTH INDIA SHIPPING CORPORATION LTD. (216 ITR 6 51) HAS HELD THAT INTEREST DERIVED FROM THE AMOUNTS OUTSTANDING FROM THE AGENTS CONSTITUTE INCOME DERIVED FROM THE UNDERTAKI NG. THEREFORE, THESE INTEREST RECEIPTS OUT OF SURPLUS F UNDS OF THE COMPANY WOULD ALSO CONSTITUTE INCOME DERIVED FROM T HE UNDERTAKING. THUS, IT IS CLEAR THAT ASSESSING OFFICER HAD CONSID ERED THE CLAIM OF THE ASSESSEE UNDER SECTION 80-IA AND WAS OF THE OPI NION THAT SUCH A CLAIM WAS ALLOWABLE, BUT FOR THE INTEREST ON DEPOSI TS WITH BANKS. ASSESSMENT HAVING BEEN REOPENED AFTER FOUR YEARS FR OM THE END OF THE IMPUGNED ASSESSMENT YEAR, FIRST PROVISO TO SECT ION 147 IS CLEARLY APPLICABLE. NOTHING WAS BROUGHT ON RECORD TO SHOW THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ANY MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. IT IS NOT THE CASE THAT ASSESSEE JUST PRODUCED THE BOOKS FROM WHICH ASSESSI NG OFFICER HAD TO DISCOVER THE MATERIAL EVIDENCE WITH DUE DILIGENC E. ASSESSEE HAD MADE THE CLAIM UNDER SECTION 80-IA AND ASSESSING OF FICER HAD ALLOWED SUCH CLAIM AFTER PROPER VERIFICATION OF REC ORDS. IN OUR OPINION, THE RE-ASSESSMENT PROCEEDINGS WERE INITIATED BASED ON CHANGE OF OPINION AND BY VIRTUE OF THE DECISION OF HONBLE AP EX COURT IN THE CASE OF KELVINATOR INDIA LTD. (SUPRA), SUCH REOPENI NG WAS INVALID. CIT(APPEALS) RIGHTLY HELD SO. NO REASON TO INTERFE RE WITH THE ORDER OF CIT(APPEALS). I.T.A. NO. 1338/MDS/10 7 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON MONDAY, TH E 10 TH OF SEPTEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH SEPTEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE