ADVANCED ENZYME TECHNOLOGIES LTD., MUMBAI V. ACIT , CIRCLE - 1 , THANE

ITA 7213/MUM/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0275 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 21-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DECIDING
• Keywords: Tangible material; Reassessment proceedings
• Section: 147; 148; 10; 192; 64; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE MS SUCHITRA KAMBLE, JM AND SHRI PRASHANT MAHARISHI, AM ITA No. 7213/mum/2019 (A.Y. 2010-11) Advanced Enzyme Technologies Ltd. Sun Magnetica, „A‟ Wing, 5 th Floor, LIC Service Road, Louiswadi, Thane(W) Mumbai-400 604 PAN No. AACFE7262L Vs. The Asst. Commissioner of Income Tax, Circle-1, Room No.22, 6 th Floor, B – Wing, Ashar I T Partk, Ambika Nagar, Road No.16Z, Wagle Estate, Thane (W), Mumbai- 400 604 Appellant .. Respondent Assessee by : Shri Vipul Joshi, Ms. Narmata Kasale and Ms. Dinkle Hariya, AR Revenue by : Shri Mehul Jain, DR Date of hearing : 16.12.2021 Date of Pronouncement: 11.01.2022 ORDER PER PRASHANT MAHARISHI, AM: 01 This appeal is filed by ADVANCED ENZYMES TECHNOLOGIES LTD (the appellant/the assessee) for assessment year 2010 – 11 against the order passed by The Commissioner Of Income Tax Appeals – 1, Thane (The Learned CIT – A) on 23/10/2019 , wherein appeal filed by the assessee against the order passed by The Asst Commissioner Of Income Tax, Circle – 1, Thane ( The ld AO ) u/s 143 (3) read with Section 147 Of The Income Tax Act, 1961 [ The Act] dated 22/12/2017 was partly allowed. 02 Assessee has raised following grounds of appeal:- “1. Reassessment 1.1 in the facts and the circumstances of the case, and in law, the reassessment order framed by the Asst Commissioner of income tax, Circle (1), Thane (The AO) by invoking the provisions of Section 147 read with, 1961 (the act) is bad, illegal and void as, among other: (i) the case of the appellant did not fall within the parameters laid down by Section 147 read with Section 148 of the Act (ii) the necessary conditions for initiating and completion thereof are not satisfied 2. Denial of exemption respect of SEZ Unit at Pithampura /disallowance of deduction u/s 10 (10 AA) [ sic) of the Act 2.1 the learned CIT – A erred in confirming the action of the AO in making addition of Rs 1,92,59,726/-by denying the claim of exemption/deduction referred by the appellant u/s 10 (10 AA) of the act 2.2 It is submitted that in the facts and circumstances of the case, and in law, no such denial of exemption was called for. 2.3 Without prejudice to the above, assuming – but not admitting – that some addition was called for, the computation made by the AO is not in accordance with the law, is arbitrary and excessive.” 03 Briefly stated the facts of the case shows that that assessee is a public limited company engaged in the manufacture and supply of enzymes. It filed return of income on 24/9/2010 declaring a total income of ₹ 94,465,631/–. Assessment u/s 143 (3) of The Act was completed on 28 th of March 2013 at the total income of ₹ 296,264,220/–. Subsequently the case of the assessee was reopened by issue of notice u/s 148 of the income tax act on 31 st of March 2017. Consequent to that the examination of the deduction claimed by the assessee u/s 10 AA of the Act took place, Ld AO noted that the assessee has sold goods of ₹ 91,581,539 to its another SEZ unit and also purchased raw material from that particular unit, he compared the turnover of the two SEZ units and thereafter came to a conclusion that only a small proportion of the exported goods on which deduction u/s 10 AA has been claimed, were manufactured in the SEZ unit. Accordingly, he came to the conclusion that the deduction should have been limited to only 14.92% of what has been claimed by the assessee (₹ 192 59,726/– ) and therefore it resulted into excess deduction amounting to Rs 163,86,175/– as claimed by the assessee. 04 During the course of hearing, the assessee was asked that why excess deduction claimed u/s 10 AA of Rs 163,86,175/– should not be disallowed. Learned AO after considering the reply of the assessee disallowed the total claim u/s 10 AA of the income tax act of Rs 1 92,59,726/–. Further disallowance of ₹ 14,71,833 was also made on account of the consignment sale. According to the learned AO, it should have been reduced from the sales and should have been included in the closing stock and therefore the above disallowance/addition was made. Accordingly order u/s 143 (3) read with Section 147 of the Act was passed on 22/05/2017 determining the total income of the assessee at ₹ 218,651,049/–. 05 Assessee preferred an appeal before the learned CIT – A challenging merits of the above two additions/disallowances. The learned CIT – A sustained the disallowance of exemption u/s 10 AA of the income tax act however granted relief with respect to the addition of ₹ 14,71,833 on account of consignment sales. 06 Aggrieved with the order of the learned CIT – A assessee has preferred an appeal before us. Assessee challenges the reopening of the assessment as well as the addition on the merits of the case with respect to the disallowance of the deduction u/s 10 AA of the income tax act. 07 Challenging the reopening of the assessment, as per ground number 1 of the appeal, learned authorised representative referred to the notice of reassessment issued u/s 148 of the act on 31 st of March 2017 which is placed at page number 93 of the paper book. He also referred to page number 96 – 98 of the paper book where the reasons recorded for reopening of the assessment as supplied to the assessee on 21 st of July 2017 are placed. He submitted that the original assessment has been completed u/s 143 (3) of the act for assessment year 2010 – 11 on 28 th of March 2013 and the reassessment notice has been issued to the assessee on 31 st of March 2017. Thus, case of the assessee is reopened beyond four years from the end of the assessment year in which the income was first assessable. Therefore, the basic condition is that there should be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. He submitted that in the present case the reopening has been made despite the complete disclosure made before the learned assessing officer during the course of assessment proceedings u/s 143 (3) of the act. He referred to the letter dated 13 August 2012 and 8 February 2013 wherein the complete details with respect to the deduction u/s 10 AA of the act is submitted before the assessing officer. He also referred to page no. 64 of Paper Book where in assessee has specifically claimed the deduction of Rs 1,92,59,726/- as per Form no 56 F being certificate of auditors filed before the assessing officer. He further submitted that assessee submitted as per letter dated 11/2/2013 complete details of the purchases and sales made by the assessee. He therefore submitted that there is no failure on the part of the assessee to disclose fully and truly material facts necessary for the computation of the total income. He submitted that after making proper verification of the eligible claim u/s 10 AA of the income tax act learned assessing officer has accepted the quantification and passed the assessment order granting deduction to the assessee. He also referred to the reasons recorded for reopening of the assessment proceedings stating that same has been made on perusal of the details filed during original assessment proceedings and therefore there is absence of any „tangible material‟. Thus he contested that the reopening of the assessment has been made without pointing out any failure on the part of the assessee to disclose all material facts truly and fully and in absence of any tangible material but on reappraisal of the same material which was there before the learned assessing officer during the course of original assessment proceedings. 08 He further referred to the objections filed by the assessee before the learned assessing officer against the reopening of the assessment and referred to the reasons rejecting the objections made by the assessee. His submission was that the learned assessing officer has rejected the objection of the assessee after two months as per order dated 23/10/2017 where the objections were raised on 25/8/2017 without passing a speaking order but merely repeating the reasons recorded for reopening of the assessment. He further stated that without waiting for the mandatory period of four weeks after passing of the order rejecting the objections against the reopening of the assessment i.e. on 23/10/2017, learned assessing officer issued notice u/s 142 (1) asking for the details which were already available with him during original assessment proceedings. He therefore submitted that the reassessment proceedings are bad in law if the objections were disposed of in a cursory/mechanical manner without dealing with the various objections raised by the assessee. 09 He also submitted that the notice has been issued u/s 148 of the act without obtaining appropriate sanction of the concerned authority u/s 151 of the act and therefore the reassessment proceedings itself is invalid. He also challenged the approval granted u/s 151 of the act on the ground of non-application of the mind on part of the approving authority. For each of the proposition he submitted a detailed note supporting it by various judicial pronouncements. 10 On the merits of the disallowance, he also submitted a note stating that claim of the assessee is justified and correctly allowed. He first referred to the detailed note on the nature of enzymes, the business of the assessee and its verticals and explaining that the company has three plants, which were carrying out different activities. He further referred to the Manufacturing process and submitted that the basic concentrated material manufactured at Nasik plant because SE jet plant has no fermentation facility. Procured from Nasik plant about total quantity of 1,05,000 Liters and converted into a powder after the process of lending and mixing and thereafter it is sold in the overseas market. He further submitted that goods meant for export were required to be consistent in its quality as per stringent international norms and shall meet specification of international customers and therefore recovery and formulation activities were performed in SE jet unit which was set up and begin commercial production in April 2008. He also stated that during financial year 2009 the SE jet unit incurred the losses and therefore no claim of deduction u/s 10 AA was made however for all subsequent years the deduction is allowed to the assessee he therefore submitted that the basis of calculation made by the learned assessing officer based on the purchase value is erroneous because of the reason that value addition has been made on material transferred from Nasik unit to SEZ unit. He submitted that goods worth 915.81 lakhs procured from sinnar factory by SE jet unit for further carrying out recovery and formulation activities for further export. For this proposition, goods worth 185.70 lakhs including duties and taxes were used and for carrying out further process ₹ 18.63 lakhs were spent on power and fuel and ₹ 32.25 lakhs were spent on wages and salaries. Thus he submitted that export of goods includes material procured from sinnar plant and also other input purchased an imported from other parties, consumption of power and fuel, cost of ages, consumption of stores, use of machines and infrastructures and profit element constituted total value of the export at ₹ 150,865,122/–. Thus he submitted that the observation of the learned assessing officer that there is a very small value addition is incorrect he also referred to the profit and loss account statement for sinnar plant and SE jet unit stating that they have separate books of accounts in different profitability therefore according to him on the merits of the case the disallowance made by the learned assessing officer is incorrect. 11 The learned departmental representative referred to paragraph number 6 of order of the learned assessing officer and also the order of the learned CIT – A stating that all the components that are utilized for making a product which is finally sold by the assessee at SEZ unit has been taken from the factory at Sinarr Plant which is a non-SEZ unit. He also referred to the order of the learned CIT – A to show that the activities carried out by the assessee is not manufacturing activity but only a part of the whole process of converting seed preparations into any time. He also referred that that the activities carried out in the SEZ plant is a part of manufacturing process, which begin in a non-SEZ plant. The goods manufactured in non-SE jet plant are transferred to SE jet plant to make the finished product thus the assessee has nowhere shown in the document furnished or during the discussion before the learned CIT – A that such concentrated could also have been sold. The same has been transferred to Non SEZ plant and shown as a raw material of this plant by the appellant in its books of accounts and therefore the disallowance of exemption u/s 10 AA has been correctly made. 12 The learned authorised representative in rejoinder submitted that there is no argument of the learned departmental representative against the reopening of the assessment and further the claim of the assessee u/s 10 AA of the act supported by the certificate of the chartered accountant which has been placed before the learned assessing officer during the original assessment proceedings as well as during the reassessment proceedings. The learned CIT – A without any basis stated that the assessee is not engaged in manufacturing activity despite the fact that the products manufactured by the assessee have a different marketing ability. He further submitted that the value addition made by the assessee SEZ unit of the assessee is also not controverted. 13 We have carefully considered the rival contention and perused the orders of the lower authorities. Assessee is a company who filed its return of income on 24/9/2010 declaring a total income of ₹ 94,464,631/–. As the assessee was having special economic June unit which is eligible for deduction u/s 10 AA of the income tax act, assessee claimed deduction u/s 10 AA of the act of Rs 192,59,726/–. The above deduction was supported by a certificate in form number 56F dated 17 th of September 2010 whereas per column number 17 of the annexure A the above deduction of the quantum was certified. This deduction was further explained by the profitability statement of the SEZ unit. The SEZs unit as the export turnover of ₹ 144,820,049 which is received in the convertible foreign exchange and the profit derived by the undertaking was determined at Rs 207,90,638/-. Thus, the deduction was computed on pro rata basis in proportion to export turnover out of total turnover. During the course of original assessment proceedings, the assessee submitted by letter dated 14 August 2012 the nature of the business carried on by the assessee as well as the nature of the books of accounts maintained. Wide letter dated 8 February 2013 the assessee submitted the detailed explanation regarding the eligibility of deduction u/s 10 AA of the act as well as the copy of the approval granted by the special economic zone authorities. Assessee also submitted the certificate of the chartered accountant in form number 56F certifying the deduction claimed by the assessee as per that Section. As per letter, dated 11 th of several 2013 assessee submitted the details of the supplies of material and the statement of sales made by the units of the assessee. During the course of the submission, the assessee submitted that assessee has been granted letter of approval on 5 July 2005 by the office of the development Commissioner for the setup of this special economic zone the copy of the letter was also submitted which is also placed at page number 68 of the paper book filed before us. As per letter dated 8 February 2013, the assessee explained the claim of deduction u/s 10 AA of the income tax act with respect to the provisions of income tax act. It was stated that assessee begin manufacturing of the specialty enzymes during the financial year 2008 – 09. Based on this letter assessee submitted that it has claimed deduction of RS 192,59,726 u/s 10 AA of the income tax act. It is also important to note that on 29 th of September 2010 the assessee submitted a report furnished 10 AA of the act for the assessment year 2010 – 11. Thereafter when the assessment order u/s 143 (3) of the act was passed by the learned assessing officer in paragraph number 3 he has recorded the existence of the plant and also considered the turnover of the assessee company along with the net profit ratio on by it. Thus as the naturally assessing officer was satisfied with the claim of the assessee u/s 10 AA of the income tax act he did not disturb and allowed it. Subsequently notice u/s 148 of the income tax act was issued on 31 st of March 2017 the reason recorded shows as under :- “ (iii) excessive deduction u/s 10 AA On perusal of records it is seen from the statement of sales (statement of sales party when sales above ₹ 5 lakh) that goods worth ₹ 91,581,539/– was shown as sale sold to Pithampur (SEZ) unit (sale code CA0131). Further from the statement of purchases (statement of purchases above ₹ 5 lakhs unit/location -wise) it is seen that the raw material purchases for Pithampur SEZ unit was only for ₹ 160.63 lakhs, after excluding purchases on account of plant and machinery and capital work in progress. The turnover of Pthampur SEZ unit was shown at ₹ 150,865,122/–. On comparing the turnover and purchase for Pithampur with that of sale of finished goods to Pithampur SEZ unit, it could be seen that only a small portion of the exported goods on which exemption u/s 10 AA claimed were manufactured in the SEZ unit. The value-based the ratio of good shown as sold by the assessee to the SEZ unit and raw material purchased and consumed in the goods manufactured at SEZ unit to total cost of raw material used in the goods exported works out of 85.08 % to 14.92%. Therefore the exemptions should have been limited to 14.92% of what has been claimed by the assessee i.e. 14.92% of Rs 192,59,726/– i.e. ₹ 2,873,551/– which has resulted in excess deduction amounting to Rs 1, 63,86,175/– allowed u/s 10 AA. Further, it is seen that the documents submitted by the assessee was simply placed on record without verification/application of mind. The provisions of Section 147– explanation 2© (iii) and 2 © (iv) are clearly applicable in this case. In view of the above, I have reasons to believe that the income of the assessee on account of allowing excess claim of deduction u/s 10 AA to the extent of Rs 1 63,86,175/– (Rs 192,59,726 minus ₹ 2,873,551/–) has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for assessment year 2010 – 11.” 14 Original income was required to be assessed for assessment year 2010 – 11 and therefore it could have been reopened within four years from the end of the assessment year even if there is no failure on part of the assessee to disclose fully and truly material facts. However, in the present case the assessment of the assessee has been reopened after completion of the four years and therefore, reopening can be permitted only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. 15 In the reasons recorded the learned assessing officer has used following information:- (i) statement of sales (statement of sales party when sales above ₹ 5 lakh) (ii) statement of purchases (statement of purchases above ₹ 5 lakhs unit/location -wise) 16 Both these information was submitted by the assessee before the learned assessing officer has per letter dated 13 August 2012. 17 It is not the case of the learned assessing officer that because of the inter-unit transfer of the goods and services does not correspond to the market rate of such goods and services. The learned assessing officer has recorded the reason merely to restrict the deduction in proportion of material purchased from outside parties other than inter-unit transfer. Even otherwise for doing this, the learned assessing officer did not have any tangible material. In the present case purchases worth ₹ 91,581,539/– are purchased from other units whereas the goods sold by the assessee as export is ₹ 150,865,122. It is not the case of the assessee that the goods purchased from noneligible unit are transferred to the eligible unit below the market rate. Therefore the formula suggested by the learned assessing officer in reasons recorded are as such not supported by the provisions of Section 10 AA of the act read with Section 8 and 10 of Section 80 IA of the act. Thus, on this aspect the reasons recorded by the learned assessing officer are not sustainable. 18 On careful reading of the reasons recorded by the assessing officer, it is apparent that he has perused the same material, which was available before him during the course of assessment proceedings. He further referred to the statement of party by sales above ₹ 5 lakhs and statement of purchases above ₹ 5 lakhs we find that the above information was submitted by letter dated 13 August 2012 as per serial list number 11 of that letter. There is no other reference of any other material available before the assessing officer based on which reopening of the assessment has been made. Therefore it is very strange that when based on the information that has been submitted by the assessee during the course of assessment proceedings the learned assessing officer is reopening the assessment of the assessee beyond four years stating that there is a failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Non-disclosure of material facts fully and truly is a serious allegation made by the learned assessing officer for reopening of the assessment however for the purpose of reopening of the assessment he is referring the same material which is been disclosed by the assessee during the course of assessment proceedings before him. Furthermore, the reasons given by the learned assessing officer for reopening is merely an arithmetical calculation made by him with respect to the turnover of SEZ unit with respect to the purchase of SEZ unit. He did not look into what kind of manufacturing process that SEZ unit undertakes. We failed to understand that when the assessing officer is clearly saying and using the material, which has been submitted before him during the course of assessment proceedings, then how it can be said that the assessee has failed to disclose truly and fully material facts. There is no reference of any tangible material available with the learned assessing officer for reopening of the assessment which is also mandatory requirement for reopening of the assessment thus the reasons itself says that there is no failure on the part of the assessee to disclose fully and truly all metal facts necessary for its assessment and the allegation of nondisclosure is merely a ritual. In fact when the assessment is reopened beyond the period of four years when originally assessed u/s 143 (3) of the act, it is the duty of the assessing officer to show in the reasons recorded for reopening of the assessment that how the information originally submitted by the assessee has resulted into escapement of income by not disclosing certain things/information. Further if such things/information would have been disclosed the assessee would not have been allowed the claim of deduction is claimed by him in the original return of income. In view of this, we find that the reopening of the assessment made by the learned assessing officer is not on account of the failure on part of the assessee to disclose fully and truly material facts for assessment of income as well as there is no tangible material available with the assessing officer to reopen the assessment. All the catena of judicial precedents cited before us also laid down the same principles. Therefore, we hold that jurisdiction assumed by the learned assessing officer for invoking the provisions of Section 147 of the income tax act is not valid. Accordingly, ground number 1 of the appeal of the assessee is allowed. 19 As we already decided the issue in favour of the assessee by deciding ground number one holding that the reopening of the assessment is not valid, there is no requirement for adjudication on ground number 2 of the appeal of the assessee and therefore it is left open. 20 In the result, appeal filed by the assessee is allowed. Order pronounced on 11/01/2022 Sd/- Sd/- (MS SUCHITRA KAMBLE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 11.01.2022 Copy of the Order forwarded to: BY ORDER, Assistant Registrar ITAT, MUMBAI 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//