COMPANY CASES (CC) HIGHLIGHTS
FLegislative power to enact for protection of depositors in financial establishments applies to incorporated, unincorporated trading establishments and companies incorporated under 1956 Act : New Horizon Sugar Mills Ltd. v. Government of Pondicherry TR. Addl. Sec. p. 475
FRemoval of director without adequate opportunity of being heard, improper : CLB empowered to regulate affairs of company in view of oppression and mismanagement : Legend Technologies (India) P. Ltd. v. B. V. Reddy (Karn) p. 500
F Personal grievance not to be addressed under sections 11 and 12 of the Contempt of Courts Act, 1971, dismissal of contempt petition proper : Dr. Raj Kachroo v. Sumer Misri (Delhi) p. 523
FNominee director appointed on behalf of financial institution, not ipso facto absolved of liability to comply with s. 454(2) of 1956 Act : Daewoo Motors India Ltd. v. WG CDR (Retd) H. D. Talwani (Delhi) p. 530
FPayment of additional filing fee and stamp duty not required on increase in authorised share capital of transferee company : Accel Frontline Services Ltd. In re (Mad) p. 544
FShareholders can share dividend of company but cannot seek directions to be compensated : J. Shivakumar v. Navrang Shipping P. Ltd. p. 540
Circulars :
General Circulars :
FFilling of balance-sheet and profit and loss account by companies in Non-XBRL for the accounting year commencing on or after 1-4-2011-General Circular No. 38 of 2012, dated 23rd November, 2012 p. 186
FFilling of balance-sheet and profit and loss account in eXtensible Business Reporting Language (XBRL) mode for the financial year commencing on or after 1-4-2011-General Circular No. 39 of 2012, dated 12th December, 2012 p. 208
SEBI Circulars :
FArbitration Mechanism in Stock Exchanges-Ref. CIR/MRD/ICC/29/2012, dated 7th November, 2012 p. 204
FChange of name in the beneficial owner (BO) account-Ref. CIR/MRD/DP/27/2012, dated 1st November, 2012 p. 202
FDebt Allocation Mechanism for FII-Ref. CIR/IMD/FIIC/22/2012, dated 7th November, 2012 p. 205
FEstablishment of connectivity with both depositories NSDL and CDSL-Companies eligible for shifting from Trade for Trade Settlement (TFTS) to normal rolling settlement-Ref. CIR/MRD/DP/28/2012, dated 2nd November, 2012 p. 203
FPublic issues in electronic form and use of nationwide broker network of stock exchanges for submitting application forms-Ref. CIR/CFD/14/2012, dated 4th October, 2012 p. 195
FReview of margining with respect to Exchange Traded Funds (ETFs)-Ref. CIR/MRD/DP/26/2012, dated 26th September, 2012 p. 194
Directions :
FReserve Bank Commercial Paper Directions, 2012 p. 177
Regulations :
FForeign Exchange Management (Borrowing or Lending in Foreign Exchange) (Second Amendment) Regulations, 2012 p. 190
FForeign Exchange Management (Deposit) (Amendment) Regulations, 2012 p. 187
FForeign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Amendment) Regulations, 2012 p. 186
FSecurities and Exchange Board of India (Employees' Service) (Second Amendment) Regulations, 2012 p. 193
Rules :
FCompanies (Central Government's) General Rules and Forms (Sixth Amendment) Rules, 2012 : Gazette Reference p. 164
Schemes :
FNationalised Banks (Management and Miscellaneous Provisions) Amendment Scheme, 2012 p. 192
Notifications :
FSecurities and Exchange Board of India Act, 1992 :
Notification under section 3(4) :
Establishment of local office p. 191
FSecurities Contracts (Regulation) Act, 1956 :
Notification under section 4 :
Renewal of recognition of stock exchange p. 207
FProsecution and cheque dishonour-New view-V. Srikanth p. 37
FTermination of managing director's contract and remedies against the termination-Dr. K. R. Chandratre p. 39
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When there is detailed scrutiny with regard to an issue, no re-opening for mere change of opinion
At time when query was raised under the head 'Selling & Distribution Expenditure', had there been insistence that TDS was required to be deducted and the amount specified to the tune of Rs. 22,70,869 was not required to be allowed as Trade Incentive without deducting TDS, the same ought to have been reflected somewhere in the computation of income and that would have bearing on the computation itself. In absence thereof, even within four years the assessment when is sought to be re-opened, it is required to be seen as to whether the Assessing Officer has reason to believe that the income has escaped the assessment, particularly on having raised query at the time of original assessment and the assessee-appellant having fulfilled the obligation of furnishing the requisite details. The Assessing Officer after the amendment with effect from 1-4-1989 though is not constrained not to re-open the assessment, if he has a reason to believe that the income has escaped the assessment, but, at the same time, in wake of detailed scrutiny of the very same issue under section 143(3) at the time of original assessment, it shall have to be recorded by the Court as to whether this was not a mere change of opinion on the part of the Assessing Officer.
HIGH COURT OF GUJARAT
Gujarat Tea Processors & Packers Ltd.
v.
Deputy Commissioner of Income-tax
SPECIAL CIVIL APPLICATION NO. 12673 OF 2011
AUGUST 31, 2012
JUDGMENT
Ms. Sonia Gokani, J. – Petitioner is a public limited company dealing in manufacture and sale of Tea. The petitioner submitted return for the AY 2006-07 on 26th December 2006. A revised return was filed on 26th October 2007 alongwith computation of the total income which was picked up for scrutiny assessment by the respondent. A letter was addressed on 18th December 2008 calling for certain information – one of which was with regard to clarification of various kinds of tea sold in terms of quantity and amount, and the details of selling and distribution expenses of Rs. 3,27,65,760/- and the details of the persons to whom it is paid and whether there was a deduction of tax at source. This was replied to on 26th December 2008. Further details were called for with regard to the discount paid amounting Rs. 22,70,869/-. Eventually, the Assessing Officer passed scrutiny assessment order dated 30th December 2008 determining total income at Rs. 24,18,14,000/-.
2. In the present petition, challenge is to the communication dated 4th March 2011 whereby notice issued under Section 148 of the Income Tax Act, 1961 ["Act" for short] for the year 2006-07 for re-opening of the assessment on the ground of escapement of income.
3. The reasons for re-opening were recorded on 4th March 2011, which reads, thus :
"On verification of the records for the above assessment year, it is noticed that the assessee company had paid discount as trade incentive slab scheme – Garma Garam offer to the extent of Rs. 22,70,869/- to various parties. The above payment is in fact commission paid against the sale and hence, covered under the provisions of Section 194C of the Act. However, no TDS has been deducted. Therefore, the expenditure of Rs. 22,70,869/- was required to be disallowed u/s. 40(a)(ia) of the Act. During the course of assessment proceedings, the assessee failed to disclose the full and true material facts before the Assessing Officer.
In view of the above, I have reason to believe that the income chargeable to tax to the above extent of Rs. 22,70,869/- has escaped assessment."
4. The objections to the reasons recorded for re-opening of the assessment under Section 147 of the Act were furnished on 29th April 2011 wherein it was emphasized all along that the re-assessment on the change of opinion was barred by the law and the same has been also reiteratively laid down by various decisions of the High Court and the Apex Court. It was contended that the Assessing Officer, for the year under consideration, had issued notice under Section 142(1) of the Act and at serial no. 8(12) of the said notice, had asked the petitioner to provide details of the nature of expenses debited under the head, "Selling & Distribution Expenses" and also had called for details of the persons to whom amount had been paid. The sales discount given under the trade incentive slab scheme "Garma Garam" was provided by way of submissions dated 26th December 2008 and on thorough examination, scrutiny assessment was finalized under Section 143(3) of the Act whereunder disallowances under Section 40(a)(ia) was made. The assessee emphasized in the said objections that a mere change of opinion does not justify initiation of re-assessment proceedings. The objections raised, read thus -
"13. We find from the reasons that your goodself believe that discount given in trade incentive scheme is in fact commission paid against the sale and hence covered under the provisions of section 194C of IT Act and tax ought to have been deducted which is not done and therefore expenditure of Rs. 22,70,869 was required to be disallowed u/s. 40a(ia) of the Act."
"14. In this connection, we may invite your attention to provisions of Section 194C, which reads as under. …….It may be seen from above that section applies for payment for carrying out any work in pursuant of contract. In our case, there is no case of carrying out any work. You will please appreciate that we have sold goods to super-stockist, who has in turn sold it to retailer and as per the sales promotion scheme introduced, based on the quantity purchased, the retailer is given discount as per the scheme. Thus, it is not a case of contract for service but contract for goods which is not covered under section 194C of the Act. Further, as per the reasons recorded, even as per your version, it is in the nature of commission which in our respectful submissions, not liable for TDS u/s. 194C of I.T Act.
"15. We would like to submit that the relationship between the assessee company and the persons to whom the amount has been credited is that of principal to principal and not that of principal to agent. Further, the credit note which is there on record clearly shows that the same is given for 'discount' which is based on quantity sold by them. Thus, the same is in the nature of quantity discount and not in the nature of commission as alleged and therefore the question of deduction of tax does not arise either under section 194C or any other provisions of Chapter XVII."
"17. Without prejudice to the above, we would like to submit that the assesses has floated sales promotion scheme for traders in the jodhpur region namely 'Garma Garam offer' according to which based on lifting of the quantity, they are allowed discount as specified in the scheme by the super-stockist and company reimburses to super-stockist the said discount by issue of credit note. The assessee had issued credit note for the discount to three persons namely M/s. Meenakshi Enterprise, M/s. Krishna Udhyog & M/s. Amber Marketing, all of whom are super-stockists of the assessee company. The amount had been credited in consideration of the discount given by the aforesaid persons in accordance with the trade incentive slab scheme to various traders who had sold the company's product and had met with the criteria as specified in the scheme. The aforesaid payment does not fall within the purview of Section 194H of the Act since as per Section 194H any person responsible for paying to a resident any income by way of commission or brokerage is liable to deduct tax at source from such payment or credit. However, the nature of payment/credit made by the assessee company is that of reimbursement of the discount given by the aforesaid three persons to the various traders meeting the criteria specified in the scheme and therefore, the amount is not in the nature of income by way of commission or brokerage liable to deduction at source u/s. 194H. Therefore also, Section 194H is not applicable in respect of the aforesaid payment made by the assessee company and therefore the question to deduct tax at source from the aforementioned payment does not arise."
5. Objections raised were rejected by the Assessing Officer vide its order dated 17th August 2011, relying on the judgment of this Court in case of Dishman Pharmaceuticals & Chemicals Ltd. [SCA No. 15304/2010] wherein it has been held that the assessee himself has not declared any details which is affecting the calculation of income of the assessee and the income is under assessed, then, assessee cannot take objection that he had disclosed all the facts during the course of assessment proceedings. According to the Assessing Officer, after insertion of Clause (c) to Explanation 2 of Section 147 of the Act, even if the Assessing Officer has considered the same issues and allowed certain reliefs; which are otherwise not allowable as per the provisions of the Act, the same amounts to deemed concealment, and therefore, even where there is a change of opinion, on same set of facts, if the original opinion formed by the Assessing Officer is not as per law, re-opening is permissible. Relying on the judgment of Kerala High Court in case of CIT v. Popular Vehicle Service Ltd. [2010] 191 Taxman 33 (Ker.), it is stated that the scope of Section 147 of the Act, after amendment, is large enough to cover the situation whereby deductions have been granted wrongly or excessively. Reliance is also placed on the decision of the Apex Court in case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [2001] 161 Taxman 316 to hold that, "..at the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief and whether the material would conclusively prove the escapement is not the concern at that stage." On the basis of this, it is held that the formation of belief by the Assessing Officer was within the realm of subjective satisfaction, and therefore, objections filed were rejected.
6. On issuance of the notice, on the lines of rejection of objections, affidavit-in-reply has been filed reiterating those aspects. It is reiteratively emphasized that as per the provisions of Section 194H, the assessee has to deduct tax on said payments and to deposit the same in the Government account. As deduction at source is not made, it is violative of provisions of Section 40(a)(ia) of the Act. Thus, the income needed to be assessed has escaped the assessment in the present case. Moreover, the discount paid to various parties under the trade incentive slab "Garma Garam" offer is in fact the commission paid against the sale and as the nature of discount was not correctly disclosed in the original return of income, there was no possibility of any opinion to be expressed by the Assessing Officer. For not having disclosed fully and truly all material aspects and the income having escaped the assessment, notices are held to be justified
7. We have heard learned Sr. Counsel Shri J.P Shah for the petitioner-Company, who in detail, has taken us through the material presented in this petition as also the proceedings which, according to him were produced earlier after the return of the petitioner was taken in scrutiny assessment. He emphasized that this was a case of quantity discount and not the commission, and therefore, Section 194H of the Act would not come into play. Moreover, the entire issue was examined very closely and adjudicated by the Assessing Officer, and therefore, the very basis of this notice is shaky and not sustainable. Learned counsel further urged that the decision of this Court given in case of Dishman Pharmaceuticals & Chemicals (supra) though has been relied upon, it has been permitted to be reviewed by the Supreme Court. Some of the other authorities for substantiating the submissions are as follows :-
[1] CIT v. Gordhanbhai Jethabhai [1994] 205 ITR 279 (Guj.)
[2] Rayon Silk Mills v. CIT [1996] 221 ITR 155 (Guj.)
[3] CIT v. Nirma Chemicals Works (P.) Ltd. [2009] 309 ITR 67
8. He emphasized that entire material that was required for the purpose of assessment was on record and yet, if there was any doubt, further details could have been asked for. Though the re-opening is within four years and when all requisite details were sufficiently provided and disclosed in original income according to Learned Counsel and there is no new material available with the Assessing Officer, this is a mere change of opinion.
9. Challenging this, learned counsel Shri Manish R Bhatt urged that this re-opening is since within four years, it is not only the non-disclosure which is criteria for re-opening. He urged that the issue that this is not a commission but a discount given to the sellers, is not the question to be gone into by the Assessing Officer and there are powers available with the Assessing Officer in post 1st April 1989 period, when amendment to clause [c] to explanation 2 of Section 147 has come into being. Reliance is placed on the following decisions for getting support to the submissions made :-
[1] CIT v. Kelvinator India Ltd. [2010] 320 ITR 561;
[2] Praful Chunilal Patel v. M.J Makwana, Asstt. CIT [1999] 236 ITR 832 (Guj.)
10. On having considered rival contentions raised by the parties and on having closely examined the material on record, it needs to be mentioned at the outset that the challenge in this petition is to the re-opening of assessment within four years from the end of the relevant Assessment Year, which was finalized on a scrutiny assessment under Section 143(3) of the Act. As the assessment is being re-opened within four years from the end of the relevant assessment year, the requirement of income chargeable to tax having escaped assessment on account of failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment could not be warranted. If such re-opening is based on mere change of opinion, the same would be impermissible even if the re-opening of the assessment is done within four years. Reference will have to be made to the judgment in case of M/s. Kelvinator India Limited (Supra) where noticing the amendment in Section 147, from time to time, the concept of change of opinion was examined. After 1st April 1989, even though as held in this decision, the income chargeable to tax whether has escaped the assessment due to failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment, though does not survive, that would not mean that same can be re-opened within four years on mere change of opinion. This amendment in Section 147 of the Act has made change in the expression viz., "Assessing Officer is of the opinion" to "Assessing Officer has reason to believe". On the basis of tangible material, the Assessing Officer needs to re-open the assessment and the reason must have a live link with the formation of the belief.
11. By virtue of amendment brought in by the insertion of Explanation 3 to Section 147 by the Finance Act [No.2] of 2009, the effect of the explanation is that once on Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under Section 148 of the Act, it is open to him to assess, or re-assess income in respect of any other issue, though the reasons for such income had not been included in the reasons recorded under Section 148(2) of the Act.
12. It needs to be noted here that the return was taken in scrutiny assessment. At the time of original assessment made u/s. 143(3) of the Act, there was already a query raised and the assessment was finalized, and therefore, the question that would arise is whether there is a change of opinion on the part of the Assessing Officer when the impugned notice under Section 148 of the Act was issued. Under these circumstances, the only query that requires to be made is – whether in the present proceedings, the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment and whether such satisfaction of the Assessing Officer gets reflected in the form of reasons recorded.
13. The Assessing Officer noted as mentioned hereinabove that the assessee-company had paid discount under the trade incentive slab scheme "Garma Garam" offer to three different parties. According to the Assessing Officer, this payment was in fact the commission paid against sale and there was no TDS deducted. The amount of Rs. 22,70,869/- which was expenditure, the same was required to be disallowed under Section 40(a)(ia), such a transaction gets covered under Section 194C of the Act.
14. As can be noted from communication dated 18th December 2008, wherein the present respondent had called for certain details under Section 142(1) of the Income Tax Act, 1961, there were certain details already furnished by the present petitioner, pursuant thereto, this communication is sent calling for details and nature of various types of expenses debited under the head, "Selling & Distribution Expenses" and furnish the details of persons to whom the amount was paid and also the details of TDS. The total amount for which the inquiry had been raised is Rs. 3,27,65,760/- which is at serial 8.12 of this correspondence seeking justification of disproportionate increase/ decrease in expenses in comparison to the immediate preceding year. By return communication dated 26th December 2008, with respect to this query at para 8.12, the petitioner enclosed statement reflecting details of sales discount given by way of credit notes in respect of sum of Rs. 22,70,869/-. This statement reflects credit notes with date and number issued in respect of trade incentive slab "Garma Garam" offer to three different parties who are termed as "Super Stockists" with city details and the total amount comes to Rs. 22,70,869/-. The assessment order for the said A.Y 2006-07 does not reflect anywhere this amount of trade incentive of Rs. 22,70,869/-. However, when one looks at the total income disclosed by the appellant-assessee in its e-return of income dated 26th December 2006 to the tune of Rs. 24,18,14,000/-. In the final computation, the total taxable income comes to Rs. 24,15,13,018/-. Whereas, the expenditure on software was treated as capital expenditure and depreciation on software and other electric installations was permitted, and thereby, this amount of Rs. 24,15,13,018/- has been arrived at. It is mistakenly appearing from the assessment order that except specific query raised at serial no. 8.12 regarding sum of Rs. 22,70,869/-, where is no reference of this amount anywhere in the entire assessment order. However, it can be said that when query was raised under the head "Selling & Distribution Expenditure", had there been insistence that TDS was required to be deducted and the amount specified to the tune of Rs. 22,70,869/- was not required to be allowed as Trade Incentive without deducting TDS, the same ought to have been reflected somewhere in the computation of income and that would have bearing on the computation itself. In absence thereof, even within four years the assessment when is sought to be re-opened, it is required to be seen as to whether the Assessing Officer has reason to believe that the income has escaped the assessment, particularly on having raised query at the time of original assessment and the assessee-appellant having fulfilled the obligation of furnishing the requisite details. The Assessing Officer after the amendment w.e.f 1st April 1989 though is not constrained not to re-open the assessment, if he has a reason to believe that the income has escaped the assessment, but, at the same time, in wake of detailed scrutiny of the very same issue under Section 143(3) at the time of original assessment, it shall have to be recorded by the Court as to whether this was not a mere change of opinion on the part of the Assessing Officer.
15. Section 194-H of the Act makes it obligatory on the part of any person, who is responsible for paying, on or after the 1st day of June 2001, to a resident, any income by way of commission or brokerage to deduct income-tax thereon at the rate of ten percent (10%), at the time of crediting such amount to the account of payee, or at the time of making payment of such income either in cash, or by way of cheque or draft, or by any other mode. This would apply where the amount exceeds a sum of Rs. 5,000/-. It would be relevant to make a mention of Section 194C of the Act, which also makes it obligatory on the part of the person to deduct an amount equal to 1 per cent, or 2 per cent of the payments being made to an individual or HUF at the time of crediting such amount to the account of contractor. It is rightly insisted by the petitioner that this is neither a contract for service, nor is it a case of paying of commission or brokerage. This case would neither fall under Section 194C which covers the case of contract for service nor under Section 194H of the Act which covers the income by way of commission or brokerage. It is the case of contract for goods which is neither covered under Section 194C nor under Section 194H of the Act, and therefore, Section 40A [ia] will not be attracted in as much as this is neither a case for non-deduction of commission or brokerage, nor of an amount payable to the contractor or sub-contractor.
16. Section 40[a][ia] begins with non-obstante clause and does not permit computation of income chargeable under the head "profits and gains of business or profession" – in case of an assessee in whose case any interest, commission or brokerage, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, for carrying out any work, on which tax is deductible at source, has not been deducted.
17. In light of the discussion above, if one looks at the reasons recorded for re-opening of the assessment objection is raised, particularly with regard to the trade incentive slab discount of the sum of Rs. 22,70,869/- given to various parties. according to the Assessing Officer, it is in breach of the provisions of law in as much as the commission is covered under Section 194C of the Act, however, no TDS has been deducted and therefore, expenditure of Rs. 22,70,869/- was required to be disallowed under Section 40(a)(ia) of the Act, and hence, this income of Rs. 22,70,869/- has escaped the assessment.
18. We are conscious of the fact that this is not a case of re-opening beyond four years where the only requirement would be that either the return of income is not filed, or that there is no true and full disclosure by the assessee in the original assessment, resulting into escapement of the income in the year under consideration. It is demonstrated by the petitioner-assessee that at the time of original assessment, in reply to the specific query raised, specific reply had been furnished with regard to the amount of discount paid by way of trade incentive slab scheme and the query also was whether on the amount paid, tax was deducted at source or not. Having furnished all the requisite details, if the Assessing Officer chose not to deem it fit to reflect its consideration in the assessment order originally passed after scrutiny, on the very same grounds and materials when it seeks to reopen the assessment on the ground of escapement of income it is required of the respondent to point out as to how this is not a mere change of opinion and what are the cogent and relevant materials available with it to form an opinion that the said expenditure was required to be disallowed under Section 40(a)(ia) of the Act, for not having deducted TDS. With the satisfactory details furnished by the petitioner and with the discussion of provisions hereinabove, it is neither possible to uphold that the income is under-assessed or in-allowable reliefs were permitted.
19. Even when the expanded scope of Section 147 of the Act, after the amendment is construed, from the material available on record and from the discussion made hereinabove, it can be held unfailingly that there appears no relevant material on which a reasonable person could have formed a requisite belief of reopening the assessment.
20. Resultantly, this petition succeeds, quashing the notice of re-opening dated 4th March 2011 issued under Section 148 of the Income Tax Act and consequently the order of rejection of objections.
21. Rule is made absolute to the extent above, with no order as to costs.
2012-TIOL-1022-HC-MUM-IT
IN THE HIGH COURT OF BOMBAY
Income Tax Appeal No. 29 of 2011
THE COMMISSIONER OF INCOME TAX-II, PUNE
Vs
SMT PADMA S BORA
J P Devahar And M S Sanklecha, JJ
Dated : December 3, 2012
Appellant Rep. by : Mr. Vimal Gupta, Senior Adv with Ms. Padma Divakar
Respondent Rep. by : Mr. S N Inamdar, Sr Adv with Mr. Mihir Naniwadekar
Respondent Rep. by : Mr. S N Inamdar, Sr Adv with Mr. Mihir Naniwadekar
Income Tax - Sections 80JJA, 260A, Circular No 772 of 1998 - "waste", "collecting" - Whether when the assessee is engaged in the business of manufacturing fuel briquettes from bagasse, a waste of the sugar industry, merely because the assessee pays for the purchase of such waste, it loses entitlement to benefits u/s 80JJA - Whether the wordings of a circular issued by the CBDT, can override the provisions of the statute - Whether bagasse is a 'waste' or a 'by product' of sugar industry.
Assessee, an individual, is engaged in the business of manufacturing fuel briquettes from bagasse. It had filed its ROI after claiming deduction u/s 80JJA. During assessment, AO disallowed the claim for deduction u/s 88JJA on the ground that bagasse was not a waste; it was not generated in municipal/urban limits i.e. by local authorities; it was not collected but it was purchased and the process of its manufacture had not involved any treatment or recycling of a biodegradable waste. On appeal, CIT(A) allowed the respondent's appeal. It was held in the order for both the AYs, that bagasse was purchased from sugar factories and processed by it for making briquettes to be used as fuel. Further it was held that all the conditions laid down in Section 80JJA were satisfied and the assessee was entitled to claim a deduction thereunder. On further appeal by the Revenue, Tribunal held that bagasse generated in the sugar industry was a waste and merely because it was purchased for a price it did not cease to be a waste. It was further held that the assessee satisfied the conditions for availing of the benefit of Section 80JJA namely collecting and processing bio-degradable waste in respect of profits and gains derived there from.
Before HC, the Revenue's counsel submitted that bagasse which was purchased by the respondent was not a waste but a by product of sugar industry. Therefore, Section 80JJA cannot be applied in this case. As per a circular of CBDT, the intention behind the insertion of section 80JJA was to encourage local bodies to manage waste arising in Urban areas. Thus the benefit was available only to local bodies. As it was already mentioned that the bagasse was not collected by the assessee but was purchased from the sugar factories. Therefore, the pre-requisite for claiming deduction u/s 80JJA was not satisfied. On the other hand, the assessee's counsel submitted that bagasse was a waste which arose in the manufacture of sugar and it was not a by product of a sugar industry. In support of his contention, reliance was placed upon a letter of the Sugar Commissioner, Maharashtra State certifying that bagasse was a residual waste generated in sugar industry and on the provisions of the CETA, 1985 wherein bagasse was classified as waste of sugar manufacture. Section 80 JJA merely requires that bio degradable waste should be collected and processed for making briquettes fuel . The mere fact that the bagasse was collected from the sugar factory by making a payment would not by itself result in bagasse not being a waste or the same not being collected.
Having heard the matter, the High Court held that:
++ bagasse is a waste of the sugar factory. This waste is a bio-degradeable waste and the same is collected on consideration by the respondent assessee from the factory. There could be no universal definition of the word "waste". The term waste has to be understood contextually i.e. place where it arises and the manner in which it arises during the processing of some article. The fact that sugar industry also regards Bagasse as waste is evident from Circular dated 4/2/2006 issued by the Sugar Commissioner, Maharashtra State, Pune. Besides the ITC classification of the Exim policy also classifies bagasse as a waste of sugar industry under Chapter 23 Heading 23.20 thereof;
++ further, the CETA, 1985 also regards bagasse as waste of sugar manufacture. We do not agree with the submissions of the appellant's Counsel that collection would mean collecting free of charge and not by purchasing the same. The word "collecting" means to gather; to fetch. It is a neutral word and does not mean collection for consideration or collection without consideration. It is an admitted position that the assessee has collected bagasse from sugar factories after having made payment for the same. Therefore, the aforesaid requirement of collecting as provided u/s 80JJA is satisfied. It is a undisputed finding of fact that the collected bagasse has been used by the assessee to make briquettes for fuel as that indeed is the business of the assessee. The reliance upon the circular No.772 dated 23/12/1998 by the appellant is misplaced. The aforesaid Circular does not restrict its benefits only to local bodies. In any event the circular cannot over ride the clear words of Section 80JJA which provides deduction in respect of profits and gains derived from the business of collecting and processing/treating of bio- degradable waste i.e. bagasse into briquettes for fuel. In these circumstances, we find no fault with the order of the Tribunal both on facts as well as in law;
++ in view of the above, no substantial question of law arises for consideration by this court. Therefore the appeal is dismissed, with no order as to costs.
Revenue's appeal dismissed
JUDGEMENT
Per : M S Sanklecha, J :
This appeal under Section 260A of the Income Tax Act, 1961 ("the Act") challenges a common order dated 9/2/2010 passed by the Income Tax Appellate Tribunal ("the Tribunal")relating to assessment years 2003-04 and 2004-05.
2) Being aggrieved by the order dated 9/2/2010of the Tribunal the respondent has re-framed the following questions of law for the consideration by this court:
a) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing deduction u/s.80JJA of the Income Tax Act on the profits derived from the business of manufacturing fuel briquettes from bagasse?b) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in not appreciating that bagasse is not a waste but is a by product of sugar industry and is a basic raw material for many industrial products apart from being used as fuel by the sugar industry to run boilers?
3) The brief facts leading to this appeal are as under:
a) The respondent-assessee, is an individual inter alia engaged in the business of manufacturing fuel briquettes from bagasse. For the assessment years 2003-04 and 2004-05 the respondent filed her returns of income declaring total income of Rs.2.65lacs and Rs.2.34lacs respectively. The aforesaid income for the assessment years 2003-04 and 2004-05 was arrived at inter alia after claiming deduction of Rs.27.62lacs and Rs.28.18lacs respectively under Section 80JJA of the Act.b) By an order dated 28/2/2006 for assessment year 2003-04 the Assessing officer disallowed a claim for deduction of Rs.27.62lacs under Section 88JJA of the Act. Similarly by an order dated 29/9/2006 for assessment years 2004-05 the deduction of Rs.28.18lacs under Section 80JJA of the Act was disallowed. This deduction under Section 80JJA of the Act was disallowed by the Assessing Officer on the following grounds:(1) bagasse is not a waste;(2) it is not generated in municipal/urban limits i.e. by local authorities;(3) it is not collected but it is purchased; and(4) the process does not involve any treatment or recycling of a biodegradable waste.c) In appeal, the Commissioner of Income Tax (appeals) by an order dated 2/5/2007 for assessment year 2003-04 and order dated 7/6/2007 allowed the respondent's appeal in respect of its claim for deduction under Section 80JJA of the Act. The Commissioner of Income Tax(Appeals) in both the above orders held that bagasse was purchased from sugar factories and processed by it for making briquettes to be used as fuel. It was further held that the respondent assessee was engaged in the business of collecting and processing/treating biodegradable waste. Further it was held that all the conditions laid down in Section 80JJA of the Act were satisfied and the respondent-assessee was entitled to claim a deduction there under.d) Being aggrieved by the order of Commissioner of Income Tax (appeals) dated 2/5/2007 and 7/6/2007 for the assessment years 2003-04 and 2004-05 respectively, the appellant preferred two appeals to the Tribunal. By a common order dated 9/2/2010 the Tribunal dismissed both the revenue's appeals filed by the revenue. The Tribunal held that bagasse generated in the sugar industry is a waste and merely because it is purchased for a price it does not cease to be a waste. The Tribunal held that the respondent assessee satisfied the conditions for availing of the benefit of Section 80JJA of the Act namely collecting and processing bio-degradable waste in respect of profits and gains derived there from.
4) Section 80 JJA of the Act reads as under:
"80JJA. Where the gross total income of an assessee includes any profits and gains derived from the business of collecting and processing or treating of bio-degradable waste for generating power (or producing bio fertilizers, biopresticides or other biological agents or fur producing bio-gas or making pellets or briquettes for fuel or organic manure, there shall be allowed, in computing the total income of the assessee, (a deduction of an amount equal to the whole of such profits and gains for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which such business commences)."
5) Mr. Vimal Gupta, Senior Counsel for the revenue in support of the appeal submits as under:
a) Bagasse which is purchased by the respondent is not a waste but a by product of sugar industry. Therefore, Section 80JJA of the Act could have no application in this case;b) Reliance is placed upon a circular No.772 dated 27/12/1998 issued by the Central Board of Director Taxes explaining the intention to insert Section 80 JJA of the Act to support his contention. According to him section 80JJA of the Act was introduced so as to encourage local bodies to manage waste arising in Urban areas. Thus the benefit of Section 80JJA of the Act is not available to persons other than local bodies;c) Bagasse is not collected by the respondentassessee but is purchased from the sugar factories. Therefore, the pre-requisite for claiming deduction under Section 80JJA of the Act is not satisfied.
In view of the above, it is urged by him that substantial questions of law do arise and the appeal be admitted.
6) As against the above, Mr. S.N. Inamdar, Senior Counsel appearing for the respondent submits as under:
a) Bagasse is a waste which arises in the manufacture of sugar. It is not a by product of a sugar industry. In support of his contention that bagasse is a waste reliance was placed upon a letter dated 4/2/2006 of the Sugar Commissioner, Maharashtra State certifying that bagasse is a residual waste generated in sugar industry. Similarly reliance was also placed upon Chapter 23 Heading No.23.01 of the Central Excise Tariff Act,1985 and Chapter 23 of ITC (HS) classification wherein bagasse has been classified as waste of sugar manufacture;b) The Circular No.772 dated 23/12/1998 being relied upon by the appellant does not in fact restrict operation of Section 80JJA of the Act only to local bodies and excludes individuals from its benefit; andc) Section 80 JJA of the Act merely requires that bio degradable waste should be collected and processed for making briquettes fuel . The mere fact that the bagasse is collected from the sugar factory by making a payment would not by itself result in bagasse not being a waste or the same not being collected.
In view of the above, he submits that the appeal of the revenue be dismissed.
7) We have considered the submissions. We find that on examination of the evidence both Commissioner of Income Tax (appeals) as well as Tribunal have reached a finding of fact that bagasse is a biodegradable waste used for making briquettes for fuel by the respondent assessee. This finding of fact was based on evidence led before the authorities by the respondentassessee. We find that bagasse is a waste of the sugar factory. This waste is a bio-degradeable waste and the same is collected on consideration by the respondent assessee from the factory. There could be no universal definition of the word "waste". The term waste has to be understood contextually i.e. place where it arises and the manner in which it arises during the processing of some article. The fact that sugar industry also regards Bagasse as waste is evident from Circular dated 4/2/2006 issued by the Sugar Commissioner, Maharashtra State, Pune. Besides the ITC classification of the Exim policy also classifies bagasse as a waste of sugar industry under Chapter 23 Heading 23.20 thereof. Further, the Central Excise Tariff Act 1985 also regards bagasse as waste of sugar manufacture and is classified under Chapter 23 heading 23.01 of the Central Excise Tariff Act, 1985. We do not agree with the submissions of the appellant's Counsel that collection would mean collecting free of charge and not by purchasing the same. The word "collecting" means to gather; to fetch. It is a neutral word and does not mean collection for consideration or collection without consideration. It is an admitted/undisputed position that the respondent assessee has collected bagasse from sugar factories after having made payment for the same. Therefore, the aforesaid requirement of collecting as provided under Section 80JJA of the Act is satisfied. It is a undisputed finding of fact that the collected bagasse has been used by the respondent-assessee to make briquettes for fuel as that indeed is the business of the respondent-assessee. The reliance upon the circular No..772 dated 23/12/1998 by the appellant is misplaced. The aforesaid Circular does not restrict its benefits only to local bodies. In any event the circular cannot over ride the clear words of Section 80JJA of the Act which provides deduction in respect of profits and gains derived from the business of collecting and processing/treating of bio- degradable waste i.e. bagasse into briquettes for fuel. In these circumstances, we find no fault with the order of the Tribunal both on facts as well as in law.
8) In view of the above, no substantial question of law arises for consideration by this court. Therefore the appeal is dismissed, with no order as to costs.
2012-TIOL-1017-HC-AHM-IT
IN THE HIGH COURT OF GUJARAT
AT AHMEDABAD
Special Civil Application No. 12598 of 2012
Special Civil Application No. 12600 of 2012
Special Civil Application No. 12614 of 2012
Special Civil Application No. 12600 of 2012
Special Civil Application No. 12614 of 2012
ASHWAMEGH CO OP HOUS SOC LTD, VIBHAG
Vs
DY. COMMISSIONER OF INCOME TAX
Akil Kureshi And Harsha Devani, JJ
Dated : November 6, 2012
Appellant Rep. by : Mr R K Patel & Mr B D Karia
Respondent Rep. by : Ms Paurami B Sheth
Respondent Rep. by : Ms Paurami B Sheth
Income Tax - Sections 143(2), 147 - Whether the reopening of the assessment is justified within four years when it was established inescapably that the AO examined the claim during the scrutiny assessment thoroughly before passing the assessment order.
The petitioner is a co-operative society. For the A.Y 2007-08, the petitioner had filed a return of income alongwith supporting documents declaring total income of Rs. 37,32,950/-. The assessee had disclosed that it had earned income through sale of certain landed properties and treated it as capital gain. After adjusting the expenses and other allowable deductions, the assessee had worked out the capital gain at Rs. 37,32,950/- which was the only item of income disclosed by the assessee. During the scrutiny assessment, AO examined such claim. Several queries were raised and replies were received from the assessee. It was this scrutiny assessment which the AO desires to reopen for which impugned notice came to be issued on 29.03.2012.
Before the HC the petitioner Counsel submitted that the only head under which the assessee had earned income and which was disclosed in the return was of long term capital gain on sale of plots. Such return was taken in scrutiny, several queries were raised and replies were filed by the assessee. After considering such replies, the AO accepted the computation of income made by the assessee in the return. Such scrutiny assessment cannot be reopened even within four years. The Counsel submitted that any such attempt on part of the AO would be on the basis of mere change of opinion. The Revenue counsel contended that the notice for reopening was issued within four years from the end of relevant A.Y. During the original assessment, the question whether the assessee was in the business of buying and selling land and that therefore, the land should form part of the stock-in-trade and the income generated from sale of such land should be business income was never examined by the AO.
Having heard the parties, the HC held that,
++ it is established inescapably that the AO examined the claim thoroughly before passing the assessment order. The question is whether such scrutiny assessment can be reopened even within four years from the end of relevant assessment year on the reasons recorded by the AO. The answer has to be in the negative;
++ in the present case, the AO having examined the entire claim threadbare, any deviation from his decision on the ground that the receipts of the assessee from sale of land should be treated as business income in and not as long term capital gain must be taken to be a change of opinion. It may be that in the assessment order, the AO did not elaborate on this aspect of the matter. The same would be of no consequence;
++ the impugned notice is quashed. Since facts are common in all petitions, respective impugned notices in all petitions would stand quashed.
The petitioner is a co-operative society. For the A.Y 2007-08, the petitioner had filed a return of income alongwith supporting documents declaring total income of Rs. 37,32,950/-. The assessee had disclosed that it had earned income through sale of certain landed properties and treated it as capital gain. After adjusting the expenses and other allowable deductions, the assessee had worked out the capital gain at Rs. 37,32,950/- which was the only item of income disclosed by the assessee. During the scrutiny assessment, AO examined such claim. Several queries were raised and replies were received from the assessee. It was this scrutiny assessment which the AO desires to reopen for which impugned notice came to be issued on 29.03.2012.
Before the HC the petitioner Counsel submitted that the only head under which the assessee had earned income and which was disclosed in the return was of long term capital gain on sale of plots. Such return was taken in scrutiny, several queries were raised and replies were filed by the assessee. After considering such replies, the AO accepted the computation of income made by the assessee in the return. Such scrutiny assessment cannot be reopened even within four years. The Counsel submitted that any such attempt on part of the AO would be on the basis of mere change of opinion. The Revenue counsel contended that the notice for reopening was issued within four years from the end of relevant A.Y. During the original assessment, the question whether the assessee was in the business of buying and selling land and that therefore, the land should form part of the stock-in-trade and the income generated from sale of such land should be business income was never examined by the AO.
Having heard the parties, the HC held that,
++ it is established inescapably that the AO examined the claim thoroughly before passing the assessment order. The question is whether such scrutiny assessment can be reopened even within four years from the end of relevant assessment year on the reasons recorded by the AO. The answer has to be in the negative;
++ in the present case, the AO having examined the entire claim threadbare, any deviation from his decision on the ground that the receipts of the assessee from sale of land should be treated as business income in and not as long term capital gain must be taken to be a change of opinion. It may be that in the assessment order, the AO did not elaborate on this aspect of the matter. The same would be of no consequence;
++ the impugned notice is quashed. Since facts are common in all petitions, respective impugned notices in all petitions would stand quashed.
Assessee's appeals allowed
Case followed:
1. Commissioner of Income-Tax Vs. (1) Kelvinator of India Ltd. (2) Eicher Ltd. (2010-TIOL-06-SC-IT)
2. Gujarat Power Corporation Ltd. Vs. Assistant Commissioner of Income Tax (2012-TIOL-689-HC-AHM-IT)
3. Commissioner of Income Tax Vs. Usha International Ltd. (Delhi) (Full Bench) (2012-TIOL-764-HC-DEL-IT-LB)
JUDGEMENT
Per : Akil Kureshi, J :
1. These petitions arising in common back-ground have been heard together and are being finally disposed of by this common judgement.
2. Petitioners, in all the petitions, have challenged notices issued by the Assessing Officer under Section 148 of the Income Tax Act,1961 (for short 'the Act') of the completed assessments. We may notice the facts as emerging from the record of Special Civil Application No. 12598 of 2012.
2.1 The petitioner is a co-operative society. For the assessment year 2007-08, the petitioner had filed a return of income alongwith supporting documents declaring total income of Rs. 37,32,950/- Such return was taken by the Assessing Officer in scrutiny for which purpose he issued notice under Section 143(2) of the Act.
2.2 We may notice that in such return, the assessee had disclosed that it had earned income through sale of certain landed properties and treated it as capital gain. After adjusting the expenses and other allowable deductions, the assessee had worked out the capital gain at Rs. 37,32,950/- which was the only item of income disclosed by the assessee in the said return.
2.3 During the scrutiny assessment, Assessing Officer examined such claim. Several queries were raised and replies were received from the assessee. To these queries and replies, we would advert at a later stage.
2.4 Eventually, the Assessing Officer framed scrutiny assessment under Section 143 (3) of the Act and accepted the computation of income done by the assessee in the return. In such assessment order dated 21.05.2009, the Assessing Officer recorded as under:
"The assessee is a housing co-operative society engaged in purchase and sale of land/plots. In response to notices issued on various dates of this office Shri Bhavesh P. Shah C.A. and authorized representative of the assessee and Shri Priyam Khambhata of M.S.Dhiren Shah & Co. has attended from time to time and furnished the details called for. The case was discussed in the light of details furnished during the course of scrutiny proceedings.After going through the details furnished during the case of scrutiny proceedings and after detailed discussion with the A.R the assessment is finalized as under."
2.5 It is this scrutiny assessment which the Assessing Officer desires to reopen for which impugned notice came to be issued on 29.03.2012. At the request of the petitioner, the Assessing Officer supplied his reasons recorded for issuing such notice. Such reasons read as under:
"In this case of Ashwamegh Co. Op. Hsg Soc Ltd. Vibhag- 2 the assessee had filed return on 31.03.2009 declaring total income of Rs. 37,32,950/-. The assessment u/s. 143(3) of the I.T. Act has been finalized on 21.05.2009 on a total income of Rs. 37,32,950/-.On verification of case records it is noticed that during the A.Y. 2007-08 the assessee has sold five plots of nonagricultural land admeasuring 7685 Sq. Yards at sale price of Rs. 57,63,750/-. The assessee had offered "long terms capital gain income" of Rs. 37,32,945/- after adjusting the expenses towards cost of acquisition and improvement etc. The business of the assessee is land development and sale and purchase of plots and hence the land/plots are nothing but stock in trade and the profit/income arrived by the assessee should be treated as business income. Since the income returned is a business income in view of above position, the assessee shall not also be entitled to the benefit of cost indexation u/s. 48 of the Act.Accordingly to section 2(14) "Capital Asset" means property of any kind held by assessee but does not include any stock in trade, consume stores or raw materials held for the purpose of his business or profession. As per Sn. 45(2), the profits or gain arising from the transfer by way of conversation by the owner of a capital asset into or its treatment by him into, or its treatment by him as stock in trade of a business carried by him shall be chargeable to income tax as his income of the previous year in which such stock in trade is sold or otherwise transferred by him and for the purposes of Section 48.In view of the above, I have reasons to believe that income chargeable to tax has escaped assessment for A.Y. 2007-08 and intend to reassess such income chargeable to tax which has escaped assessment and which comes to the notice subsequently in the course of proceedings under this section."
2.6 The petitioner raised his objections to such proposal for reopening the assessment under communication dated 30.04.2012. Respondent No.1, Assessing Officer, however, rejected such objections vide his order dated 27.07.2012. Hence, this petition.
3. Learned counsel for the petitioner submitted that the only head under which the assessee had earned income and which was disclosed in the return was of long term capital gain on sale of plots. Such return was taken in scrutiny, several queries were raised and replies were filed by the assessee. After considering such replies, the Assessing Officer accepted the computation of income made by the assessee in the return. Such scrutiny assessment cannot be reopened even within four years on the ground that the sale proceeds should have been treated as income from business and not as long term capital gain. Counsel submitted that any such attempt on part of the Assessing Officer would be on the basis of mere change of opinion.
4. In support of his contention, counsel relied on following decisions:
1. In case of Commissioner of Income-Tax Vs. (1) Kelvinator of India Ltd. (2) Eicher Ltd. reported in 320 ITR 561 = (2010-TIOL-06-SC-IT).2. In case of Gujarat Power Corporation Ltd. Vs. Assistant Commissioner of Income Tax reported in (2012) 77 DTR (Guj) 89 = (2012-TIOL-689-HC-AHM-IT).3. In case of Commissioner of Income Tax Vs. Usha International Ltd. (Delhi) (Full Bench) reported in (2012) 77 DTR (Del) (FB) 396 = (2012-TIOL-764-HC-DEL-IT-LB).
5. On the other hand, learned counsel, Ms. Paurami Sheth for the department opposed the petition contending the notice for reopening is issued within four years from the end of relevant assessment year. During the original assessment, the question whether the assessee was in the business of buying and selling land and that therefore, the land should form part of the stock-in-trade and the income generated from sale of such land should be business income was never examined by the Assessing Officer. In her contention, therefore, reopening cannot be stated to be on the basis of mere change of opinion.
6. From the record, it clearly emerges that the petitioner's return contained a single item of receipts upon sale of plots held by the petitioner-co-operative society. Petitioner claimed that the same was its long term capital gain. After adjustments permissible under law, the petitioner disclosed total income of Rs. 37,32,950/-. No other item were included in the return. The Assessing Officer, during scrutiny assessment, threadbare examined such return of the assessee. As many as three replies were elicited from the petitioner-assessee. In fact, specific queries were also raised. For example, on 20.02.2009, the Assessing Officer called upon the assessee to furnish following details:
i) Basis of sale consideration,ii) Proof of basis of Commission paid to Navratna Organizers,iii) Details/proof of compensation paid to Agrawal Estate Organizers,iv) Name and address of plot purchasedv) Total area/extent/remaining plot with the Co- Op.Soc.,vi) Bank account extract/statement
7. In response to such a query, the petitioner addressed a detailed letter dated 13.05.2009. In such letter, it was stated as under:
"The Society decided not to develop the said land and accordingly informed the Project Consultant and Organizer Agarwal Estate Organizers Ltd., to terminate their development rights as the Society wants to sell the land of the society to the Prospective Buyer. It is to be taken note of that the society was not in a position to sell the land of the Society till the development agreement entered into between the society and Agarwal Estate Organizers Ltd. in operation. Therefore, if the society wants to sell the land of the society, first of all, the society was required to terminate the development rights given to Agarwal Estate Organizers Ltd. and for which the Society entered into a termination agreement with Agarwal Estate Organizers Ltd. and compensation amount payable to Agarwal Estate Organizers Ltd. on sale of land of the society was determined and agreed upon between both the parties.In view of the aforesaid facts and legal submission, the compensation paid to Agarwal Estate Organizers Ltd. is deductible in computation in computation of capital gain in the case of the Society as an expenditure in connection of the sale of land of the Society and therefore, the proportionate expenditure incurred on compensation paid to Agrawal Estate Organizers Ltd. in comparison to the aggregate area of land sold during the year has been deducted in the computation of capital gain as expenditure incurred in the computation filed with return of income and it has not been claimed as cost of improvement to the property in computation of capital gain. It is submitted that the compensation paid to Agarwal Estate Organizers Ltd. shown as a separate entry in the computation of capital gain and it has not been stated as cost of improvement. However, to avoid confusion and misunderstanding on this issue. We are attaching herewith the working of long term capital gain once again as per Exhibit-V with a clear cut demarcation that compensation paid to Agarwal Estate Organizers Ltd. has been claimed as an expenditure incurred in connection with the transfer of land of the Society."[underline supplied by us]
8. In yet another letter dated 15.05.2009, in connection with the petitioner's earlier submission dated 13.05.2009 the petitioner wrote to the Assessing Officer as under:
"Your honour has called for the details of basis of income over expenditure at Rs. 1,44,70,717/-. In this regard, we are attaching hereinabove the Income U Expenditure Account and Balance Sheet as on 31.03.2007 of the Society as per Exhibit-II, wherein in income side, there are capital gain for the Accounting Year 2005-06 relevant to A.Y. 2006-07 in respect of Sola Plot of Land (Kalhar scheme) amounting to Rs 91,62,304/- and in respect of Sole Land amounting to Rs. 46,08,459/-. Both capital gains are pertaining to A.Y. 2006-07 which are duly offered for taxation in the Income Tax Return for A.Y. 2006-07. The copy of return of income for A.Y. 2006-07 is attached herewith as per Exhibit-III. However, in A.Y. 2006-07, such items were shown in Balance sheet and in current year, it is transferred to income & Expenditure Account and hence, the said items are appearing in income & Expenditure Account of accounting year 2006- 07."9. Yet again on 21.05.2009, the petitioner made further clarifications to the Assessing Officer as under:"Your honour has asked to finish the details of Name, Address and P.A. Corporation is a proprietary concern of Shri Gauttambhai S.Shah. Further, we are submitting herewith the contra confirmation of Shah Corporation for the period 2006-07 as per Exhibit-I."
Along with such reply, the petitioner produced at Exh.I the opinion with respect to Shah Corporation as called for by the Assessing Officer.
10. It was only after such detailed scrutiny that the Assessing Officer framed original assessment on 21.05.2009 making no additions to the income disclosed by the petitioner. As already noted, the Assessing Officer recorded that the representative of the assessee had attended the office from time to time and furnished details of the information called for. Thus, it is established inescapably that the Assessing Officer examined the claim thoroughly before passing the assessment order. The question is whether such scrutiny assessment can be reopened even within four years from the end of relevant assessment year on the reasons recorded by the Assessing Officer.
11. In our opinion, the answer has to be in the negative. It is true that the impugned notice has been issued within a period of four years from the end of relevant assessment year. Therefore, the requirement that the income chargeable to tax should have escaped assessment for the reason of the failure on the part of the assessee to disclose truly and fully all material facts need not be established. However, as held by the Apex Court in case of Commissioner of Income-Tax Vs. (1) Kelvinator of India Ltd. (2) Eicher Ltd. (supra.) reopening even within four years would not be permissible on a mere change of opinion.
12. In the present case, the Assessing Officer having examined the entire claim threadbare, any deviation from his decision on the ground that the receipts of the assessee from sale of land should be treated as business income in and not as long term capital gain must be taken to be a change of opinion. It may be that in the assessment order, the Assessing Officer did not elaborate on this aspect of the matter. To our mind the same would be of no consequence. In the decision of Division Bench of this Court in case of Gujarat Power Corporation Ltd. Vs. Assistant Commissioner of Income Tax, it was held and observed as under:
"41. The powers under section 147 of the Act are special powers and peculiar in nature where a quasi-judicial order previously passed after full hearing and which has otherwise become final is subject to reopening on certain grounds. Ordinarily, a judicial or quasi-judicial order is subject to appeal, revision or even review if statute so permits but not liable to be re-opened by the same authority. Such powers are vested by the Legislature presumably in view of the highly complex nature of assessment proceedings involving large number of assessees concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be appreciated that an assessment previously framed after scrutiny when reopened, results into considerable hardship to the assessee. The assessment gets reopened not only qua those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review.42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non-reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer.43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition."
13. Similarly in a recent decision Full Bench of Delhi High Court by a majority opinion in case of Commissioner of Income Tax Vs. Usha International Ltd. held as under:
"It is, therefore, clear from the aforesaid position that:(1) Reassessment proceedings can be validly initiated in case return of income is processed under s. 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion;(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of "change of opinion".(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the AO does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the AO did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the AO had formed an opinion in the original assessment, though he had not recorded his reasons."
14. In the result, the impugned notice dated 29.03.2012 is quashed. Since facts are common in all petitions, respective impugned notices in all petitions would stand quashed. All petitions are allowed and disposed of accordingly.
2012-TIOL-47-ITAT-MUM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'G' MUMBAI
BENCH 'G' MUMBAI
ITA No.4840/Mum/2004
Assessment Year: 2000-01
Assessment Year: 2000-01
LUBRIZOL INDIA PVT LTD
VIP HOUSE, 2 ND FLOOR,
88-C, OLD PRABHADEVI ROAD,
MUMBAI -400 025
VIP HOUSE, 2 ND FLOOR,
88-C, OLD PRABHADEVI ROAD,
MUMBAI -400 025
Vs
THE DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE 6(3),MUMBAI
CIRCLE 6(3),MUMBAI
P M Jagtap, AM and R S Padvekar, JM
Dated: November 30, 2011
Appellant Rep by: Mr P J Pardiwala
Respondent Rep by: Mr Niraj Seth
Respondent Rep by: Mr Niraj Seth
Income Tax - Section 80I - Whether criteria of eligibility vis-à-vis deduction of chapter VI is required to be examined in the initial year itself and therefore, the Revenue cannot deny deduction in subsequent year if the deduction granted in initial year has not been withdrawn.
Assessee Company, engaged in the manufacturing of chemicals additives, claimed deduction of section 80-I, for the impugned year - AO disallowed the same on the ground that assessee was using old machinery in the unit and hence not entitled for deduction of 80-I - CIT(A) affirmed the view of the AO - In appeal before the ITAT the AR of the assessee argued that condition as to eligibility were required to be examined in the initial year and the same were duly examined by the revenue under section 143(3) of the Act.
After hearing the parties the ITAT held that,
++ in the case of of Paul Brothers, the principles were well settled on the issue whether eligibility of deduction can be examined in subsequent years, if the deduction was granted in the initial assessment year? Then unless the deduction is withdrawn or rejected in the initial assessment year, the same cannot be withdrawn in the subsequent assessment years. It is pertinent to note here that in the case of Paul Brothers their Lordships have referred to the decision of the Hon'ble High Court in the case of Saurashtra Cement & Chemicals Industries Ltd. We are, therefore, of the opinion that denial of the deduction by the A.O. on the reason of the legality is totally misplaced.
Assessee Company, engaged in the manufacturing of chemicals additives, claimed deduction of section 80-I, for the impugned year - AO disallowed the same on the ground that assessee was using old machinery in the unit and hence not entitled for deduction of 80-I - CIT(A) affirmed the view of the AO - In appeal before the ITAT the AR of the assessee argued that condition as to eligibility were required to be examined in the initial year and the same were duly examined by the revenue under section 143(3) of the Act.
After hearing the parties the ITAT held that,
++ in the case of of Paul Brothers, the principles were well settled on the issue whether eligibility of deduction can be examined in subsequent years, if the deduction was granted in the initial assessment year? Then unless the deduction is withdrawn or rejected in the initial assessment year, the same cannot be withdrawn in the subsequent assessment years. It is pertinent to note here that in the case of Paul Brothers their Lordships have referred to the decision of the Hon'ble High Court in the case of Saurashtra Cement & Chemicals Industries Ltd. We are, therefore, of the opinion that denial of the deduction by the A.O. on the reason of the legality is totally misplaced.
Assessee's appeal allowed
ORDER
Per: R S Padvekar:
In this appeal the assessee has challenged the impugned order of the Ld. CIT (A) –26, Mumbai dated 13.07.2004 for the A.Y. 2000-01. The first issue is in respect of denial of deduction of Rs.2,73,42,767/- u/s. 80I of the I.T. Act in respect of Dispersant unit which was claimed @30% and this issue arises from ground nos.1 & 2.
2. Briefly stated, the facts pertaining to the issue are as under. The assessee company is engaged in the business of manufacturing of Chemicals Additives. In the A.Y. 2000-01 the assessee claimed the deduction of Rs.2,73,42,967/- u/s.80I of the Act @ 30% on the income from expansion of Dispersant unit. Income from expansion of Dispersant unit was shown at Rs.9,11,43,224/-. The A.O. had reservation allowing the deduction to the assessee on the reason that even if there is an expansion of the Unit the old and new plant and machinery were continued to be used in the new expansion. The A.O. gave the following reasoning for rejecting the claim of the assessee u/s.80I:-
"The above submission of the assessee company has been duly considered but it was not found acceptable. From the above reply of the assessee, it is noticed that assessee has been already running an existing Dispersant Unit since F.Y. 1976-77 when the capacity of the unit was 6000MTPA. Subsequently, in F.Y. 1983- 84, the capacity was increased from 6000 MTPA to 9000 MTPA and again in F.Y. 1986-87, the capacity was increased from 9000 MTPA to 12000 MTPA. The Phase IV being the 4th expansion took place in F.Y. 1990-91, when the capacity was increased by 4000 MTPA and the total capacity becomes 16000 MTPA after the expansion. The assessee's contention that by expanding the capacity it has installed new industrial unit is not tenable.
Phase I Unit Phase II Unit Phase III Unit Phase IV Unit
3. The original 'Dispersant unit' was commissioned in the Financial Year 1976-77 with the capacity 6000 MTPA. Phase-wise capacity was increased in 1983-84 and then in 1986-87 and further capacity of 4000 MTPA was increased in the Financial Year 1990-91. The A.O. rejected the claim of the assessee by giving the reason that even if the capacity of Dispersant unit has been increased from 12000 MTPA to 16000 MTPA by adding balancing equipment in the existing unit but that cannot be said to be a setting-up a new industrial unit which can be entitled to deduction u/s.80IA. The assessee carried the issue before the Ld. CIT (A) but only with disappointment as the Ld. CIT (A) approved the findings of the A.O. by his cryptic observation. Now, the assessee is in appeal before us.
4. We have heard the rival submissions of the parties and perused the records. Mr. P.J. Pardiwala, the Ld. Senior Counsel submits that so far as 4th stage of the expansion of the Dispersant unit in the Financial Year 1990-91 is concerned, for the first time, the deduction was claimed in the A.Y. 1991-92. He submits that in the said year the assessment was originally completed u/s.143(3) of the Act and assessee was allowed the deduction without referring to the reasons given by the A.O. in the present year. He submits that though subsequently the A.O. initiated the reassessment proceedings in the A.Y. 1991-92 by issuing the notice u/s.148 and the reason was that the assessee had claimed the excess deduction by enhancing the profit by not reducing the research and development expenditure of Rs.1,42,77,342/-, but issue of eligibility was never question. In the assessment order, the A.O. made the reference of the new expansion unit. The Ld. Sr. Counsel referred to page nos.21 to 24 of the paper book in which the copy of the assessment order dated 13.11.1997 is placed. He submits that in A.Ys. 1992-93 and 1993-94 in the original assessment orders were passed u/s.143(3) the claim u/s.80I was disallowed in respect of the fourth Unit of the Dispersant plant but not on the reason given by the A.O. in the A.Y. 2000-01. In the A.Y. 1995- 96 the assessee was denied the depreciation on the 4th (four) stage of the expansion of the Dispersant unit, but on appeal before the Ld. CIT (A) the assessee's claim was allowed. Copy of the order of the Ld. CIT (A) is placed at page nos.54 to 65 of the compilation. He submits that the denial of the deduction was for the first time in the A.Y. 1995-96 on the reason that the 4th stage of the expansion by increasing production capacity is not a new industrial unit. The Ld. Sr. Counsel submits that as the assessee has claimed the deduction for the first time in the A.Y. 1991-92 and as the A.O. has allowed the deduction then without withdrawing the deduction in the first year, he cannot keep withdrawing the deductions in subsequent years on the reason that Dispersant unit 4th stage expansion is not eligible for deduction u/s.80I. The Ld. Counsel placed heavy reliance on the following precedents:-
(i) CIT vs. Paul Brothers -216 ITR 548(Bom)(ii) Saurashtra Cement & Chemicals Industries Ltd. vs. CIT -123 ITR 669(Guj)(iii) Associated Cement Co. Ltd. -118 ITR 406 (Bom)
5. He further submits that on merit also the issue is covered in favour of the assessee in view of the decision of the Hon'ble jurisdictional High Court in the case of CIT vs. Associated Cement Co. Ltd. 118 ITR 406 in which, on the identical set of facts the deduction u/s.115C of the 1922 Act which was pari materia to the section 80J of 1961 of the I.T. Act was allowed. He, therefore, pleaded for allowing the deduction. We have also heard the Ld. D.R. who have supported the orders of the authorities below.
6. We find that the issue in controversy relates to the 4th stage of expansion of the Dispersant unit, which was commissioned in the Financial Year 1990-91, which increased production capacity by 4000 MTS. The assessee claimed the deduction u/s.80I for the first time in the A.Y. 1991-92. We have already given the facts in respect of the claim of deduction hereinabove. We find force in the arguments of the Ld. Counsel. For the first time in the A.Y. 1995-96 the A.O. was of the opinion that the expansion of the Dispersant unit of 4th stage made in 1991, was not eligible for deduction u/s.80I. In the original assessment order passed u/s.143(3) deduction was allowed though quantum of deduction was reduced. Subsequently, the A.O. reopened the said assessment for allowing excess deduction but that is for claiming the excess quantum. Nowhere the A.O. had reservation on the legality of the claim. In the case of of Paul Brothers (supra) principles are now well settled on the issue whether eligibility of deduction can be examined in subsequent years , if the deduction was granted in the initial assessment year? Then unless the deduction is withdrawn or rejected in the initial assessment year, the same cannot be withdrawn in the subsequent assessment years. It is pertinent to note here that in the case of Paul Brothers (supra) their Lordships have referred to the decision of the Hon'ble High Court in the case of Saurashtra Cement & Chemicals Industries Ltd. (supra). We are, therefore, of the opinion that denial of the deduction by the A.O. on the reason of the legality is totally misplaced. We, accordingly, allow the ground no.1 & 2 and direct the A.O. to allow the deduction claimed by the assessee. Accordingly, ground no.1 & 2 are allowed.
7. The next issue is disallowance of the expenditure towards the social obligations of Rs.4,59,278/-.
8. We have heard the parties. The Ld. Counsel submits that the issue is covered in favour of the assessee. We have also heard the Ld. D.R. We find that for the A.Y. 1992-93 in ITA 833/Mum/1996 order dated 29.12.2006; for the A.Ys. 1996-97 and 1997-98 in I.T.A. Nos. 2436 & 2437/Mum/2000 order dated 22.2.2007 the Tribunal has allowed the claim of the assessee. We, therefore, following the Tribunal's order in the assessee's own cases allow the claim of the assessee. Accordingly, ground no.3 is allowed.
9. Ground no.4 is in respect of disallowance of Excise duty of Rs.26,84,261/- under section 43B of the IT Act, 1961.
10. We have heard the parties. The only plea of the Ld. Sr. Counsel is that the issue may be set aside to the A.O. to verify, if the excise duty is paid before the due date of filing of the return then the A.O. be directed to allow the same. The Ld. D.R. has not objection to setting aside the issue. Accordingly, we restore ground no.4 to the file of the A.O. with the direction on that he should verify the whether the assessee has paid the excise duty before the due date of filing of the return for the A.Y. 2000-01 and if so allow the same as per the provisions of sec.43B. Accordingly, ground no.4 is allowed for statistical purposes.
11. Ground no.5 is in respect of inclusion of an amount of sale of waste oil / scrap drum of Rs.52,43,907/- in the total turnover for the purpose of computation of deduction u/s.80HHC.
12. We have heard the parties. The Ld. Counsel submits that in assessee's own case for the A.Y. 1996-97 the Tribunal has decided this issue in favour of the assessee. We find that in assessee's own case for the A.Y. 1996-97 (ITA no.2436/M/2000) order dated 22.02.2007, copy placed at page nos.141 to 152 of the compilation, the Tribunal has allowed the claim of the assesssee. But in view of the principles laid down in the case of K. Ravindranathan Nair 295 ITR 228 (SC) = (2007-TIOL-202-SC-IT) the sale of Waste Oil and Scrap has to be included in the total turnover for computing the deduction u/s.80HHC, as admittedly the said amount is also included in the profits of the business. We do not find any infirmity in the order of the Ld. CIT (A) and we accordingly confirm the same on this issue. Accordingly, ground no.5 is dismissed.
13. So far as ground nos.6 & 7, same are on exclusion of the entire interest income treating the same as income from other sources.
14. We have heard the parties. We find that this issue is covered against the assessee by the decision of the jurisdictional High Court in the case of CIT vs. Asian Star Co. Ltd. 362 ITR 56 = (2010-TIOL-238-HC-MUM-IT). We find no reason to interfere with the order of the Ld. CIT (A) on this issue and accordingly ground no.6 & 7 are dismissed.
15. The assessee has taken ground no.8 which reads as under:- "The learned CIT (A) erred in confirming the action of the Assessing Officer in excluding the 90% of following receipts while computing profits of the business for the purpose of deduction under section 80HHC of the IT Act 1961.
a) Sales tax Refund Rs. 7,04,064/-b) Miscellaneous Income Rs.44,57,000/-
16. We have heard the parties. So far as the sales-tax refund is concerned, in fact, the same will not form the part of the profit of the business nor it is part of the total turnover in view of the decision of the Hon'ble Supreme Court in the case of Lakshmi Machine Works 290 ITR 667 = (2007-TIOL-72-SC-IT). The refund has to be excluded from the profits of the business as it has nexus with element of tax. So far as miscellaneous income is concerned, that consist of (i) liquidated damages, rent and insurance claim. So far as liquidated damages is concerned, in A.Y. 1996-97 and A.Y. 1997-98 the Tribunal has restored the issue to the file of the A.O. for further consideration. We, therefore, following the directions of the Tribunal in the A.Y. 1996-97 and 1997-98 in the assessee's own case restore the issue of the liquidity damages to the file of the A.O.
17. So far as the issue of rent is concerned, we find that the same is decided against the assessee by the Tribunal in the A.Y. 1996-97 and 1997-98. We, accordingly, confirmed the order of the Ld. CIT (A) on the issue of the rent.
18. So far as receipt on account of insurance claim is concerned, the Ld. Counsel submits that it is covered in favour of the assessee by the decision of the jurisdictional High Court in the case of CIT vs. Pifzer Ltd. 330 ITR 62 (Bom) = (2010-TIOL-460-HC-MUM-IT). In the case Pifzer Ltd. (supra) the issue was in respect of insurance claim relating to the stock-in-trade. Their Lordships have held that the insurance claim on account of stock-intrade would not be subjected to the deduction of the 90% as per the Explanation (baa) to sec.80HHC. We, therefore, restore the issue to the file of the A.O. to decide whether the same relates to the stock-intrade and if it is so, the same should be allowed after examining this issue in the light of principles laid down in the case of Pifzer Ltd. (supra) . Needless to say the A.O. should give opportunity of being heard to the assessee. Accordingly, ground no.8 is partly allowed for the statistical purposes.
19. In the result, assessee's appeal is partly allowed for the statistical purposes.
(Order pronounced in the open court on 30.11.2011)
(DISCLAIMER: Though all efforts have been made to reproduce
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