AI Insights
The case revolves around the eligibility of M/s Knox Life Sciences for a 100% income tax exemption under section 80IC for the assessment years 2013-14 to 2017-18. Initially, the Assessing Officer processed the assessee's return under section 143(1) without any alterations. However, following a Supreme Court judgment, the assessee filed a rectification application under section 154, which was rejected by the Assessing Officer but later accepted by the CIT(A). The Department appealed against this decision, arguing that the CIT(A) erred in finding a mistake apparent from the record when the returned income was accepted as such by the Department. The Tribunal, referencing the Supreme Court's decision in 'Aarham Softronics', upheld the CIT(A)'s decision, emphasizing that the legal position changed post the Supreme Court's judgment, warranting a rectification under section 154.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 127404 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
8 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-06-2023
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Next Hearing Date
22-05-2023
Assessment Year
2017-2018
Appeal Filed On
26-09-2022
Judgement Text
आयकर अपील य अ धकरण, च डीगढ़ यायपीठ, च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘A’, CHANDIGARH BEFORE SHRI A.D. JAIN, VICE PRESIDENT & SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं ./ITA No. 634/C H D / 2 0 2 2 नधा रण वष / Assessment Year : 2017-18 The ACIT, Circle 1(1), Chandigarh बनाम M/s Knox Life Sciences, 421, Industrial Area-11, Chandigarh थायीलेखासं./PAN NO: AAHFK7337P अपीलाथ /Appellant यथ /Respondent नधा रतीक ओरसे/Assessee by :Sh. Tej Mohan Singh, Advocate राज वक ओरसे/ Revenue by : Smt. Amanpreet Kaur, Sr.DR स ु नवाईक तार%ख/Date of Hearing : 23.05.2023 उदघोषणाक तार%ख/Date of Pronouncement : 09.06.2023 आदेश/Order Per A.D. Jain, Vice President: This is assessee’s appeal against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi dated 29.07.2022, for the Assessment Year 2017-18, taking the following grounds of appeal:- 1. Whether on the facts and in the circumstances of the case, the finding given by the ld. CIT(A) is perverse in nature in holding that there is apparent mistake in the intimation u/s 143(1) by the Assessing Officer which need to be rectified u/s 154 of the Income Tax Act, 1961 ignoring the fact that the Assessing Officer had accepted all ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 2 particulars of Income and deduction as claimed by the assessee in its ITR filed voluntarily u/s 139(1) and no other assessment order was passed subsequently? 2. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) is right in holding that there exist an mistake which is an mistake apparent from record, even when the returned income of the assessee was accepted as such by the department? 3. Whether on the facts and circumstances of the case and in law the ld. CIT(A) is right in Law in holding that appellant deserves benefit of the proceedings u/s 154 in the light of subsequent judgment of Hon'ble Supreme Court and directing the assessing officer to grant relief as per law whereas the Assessing Officer has not made any addition or altered any particulars of income? 2. The facts are that the Assessee firm is engaged in the business of manufacturing of Pharmaceutical Formulations, with its manufacturing facility in Baddi (Himachal Pradesh). It started its manufacturing activity from 16.4.2007. For assessment year 2017- 18, the Assessee firm vide its return of income declared total income of Rs. 1,95,93,912/-, after claiming deduction u/s 80IC of the Income Tax Act, 1961 (hereinafter called 'the Act'), amounting to Rs. 48,98,478/-. The return was processed u/s 143(1) of the I.T. Act on 6.3.2018, raising demand of Rs. ‘nil’. The Assessee filed a rectification application u/s 154 of the Act before the AO. The AO, however, ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 3 rejected this application vide order dated 2.11.2020, holding as under:- 3. By virtue of the impugned order, the ld. CIT(A) has accepted the Assessee’s appeal on this issue. ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 4 4. Aggrieved, the Department is in appeal. 5. Challenging the impugned order, the ld. DR contended that the ld. CIT(A) has gone wrong in holding that there was an apparent mistake in the intimation u/s 143(1) of the Act, issued by the AO, which needs to be rectified u/s 154 of the Act; that while doing so, the ld. CIT(A) has ignored the fact that the AO had accepted the particulars of income furnished by the Assessee, as also the deduction as claimed by the Assessee in its income tax return filed voluntarily and that no assessment order stood passed subsequently; that the ld. CIT(A) has erred in holding that there existed a mistake which was a mistake apparent from record, even when the returned income of the Assessee was accepted as such by the Department; that the ld. CIT(A) has further erred in holding that the Assessee deserves benefit of proceedings u/s 154 of the Act in the light of the subsequent judgement of the Hon'ble Supreme Court, and in directing the AO to grant relief to the Assessee as per law, whereas the fact remains that the AO has not made any addition or altered any particulars of the income of the Assessee. 5. Per contra, the ld. Counsel for the Assessee has placed strong reliance on the impugned order. ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 5 6. Heard. It is undisputed that as per the exemption Notification issued by the Government in 2005, any manufacturing concern which starts manufacturing activity from 1.4.2005 to 31.3.2010, will be eligible for a 100% income tax exemption for the first five years from the date of start of production and 25% income tax exemption for the next 5 years. It is also not in dispute that another exemption notification was issued by the Government to provide further boost to the State of Himachal Pradesh, giving 100% income tax exemption for five years to a manufacturing entity, which is already in the production in the state and has carried out substantial expansion, in terms of investment in plant and machinery. The assessee firm was originally entitled to 100% exemption u/s 80IC from FY 2007-08 till FY 2011-12. Thereafter, the firm undertook substantial expansion during the year FY 2011-12. In the copy of report in Form 10CCB for FY 2011-12, the date of substantial expansion stands mentioned as 16.01.2012. The assessment for the said year was made u/s 143(3) and exemption u/s 80IC was allowed by the department. As such, the assessee became eligible to 100% exemption for another period of 5 years, i.e., upto FY 2016-17. During the year under consideration, i.e., AY 2017-18 (F.Y. 2016-17), the assessee claimed 25% exemption u/s 80IC as against 100% while filing the return on 31.10.2017 (Copy placed at Page 1 of the Paper ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 6 Book) in the light of the decision of the Chandigarh Bench of the ITAT vide order dated 27.05.2015 in the case of ‘Hycron Electronics’ reported in 41 ITR (AT) 486 (Chd.), wherein, it was held that the assessee was not eligible to 100% exemption after substantial expansion. The above order of the ITAT was challenged before the Hon'ble Himachal Pradesh High Court in the case of ‘Stovekraft India v. Commissioner of Income-tax’ dated 28.11.2017 reported in [2017] 400 ITR 225 (H.P.) wherein it was held that an 'undertaking or an enterprise' established after 7-1-2003, which carried out 'substantial expansion' within the specified window period, i.e., between 7-1-2003 which 1-4-2012, would be entitled to deduction on profits at rate of 100 per cent, under section 80-IC post the said expansion. ‘Hycron’ (supra) was, thus, set aside and the matter was decided in favour of the Assessee. Thereafter, the Hon'ble Apex Court, in the case of ‘CIT v. Classic Binding Industries’, vide order dated 20.08.2018, reported in 407 ITR 429 (SC), reversed the decision of ‘Stovekraft India’ (supra) holding that where assessee had availed deduction under section 80- IC for a period of 5 years at rate of 100 per cent, it would be entitled to deduction on substantial expansion for the remaining 5 assessment years at the rate of 25 per cent (or 30 per cent where the assessee is a company), as the case may be, and not at the rate of 100 per cent. ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 7 7. Thereafter, vide order dated 6.9.2018, in ‘Adamac Formulations v. CIT’, 409 ITR 661 (P&H), the jurisdictional High Court, following ‘Classic’ (supra), affirmed ‘Hycron’ (supra), which had been followed by the Tribunal. Noting the Assessee’s contention that in ‘Stovekraft’ (supra), ‘Hycron’ (supra) was set aside and the issue was decided in favour of the Assessee, the Hon'ble High Court held that ‘Stovekraft’ (supra) had not been approved in ‘Classic’ (supra). ‘Classic’ (supra) was overruled by a larger Bench of the Hon'ble Apex Court in the case of ‘Principal Commissioner of Income-tax, Shimla v. Aarham Softronics’, vide order dated 20.02.2019, reported in 412 ITR 623 (SC), wherein, it was held that the Assessee who had set up a new industry of the kind mentioned in section 80-IC(2) and had started availing exemption of 100 per cent tax under section 80-IC(3) (which is admissible for five years), could start claiming exemption at the same rate of 100 per cent beyond the period of five years, if it had carried out substantial expansion in its manufacturing unit in terms of section 80-IC(8)(ix) within the period of ten years. 8. After the order passed in the case of ‘Aarham Softronics’ (supra), the assessee firm moved an application u/s 154 dated 01.05.2019 before the Assessing Officer (placed in the Paper Book at Pages 16- 18), to allow 100% exemption. The Assessing Officer rejected the application u/s 154 and the Assessee filed an appeal ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 8 against the said order. The ld. CIT(A) allowed the appeal holding that a later Judgement of the Hon'ble Supreme Court on a legal issue can form the basis for an application u/s 154, relying upon CBDT Circular No.68 dated 17.11.1971. 9. The grievance of the Department is that the order passed by the ld. CIT(A), holding that there was an apparent mistake in the intimation issued u/s 143(1) of the Act by the AO, which needed to be rectified u/s 154 of the Act, ignored that the AO had accepted all the particulars of income and the deduction claimed by the Assessee in its ITR filed voluntarily u/s 139(1) of the Act, and no other assessment order had been passed subsequently; that the ld. CIT(A) erred in holding that there existed a mistake which was a mistake apparent from record, even when the returned income of the Assessee had been accepted as such by the AO; and that the ld. CIT(A) went wrong in holding that the Assessee deserved the benefit of proceedings u/s 154 of the Act in the light of the subsequent judgement of the Hon'ble Supreme Court and in directing the AO to grant relief as per law, whereas the AO had not made any addition, nor had he altered any particulars of income. 10. We, however, are unable to subscribe to the Department’s view. The CBDT Circular No.68 dated 17.11.1971 relied on by the ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 9 Assessee and reproduced by the ld. CIT(A) in the impugned order reads as follows:- “SECTION 154 OF THE INCOME-TAX ACT, 1961 – RECTIFICAITON OF MISTAKE APPRENT FROM RECORDS – MISTAKES APPRENT FROM RECORDS – WHETHER CAN BE TRATAED AS SUCH ON THE BASIS OF SUBSEQUENT DECISION OF SUPREME COURT CIRCULAR NO. 68. [F.No. 245/17/71 –A&PAC] dated 17.11.1971 1. The Board are advised that a mistake arising as a result of a subsequent interpretation of law by the Supreme Court would constitute "a mistake apparent from the records" and rectificatory action under section 35/154 of the 1922 Act /the 1961 Act would be in order. It has, therefore, been decided that where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is other-wise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either be pending or received after the issue of this circular. 2. The Board desire that any appeals or references pending on the point at issue may please be withdrawn.” 11. As noted by the ld. CIT(A), the aforesaid Circular makes it clear that a clarificatory judgement issued by the Hon'ble Supreme ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 10 Court on a legal issue can form the basis for an application u/s 154 of the Act. 12. Then, in ‘CIT Vs. Smt. Aruna Luthra’, 256 ITR 76 (P&H), it has been held that : “If the issue of error in the order is to be examined only with reference to the date on which it was passed, it may be possible to legitimately contend that it was legal on the date on which it was passed. The subsequent decision has only rendered it erroneous or illegal. However, there was no error much less an apparent error on the date of its passing. Thus, the provisions of section 154 is not applicable. However, such a view shall be possible only if the provision were to provide that the error has to be seen in the order with reference to the date on which it was passed. Such words are not there in the statute. Resultantly, such a restriction cannot be introduced by the court. In a given case, on an interpretation of a provision, an authority can take a view in favour of one of the parties. Subsequent to the order, the jurisdictional High Court or their Lordships of the Supreme Court interpret the same provision and take a contrary view. The apparent effect of the judgment interpreting the provision is that the view taken by the authority is rendered erroneous. It is not in conformity with the provision of the statute. Thus, there is a mistake. If it is still perpetuated the result would be that even though the order of the authority is contrary to the law declared by the highest court in the State or the country, still the mistake could not be rectified for the reason that the decision is subsequent to the date of the order. Section 154 appears to have been enacted to enable the authority to rectify the mistake. The legislative intent is not to allow it to continue. This purpose has to be promoted. The ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 11 Legislature’s will has to be carried out. By placing a narrow construction, the object of the legislation shall be defeated. Such a consequence should not be countenanced.” “Whether proceedings for rectification of an order passed under provisions of Act can be initiated on the basis of a judgement delivered by Jurisdictional High court or a superior court after passing of said order – Held, yes.” 13. ‘Aruna Luthra’, (supra) has been followed by the Amritsar Bench of the Tribunal in ‘ACIT v. Satia Paper Mills Ltd.’, 100 TTJ 526 (Asr.). 14. In ‘Kil Kotagiri Tea & Coffee Estates Company Ltd. v. Income Tax Appellate Tribunal’, 174 Taxman 579 (Kerla), it has been held that an order of assessment based on an interpretation or application or law which is ultimately found to be wrong in the light of the judicial pronouncements rendered subsequently, discloses a mistake apparent from record; that a subsequent binding decision of the Hon'ble Supreme Court or of the Hon'ble High Court is of retrospective operation and the overruling is always retrospective; and that the Tribunal was not justified in holding that the rectification contemplated by section 254(2) or section 154 of the Act must be a mistake which is a mistake in the light of the law in force at the time when the order sought to be rectified was passed. ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 12 15. It is thus trite that the law laid down by the Hon'ble Supreme Court is the law of the land, as it always was. In the present case, till the passing of the judgement of the Hon'ble Supreme Court in ‘Aarham’ (supra) on 20.2.2019, it was the decision of the jurisdictional Hon'ble Punjab & Haryana High Court in ‘Admac’ (supra), which was binding on the Assessee. ‘Admac’ (supra) had followed the ‘Classic’ (supra), which was overruled by the larger Bench of the Hon'ble Supreme Court in ‘Aarham’ on 20.2.2019. The Assessee filed application u/s 154 on 1.5.2019, when the relief had become available to the Assessee consequent to ‘Aahram’, and which relief was rightly allowed by the ld. CIT(A). 16. The Assessee firm was originally entitled to 100% income tax exemption from F.Y. 2007-08 to F.Y. 2011-12 and 25% income tax exemption from F.Y. 2012-13 to F.Y. 2016-17. However, by virtue of fulfilling the condition of the second exemption notification, the Assessee become eligible for 100% income tax exemption for further five years, i.e., from F.Y. 2012-13 to F.Y. 2016-17. However, after the judgement of the Hon’ble High Court of Himachal Pradesh in ‘Stovekraft’, (supra) and the order of the Chandigarh Bench of the Tribunal in ‘Hycron’, (supra) whereby, the firm was not entitled to claim 100% rebate for the substantial expansion carried out, the Assessee firm filed its return of income for the assessment year under ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 13 consideration, i.e., 2017-18, on 31.10.2017, claiming only 25% exemption. In this return of income, the Assessee firm declared a gross profit of Rs. 19,95,43,912/-. It made a claim u/s 80IC of the Act for an amount of Rs. 48,98,478/- and reported net taxable income at Rs. 1,46,95,430/-. The return was processed as it was u/s 143(1) of the Act by the CPC, Bengaluru. As discussed herein above, by virtue of ‘Aarham’, (supra) rendered by the Hon'ble Supreme Court, this processing amounted to a mistake apparent from record. The ld. CIT(A) has correctly held it to be so and we confirm the ld. CIT(A)’s order, holding that the Assessee is entitled to 100 percent exemption for the period from A.Y. 2013-14 to 2017-18. 17. In view of the above, finding no merit in the grievance sought to be raised by the Department, the same is hereby rejected. 18. In the result, the appeal is dismissed. Order pronounced on 09.06.2023. Sd/- Sd/- (VIKRAM SINGH YADAV) ( A.D. JAIN ) Accountant Member Vice President Dated : 09.06.2023 “आर.के.” आदेशक त+ल,पअ-े,षत / Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent ITA No.634-Chd-2022 - The Knox Life Sciences, Chandigarh 14 3. आयकरआय ु 2त/ CIT 4. ,वभागीय त न6ध, आयकरअपील%यआ6धकरण, च8डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड फाईल/ Guard File आदेशान ु सार / By order, सहायकपंजीकार/ Assistant Registrar
Other Referred Cases
CIT v. Classic Binding Industries, Adamac Formulations v. CIT, Principal Commissioner of Income-tax, Shimla v. Aarham Softronics
Laws Referred To
Income Tax Act, 1961
360 Brand Audit (30 mins)
₹299
1:1 Consultation on Startup Compliance
₹1
Tax Holiday Secrets for Startups
₹0
Assignment of Registered Trademark
Mehul₹500
Executive Hiring Offer Letter
₹0
Transfer Pricing and International Tax Reforms under Finance Bill, 2026: A Practical Overview
Team Counselvise - February 07, 2026
Residency Rules: Income Tax Act, 1961 vs Income Tax Bill, 2025 — A Subtle Yet Significant Shift!
Team Counselvise - February 18, 2026
Finance Bill, 2026: Key Direct Tax Amendments on Assessments and Appeals
Team Counselvise - February 06, 2026