Matrix Laboratories Ltd., Hyderabad V. ACIT, Circle-16(2), Hyderabad

ITA 1423/HYD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6141 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-09-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 04-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Reopening of assessment; Business income; Depreciation; Retrospective amendment; Bad and doubtful debts; Reason to believe; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 115JB; 10B; 147; 148; 263; 63

Judgement Text

IN THE INCOME TAX APPELATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE : SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.1423/HYD/2011 ASSESSMENT YEAR 2004-2005 MYLAN LABORATORIES LTD., (FORMERLY KNOWN AS MATRIX LABORATORIES LTD., HYDERABAD 500 033 PAN AADCM3491M VS. ACIT, CIRCLE-16(2) HYDERABAD. (ASSESSEE) (RESPONDENT) FOR ASSESSEE : MR. K.A. SAI PRASAD FOR REVENUE : MR. P. SOMASEKHAR REDDY DATE OF HEARING : 14.09.2016 DATE OF PRONOUNCEMENT : 21.10.2016 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-V, HYDERABAD DATED 25.05.2011. TH E ISSUE IN THIS APPEAL IS WITH REFERENCE TO REOPENING OF THE ASS ESSMENT UNDER SECTION 147 AND ADDITIONS MADE THEREON IN THE R E- ASSESSMENT PROCEEDINGS. 2. THE ASSESSEE FILED ON 01.11.2004 ITS RETURN OF I NCOME FOR A.Y. 2004-05 DECLARING A INCOME OF RS.9,32,14,9 21 UNDER NORMAL COMPUTATION AND RS.51,96,92,295 U/S 115JB. THE ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 29.0 3.2006 DETERMINING THE INCOME AT RS.21,83,21,320 UNDER REGU LAR COMPUTATION AND RS.134,47,08,088 UNDER SECTION 115JB. THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INC OME TAX AGITATING, (1) THE ADDITION/DISALLOWANCE OF DEFERRED TA X (2) THE 2 ITA.NO.1423/HYD/2011 MYLAN LABORATORIES LTD., HYDERABAD. PROVISION FOR DOUBTFUL DEBTS, GRATUITY, BONUS, LEAVE E NCASHMENT, (3) THE RESTRICTION OF DEDUCTION UNDER SECTION 80HHC. ( 4) REDUCTION OF 90% OF CONVERSION CHARGES, DEPB BENEFITS INTEREST, FOREIGN EXCHANGE FAVOURABLE FLUCTUATIONS, TREATING THE SAME AS NON-BUSINESS INCOMES (5) INCLUDING THE SALES TAX AND EXCISE DUTY IN THE TOTAL TURNOVER (6) WRONG COMPUTATION OF PROFITS FRO M TRADING GOODS (7) TREATMENT OF LOSS OF AMALGAMATED COM PARISON. THE FIRST APPELLATE AUTHORITY GAVE PARTIAL RELIEF AND THE ASSESSEE IS IN APPEAL BEFORE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.509/H/08 AND THE REVENUE IS ALSO IN APPEAL IN ITA .NO. 521/H/08 ON THAT ORDER. 3. ON 20.03.2009 THE ASSESSING OFFICER ISSUED NOTIC E UNDER SECTION 148 WHICH WAS SERVED ON 24.03.2009. TH E ASSESSEE VIDE LETTER FILED ON 25.03.2009 SOUGHT THE REASONS FOR ISSUE OF NOTICE UNDER SECTION 148. VIDE HIS LETTER DT.06.04.20 09 THE ASSESSING OFFICER COMMUNICATED THE REASONS AS UNDER: 'IN THIS CONNECTION, YOU ARE HEREBY INFORMED THAT O N VERIFICATION OF THE RECORD, IT IS SEEN THAT YOU HAV E CLAIMED DEDUCTION U/S 35 TOWARDS SCIENTIFIC RESEARCH HOWEVE R, THE CAPITAL EXPENDITURE INCURRED TOWARDS EXPENDITURE ON PRODUCTION, TESTING, QUALITY CONTROL ETC, CANNOT BE CONSIDERED AS EXPENDITURE ON RESEARCH U/ 35 OF THE ACT FURTHER YOU HAVE CLAIMED BROUGHT FORWARD LOSSES OF THE AMALGAMATING' COMPANIES NAMELY DORA LABORATORIES LIMITED AND FINE DRUGS AND CHEMICALS LIMITED HOWEVER. YOU HAVE NOT FULFILL ED THE CONDITIONS LAID CLOWN IN CLAUSES (A) AND (B) OF SUB SECTION (2) OF SECTION 72A OF THE INCOME TAX AND ALSO FAILED TO FURNISH A CERTIFICATE IN FORM NO 62 AS REQUIRED UNDER RULE 9C OF INCOME TAX RULES', THE ASSESSEE FILED A LETTER ON 13.05.2009 OBJECTING T O THE RE- OPENING OF ASSESSMENT AND REQUESTED FOR DROPPING OF RE- ASSESSMENT PROCEEDINGS. 3 ITA.NO.1423/HYD/2011 MYLAN LABORATORIES LTD., HYDERABAD. 4. THE ASSESSING OFFICER IN HIS ORDER DT.09.12.200 9 UNDER SECTION 143(3) R.W.S.148 AT PAGE 3 LAST PARA DI SCUSSED THE POINTS RAISED BY THE ASSESSEE. IN THE REASSESSMENT HE DID NOT MAKE ANY ADDITION ON SUCH ISSUES. ON THE OTHER HAND H E HAD AGAIN ADDED A SUM OF RS.3,08,35,610 BEING THE PROVIS ION FOR DOUBTFUL DEBTS FOR THE PURPOSE OF COMPUTATION OF BOOK PR OFIT UNDER SECTION 115JB. THIS ADDITION ACCORDING TO HIM WAS NECESSITATED BY THE INSERTION OF C1AUSE (I) TO EXPLANA TION (1) TO SECTION 115JB(2). HE FAILED TO APPRECIATE THE FACT THAT THE SAME ADDITION WAS ALREADY MADE IN THE ASSESSMENT UNDER SECTI ON 143(3) AND WAS SUBJECT MATTER OF DISPUTE BEFORE COMMIS SIONER OF INCOME TAX AND BEFORE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.521/H/09. 5. THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER U/ S 143(3) R.W.S148 BEFORE FIRST APPELLATE AUTHORITY AND CHALLENGED THE PROCEEDINGS UNDER SECTION 147. THE COMMISSIONER O F INCOME TAX (APPEALS) FOR THE REASONS BEST KNOWN TO HIM, AT PA RA 4.2 MENTIONED ENTIRELY NEW REASONS FOR ISSUE OF NOTICE UND ER SECTION 148 AND HELD THAT THE PROCEEDINGS UNDER SECTION 147 ARE JUSTIFIED; THE REASONS MENTIONED BY COMMISSIONER OF I NCOME TAX (APPEALS) AT PARA 4.2 ARE : 'IN THE CASE OF THE ASSESSEE, DURING PROCEEDINGS U/ S 263 FOR THE ASSESSMENT YEAR 2005-06, IT WAS OBSERVED THAT T HE ASSESSEE'S CLAIM OF EXEMPTION U/S 10B WAS NOT IN OR DER SINCE, INTER ALIA, THE TWO UNITS I E, PASHAMYLARAM AND JEEDIMETLA WERE NOT NEWLY ESTABLISHED, WERE NOT 100 % EOU AND WERE NOT LOCATED IN EXPORT PROCESSING ZONE. CONSEQUENTLY, THE ASSESSEE'S CLAIM OF EXEMPTION U/S 10B HAS BEEN DISALLOWED VIDE ORDER PASSED ON 31.12.2010 U/S 143(3) RWS263 FOR THIS ASSESSMENT YEAR I.E., 2004-0 5, THE ASSESSEE HAS CLAIMED EXEMPTION U/S 10B IN RESPECT O F ONE UNIT I. E, PASHAMYLARAM UNIT AND THERE IS NO CHANGE IN FACTS 4 ITA.NO.1423/HYD/2011 MYLAN LABORATORIES LTD., HYDERABAD. IN RESPECT TO THE NATURE AND LOCATION OF THE UNIT. IN VIEW OF FRESH FACTS BROUGHT TO LIGHT VIDE PROCEEDINGS U/S 2 63 FOR THE ASSESSMENT YEAR 2005-06, I HAVE REASON TO BELIEVE T HAT THE EXEMPTION CLAIMED U/S 10B IS NOT IN ORDER AND HENCE THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WIT HIN THE MEANING OF SECTION 147 OF THE ACT'. THE COMMISSIONER OF INCOME TAX (A) WAS OF THE OPINIO N THAT NEW FACTS HAVE COME TO LIGHT WARRANTING REOPENING. AGAINS T THE FINDINGS OF THE CIT(A) THE ASSESSEE PREFERRED THIS AP PEAL. 6 ASSESSEE IS AGGRIEVED ON THE FOLLOWING GROUNDS : 1. THE CIT(A) ERRED IN CONFIRMING THE ORDER OF REASSE SSMENT PASSED UNDER SECTION 147 OF THE INCOME TAX ACT BY T HE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 16(2), HYDERABAD (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER), THOUGH IT IS CONTRARY TO FACTS AND LAW. 2. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.30,83S,610 UNDER CLAUSE (I) OF EXPLANATION TO SE C. 115JB OF THE INCOME TAX ACT. 3. THE CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFF ICER TO RE-COMPUTE EXPORT PROFITS UNDER CLAUSE (IV) OF EXPL ANATION TO SEC. 115JB, CONSEQUENT TO DISALLOWANCE MADE PER GROUND 2 ABOVE. 4. THE CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFF ICER TO ALLOW RELIEF TOWARDS BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION UNDER SECTION 72A OF THE AC T BY RS.12,67,567. 5. THE CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFF ICER TO ALLOW DEDUCTION OF RS.61,72,962 IN RESPECT OF PROFI T DERIVED FROM EXPORT OF TRADING GOODS AND INSTEAD CONFIRMED TRADING LOSS OF RS.29,77,934 WHICH WAS AR RIVED AT BY HIM BY FOLLOWING A DIFFERENT BASIS FOR ARRIVI NG AT THE AMOUNT OF INDIRECT COST OF GOODS. 6. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND OR ALTE R ANY OF THE AFORESAID GROUNDS AS THE OCCASION MAY ARISE. 5 ITA.NO.1423/HYD/2011 MYLAN LABORATORIES LTD., HYDERABAD. 3. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT 1. THE REASONS RECORDED BY ASSESSING OFFICER ARE ENTIRE LY DIFFERENT FROM THE REASONS MENTIONED BY COMMISSIONER OF INCOME TAX (A). HENCE THERE IS NO JUSTIFICATION FOR COMMISSIONER OF INCOME TAX (A) TO UPHOLD THE PROCEEDINGS UNDER SECTION 147. 2. IN ANY CASE, THE ASSESSING OFFICER HAS NOT MADE ADDI TION WITH REGARD TO THE REASONS RECORDED. 3. GROUND ON WHICH THE REOPENING WAS BASED WAS ACCEPTE D AND NO ADDITIONS WERE MADE. HENCE THE ASSESSING OFF ICER COULD NOT MAKE ADDITIONS ON SOME OTHER GROUNDS. (A) RANBAXY LABORATORIES LTD., VS. CIT 336 ITR 136 DELHI. (B) CIT VS. JET AIRWAYS (I) LTD., 331 ITR 236 (BOM.) (C) CIT VS. MOHMED JUNED DADANI 214 TAXMAN 38 (GUJ.) 4. FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CA SE OF JET AIRWAYS (SUPRA), THE HON'BLE INCOME TAX APPELL ATE TRIBUNAL BENCH 'B' IN ITS ORDER DT.30.11.2010 IN ITA. NO. 1154/HYD/2010 UPHELD THE ORDER OF THE FIRST APPELLATE AUTHORITY CANCELLING THE ORDER UNDER SECTION 143(3) R.W.S.147 IN THE SIMILAR CIRCUMSTANCES. 5. SINCE THE ISSUES OF DISALLOWANCE OF PROVISION FOR DO UBTFUL DEBTS IN THE COMPUTATION UNDER SECTION 115JB IS THE SUBJECT MATTER OF APPEAL BEFORE INCOME TAX APPELLATE TRIBUNAL, THE REOPENING IS BAD IN LAW IN VIEW OF THE THIRD PROVISO TO SEC 147 OF THE INCOME TAX ACT. 6 ITA.NO.1423/HYD/2011 MYLAN LABORATORIES LTD., HYDERABAD. 6. EVEN IF THE INSERTION OF CLAUSE (I) TO EXPLANATION (1) TO SECTION 115JB WITH RETROSPECTIVE EFFECT IS CONSIDERED A S A REASON, THE REOPENING IS BAD IN LAW AS HELD BY THE BOMBAY HIGH COURT IN THE CASE OF DIL LTD., VS. ACIT (2012) 343 ITR 296. THE COURT HELD THAT REOPENING, FOR MAKING THE ADDITION ON ACCOUNT OF THE PROVISION FOR BA D DEBTS BASED ON AMENDMENT WAS BAD IN LAW. THE ASSESSEE'S CASE IS EXACTLY ON SAME LINES 4. THE LD. D.R. WHILE FAIRLY ADMITTING THAT THE REASONS RECORDED BY THE CIT(A) ARE AT VARIANCE WITH THE REASONS RECORDED BY THE ASSESSING OFFICER AT THE TIME OF INITIATION, HOWE VER, SUPPORTED THE REOPENING OF ASSESSMENT. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDER OF THE ASSESSING OFFICER AND CIT(A). AS N OTED ABOVE, THE REASON FOR REOPENING THE ASSESSMENT IS FOR THE PURPOS E OF EXAMINING THE EXPENDITURE UNDER SECTION 35 AND CARRIE D FORWARD LOSSES WHICH WERE ALREADY CONSIDERED IN THE ORIGINAL ASSESSMENT. IN THE RE-ASSESSMENT PROCEEDING COMPLETED, THESE TWO A SPECTS WERE ACCEPTED BY THE ASSESSING OFFICER BUT HOWEVER, TH E ADDITION UNDER SECTION 115JB COMPUTATION WAS MADE; WHICH IN FA CT, WAS ALSO CONSIDERED IN THE ORIGINAL ASSESSMENT ORDER AND SUBJECT MATTER OF APPEAL SEPARATELY. THE APPEALS ON THE ORDER UNDER SECTION 143(3) ARE PENDING IN ITA.NO.521/HYD/2008 AN D ITA.NO.509/HYD/2008 BEING CROSS-APPEALS, WHICH ARE BEING ADJUDICATED SEPARATELY. SINCE THE REASONS RECORDED FO R THE REOPENING OF THE ASSESSMENT HAVE NOT BEEN CONSIDERED IN THE ASSESSMENT, FOLLOWING PRINCIPLES LAID DOWN BY THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JET AIRWAYS ( I) LTD., (2011) 331 ITR 236, THE CONSEQUENTIAL ASSESSMENT COMPL ETED HAS 7 ITA.NO.1423/HYD/2011 MYLAN LABORATORIES LTD., HYDERABAD. BECOME BAD IN LAW. MOREOVER, THE ADDITIONS MADE IN THE RE- ASSESSMENT ORDER ARE NOTHING BUT ADDITIONS MADE IN THE O RIGINAL ORDER THEREFORE, WITHOUT PREJUDICE TO THE FINDINGS BEIN G GIVEN IN THE ORDER UNDER SECTION 143(3), THERE IS NO NEED TO AD D THE AMOUNTS AGAIN IN THIS ORDER. SINCE THE REASONS FOR RE OPENING ARE NOT CONSIDERED FOR ADDITIONS IN THIS ORDER, THE PROCEED INGS INITIATED UNDER SECTION 147, REOPENING THE ASSESSMENT CO MPLETED UNDER SECTION 143(3), ARE BAD IN LAW. ACCORDINGLY, TH E ASSESSEES GROUND NO.1 IS ALLOWED. THE OTHER GROUNDS ON MERITS A RE ACADEMIC IN NATURE IN THIS APPEAL AS THEY ARE BEING C ONSIDERED SEPARATELY IN THE OTHER APPEALS PENDING BEFORE THIS FO RUM. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.2 016. SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 21 ST OCTOBER, 2016. VBP/- COPY TO 1. MYLAN LABORATORIES LTD., (FORMERLY KNOWN AS MATRIX LABORATORIES LTD.,), PLOT NO.564/A/22, ROAD NO.92, JUB ILEE HILLS, HYDERABAD 500 034. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(2), AAYAKAR BHAVAN, HYDERABAD. 3. CIT(A)-V, HYDERABAD. 4. CIT-IV, HYDERABAD. 6. D.R. ITAT B BENCH, HYDERABAD 7. GUARD FILE