D.C.I.T., Circle-12, Kolkata v. M/s. Gujarat NRE Coke Ltd
[Citation -2016-LL-0921-74]

Citation 2016-LL-0921-74
Appellant Name D.C.I.T., Circle-12, Kolkata
Respondent Name M/s. Gujarat NRE Coke Ltd.
Court ITAT-Kolkata
Relevant Act Income-tax
Date of Order 21/09/2016
Assessment Year 2004-05
Judgment View Judgment
Keyword Tags initiation of reassessment • reassessment proceedings • industrial undertaking • quantum of deduction • condition precedent • eligible business • change of opinion • reason to believe • source of income • export business • interest earned • interest income • issue of notice • ultra vires • customs act
Bot Summary: Recently, the Hon'ble Apex Court in the case of Liberty India vs. CIT reported in 317 ITR 218 has observed and held as under: Duty Drawback receipts and DEPB benefits do not form part of the net profits of eligible industrial undertakings for the purpose of the deduction under section 80-IA/80- IB of the Income Tax Act, 1961. Section 80-IB provides for the allowing of deduction in respect of profits and gains derived from the eligible business. Sub-section of section 80-IA (which is required to be read into section 80-IB provides for the manner of computation of the profits of an eligible business. Such profits are computed as if such eligible business is the only source of income of the assessee. Devices adopted to reduce or inflate the profits of the eligible business have to be rejected in view of the overriding provisions of section 80-IA. Section 80-I, 80IA and 80-IB provides incentives in the form of deductions which are linked to profits and not investment. Incentive Profits are not profits derived from eligible business under section 80-IB : they belong to the category of ancillary profits of such undertaking. If the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year.


IN INCOME TAX APPELLATE TRIBUNAL, BENCH C KOLKATA [Before Hon ble Shri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM ] ITA No.68/Kol/2014 Assessment Year : 2004-05 D.C.I.T., Circle-12, -versus- M/s. Gujarat NRE Coke Ltd. Kolkata Kolkata [PAN: AABCG 6225 H] (Appellant) (Respondent) For Appellant : Shri G.Mallikarjuna, CIT(DR) For Respondent : Shri Ravi Tulsiyan, FCA Date of Hearing : 04.08.2016 Date of Pronouncement : 21.09.2016. ORDER Per Dr.Arjun Lal Saini, AM captioned appeal filed by revenue pertaining to A.Y.2004-05, is directed against order passed by Commissioner of Income Tax (A)-XII, Kolkata in Appeal No.337/XII/12/11-12, dated 07.10.2013, which in turn arises out of order passed by Ld. Assessing Officer u/s 147/143(3) of Income Tax Act, 1961 (in short, Act), dated 14.11.2011. 2. facts of case are as stated in brief. Assessee had filed its return of income on 11.10.2004 declaring total income of Rs.22,10,62,757/-. order u/.s 143(3) was passed on 29.12.2006 with total income of Rs.28,21,61,830/-. Thereafter, Notice u/s 148 of Act was issued on 30.03.2011, after recording reasons for reopening. assessee company has claimed deduction u/s 80-IB of Act of Rs.10,14,76,091/- in respect of Khambalia unit and same was allowed during assessment proceedings. It was noticed later that said unit has other income of Rs.55,67,723/-, from interest and trading of raw coal. This income was not eligible for deduction u/s 80-IB of Act in light of decision in case of Pandian Chemicals P. Ltd. Vs CIT. Thus Rs.55,67,723 has escaped assessment and reassessment has been completed on 14/11/2011. Aggrieved from order of 2 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 reassessment U/s 147/148, assessee has filed appeal before Ld.Commissioner of Income Tax (Appeals)-XII. Kolkata, who has viewed reassessment to be invalid, and disallowance made by Assessing Officer has been deleted. Not being satisfied with order of ld CIT (A), Revenue is in appeal before us. grounds of appeal taken by revenue read as follows :- 1.That on facts and in circumstances of case and as per Ld. CIT(A) erred in declaring proceedings u/s 147 of I.T.Act, as in invalid proceedings. 2. That on facts and in circumstances of case and as per law Ld. CIT(A) erred in interpreting facts and circumstances of 80-IB wrongfully claimed by assessee as change in opinion. 3. main grievance of revenue is that ld. CIT(A) has erred in declaring proceedings u/s 147 of Act, as invalid proceedings. As per revenue proceedings initiated by AO u/s 147 of Act is valid re-assessment proceedings. Notice u/s 148 of Act was issued on 30.03.2011, after recording reasons for reopening. assessee company has claimed deduction u/s 80-IB of Act of Rs.10,14,76,091/- in respect of Khambalia unit and same was allowed during assessment proceedings. It was noticed later that said unit has other income of Rs.55,67,723/-, from interest and trading of raw coal. This income was not eligible for deduction u/s 80-IB of Act in light of decision in case of Pandian Chemicals P. Ltd. Vs CIT. Thus Rs.55,67,723 has escaped assessment. Based on above reasons recorded for reopening ld. AO made addition observing followings :- 6.However contention of assessee is not accepted. other income of Rs.55,67,723/- is from interest and trading of raw coal. It is clear that deduction u/s 801 B is not allowable on interest income and trading of raw coal because these receipts cannot be treated as profit and gains derived from business referred to in sub-section (1) of section 801B. Chapter VI-A provides for incentives in form of tax deduction essentially belong to category of 'profit linked incentives'. Therefore, when sec. 80lA refers to profits derived from eligible business, it is not ownership of that business which attracts incentives. What attracts incentives u/s 80-lB is generation of profits (operational profit). It is evident that section 80IB provides for allowing deduction in respect of profits and gains derived from eligible business. words 'derived from' are narrower in connotation as compared to words 'attributable to'. In other words, by using expression 'derived from', Parliament intended to cover sources not beyond first degree. In case of assessee company, it has earned income on account of interest and trading of raw coal, which cannot be treated as receipts of first degree. May be, these receipts are profits attributable to Industrial 3 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 Undertaking or enterprise but quantum of deduction specified u/s. 80-IB is restricted only to profits derived from Industrial Undertaking. Basically, in actual, receipts credited by assessee on account of interest and trading of raw coal, belonged to category of ancillary profits of undertaking. In case of CIT vs Menon Impex Pvt Ltd reported in 259 ITR 403 (Mad), it was held by Hon'ble Madras High Court that interest received by assessee was on deposits made by it in banks. It is that deposit which is source of income. mere fact that deposits made was for purpose of obtaining letters of credit which in turn used for purpose of business of Industrial Undertaking does not establish direct nexus between interest and Industrial Undertaking. similar view was taken by Hon'ble Madras High Court in case of India Comnet International reported in 304 ITR 322. In this case assessee received export proceeds and same was deposited in bank and income was derived from said deposit. It was held by Hon'ble High Court that there was no direct nexus between interest and Industrial Undertaking. In case of Shri Ram Honda Power Equipment reported in 289 ITR 475 it was held by Hon'ble Delhi High Court that interest earned on fixed deposits for purpose of availing credit facilities from bank, does not have immediate nexus with export business and therefore, has to necessarily be treated as income from other sources and not business income. Recently, Hon'ble Apex Court in case of Liberty India vs. CIT reported in 317 ITR 218 (SC) has observed and held as under: "Duty Drawback receipts and DEPB benefits do not form part of net profits of eligible industrial undertakings for purpose of deduction under section 80-IA/80- IB of Income Tax Act, 1961. Income Tax Act, 1961, broadly provides for two types of tax incentives, viz. investment-linked incentives and profit-linked incentives. Chapter VIA of Act which provides for incentives in form of deductions essentially belongs to category of "profit-linked incentives". Therefore, when section 80-IA/80-IB refers to profits derived from eligible business, it is not ownership of that business which attracts incentives: what attracts incentives under section 80-IA/80-IB is generation of profits (operational profits). It is for this reason that Parliament has confined deduction of profits derived from eligible business mentioned in sub-section (3) to (11 A) constitutes stand-alone item in matter of computation of profits. Sections 80-IB and 80-IA are code by themselves as they contain both substantive as well as procedural provisions. Section 80-IB provides for allowing of deduction in respect of profits and gains derived from eligible business. connotation of words "derived from" is narrower as compared to that of words "attributable to". By using expression "derived from" Parliament intended to cover sources not beyond first degree. Sections 80-I, 80-IA and 80-IB are to be read as having common scheme. Sub-section (5) of section 80-IA (which is required to be read into section 80-IB provides for manner of computation of profits of eligible business. Such profits are computed as if such eligible business is only source of income of assessee. Therefore, devices adopted to reduce or inflate profits of eligible business have to be rejected in view of overriding provisions of section 80-IA (5). Section 80-I, 80IA and 80-IB provides incentives in form of deductions which are linked to profits and not investment. On analysis of sections 80-IA and 80-IB it becomes clear that any Industrial Undertaking which becomes eligible on satisfying sub-.section (2) would be entitled to deduction under sub-section (1) only to extent of profits 4 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 derived from such industrial undertaking after specified date. Apart from eligibility, sub-section (1) purports to restrict quantum of deduction to specified percentage of profits. This is importance of words "derived from industrial undertaking" as against "profits attributable to industrial undertaking". DEPB/ Duty drawback are incentives which flow from schemes framed by Central Government or from section 75 of Customs Act, 1962. Incentive Profits are not profits derived from eligible business under section 80-IB : they belong to category of ancillary profits of such undertaking. Profits derived by way of incentives such as DEPB/ Duty drawback cannot be credited against cost of manufacture of goods debited in profit and loss account and they do not fall within expression "profits derived from industrial undertaking" under section 80-IB." In view of above, on careful consideration of facts and in law, it is clear that other income in form of interest and trading of raw coal, credited by assessee in its profit and loss account cannot be treated as "derived from" industrial undertaking on similar analogy and principal laid down by Hon'ble Supreme Court in case of Liberty India (supra), it can be concluded that other income in nature of interest and trading of raw coal, are not profits derived from eligible business u/s 80- IB. They belong to category of ancillary profits of such undertaking. Hence deduction of amount RS.55,67,723/- is withdrawn. 4. Aggrieved from order of ld. AO assessee filed appeal before ld. CIT(A)-XII, Kolkata, who has deleted addition made u/s 147 of Act observing followings :- In case of CIT v. Kelvinator India Ltd. (2010) 187 Taxman 312 (SC), Apex Court has observed that prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions. viz .. if (a) ITO had reason to believe that, by reason of omission or failure on part of assessee to make return under section 139 for any assessment year to ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. fulfillment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 with effect from 1-4-1989 those conditions are given go-by and only one condition has remained, viz., where Assessing Officer has reason to believe that income has escaped assessment, section confers jurisdiction to reopen assessment. Therefore, post 1-4-1989, power to re-open is much wider. However, one needs to give schematic interpretation to words 'reason to believe', failing which section 147 would give arbitrary powers to Assessing Officer to reopen assessments on basis of 'mere change of opinion', which cannot be per se reason to reopen. One must also keep in mind conceptual difference between power to review and power to reassess, but reassessment has to be based on fulfillment of certain pre-conditions and if concept of 'change of opinion' is removed as contended on behalf of department, then in grab of reopening assessment, review would take place. One must treat concept of 'change of opinion' as in-built test to check abuse of power by Assessing Officer. Hence, after 01.04.1989, Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under Direct Tax Laws (Amendment) Act, 1987, 5 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 Parliament not only deleted words 'reason to believe' but also inserted word 'opinion' in section 147. However, on receipt of representations from companies against omission of words, 'reason to believe', Parliament re- introduced said expression and deleted word 'opinion' on ground that it would vest arbitrary powers in Assessing Officer. In earlier decision in case of ITO v. Nawab Mir Barkat AIi Khan Bohodut (1974) 97 ITR 239 (SC), Hon'ble Supreme Court has held that "having second thoughts on same material, and omission to draw correct legal presumption during original assessment do not warrant initiation of proceeding under section 147" 5.1.5 In view of facts of case and emerging legal position, I am of considered view that condition precedent for issue of notice under sec. 148 of Act is not fulfilled in this case. Evidently, escapement of income has not been or account of any omission or failure on part of appellant to disclose fully and truly, all material facts relevant for assessment. It is also clear that initiation of reassessment proceedings in present case by Assessing Officer being merely or basis of change of opinion was not permissible under sec. 147 read with section 148 of Act and such re-assessment proceedings are invalid. These grounds of appeal are allowed accordingly. Not being satisfied with order of ld. CIT(A), revenue is in appeal before us. 5. ld. Departmental Representative for revenue has primarily reiterated stand taken by AO which we have noted already in our earlier para, therefore same is not being repeated for sake of brevity. 6. On other hand, ld. Counsel for assessee has submitted that there is no escapement of income on account of any omission or failure on part of assessee to disclose fully and truly all material facts for assessment. ld. AR submitted that initiation of re-assessment proceedings in present case by AO is being merely on basis of change of opinion which is not permissible u/s 147 r.w.s. 148 of Act., AO in this case did not find any tangible material. Besides reopening has been done in this case after four years where assessee has disclosed fully and truly all material facts at time of original assessment. Therefore it is not valid reassessment but it is merely change of opinion. assessee has used same material which was available to him at time of original assessment. He did not find any new material to reopen assessment u/s 147 of Act. This way, ld. AR for assessee has strongly defended order passed by ld. CIT(A). 6 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 7. Having heard rival submissions we are of view that there is merit in submissions of ld. AR for assessee as he has submitted that it is not case of any omission or failure on part of assessee to disclose fully and truly all material facts relevant for assessment at time of original assessment. assessee has submitted that all documents and evidences at time of original assessment. AO did not find any new material and any tangible material to establish that there is escapement of income. He has used same material which was available to him at time of original assessment proceedings. Therefore it is kind of review of order made by him. If AO does review of his order himself then it is ultra vires, which is not permissible under law. ld. AR also relied on case law submitted before ld. CIT(A). Based on above factual position and case law cited above we confirm order of ld. CIT(A). 9. In result, appeal filed by revenue is dismissed. Order pronounced in court on 21.09.2016. Sd/- Sd/- [N.V.Vasudevan] [Dr.Arjun Lal Saini] Judicial Member Accountant Member Date: 21.09.2016. R.G.(.P.S.) Copy of order forwarded to: 1. M/s. Gujarat NRE Coke Ltd., 22, camac Street, Block-C, 5th Floor, Kolkata-700016. 2 D.C.I.T., Circle-12, Kolkata. 3. CIT(A)-XII, Kolkata 4. CIT-IV, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. True Copy, By order, Deputy /Asst. Registrar, ITAT, Kolkata Benches 7 ITA No.68/Kol/2014 M/s. Gujarat NRE Coke Ltd.. A..Y.2004-05 D.C.I.T., Circle-12, Kolkata v. M/s. Gujarat NRE Coke Ltd
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