Safepack Industries Limited, Pune V. Assistant Commissioner of Income-tax, Circle - 6, Pune

ITA 2376/PUN/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0270 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-12-2018
• Assessment Year: 2003-2004
• Appeal Filed On: 12-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K VERMA
• Keywords: Reason to believe; Reassessment proceedings
• Section: 147; 148; 143(3); 80HHC; 80IB; 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT . / ITA NO.2376/PUN/2017 / ASSESSMENT YEAR : 2003-04 SAFEPACK INDUSTRIES LIMITED, GAT NO.1093, PLOT NO.3, SHIROLI, RAJGURUNAGAR, TAL : KHED, DIST. PUNE 410 505 PAN : AADCS9161Q VS. ACIT, CIRCLE-6, PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-4, PUNE ON 02-01-2017 IN RELATION TO THE ASSESSMENT YEAR 2003-04. 2. THE ASSESSEE IN THE INSTANT APPEAL IS AGGRIEVED BY THE R E- OPENING OF THE ASSESSMENT AND ALSO REDUCTION IN THE AMOUNT O F DEDUCTION U/S. 80HHC OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED AS THE ACT) FROM RS.9,46,897/- TO RS.5,66,035/-. APPELLANT BY SHRI C.H. NANIWADEKAR RESPONDENT BY SHRI M.K. VERMA DATE OF HEARING 11-12-2018 DATE OF PRONOUNCEMENT 11-12-2018 ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE, THAT THE ASSES SEE FURNISHED RETURN WHICH WAS PROCESSED U/S. 143(1) OF THE ACT. THE AO INITIATED RE-ASSESSMENT PROCEEDINGS ON THE GROUND THA T THE CALCULATION OF CLAIM OF DEDUCTION U/S. 80HHC SHOULD HAVE BEEN MADE AFTER THE REDUCTION OF THE AMOUNT OF DEDUCTION U /S. 80IB OF THE ACT. DURING THE COURSE OF REASSESSMENT PROCEEDINGS U/S 147 OF THE ACT, THE ASSESSEE UNSUCCESSF ULLY OBJECTED TO THE INITIATION OF RE-ASSESSMENT. THE AO COMPLETED THE ASSESSMENT BY REDUCING THE AMOUNT OF DEDUCTION U/S. 80HHC TO RS.5,66,035/- AS AGAINST THE ORIGINAL CLAIM OF THE ASSESSEE AT RS.9,46,897/- REDUCTION IN THE AMOUNT OF DEDUCTION TOOK PLACE NOT ONLY ON ACCOUNT OF REDUCING THE AMOUNT OF DEDUCTION U/S. 80IB FROM THE AMOUNT OF ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S. 80HHC BUT THE AO ALSO MADE CERTAIN ADJUSTMENTS TO THE AMOUNT OF EXPORT TURNOVER AND PROFITS ETC. THE ASSESSEE COULD NOT CONVINCE THE LD. CIT(A) ON ITS POINT OF VIEW, WHO NOT ON LY AFFIRMED THE INITIATION OF RE-ASSESSMENT PROCEEDINGS BUT ALSO THE REDUCTION OF DEDUCTION ON MERITS. 4. I HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE R ELEVANT MATERIAL ON RECORD. THE REASONS FOR RE-OPENING THE RE- ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 3 ASSESSMENT, A COPY OF WHICH IS AVAILABLE AT PAGE 12 OF THE PAPER BOOK, ARE REPRODUCED AS UNDER : THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURE AND SALE OF PROTECTIVE PACKING MATERIALS AND TRADING IN SPECIAL PACKAGING ITEMS. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTIONS U/S.80HHC OF RS.9,46,897/- AND RS.12,17, 501/- U/S.80IB. AS PER CLAUSE (9) BELOW SEC.80IA, THE PR OFIT ALLOWED AS CLAIMED FOR 80IA DEDUCTION SHOULD NOT BE CONSIDERED FOR ALLOWING ANY OTHER DEDUCTION UNDER CHAPTER-VIA DEDU CTION. AS SUCH, THE DEDUCTION OF RS.12,17,501/- RELATING TO S EC.80IB IS TO BE REDUCED FROM ADJUSTED PROFIT OF BUSINESS WORKED OUT AS UNDER : ADJUSTED PROFIT AS PER FORM 10CCAC RS.42,26,406 LESS : DED. CLAIMED U/S.80IB RS.12,17,501 ------------------ RS.30,08,905/- DEDUCTION U/S.80HHC = ADJ. PROFIT X EXPORT/TOTAL TU RNOVER 30,08,905 X 2,11,75,584 = 15,07,775 4,22,57,839 50% THEREOF (FOR A.Y.2003-04) = 7,53,887 AS AGAINST RS.7,53,887, THE ASSESSEE HAS CLAIMED DE DUCTION U/S.80HHC AMOUNTING TO RS.9,46,897/-. THE RETURN W AS PROCESSED U/S.143(1). IN VIEW OF THE ABOVE, I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX AMOUNTING TO RS.1,93,010/- HAS ES CAPED ASSESSMENT WITHIN THE MEANING OF CLAUSE (B) UNDER E XPLN. (2) TO SEC.147 OF THE ACT. 5. IT IS APPARENT FROM THE ABOVE REASONS THAT THE AO WAS DISSATISFIED WITH THE ASSESSEES COMPUTATION OF DEDUCTION U/S 80HHC BY NOT REDUCING THE AMOUNT OF DEDUCTION U/S.80IB AT RS.12,17,501/- FROM THE AMOUNT OF ELIGIBLE PROFITS. THAT IS HOW, HE SOUGHT TO REDUCE THE AMOUNT OF DEDUCTION U/S.80HH C ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 4 AT RS.7,53,887/- IN THE REASONS FOR INITIATION OF RE-ASSESSM ENT PROCEEDINGS. 6. IT CAN BE SEEN FROM FORM 10CCB, WHICH IS AUDIT REP ORT MEANT FOR CLAIMING DEDUCTION U/S. 80IB, A COPY PLACED AT PA GE 27 OF THE PAPER BOOK, THAT THE ASSESSEE COMPUTED ELIGIBLE P ROFIT AT RS.44,94,739/- AND CLAIMED DEDUCTION U/S. 80IB @ 30% AT RS.12,17,501/-. APART FROM THAT, ASSESSEE ALSO CLAIMED DEDUCTION U/S. 80HHC IN TERMS OF AUDIT REPORT IN FORM 10CCAC AMOUNTING TO RS.9,46,897/- WHICH CALCULATION IS AVAILABLE ON PAGE 19 OF THE PAPER BOOK. THUS, THE ASSES SEE CLAIMED DEDUCTION U/S. 80IB AS WELL AS SECTION 80HHC. THE AO HAS NOT DENIED THE OTHERWISE AVAILABILITY OF DEDUCTION UNDER TWO SECTIONS. THE ONLY POINT OF VIEW OF THE AO, AT TH E STAGE OF INITIATION OF RE-ASSESSMENT PROCEEDINGS, WAS THAT THE AMOUNT OF DEDUCTION U/S. 80IB SHOULD HAVE BEEN REDUCED FROM THE AMOUNT OF ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC. FOR THIS PROPOSITION, THE AO TOOK SUPPORT FROM SUB-SECTION (9) OF SECTION 80IA, WHICH READ S AS UNDER :- `(9) WHERE ANY AMOUNT OF PROFITS AND GAINS OF AN UN DERTAKING OR OF AN ENTERPRISE IN THE CASE OF AN ASSESSEE IS CLAIMED AND ALLOWED UNDER THIS SECTION FOR ANY ASSESSMENT YEAR, DEDUCTION TO THE EXTENT OF SUCH ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 5 PROFITS AND GAINS SHALL NOT BE ALLOWED UNDER ANY OT HER PROVISIONS OF THIS CHAPTER UNDER THE HEADING' C.DEDUCTIONS IN RESPECT OF CERTAIN INCOMES ', AND SHALL IN NO CASE EXCEED THE PROFITS AND GAIN S OF SUCH ELIGIBLE BUSINESS OF UNDERTAKING OR ENTERPRISE, AS THE CASE MAY BE. 7. A CAREFUL PERUSAL OF SUB-SECTION (9) OF 80IA TRANSPIRE S THAT WHERE AN AMOUNT OF PROFIT IS ALLOWED AS DEDUCTION UNDER THE SECTION, THEN NO FURTHER DEDUCTION TO THE EXTENT OF SUCH PROFITS SHALL BE ALLOWED UNDER ANY OTHER PROVISIONS OF CHAP TER VIA-C. THIS SHOWS THAT THE CAP OR THE CEILING AS PUT UP IN SUB-SECTION (9) OF SECTION 80IA IS ON THE AMOUNT OF ELIGIBLE PROFITS. TO PUT IT SIMPLY, IF DEDUCTION U/S. 80IA HAS BEEN ALLOWED AT THE RATE OF 100% ON THE AMOUNT OF ELIGIBLE PROFIT AT RS.100/-, THEN NO FURTHER DEDUCTION UNDER ANY OF THE SECTIO NS CONTAINED IN CHAPTER VIA-C, SHALL BE ALLOWED. IF, HOWEVER, THE AMOUNT OF DEDUCTION U/S. 80IA IS LESS THAN 100%, AS IN TH E CASE UNDER CONSIDERATION IT IS 30%, THE DEDUCTION UNDER OTHER SECTIONS OF CHAPTER VIA-C CAN BE ALLOWED BUT NOT EXCEEDING RS.70/-. (RS.100/-, BEING THE AMOUNT OF ELIGIBLE PROFIT MINUS RS.30/-, BEING THE AMOUNT OF DEDUCTION U/S. 80IA). THE N ITTY- GRITTY OF THE MATTER IS THAT TOTAL AMOUNT OF DEDUCTIONS UNDER ALL THE ELIGIBLE SECTIONS OF CHAPTER VI-A-C SHOULD NOT CROSS THE AMOUNT OF ELIGIBLE INCOME. SUB-SECTION (9) OF SECTION 80IA ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 6 DOES NOT LAY DOWN THAT IF `DEDUCTION HAS BEEN ALLOWED U/S 80IA WITH REFERENCE TO `PROFITS OF THE ELIGIBLE BUSINESS, TH EN SUCH `PROFITS CANNOT BE CONSIDERED FOR THE PURPOSE OF A NY OTHER DEDUCTION UNDER CHAPTER VIA-C. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. VS. DCIT AND ANOTHER (2011) 332 ITR 42 (BOM.) HAS HELD THAT SEC. 80-IA(9) DOES NOT AFFECT THE COMPUTABILITY OF DEDUCTION UNDER VARIOUS PROVISIONS UNDER HEADING C OF CHAPTER VI-A AND ONLY AFFECTS THE ALLOWABILITY OF SUCH DEDUCTIONS UNDER OTHER PROVISIONS SO THAT THE AGGREGATE DEDUCTION UNDER S. 80-IA A ND OTHER PROVISIONS UNDER HEADING C OF CHAPTER VI-A DO NO T EXCEED 100 PER CENT OF THE PROFITS OF THE BUSINESS. IT REJE CTED THE SUBMISSION OF THE DEPARTMENT THAT DEDUCTION ALLOWABLE UNDER S. 80HHC HAS TO BE COMPUTED ON THE PROFITS OF THE BUSINESS AS REDUCED BY THE PROFITS ALLOWED AS DEDUCTION UN DER S. 80-IA. IT IS FURTHER RELEVANT TO NOTE THAT THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. MICRO LABS LTD. (2016) 380 ITR 1 (SC) HAS REFERRED THIS MATTER TO THE LARGER BENCH AFTER CONSIDERING THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. (SUPRA). THE HONBLE BOMBAY HIGH COURT IN CIT VS. MERCK LTD. (2016) ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 7 389 ITR 70 (BOM.) WAS ONCE AGAIN CONFRONTED WITH THE SAME CONTROVERSY. AFTER CONSIDERING THE PENDENCY OF THE MATTER BEFORE THE LARGER BENCH OF THE HONBLE SUPREME COURT IN THE CASE OF MICRO LABS (SUPRA), THE HONBLE HIGH COURT FOLLOWED ITS EARLIER DECISION IN THE CASE OF ASSOCIATED CAPSULES (P) LTD. (SUPRA) AND REFUSED TO ADMIT SIMILAR QUESTION RAISED BY THE REVENUE IN ITS APPEAL. IN VIEW OF THE FOREGOING DISCUSSION, I AM OF THE CONSIDERED OPINION THAT NO FAULT CAN BE FOUND WITH THE ASSESSEE IN CLAIMING THE AMOUNT OF DEDUCTION U/S. 80IB A T RS.12.71 LAKHS AND U/S. 80HHC AT RS.9.46 LAKHS AGAINST THE TOTAL ELIGIBLE INCOME OF RS.44.94 LAKHS. I, THEREFORE, OVERTU RN THE IMPUGNED ORDER AND DIRECT NOT TO REDUCE THE AMOUNT OF DEDUCTION U/S. 80IB WHILE COMPUTING THE DEDUCTION U/S. 80HHC OF THE ACT. 8. NOW I TAKE UP THE OTHER ADJUSTMENTS MADE BY THE AO IN THE COMPUTATION OF DEDUCTION U/S. 80HHC, NAMELY, THE ADJUSTMENTS IN THE AMOUNT OF TURNOVER AND PROFITS ETC., 9. IT CAN BE SEEN FROM THE DISCUSSION MADE SUPRA THAT THE AO RESORTED TO THE RE-ASSESSMENT ON ACCOUNT OF ONE REASO N, WHICH HAS BEEN EXTRACTED ABOVE. WHILE DISCUSSING IT, I HAV E ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 8 HELD THAT THE AO WAS NOT JUSTIFIED IN REDUCING THE AMOUNT OF DEDUCTION U/S 80IB WHILE CALCULATING THE AMOUNT OF DEDUCTION U/S 80HHC OF THE ACT. 10. SECTION 147 PROVIDES THAT: IF THE ASSESSING OFFICER H AS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY, S UBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153, ASSESS OR REASS ESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PROCEEDINGS UNDER THIS SECTION. A BARE PERUSAL OF THE ABOVE PROVISION MANIFES TS THAT THE AO IS FULLY EMPOWERED TO BRING TO TAX ANY OTHER INCOME WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO H IS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS U/S 147, APART FROM THE INCOME ESCAPING ASSESSMENT ON WHICH THE AO FORMED REASON TO BELIEVE ABOUT THE ESCAPEMENT OF INCOME AN D ISSUED NOTICE U/S 148. THE USE OF WORDS AND BETWEEN THE INCOME ESCAPING ASSESSMENT FORMING REASONS TO BELIEVE FOR ISSUING NOTICE U/S 148 AND OTHER INCOME CHARGEABLE TO TAX WHICH ESCAPED ASSESSMENT AND COMES TO THE NOTICE OF THE A O IN THE COURSE OF THE PROCEEDING, AMPLY SHOWS THAT THE ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 9 EXISTENCE OF THE FORMER IS A PRE-CONDITION FOR TAXING THE LATTER . TO PUT IT SIMPLY, IF THE GROUNDS SET OUT IN THE RE-ASSESSM ENT NOTICE ARE NON-EXISTENT, I.E., EITHER NO ADDITION IS MADE ON SU CH GROUNDS OR THE ADDITION SO MADE DOES NOT PASS THE SCRUTINY BY THE APPELLATE FORUMS, THEN, OBVIOUSLY, NO FURTHER ADDITION CA N BE MADE FOR INCOME WHICH COMES TO HIS NOTICE DURING THE COURSE OF PROCEEDINGS U/S 147. WITHOUT THERE BEING SUCH A DETERRENT, THE AO COULD HAVE GOT UNHINDERED POWERS TO INITIATE RE-ASSESSMENT AT THE DROP OF A HAT WITHOUT ANY LEGALLY SUSTAINABLE REASONS AND THEN MADE OTHER ADDITIONS RESULTING IN MULTIPLICITY OF PROCEEDINGS, WHICH THE LEGISLATURE HAS SOUGHT TO CURB. ANY LAWFUL JURISDICTION TO MAKE ADDITION ON ACCOUNT OF OTHER INCOMES COMING TO THE NOTICE OF THE AO DURING THE COURSE OF PROCEEDINGS U/S 147 CAN BE ACQUIRED ONLY ON TH E FOUNDATION OF A VALIDLY ACQUIRED JURISDICTION ON LEGALLY SUSTAINABLE ITEMS OF INCOME ESCAPING ASSESSMENT FORMING REASONS FOR ISSUING NOTICE U/S 148. IN OTHER WORDS, IF TH E AO FAILS TO ACQUIRE A VALID JURISDICTION TO MAKE RE-ASSESSMENT ON THE BASIS OF HIS REASONS, THEN, HE IS ALSO DEBARRED FOR M AKING ADDITIONS FOR OTHER INCOMES CHARGEABLE TO TAX WHICH ESCAPED ASSESSMENT AND COME TO HIS NOTICE SUBSEQUENTLY IN THE COURSE ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 10 OF PROCEEDINGS U/S 147. THE HONBLE BOMBAY HIGH COURT IN CIT VS. JET AIRWAYS (I) LTD. (2011) 331 ITR 236 (BOM) HAS HELD TO THIS EXTENT. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN CIT VS. CHIEL COMMUNICATIONS INDIA PVT. LTD. (2013) 354 ITR 549 (DEL). 11. WHEN I TEST THE FACTS OF THE INSTANT CASE ON THE TOUCHSTONE OF THE PRINCIPLE AS DISCUSSED HEREINABOVE, IT TURNS OUT THAT TH E ONLY REASON TAKEN NOTE OF BY THE AO BEFORE ISSUING NOTICE U/S 148 IS NON-EXISTENT AND, RESULTANTLY, THERE IS NO QUESTION OF MAKING ANY OTHER ADDITION OR ADJUSTMENT TO THE AMOUNT OF INCOME. I, THEREFORE, SET ASIDE THE ASSESSMENT ORDER PASS ED BY THE AO U/S 147 READ WITH SECTION 143(3) OF THE ACT. AS SUC H, THERE IS NO NEED TO DISCUSS OTHER ADJUSTMENTS MADE BY TH E AO IN THE COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. AS THE AO IS NOT COMPETENT TO MAKE ANY OTHER ADDITION/DISALLOWANCE IN THE INSTANT CASE, ALL OTHER ADJUSTMENTS MADE BY THE AO TO DIFFERENT LIMBS IN THE COMPUTATION OF THE AMOUNT OF DEDUCTION U/S 80HHC ARE LIABLE TO BE SET ASIDE. ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 11 12. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER, 2018. SD/- (R.S.SYAL) / VICE PRESIDENT PUNE; DATED : 11 TH DECEMBER, 2018 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-4, PUNE 4. / THE PR. CIT-3, PUNE 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO.2376/PUN/2017 SAFEPACK INDUSTRIES LIMITED 12 DATE 1. DRAFT DICTATED ON 11-12-18 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11-12-18 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *