M/s. Elf Atochem Peroxides India Ltd., CHENNAI V. JCIT, CHENNAI

ITA 421/CHNY/2005

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77295 (ITAT-CHENNAI)
• Duration Of Justice: 9 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2014
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 27-03-2014
• Assessment Year: 1997-1998
• Appeal Filed On: 14-02-2005
• Court: TRIBUNAL
• Department Lawyers: ANIRUDH RAI

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHE NNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 421/MDS/2005 / ASSESSMENT YEAR : 1997-98 M/S.ELF ATOCHEM PEROXIDES INDIA LTD., (NOW KNOWN AS ARKEMA PEROXIDES INDIA PVT. LTD.,) 1 ST FLOOR, BALMER LAWRIE HOUSE, 628, ANNA SALAI, TEYNAMPET, CHENNAI-600 018 [PAN: AAACE 1713 F] ( !% /APPELLANT) VS JOINT COMMISSIONER OF INCOME TAX , SPECIAL RANGE-IX, CHENNAI ( &'!% /RESPONDENT) / APPELLANT BY : SHRI SAROJ KUMAR PARIDA, ADV / RESPONDENT BY : SHRI ANIRUDH RAI, CIT-DR / DATE OF HEARING : 27-03-2014 ! / DATE OF PRONOUNCEMENT : 27-05-2014 #( / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNING THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-III, C HENNAI, DATED 23-12-2004 RELEVANT TO THE ASSESSMENT YEAR (AY) 19 97-98. THE ASSESSEE HAS PRIMARILY RAISED TWO ISSUES IN ITS APP EAL: A) DIS-ALLOWANCE OF COMMISSION ` 1,05,57,332/-; AND B) DENIAL OF DEDUCTION U/S.80HH. I.T.A. NO. 421/MDS/2005 2 2. THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR THE AY.1997-98 ON 28-11-1997 DECLARING INCOME OF ` 8.47 CRORES. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER RE FERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE. DURING THE ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE IN ITS P&L A/C HAS CLAIMED PAYMENT OF COMMISSION TO TH E TUNE OF ` 1.05 CRORES. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF COMMISSION PAID. THE BREAK-UP OF PAYMENT OF COMMISS ION FURNISHED BY THE ASSESSEE IS AS UNDER: I. CHEMPLAST SANMAR LTD. ` 99,29,246/- II. KIRIT SHAH, BARODA ` 2,86,500/- III. ELF ATOCHEM S.A., FRANCE ` 1,38,767/- IV. ELF ATOCHEM SOUTH EAST ASIA P. LTD., SINGAPORE ` 2,02,819/- ------------------- TOTAL: ` 1,05,57,332/- ------------------- THE ASSESSEE PRODUCED THE AGREEMENT BETWEEN THE ASS ESSEE AND CHEMPLAST SANMAR LTD. ACCORDING TO THE AGREEMENT, THE ASSESSEE IS LIABLE TO PAY SALES COMMISSION @5% TO C HEMPLAST SANMAR LTD. THE ASSESSING OFFICER OBSERVED THAT T HE ASSESSEE AND CHEMPLAST SANMAR LTD. ARE GROUP COMPANIES AND S HARE I.T.A. NO. 421/MDS/2005 3 COMMON DIRECTORS. 20% OF SHAREHOLDING OF THE ASSES SEE- COMPANY IS WITH CHEMPLAST SANMAR LTD. THE CONTENTI ON OF THE ASSESSEE IS THAT THE SALES ARE EFFECTED THROUGH CHE MPLAST SANMAR LTD. THE BULK CONSUMER OF ASSESSEES PRODUCTS ARE RELIANCE INDUSTRIES LTD., AND IPCL. THE ASSESSING OFFICER E NQUIRED FROM THE CONSUMERS OF ASSESSEES PRODUCT. THE PURCHASE RS OF MATERIALS DENIED THAT THEY PURCHASED THE SAME THROU GH CHAMPLAST SANMAR LTD. SOME OF THE ASSESSEES CUSTOMERS CONFI RMED THAT THEY HAVE DIRECTLY PURCHASED MATERIALS FROM THE ASS ESSEE COMPANY. THUS, THE MATERIALS WERE DIRECTLY SUPPLIE D BY THE ASSESSEE TO THE CONSUMERS. THE ASSESSING OFFICER H ELD THAT THE ASSESSEE HAS RESORTED TO COLOURABLE METHODS TO EXAG GERATE EXPENDITURE AND ACCORDINGLY DIS-ALLOWED THE COMMISS ION. THE ASSESSING OFFICER FURTHER DIS-ALLOWED DEDUCTION U/S .80HH CLAIMED BY THE ASSESSEE. AGGRIEVED AGAINST THE ASSESSMENT ORDER DT.27-03-200 0, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS ). THE CIT(APPEALS) UPHELD THE FINDINGS OF THE ASSESSING O FFICER ON BOTH THE ISSUES AND CONFIRMED THE ADDITIONS/DIS-ALLOWANC ES. AGGRIEVED BY THE ORDER OF THE FIRST APPELLATE AUTH ORITY, THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBU NAL. I.T.A. NO. 421/MDS/2005 4 3. SHRI SAROJ KUMAR PARIDA, ADVOCATE APPEARING ON B EHALF OF THE ASSESSEE SUBMITTED THAT, THE ASSESSEE HAS PAID SALES COMMISSION TO FIVE PARTIES. THE ASSESSEE IS USING THE SERVICES OF THE EMPLOYEES OF CHEMPLAST SANMAR LTD., AND IS ALSO USING BASIC OFFICE INFRASTRUCTURE FACILITIES FOR THE SALE OF IT S PRODUCTS AND FOLLOW UP OF ITS PAYMENTS FROM THE CONSUMERS. HOWEVER, ON THE ISSUE OF DEDUCTION U/S.80HH CLAIMED BY THE ASSESSEE, THE LD. COUNSEL FAIRLY SUBMITTED THAT THE SAME ISSUE HAD COME UP BEFORE TH E TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS.1992-93, 1993-94 AN D 1994-95 IN ITA NOS.2029, 2030 & 2031/MDS/2002 DECIDED ON 19 -07-2012. THE TRIBUNAL HAS HELD THAT THE ASSESSEE IS NOT ELIG IBLE TO CLAIM DEDUCTION U/S.80HH. THE LD.COUNSEL PLACED ON RECOR D A COPY OF ORDER OF THE TRIBUNAL IN ITA NOS.2029, 2030 & 2031/ MDS/2002 (SUPRA). 4. ON THE OTHER HAND, SHRI ANIRUDH RAI, APPEARING O N BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF THE C IT(APPEALS). THE LD.DR SUBMITTED THAT THE SALES WERE DIRECTLY MA DE BY THE ASSESSEE-COMPANY TO ITS CONSUMERS. THE BULK PURCHA SERS OF ASSESSEES PRODUCTS I.E., RELIANCE AND IPCL HAVE CO NFIRMED THAT THE PURCHASES WERE MADE DIRECTLY FROM THE ASSESSEE- COMPANY AND NOT THROUGH CHEMPLAST SANMAR LTD. THE CONFIRMA TION LETTERS I.T.A. NO. 421/MDS/2005 5 GIVEN BY THE CONSUMER COMPANIES WERE PUT TO MR.NATA RAJAN, DIRECTOR OF THE ASSESSEE-COMPANY. MR.NATARAJAN COU LD NOT REBUT THE SAME. AS REGARDS THE DIS-ALLOWANCE U/S.80HH, T HE LD.DR SUBMITTED THAT THE ISSUE HAS ALREADY BEEN DECIDED B Y THE TRIBUNAL AGAINST THE ASSESSEE IN EARLIER AYS. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS ASSAILED T HE FINDINGS OF CIT(APPEALS) ON THE ISSUE OF DIS-ALLOWANCE OF SALES COMMISSION TO THE TUNE OF ` 1,05,57,332/- AND DIS-ALLOWANCE OF DEDUCTION U/S.80HH. THE ASSESSEE HAS CLAIMED PAYMENT OF COMM ISSION ON THE SALES MADE THROUGH CHEMPLAST SANMAR LTD., KIRIT SHAH, BARODA, ELF ATOCHEM S.A., FRANCE AND ELF ATOCHEM SO UTH EAST ASIA P. LTD., SINGAPORE. THE AUTHORITIES BELOW HAV E GIVEN A SPECIFIC FINDING THAT THE ASSESSEE-COMPANY DIRECTLY SOLD ITS PRODUCTS TO THE CONSUMERS. THIS FACT HAS BEEN CONF IRMED BY THE CONSUMER COMPANIES. THE LD.COUNSEL FOR THE ASSESSE E HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE AUTHORI TIES BELOW ON THIS ISSUE. THEREFORE, WE DO NOT FIND ANY REASON TO INT ERFERE WITH THE FINDINGS OF THE CIT(APPEALS). ACCORDINGLY, THIS GR OUND OF APPEAL OF THE ASSESSEE IS DISMISSED. I.T.A. NO. 421/MDS/2005 6 6. THE NEXT ISSUE IN APPEAL IS DIS-ALLOWANCE OF DED UCTION U/S.80HH. THE LD.COUNSEL FOR THE ASSESSEE HAS FAIR LY CONCEDED THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS.1992-93, 1993-94 AND 1994-95 IN IT A NOS.2029, 2030 & 2031/MDS/2002 (SUPRA). THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL IN THE AFORESAID APPEAL AR E REPRODUCED HEREIN BELOW: 15. THE TAXATION LAWS (AMENDMENT AND MISCELLANEOU S PROVISIONS) ACT, 1986 CAME INTO EFFECT ON 10.9.1986 , WHEN PRESIDENT GAVE ASSENT. EIGHTH SCHEDULE WHICH DEFIN ED BACKWARD AREA INCLUDED CUDDALORE BLOCK WHERE ASSE SSEE WAS ESTABLISHING ITS INDUSTRY. AFTER THE ABOVE AMEN DMENT, ON 19.12.1986, GOVERNMENT ISSUED NOTIFICATION S.O. 16 5 WHEREIN A LIST OF BACKWARD AREAS WAS SPECIFIED AND SUCH L IST WAS GIVEN EFFECT FROM 1.4.1983. IN SUCH LIST, CUDDALORE BLOCK WAS NOT THERE. BY VIRTUE OF NOTIFICATION, CUDDALORE DIS TRICT WHICH WAS A PART OF BACKWARD AREA, AS DEFINED EARLIER UND ER EIGHTH SCHEDULE TO THE ACT, WAS NO MORE A BACKWARD AREA. C AN WE SAY THE RULE OF ESTOPPEL STOPS THE GOVERNMENT FROM WITHDRAWING FROM THE LIST OF BACKWARD AREAS, A PART ICULAR PLACE WHICH WAS ALREADY COVERED UNDER AN EARLIER PROVISIO N. OF COURSE, EVEN THE GOVERNMENT CANNOT EASILY GO BACK O N COMMITMENT ALREADY MADE, AS HELD BY HONBLE APEX C OURT IN THE CASE OF MOTILAL PADAMPAT SUGAR MILLS CO. LTD. ( SUPRA), THOUGH IT WAS HELD THAT DOCTRINE OF ESTOPPEL DID NO T APPLY WHERE GOVERNMENT COULD SHOW THAT PUBLIC INTEREST RE QUIRED IT TO RENEGE FROM ITS EARLIER COMMITMENT. ASSESSEES C ONTENTION MIGHT HAVE BEEN TRUE AND COULD HAVE BEEN ACCEPTED I F IT HAD I.T.A. NO. 421/MDS/2005 7 STARTED MANUFACTURING ATLEAST BEFORE 10.9.1986 WHEN TAXATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 BECAME AN ACT. THIS IS BECAUSE PROVISO TO SUB-SECTI ON (11) OF SECTION 80HH INTRODUCED BY SUCH AMENDING ACT, CLEAR LY GIVES A POWER TO MAKE A RETROSPECTIVE NOTIFICATION SUBJEC T TO A CONDITION THAT SUCH RETROSPECTIVITY DID NOT DATE PR IOR TO 1ST APRIL, 1983. THE NOTIFICATION NO.165 DATED 19.12.19 86 WAS TO HAVE EFFECT FROM 1.4.1983 AND THUS WAS WELL WITHIN THE POWER OF THE GOVERNMENT TO ISSUE SUCH A NOTIFICATION VIDE PROVISO TO SUB-SECTION (11). THEREFORE, WE CANNOT SAY THAT RUL E OF ESTOPPEL HAD ANY APPLICATION HERE SINCE ASSESSEE BY ITS OWN ADMISSION, STARTED PRODUCTION OR MANUFACTURE ONLY I N DECEMBER, 1986. NO DOUBT, THE NOTIFICATION WAS DATE D 19.12.1986 AND ASSESSEE COULD HAVE HAD A BONAFIDE B ELIEF THAT IT WOULD BE IN A BACKWARD AREA TILL SUCH DATE. BUT, NEVERTHELESS, WHEN A SPECIFIC POWER HAS BEEN GIVEN BY THE ACT FOR MAKING A RETROSPECTIVE NOTIFICATION SPECIFY ING BACKWARD AREAS, UNLESS AND UNTIL ASSESSEE QUESTIONS THE VALI DITY OF THE PROVISO TO SUB-SECTION (11) WHICH GAVE SUCH A RETRO SPECTIVE POWER, BEFORE THE APPROPRIATE JUDICIAL FORUMS, FOR ARBITRARINESS AND GETS A RULING IN ITS FAVOUR, IT WILL HAVE TO BE GIVEN EFFECT TO. AS LONG AS THE SAID SECTION APPEARS IN THE ACT, IT WILL APPLY ON ALL FOUR SQUARES TO THE ASSESSEE. THIS TRIBUNAL, BE ING A CREATURE OF A STATUTE, HAS NO POWERS TO GO INTO VAL IDITY OF A STATUTORY PROVISION. NOTHING HAS BEEN BROUGHT ON RE CORD BY THE LEARNED A.R. TO SHOW THAT PROVISO TO SUBSECTION (11 ) OF SECTION 80HH WAS HELD INVALID BY ANY COMPETENT COURT OF LAW . UNLESS AND UNTIL IT IS SO DONE, WE HAVE TO GO BY THE PROVI SO GIVING A POWER TO GOVERNMENT TO ISSUE RETROSPECTIVE NOTIFICA TION. BY VIRTUE OF RETROSPECTIVE NOTIFICATION, CUDDALORE WAS PLACED OUT OF BACKWARD AREA. NO DOUBT, ASSESSEE MIGHT HAVE HA D EVERY I.T.A. NO. 421/MDS/2005 8 INTENTION TO TAKE ADVANTAGE OF SECTION 80HH OF THE ACT BY LOCATING ITS INDUSTRY IN CUDDALORE. BUT, NEVERTHELE SS, IN OUR OPINION, THIS WILL NOT PRE-EMPT THE GOVERNMENT FROM ISSUING A NOTIFICATION WHICH, IT WAS EMPOWERED TO DO UNDER PR OVISO TO SUB-SECTION (11) OF SECTION 80HH OF THE ACT. 16. THE QUESTION OF GIVING A LIBERAL INTERPRETATION , AS ARGUED BY LEARNED A.R., CAN BE ACCEDED TO ONLY WHEN THE WORDI NGS GIVE SOME LEEWAY FOR SUCH INTERPRETATION. HERE, SECTION 80HH STATES THAT AN INDUSTRIAL UNDERTAKING HAS TO BEGIN MANUFACTURE OR PRODUCTION IN A BACKWARD AREA. MERE INTENTION T O BEGIN MANUFACTURE OR PRODUCTION AND MAKING INVESTMENT WOU LD NOT SUFFICE FOR THAT PURPOSE. THERE HAS TO BE ACTUAL MA NUFACTURE OR PRODUCTION. HONBLE APEX COURT IN THE CASE OF COMMI SSIONER OF CENTRAL EXCISE V. HARICHAND SHRI GOPAL (2011) 1 SCC 236 UNEQUIVOCALLY HELD THAT PROVISION PROVIDING EXEMPTI ON, CONCESSION OR EXCEPTIONS IN A FISCAL STATUTE HAS TO BE INTERPRETED STRICTLY. A PERSON WHO CLAIMS EXEMPTION OR CONCESSION, IS REQUIRED TO ESTABLISH CLEARLY THAT H E IS COVERED BY PROVISION CONCERNED AND AS PER THIS DECISION OF THE CONSTITUTIONAL BENCH, IN THE CASE OF ANY AMBIGUITY, BENEFIT WILL GIVE GO TO THE STATE. WE ARE, THEREFORE, OF THE OPI NION THAT LEARNED CIT(APPEALS) FELL IN ERROR IN GIVING VERY L IBERAL INTERPRETATION TO SECTION 80HH AND HOLDING THAT ASS ESSEES INTENTION AND INVESTMENT TO START AN INDUSTRY WOULD SUFFICE AND ACTUAL MANUFACTURE OR PRODUCTION COULD HAVE BEEN ST ARTED EVEN AFTER THE LOCATION WENT OUT OF BACKWARD AREAS. WE, THEREFORE, SET ASIDE THE ORDERS OF CIT(APPEALS) FOR ALL THE YEARS AND HOLD THAT ASSESSEE WAS NOT ELIGIBLE TO CL AIM DEDUCTION UNDER SECTION 80HH OF THE ACT. I.T.A. NO. 421/MDS/2005 9 WE FIND THAT THE ISSUE OF ASSESSEES ELIGIBILITY TO CLAIM DEDUCTION U/S.80HH HAS ALREADY BEEN ADJUDICATED BY THE TRIBUN AL AGAINST THE ASSESSEE. ACCORDINGLY, THIS GROUND OF APPEAL OF TH E ASSESSEE IS ALSO DISMISSED. 7. IN THE RESULT, THE IMPUGNED ORDER IS UPHELD AND THE APPEAL OF THE ASSESSEE IS DISMISSED BEING DEVOID OF MERIT. ORDER PRONOUNCED ON TUESDAY, THE 27 TH MAY, 2014 AT CHENNAI. SD/- SD/- ( . . . ) ( ! ) (DR. O.K. NARAYANAN) (VIKAS AWAS THY) '#$ / VICE PRESIDENT % &' / JUDICIAL MEMBER (% /CHENNAI, )& /DATED: 27 TH MAY, 2014 TNMM &* +,-, /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ./0 /CIT(A) 4. . /CIT 5. ,12 3 /DR 6. 245 /GF