Shilpa Medicare Limited V. The Commissioner of Income Tax, Gulbarga and The Joint Commissioner of Income-Tax and The Deputy Commissioner/The Assistant Commissioner of Income Tax, Circle-1

WP/201890/2015

AI Insights

M/s. Shilpa Medicare Limited, represented by its managing director, filed a writ petition against the Commissioner of Income Tax and other officials, challenging the notices and orders issued under Sections 148 and 143(2) of the Income Tax Act for the assessment years 2008-09 and 2009-10. The petitioner argued that as a 100% EOU, the provisions of Section 10B were not applicable, and the Joint Commissioner of Income Tax erred in law by not considering the petitioner's declaration and the relevant judicial precedents. The court examined the submissions, relevant statutory provisions, and judicial precedents, particularly focusing on the applicability of Section 10B to 100% EOUs and the right of the assessee to declare non-applicability of certain provisions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 797536 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 15-04-2024
• Assessment Year: misc
• Other Referred Cases: Karle International (P) Ltd. v. Assistant Commissioner of Income Tax, Circle-6(10, Bangalore
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M THIRUMALESH
• Assessee Lawyers: A SHANKAR
• Keywords: 100% Export Oriented Unit; Income Tax; Net loss; Section 10B; Unabsorbed depreciation; Writ of Certiorari
• Section: 147; 148; 143(2); 10B; 70

Judgement Text

" - 1 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH DATED THIS THE 15TH DAY OF APRIL, 2024 BEFORE THE HON'BLE MR. JUSTICE V SRISHANANDA WRIT PETITION NO.201890/2015(T-IT) BETWEEN: M/S. SHILPA MEDICARE LIMITED, REPRESENTED BY ITS MANAGING DIRECTOR MR. VISHNUKANT BHUTADA, AGE:53 YEARS 10/80, FIRST FLOOR, RAJENDRA GUNJ, RAICHUR-584102. …PETITIONER (BY SRI A. SHANKAR, SR. COUNSEL FOR SRI MANJUNATH MALLAYYA SHETTY, ADVOCATE) AND: 1. THE COMMISSIONER OF INCOME TAX, GULBARGA, AAYAKAR BHAVAN, SEDAM ROAD, GULBARGA -585105. 2. THE JOINT COMMISSIONER OF INCOME-TAX, OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX AAYAKAR BHAVAN, OPP. AYYAPPA SWAMY TEMPLE, UDAYA NAGAR, RAICHUR-584101. Digitally signed by RENUKA Location: High Court Of Karnataka - 2 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 3. THE DEPUTY COMMISSIONER/THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX, OPP. AYYAPPA SWAMY TEMPLE UDAYA NAGAR RAICHUR-584101. …RESPONDENTS (BY SRI M. THIRUMALESH, ADVOCATE) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO ISSUE A WRIT OF CERTIORARI OR DIRECTION IN THE NATURE OF A WRIT OF CERTIORARI QUASHING THE NOTICE ISSUED UNDER THE PROVISION OF SECTION 148 OF THE ACT BY RESPONDENT NO.3 AS ENCLOSED AND MARKED AS ANNEXURES - A1 & A2, ETC. THIS WRIT PETITION COMING ON FOR FURTHER HEARING THIS DAY, THE COURT MADE THE FOLLOWING: ORDER Heard Sri A. Shankar, learned Senior Counsel for the petitioner and Sri M. Thirumalesh, learned counsel for the respondents. 2. The present writ petition is filed with the following prayer: - 3 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 “(a) Issue a writ of Certiorari or direction in the nature of a writ of certiorari quashing the notice issued under the provision of section 148 of the Act issued by the Respondent No.3 as enclosed and marked as Annexure-'A1 & A2'. The details of the Annexure-A1 and A2 are as follows: i) Notice under section 148 of the Act dated 28.03.2014 vide PAN: AADCS8788F F, No. DCIT/C-1/RCR/2013-14 for the assessment year 2008-09- Annexure-A1. ii) Notice under section 148 of the Act dated 28.03.2014 vide PAN: AADCS8788F F, No. DCIT/C-1/RCR/2013-14 for the assessment year 2009-10 - Annexure-A2. (b) Issue a writ of Certiorari or direction in the nature of a writ of certiorari quashing the notice issued under the provision of section 143(2) of the Act issued by the Respondent No.3 as enclosed and marked as Annexure-'B1 & B2'. The details of the Annexure-B1 and B2 are as follows: i) Notice under section 143(2) of the Act dated 22.09.2014 vide PAN: AADCS8788F for the assessment year 2008-09 - Annexure-B1 ii) Notice under section 143(2) of the Act dated 22.09.2014 vide PAN: AADCS8788F for the assessment year 2009-10 - Annexure-B2 - 4 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 (c) Issue a writ of Certiorari or direction in the nature of a writ of certiorari quashing the orders passed against the objections to 148 notice filed by the petitioner by the Respondent No.3 as enclosed and marked as Annexure-C1 & C2'. The details of the Annexure-C1 and C2 are as follows: i) Order passed for the assessment year 2008- 09 vide F.No. Scrutiny/JCIT/RR/RCR/2014-15 dated 06.02.2015 for the assessment year 2008-09 – Annexure - C1. ii) Order passed for the assessment year 2009-10 vide F.No. Scrutiny/JCIT/RR/RCR/ 2014-15 dated 16.02.2015 for the assessment year 2009-10 - Annexure - C2. (d) Declare that the unabsorbed depreciation and net loss of 100% EOU for the assessment year 2008-09 and 2009-10 claimed set off by the petitioner against the profits from the other units is in accordance with law. (e) Declare that the Respondent No.3 erred in law in invoking the provisions of section 147 of the Act on mere surmise, conjunctures and suspicion which resulted in reasons to suspect without having any reasons to believe as contemplated under the provisions of section 147 of the Act. (1) And pass such other orders as this Hon'ble Court deems fit and proper in the interest of justice and equity.” - 5 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 3. Brief facts for disposal of the writ petition are as under: a) Petitioner is a Public Limited Company incorporated under the Companies Act, 1956 and it is in the business of manufacturing of bulk drugs and intermediaries and also owns windmill which generate the power. Petitioner intimated the Assistant Deputy Director, Cochin Special Economic Zone(‘CSEZ’ for short), vide letter 25.03.2008 that petitioner being the 100% Export Oriental Unit(‘EOU’ for short) commenced its commercial operations on 21.03.2008. The Assistant Development Commissioner (‘ADC’ for short), CSEZ, vide letter dated 04.06.2008 communicated to the petitioner about the permission issued for setting up of 100% EOU for a period of 5 years from the date of commencement of the production. The petitioner commenced its commercial production on 21.03.2008, the permission granted by the Assistant Development Commissioner, CSEZ, was valid for up to 21.03.2013. Petitioner further requested for renewal - 6 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 of EOU status before 02 [two] months of expiry of permission. b) When the matter stood thus, petitioner filed return of income tax for the assessment year 2008-09 on 27.09.2008 and declared the total income as Rs.9,62,38,590/-. A specific mention was made in the columns in the return ‘Deduction Under Section 10B’ in Schedule 10B, the petitioner shown as ‘Nil’. Office copy of the said return is marked as Annexure-D. Said return was processed under Section 143(1) of the Income Tax Act on 30.03.2010. Petitioner has filed a declaration in writing on 31.07.2008 in the office of the Income Tax, Circle-1, Raichur. In the said declaration it was specifically mentioned that provisions of Section 10B are not applicable for the relevant assessment year. Petitioner in its return set of the unabsorbed depreciation of EOU unit for the year 2008-09. Likewise, for the assessment year 2009-10 similar returns were filed. However, petitioner was surprised to receive notice under Section 147 of the Income Tax Act vide Annexure – A1 and Annexure - A2 for the assessment years 2008-09 and 2009-10, respectively. - 7 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 c) The petitioner replied the same. But without considering the reply in proper perspective, the Joint Commissioner of Income Tax passed orders under Annexures - C1 and C2 for the relevant years. Being aggrieved by the same, the petitioner is before this Court. 4. Sri A. Shankar, learned Senior Counsel for the petitioner, submits that the orders at Annexures – C1 and C2 are up against the provisions of the Act, and the Joint Commissioner did not properly appreciate the fact that the petitioner had the status of EOU for a period of 5 years and therefore, Section 10B was not applicable to the petitioner – Company. 5. In that regard, the petitioner had also placed judgment of the Bombay High Court to substantiate the contention taken by the petitioner. But the Joint Commissioner did not appreciate the said argument of the petitioner, on the ground that the decision rendered by the Bombay High Court is not by the jurisdictional High Court and therefore, the Joint Commissioner is not bound by the decision of the Bombay High Court and passed the orders at Annexures – C1 and C2. - 8 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 6. He further submits that the Division Bench of this Court in the case of Karle International (P) Ltd., v. Assistant Commissioner of Income Tax, Circle-6(10, Bangalore, reported in (2021) 430 ITR 74 (Karnataka) dated 07.09.2020 has specifically held that even if Section 70 of the Income Tax Act would be applicable for 100% EOU, the assessee can seek for exemption and therefore, exemption under Section 10B set of against the profit. Even though Section 70 would be applicable, when an assessee files a declaration, then Section 10B could not be invoked automatically and therefore, sought for allowing the writ petition. 7. Sri A. Shankar also submits that the Department carried the decision rendered by the Division Bench in ‘Karle International (P) Ltd.,’ case to the Apex Court and the Hon’ble Apex Court dismissed the Special Leave Petition filed by the Department and thus, the law with regard to the non- application of Section 10B even though Section 70 of the Act is applicable to the 100% EOU has been settled. 8. Per contra, Sri M. Thirumalesh, learned counsel, for the respondents however tried to distinguish the case on hand - 9 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 on facts even though he could not dispute the position of law rendered by the Division Bench of this Court in case of ‘Karle International (P) Ltd.,’ referred to supra. 9. This Court in the light of the rival contentions perused the material on record meticulously. 10. Admittedly, petitioner is 100% EOU had the permission till up to 20.03.2013. Further, petitioner has also made an application for renewal of its status 02 months before expiry of enquiry for the relevant assessment years, namely, 2008-09, 2009-10 petitioner was having the 100% EOU status and whereby the declaration filed by the petitioner with Income Tax Office, Circle-1, Raichur, claiming that the provisions of Section 10B are not applicable to the petitioner – Company was within the scope of the petitioner – Company inasmuch as even though Section 70 of the Act was made applicable to the petitioner, it was the choice of the petitioner to seek for non- application of Section 10B by filing a declaration. 11. Said position of law is not in dispute in view of the judgment of the Division Bench of this Court in ‘Karle International (P) Ltd.,’ case supra. The relevant paragraphs - 10 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 with regard to the said position of law is dealt with by the Division Bench in Para Nos.6 to 9. “6. We have considered the submissions made by the learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of the relevant statutory provisions namely Section 10B(i), 10B(5), 10B(6)(ii), and Section 70 as well as the para 5.2 of the Circular issued by the Central Board of Direct Taxes. Section 10B(1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. Section 10B(5) The deduction under sub-Section (1) shall not be admissible for any assessment year beginning on or after the 1st day of April 2001, unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below - 11 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 sub-Section (2) of Section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. Section 10B(6)(ii) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment year, or of any previous year, relevant to any subsequent assessment year- (i) xxxxx (ii) no loss referred to in sub-section (1) of Section 72 or sub-Section (1) or sub- Section (3) of Section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before the 1st day of April 2001. Section 70(1) Save as otherwise provided in this act, where the net result for any assessment year in respect of any source falling under any head of income, other than \"Capital gains\", is a loss, the assessee shall be entitled to have the amount of such loss set off - 12 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 against his income from any other source under the same head. (2) Where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset. (3) Where the result of the computation made for any assessment year under Sections 48 to 55 in respect of any capital asset (other than a short- term capital Asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset. Para 5.2 of Circular dated 10.7.2013 The income computed under various heads of income in accordance with the provisions of Chapter IV of the IT Act shall be aggregated in accordance with the provisions of Chapter VI of the IT Act, 1961. This means that first the income / loss from various sources i.e., eligible and ineligible units, under the same head are aggregated in accordance with the provisions - 13 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 of Section 70 of the Act. Thereafter, the income from one ahead is aggregated with the income or loss of the other head in accordance with the provisions of Section 71 of the Act. If after giving effect to the provisions of Sections 70 and 71 of the Act there is any income (where there is no brought forward loss to be set off in accordance with the provisions of Section 72 of the Act) and the same is eligible in accordance with the provisions of Chapter VI- A or Sections 10A, 10B etc. of the Act, the same shall be allowed in computing the total income of the assessee. 7. Section 10B of the Act was substituted by Finance Act, 2000 w.e.f. 01.04.2001. Section 10B as it stands is not a provision in the nature of an exemption but provides for a deduction of such profit and gains as are derived by 100% export oriented undertaking from the export of articles or things or computer software for 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Section 10B does not contain any prohibition to prevent an assessee from setting off losses from one source against income from another source under the same head of income as prescribed under Section 70 of the Act. Section 10B(6)(ii) of the Act restricts carry forward and set off of loss under Sections 72 and 74 of the Act but does not provide anything regarding intra- head set off under Section 70 and inter-head set off - 14 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 under Section 71 of the Act. The business income can be computed only after set off of business loss against the business income in the year as per provisions of Section 70 of the Act. Section 10A of the Act is a code by itself and it is pertinent to note that Section 10A(6)(ii) does not preclude the operation of Sections 70 and 71 of the Act. Para 5.2 of the Circular issued by the Central Board of Direct Taxes dated 16.07.2013 clearly provides that income / loss from various sources i.e. eligible and ineligible units under the same head are aggregated in accordance with provisions of Section 70. 8. It is equally well settled legal proposition that where the assessee does not want the benefit of deduction from the taxable income, the same cannot be thirst upon it. There is no provision which makes compulsory on the part of income tax officer to make deduction in all cases. (See: 'COMMISSIONER OF INCOME-TAX Vs. MAHINDRA MILLS' (2000) 243 ITR 56 (SC). From the return of income for the assessment year 2008-09 in Schedule BP, Sl.No.35(iii), the assessee has shown the deduction under Section 10B of the Act as zero. Similarly, at Sl.No.57 the assessee has filed the deduction under Section 10B as not applicable. Thus, from perusal of return of assessment year 2008-09 it is evident that the assessee has not claimed any deduction under Section 10B of the Act in respect of any of the three units of the assessee. It is pertinent to mention here that Section 10B(5) read with Rule 16E mandates that the assessee has to file audit report in Form-56G for claiming deduction under Section 10B of the Act. - 15 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 Admittedly, in the instant case, the assessee has not filed any audit report in Form-56G which is a mandatory requirement for claiming deduction under Section 10B of the Act. Therefore, the deduction under Section 10B of the Act cannot be thirst upon the assessee. 9. Admittedly, in the instant case, two units of the assessee namely unit No.II and unit No.III were export oriented units and were eligible for exemption. The assessee had sustained loss in respect of unit No.I and therefore, the assessee had claimed set off, as permissible under Section 70 of the Act and had offered the balance as income taxable under the head income from business of Rs.12,89,762/- which has been declared in the return. The provisions of Section 70 of the Act have to be given effect to. It is pertinent to mention here that Income Tax Appellate Tribunal had taken a similar view in MINDTREE CONSULTING (P) LTD., supra, which was upheld by a Division Bench of this Court in COMMISSIONER OF INCOME-TAX Vs. YOKOGAWA INDIA LTD., supra. Similar view has been taken by Bombay High Court in GALAXY SURFACTANTS LTD., supra. We respectfully agree with the view taken by the Division Bench of this Court as well as Bombay High Court. It is pertinent to mention here that decision of the Supreme Court in YOKOGAWA, supra is not an authority for the proposition that an assessee cannot claim set off under Section 70 of the Act and therefore, the aforesaid decision has no application to the facts of the case. Since - 16 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 we have dealt with the issues involved in this appeal with reference to the return filed for the assessment year 2008-09 on 30.08.2009, therefore, it is not necessary for us to deal with the contention raised by the learned counsel for the revenue that the return had filed beyond prescribed period and therefore, has no legal sanctity. In view of preceding analysis, the substantial question of law framed by this Court are answered in favour of the assessee and against the revenue. In the result, the order of the income tax appellate tribunal date 12.10.2012 in so far as it contains the finding against the Assessee is hereby quashed.” 12. On careful reading of the above paragraphs of ‘Karle International (P) Ltd.,’ case supra, it is crystal clear that the petitioner has chosen to file declaration for the relevant assessment years before the jurisdictional Income Tax Officer seeking that the Section 10B would not be applicable to the assessee. 13. Therefore, the orders at Annexures – C1 and C2 could not have been passed by the Joint Commissioner. Accordingly, the same needs to be quashed by this Court. - 17 - NC: 2024:KHC-K:2969 WP No. 201890 of 2015 14. Hence, the following: ORDER i. The writ petition is allowed. ii. Annexures – A1 and A2, and Annexures – C1 and C2 are quashed. Sd/- JUDGE SBS List No.: 1 Sl No.: 1 "