ITC Filtrona Ltd, Bangalore V. DCIT, Bangalore

ITA 152/BANG/2011

• Counselvise Citation: 15221114 RSA 2011
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-11-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 18-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Difference of opinion; Change of opinion
• Section: 143(3); 80IB; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.K SAINI, ACCOUNTANT MEMBER AND SMT. P MADHAVI DEVI, JUDICIAL MEMBER ITA NO.136/B ANG/2011 (ASST. YE AR 2002-03) THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-11(4), BANGALORE. . APPELLANT VS. M/S ITC FILTRONA LTD., DODDAJALA POST, YATHRIGANAHALLI (VIA), BETTAHALSUR, BANGALORE. . RESPONDENT ITA NO.152/B ANG/2011 (ASST. YE AR 2002-03) (BY ASSESSEE ) REVENUE BY BY : SHRI G.V GOPALA RAO ASSESSEE BY : SHRI RUPESH JAIN DATE OF HEARING : 23-11-2011 DATE OF PRONOUNCEMENT : -11-2011 ITA NOS.136 & 152/B/11 2 O R D E R PER SMT. P MADHAVI DEVI, JUDICIAL MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE. THE RELEVANT ASSESSMENT YEAR IS 2002-03. THE APPEA LS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) - I AT BANGALORE DATED 6.12.2010. THE APPEALS ARISE OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S 147 OF THE INCOME-TAX A CT, 1961. 2. IN ITS APPEALS THE ASSESSEE CHALLENGED THE VALID ITY OF THE RE- OPENING OF THE ASSESSMENT U/S 147 OF THE INCOME-TAX ACT AND ALSO THE ORDER OF THE CIT(A) IN UPHOLDING THE ACTION OF THE AO IN DISALLOWING DEDUCTION U/S 80IB OF THE INCOME-TAX ACT IN RESPECT OF THE PROFITS OF THE UNITS ENGAGED IN THE MANUFACTURE OF FILTER RODS ON THE GROUND THAT THE SAME WAS AN ITEM COVERED UNDER THE ELEVENTH SCH EDULE TO THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FILTER RODS USED IN CIGARETTES. THE ASSESSEE COMPANY FILED THE RETURN OF INCOME FOR THE ASST. YEAR 2002-03 DECLARING AN INCOME OF RS.4,04,2 8,740/- WHEREIN DEDUCTION U/S 80IB WAS COMPUTED AT RS.1,73,17,212/- . ON ITA NOS.136 & 152/B/11 3 EXAMINATION OF THE RECORDS, THE AO NOTICED THAT THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURE OF CIGARETTE FILTER/FILTE R RODS AND THAT THE DEDUCTION U/S 80IB IS NOT AVAILABLE FOR MANUFACTURE OF ANY ARTICLE OR THING MENTIONED IN THE ELEVENTH SCHEDULE TO THE INC OME-TAX ACT. HE OBSERVED THAT SL. NO.2 OF THE ELEVENTH SCHEDULE REF ERS TO THE TOBACCO AND TOBACCO PREPARATION, SUCH AS CIGARS AND CHEROOT S, CIGARETTERS, BIDI, SMOKING MIXTURES FOR PIPES AND CIGARETTES, C HEWING TOBACCO AND SNUFF. IN VIEW OF THE SAME, THE ISSUE WAS REOPENED BY ISSUE OF NOTICE U/S 148 ON 3.3.2009 AND THE ASSESSEE VIDE ITS LETTE R DATED 14.5.2009 SUBMITTED THAT RETURN OF INCOME FILED ON 31.10.2022 MAY BE TREATED AS RETURN FILED IN RESPONSE TO NOTICE ISSUED U/S 148 O F THE INCOME-TAX ACT. THEREAFTER IN THE RE-ASSESSMENT U/S 143(3) READ WIT H SEC. 147 OF THE INCOME-TAX ACT, THE DETAILS RELATING TO THE CASE WE RE CALLED FOR AND CONSIDERED. IT WAS CONTENDED BY THE ASSESSEE THAT IT IS ENGAGED IN THE MANUFACTURE OF FILTER RODS WHICH ARE USED IN CIGARE TTES ALSO AND DOES NOT MANUFACTURE TOBACCO OR TOBACCO PRODUCTS. HOWEV ER, THE AO HELD THAT THE ASSESSEE IS MANUFACTURING FILTER RODS, WHI CH ARE USED ONLY IN MANUFACTURE OF CIGARETTES AND, THEREFORE, IT FALLS UNDER THE CATEGORY MENTIONED AT SL. NO.2 OF THE ELEVENTH SCHEDULE OF T HE ACT. HE ACCORDINGLY DISALLOWED THE DEDUCTION U/S 80IB OF TH E ACT. THE ASSESSEE COMPANY VIDE LETTERS DATED 10.6.2009, 22.1 0.2009 AND ITA NOS.136 & 152/B/11 4 29.10.2009 ALSO SUBMITTED THAT THE ISSUE OF ALLOWAB ILITY OF DEDUCTION U/S 80IB HAS BEEN DEALT WITH, IN FAVOUR OF THE ASSE SSEE BY BOTH CIT(A) AND ITAT BANGALORE FOR THE ASST. YEARS 2003-04 AND 2004-05. THE AO, HOWEVER, HELD THAT THE DEPARTMENT HAS NOT ACCEP TED THE DECISIONS OF ITAT BANGALORE FOR THE ASST. YEAR 2003-04 AND 20 04-05 AND APPEAL TO THE HONBLE HIGH COURT OF KARNATAKA HAVE BEEN FI LED. HE ACCORDINGLY MADE THE DISALLOWANCE AND THE CONSEQUEN TIAL ADDITION TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED, ASSESSEE PREFERRED ON APPEAL BEFORE T HE CIT(A) CHALLENGING THE VALIDITY OF THE RE-OPENING OF THE A SSESSMENT ON THE FOLLOWING GROUNDS: 1. THAT IT WAS NOT SUPPLIED WITH REASONS FOR REOPENING OF THE ASSESSMENT AND 2. THAT ALL THE MATERIAL WAS BEFORE THE AO AND, THEREF ORE, RE-ASSESSMENT IS ON MERE CHANGE OF OPINION. 5. THE CIT(A) HOWEVER REJECTED THE GROUNDS RELATI NG TO THE VALIDITY OF THE JURISDICTION RAISED BY THE ASSESSEE AND ON MERITS DECIDED THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUC TION U/S 80IB FOR THE ITA NOS.136 & 152/B/11 5 PORTION OF SALES OF FILERS TO CIGARETTE COMPANIES. HE, THEREFORE, ESTIMATED 75% OF SALE OF FILTER RODS AS RELATING T O SALES TO CIGARETTE COMPANIES. 6. AGAINST THE RELIEF GIVEN BY THE CIT(A), THE REVE NUE IS IN APPEAL BEFORE US AND REGARDING THE CONFIRMATION OF THE ADD ITION, THE ASSESSEE IS IN APPEAL BEFORE US. 7. AS REGARDS THE ASSESSEES APPEAL AND THE LEGAL G ROUND RELATING TO JURISDICTION OF REOPENING OF THE ASST. IS CONCERNED , THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REOPENING OF TH E ASST. IS ON MERE CHANGE OF OPINION, AS THERE WAS NO FRESH MATERIAL B EFORE THE AO TO COME TO A DIFFERENT CONCLUSION. 8. THE LEARNED DR HOWEVER POINTED OUT THAT THERE W AS NO ASST. U/S 143(3) FOR THE RELEVANT ASST. YEAR AND, THEREFORE, THERE WAS NO APPLICATION OF MIND BY THE AO AT ALL. HE SUBMITTED THAT THE ASSESSEE HAS RAISED THE FRESH GROUND ON THE FRESH MATERIAL NOT BEING AVAILABLE BEFORE THE AO DURING THE RE-ASST. PROCEEDINGS AND, THEREFORE, THE SAME MAY NOT BE ENTERTAINED AT THIS STAGE. ITA NOS.136 & 152/B/11 6 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THE ASSESSEE HAD FILED IT S RETURN OF INCOME IN THE RELEVANT ASST. YEAR AND THE SAME HAS NOT BEEN S UBJECT TO SCRUTINY ASST. U/S 143(3) OF THE INCOME-TAX ACT. UNDER SUCH CIRCUMSTANCES AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF RA JESH JHAVERY, STOCK BROKERS PVT. LTD., REPORTED IN 291 ITR 500 (S C), WHEN NO ASST. HAS BEEN MADE U/S 143(3), IT CANNOT BE SAID THAT AO HAS APPLIED HIS MIND TO THE MATERIAL BEFORE HIM AND THAT THERE IS A CHANGE OF OPINION. IN VIEW OF THE SAME, WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT RE-OPENING OF THE ASST. IS ON MER E CHANGE OF OPINION. THUS, THIS GROUND OF APPEAL IS REJECTED. 10. COMING TO THE MERITS OF THE ADDITION IN BOTH AS SESSEES AS WELL AS REVENUES APPEAL, WE FIND THAT THIS ISSUE HAD AL READY ARISEN FOR CONSIDERATION BY THIS TRIBUNAL IN ASSESSEES OWN CA SE FOR THE ASST. YEAR 2003-04 AND 2004-05, THE TRIBUNAL VIDE ITS ORDER DA TED 6.6.2008 HAS EXTENSIVELY CONSIDERED THE SAME AT PARA 5 OF ITS O RDER AND IT IS HELD AS UNDER : WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED RECORDS. FIRST OF ALL, WE HAVE TO SEE ITA NOS.136 & 152/B/11 7 WHETHER FILTER RODS MANUFACTURED BY THE ASSESSEE ARE COVERED UNDER SERIAL NO.2 OF THE ELEVENTH SCHEDULE TO THE ACT. FOR BETTER APPRECIATION OF THE FACTS, SERIAL NO.2 OF THE ELEVENTH SCHEDULE IS EXTRACTED HEREUNDER : TOBACCO AND TOBACCO PREPARATION, SUCH AS CIGARS AND CHEROOTS, CIGARETTES, BIDIS, SMOKING MIXTURES FOR PIPES AND CIGARETTES, CHEWING TOBACCO AND SNUFF A CURSORY PERUSAL OF THE SAME WOULD INDICATE THAT THE PRESENT COMMODITY NAMELY FILTER RODS DOES NOT FIGURE IN THE AFORESAID ITEM MENTIONED IN THE SCHEDULE. WHAT IS EXCLUDED BY THE SECOND ENTRY IN THE SCHEDULE IS TOBACCO IN VARIOUS FORMS AN MIXTURES AND NOT AT ALL ITEMS WHICH ARE USED IN ASSOCIATION WITH TOBACCO. THE LEARNED CIT(A), WHEN THE MATTER TRAVELED BEFORE HIM, METICULOUSLY CONSIDERED THE RELEVANT PROVISIONS OF LAW AS WELL AS THE NATURE OF THE ARTICLE MANUFACTURED BY THE ASSESSEE AND THEN DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOR ANY ARTICLE OR THING TO E BROUGHT INTO THE FOLD OF THIS EXPRESSION, THERE HAS TO BE TOBACCO ONE OF THE INGREDIENTS OF SUCH OR ARTICLE OR THING. HOWEVER, IN THE MANUFACTURE OF FILTER RODS NONE OF THE INGREDIENTS OF TOBACCO ARE PRESENT, FILTER ROADS ITA NOS.136 & 152/B/11 8 ARE USED IN THE CIGARETTES OR CHEROOTS BASICALLY TO ELIMINATES/SUBSTANTIALLY REDUCE THE ILL EFFECT OF SMOKING TOBACCO. FURTHER IT IS SEEN THAT FILTER ROADS FALL UNDER CATEGORY OF WADDING FELT AND ARTICLES OF WADDING OF MAN MADE FIBERS UNDER ITA CODE 56012200 UNDER CHAPTER 56 OF THE ITC HS CODE. LEARNED COUNSEL FOR THE ASSESSEE, POINTING OUT THIS FACTOR, CONTENDED THAT THE ASSESSEE IS ALSO PAYING DUTY TO THE REVENUE DEPARTMENT ON THE BASIS OF THE SAID CLASSIFICATION WHICH CLEARLY SIGNIFIES THAT THE PRODUCT DOES NOT FALL INTO THE CATEGORY OF TOBACCO OR TOBACCO PREPARATIONS. FROM THE AFORESAID FACTS BROUGHT OUT BEFORE US, IT IS CLEAR THAT THE REVENUE DEPARTMENT HAD ACCEPTED THE POSITION THAT WHAT IS MANUFACTURED BY THE ASSESSEE, IN FACT FELL INTO THE CATEGORY OF WADDING FELT LAND ARTICLES OF WADDING OF MAN MADE FIBERS. FURTHER IT IS TO BE SEEN THAT THE FILTER ROADS MANUFACTURED BY THE ASSESSEE HAVE MULTIFARIOUS USAGE AND IS NOT CONFINED TO THE CIGARETTE INDUSTRY ALONE. ITS USAGE RANGES FROM HOME HEATING OIL FILTERS, PIPETTE TIP FILTERS TO REMOVE AEROSOL CONTAMINANTS AND OTHER MEDIUM TO LOW FLOW RATE AIR AND LIQUID FILTERS. THE PRODUCTS IS ALSO USED AS FILTER TIP F OR CIGARETTE FOR REGULATORY APPLICATION, BRANDING/PRODUCT DIFFERENTIATION. THE FILTER RODS ITA NOS.136 & 152/B/11 9 MANUFACTURED BY THE ASSESSEE ARE ALSO USED BY PHARMACEUTICAL COMPANIES. SPECIALLY, THE FILTER RODS ARE USED AS WICKS WHICH ARE USED IN MANUFACTURE OF INHALERS. THE EXPRESSION TOBACCO AND TOBACCO PREPARATIONS IN ITEM NO.2 OF THE ELEVENTH SCHEDULE TO THE ACT DOES NOT MEAN ONE AND THE SAME THING. WHILE THE EXPRESSION TOBACCO MEANS PROCESSED NARCOTIC LEAVES AND HENCE TOBACCO WOULD MEAN A PRODUCT IN WHICH THE SAID LEAVES ARE SUBSTANTIALLY USED IN TERMS OF QUANTITY, VALUE OR BASE. THE EXPRESSION TOBACCO PREPARATIONS MEANS A PREPARATION USING TOBACCO IF THE PHARMACOLOGY OF NICOTINE AND PHYSIOLOGICAL AND PSYCHOLOGICAL EFFECTS OF NICOTINE ARE DOMINANT AND THE PROPERTIES OF NICOTINE, A SUBSTANCE DERIVED FROM TOBACCO, DO NOT UNDERGO ANY METAMORPHOSIS AS A RESULT OF ADDITION OR OTHER INGREDIENTS IN THE PREPARATION. TESTED ON THIS PRINCIPLE, FILTER RODS DO NOT FALL UNDER THE EXPRESSION TOBACCO AND TOBACCO PREPARATIONS. THE ASSESSEE NEITHER USES ANY PRODUCTS FOR ITS MANUFACTURE WHICH ARE IN THE NATURE OF TOBACCO/TOBACCO PREPARATION AS PRESCRIBED IN THE ELEVENTH SCHEDULE OF THE ACT. FURTHER, THE ISSUE IS ALSO SQUARELY COVERED BY THE ITA NOS.136 & 152/B/11 10 DECISION OF THE MADRAS HIGH COURT, AS CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHEREIN IT HAS BEEN HELD AS UNDER : IT IS NOT THE CASE OF THE REVENUE THAT CIGARETTE FILTERS ARE MADE OUT OF TOBACCO. THE FACT THAT THE FILTERS ARE USED IN CIGARETTES DOES N OT MADE THE FILTERS ALSO A PRODUCT OF TOBACCO. WHAT IS EXCLUDED BY THE SECOND ENTRY IN THE SCHEDULE IS TOBACCO IN VARIOUS FORMS AND MIXTURES AND NOT ALL ITEMS WHICH ARE USED IN ASSOCIATION WITH TOBACCO. FOR EXAMPLE PIPE MIXTURE IS A PRODUCT OF TOBACCO, BUT THE PIPE IN WHICH IT IS SMOKED IS NOT PRODUCT OF TOBACCO, THE PIPE USUALLY BEING MADE EITHER OF WOOD OR WOOD AND METAL. THE PAPER IN WHICH THE TOBACCO IS ROLLED TO MAKE CIGARETTES IS NOT TOBACCO, THOUGH IT IS USED ALONG WITH TOBACCO TO MAKE THE CIGARETTES. THE FOIL IN WHICH THE CIGARETTES ARE WRAPPED AS ALSO THE CARTONS IN WHICH THE CIGARETTES ARE SOLD ARE NOT MADE OUT OF TOBACCO AND ARE NOT EXCLUDED BY THIS ENTRY, EVEN THOUGH THEY ARE USED IN ASSOCIATION WITH AND FOR THE PURPOSE OF MARKETING A PRODUCT OF TOBACCO. THE FILTER WHICH IS USED TO SATISFY A CLASS OF CUSTOMERS WHO PREFER TO USE FILTER CIGARETTES DOES NOT MAKE FILTERS WHICH DO NOT CONTAIN ANY TOBACCO AT ALL, A PRODUCT OF TOBACCO OR A VARIETY OF TOBACCO. ITA NOS.136 & 152/B/11 11 THEREFORE, APPLYING THE SAME, WE CONFIRM THE ORDER OF THE LEARNED CIT(A). 11. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE SUBS EQUENT YEARS, WE ARE INCLINED TO HOLD THAT THE FILTER RODS ARE USED IN WICKS-89 WHICH ARE USED IN THE MANUFACTURE OF INHALERS AND, THEREFORE, DO NOT FALL UNDER THE EXPRESSION TOBACCO AND TOBACCO PREPARATION. IN VIEW OF THE SAME, THE GROUNDS OF APPEAL OF THE ASSESSEE RELATIN G TO THIS ISSUE ARE ALLOWED AND THE REVENUES APPEAL IS DISMISSED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH DEC, 2011. SD/- SD/- (N.K SAINI) (P MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 29/12/2011 ITA NOS.136 & 152/B/11 12 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.