IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH JAIPUR Jh BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 769/JP/2018 Assessment Year :2012-13 M/s Safeflex International Ltd cuke ITO, Jaipur Vs. Ward-6(3), Jaipur.PAN/GIR No.: AAJCS7201D.Appellant Respondent. Assessee by : Shri Rajeev Sogani (CA) Revenue by : Shri Varindar Mehta (CIT) lquokbZ dh rkjh[k@ Date of Hearing 30/07/2019 Date of Pronouncement: 22/08/2019. ORDER PER: VIKRAM SINGH YADAV, A.M. This is appeal filed by assessee against order of ld. CIT(A)-2, Jaipur dated 26.03.2018 for Assessment Year 2012-13 wherein assessee has taken following grounds of appeal: 1. In facts and circumstances of case and in law, ld. CIT(A) has erred in, confirming action of ld. AO of invoking provisions of section 154, thereby rectifying assessment order passed u/s 143(3) of Income Tax Act, 1961. action of ld. CIT(A) is illegal, unjustified, arbitrary and against facts of case. Relief may please be granted by quashing rectification order being illegal, beyond scope and without any basis. 2. In facts and circumstances of case and in law, ld. CIT(A) has erred in, confirming action of ld. AO, in assessing alleged book profits of Rs. 6,83,86,428/- and applying MAT ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur provisions u/s 115JB. action of ld. CIT(A) is illegal, unjustified, arbitrary and against facts of case. Relief may please be granted by quashing rectification order applying MAT provisions u/s 115JB. 2. Briefly stated, facts of case are that assessee filed its return of income declaring total income of Rs. 9,39,290/- and also claimed exemption u/s 10AA in respect of its unit situated at Pithampur, District. Dhar (M.P) which is engaged manufacturing and export of Polyethylene & Polypropylene Bags which are generally used for transportation of goods. assessment u/s 143(3) was completed by Assessing Officer by passing order u/s 143(3) dated 28.02.2015 wherein deduction u/s 10AA amounting to Rs. 5,67,17,090/- has been allowed to assessee and total income finally assessed comes to Rs. 15,64,483/-. Subsequently, notice u/s 154 was issued to assessee on 17.05.2016 stating that on perusal of assessment records, it reveals that assessee was liable to pay tax of Rs. 1,36,82,585/- u/s 115JB on book profit of Rs. 6,83,86,428/- which was inadvertently not charged at time of assessment u/s 143(3) dated 28.02.2015. Accordingly, order u/s 143(3) was rectified u/s 154 dated 01.06.2016 and book profit u/s 115JB determined at Rs. 6,83,86,428/- was brought to tax, same being higher than income assessed under normal provisions of Act. 3. Being aggrieved, assessee carried matter in appeal before ld. CIT(A). As per ld. CIT(A), with effect from assessment year 2012-13, provisions of section 115JB was made applicable to SEZ unit vide sub section (6) and proviso thereto. It was held that for relevant assessment year, MAT was chargeable on appellant company and not tax under normal provisions of Act and accordingly, action of AO in rectifying assessment order u/s 154 was upheld following order of Hon ble 2 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur Karnataka High Court in case of CIT vs Sankala Polymers [2012] 20 taxmann.com 378 and decision of Coordinate Bench in case of S.I.J Chains (P) ltd vs ACIT, Jalandhar 100 ITD 379 (Asr). Against said finding of ld. CIT(A), assessee is now in appeal before us. 4. During course of hearing, ld. AR submitted that assessee company started its operation in AY 2008-09 and from first year claimed exemption u/s 10AA of IT Act. year under consideration is, therefore, 5th year of claiming exemption u/s 10AA of IT Act. provisions of section 10AA exempts 100% of profits and Gains derived from exports, in first five years of claim. Therefore, income of assessee company, in year under consideration is 100% exempt as per provisions of section 10AA of IT Act, 1961. 5. It was further submitted that action of Lower authorities of bringing entire income under purview of provisions of section 115JB, ignoring provisions of section 115JB(5), is illegal. It is pertinent to mention that prior to insertion of section 115JB, section 115J was in operation which provided for special rate of taxation on Book Profits. Section 115J did not provide in any of its sub-sections that all other provisions of Act shall apply to every assessee company. However, in section 115JA (which was in operation after section 115J), by way of sub-section (4), legislature provided that other provisions of Act shall apply and even under prevailing section i.e. section 115JB, by way of sub-section (5) it has been provided as under: Section 115JB(5): Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being company, mentioned in this section. 3 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur 6. Further, ld AR placed reliance on following judicial pronouncements: CIT vs. Metal & Chromium Plater (P.) Ltd. [2016] 76 taxmann.com 229 (Madras) Sutlej Cotton Mills Ltd. Vs. ACIT [1993] 45 ITD 22 (SB) ACIT vs. Shree Cement Ltd. ITA No. 614, 615 & 635/JP/2010 JSW Steel Ltd. Vs. ACIT [2017] 82 taxmann.com 210 Neha Home Builders (P.) Ltd. Vs. CIT (2018) 92 taxmanncom 102 (Mumbai-Trib.) dated 22nd January 2018 Binani Industries Ltd., Kolkata vs. Department of Income Tax ITA No. 144/Kol/2013 7. It was submitted that above judicial decisions prove beyond doubt that even if eligible exemption u/s 10AA is not finding mentioned in explanation 1 for deduction from profits shown as per profit and loss account. same is eligible and therefore not liable for MAT. 8. It was further submitted that decisions relied upon ld. CIT(A) are distinguishable on facts and therefore should not be applied in instant case. It was further submitted that issue under consideration is whether undertaking which is claiming its 100% of profits and gains derived from exports as exempt u/s 10AA will be liable to pay tax on entire book profit as per provisions of section 115JB or not. It was submitted that action of AO which was confirmed by ld. CIT(A) in taxing that portion of assessee s income which was exempt u/s 10AA under provisions of section 115JB is bad in law and therefore, deserves to be quashed. 9. It was further submitted that whether income which was otherwise exempt can be charged to tax u/s 115JB is debatable issue and is beyond 4 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur scope of rectification u/s 154 of Act. In support, reliance was placed on Hon ble Supreme Court decision in case of ITO vs. Volkart Brothers [1971] 82 ITR 50 (SC). It was submitted that various judicial decisions referred above make it clear that although decisions have been rendered in favour of assessee companies yet controversy had to be resolved by long drawn reasoning by various judicial forums. This very aspect makes issue beyond scope of rectification u/s 154 of Act. 10. ld. DR is heard who has relied on finding of lower authorities and submitted that provisions of section 115JB are very clear and sub section (6) along with proviso thereto makes its clear that MAT provisions are applicable to assessee company from A.Y 2012-13 onwards and there is no basis for assessee to claim exemption as per provisions of sub-section (5) of section 115JB of Act. He accordingly supported findings of lower authorities. 11. Heard both parties and perused material available on record. assessment year involved is 2012-13 and issue under consideration is whether MAT provisions contained in Section 115JB are applicable to assessee company which is eligible for Section 10AA benefit. relevant provisions of Section 115JB reads as under: (6) provisions of this section shall not apply to income accrued or arising on or after 1st day of April, 2005 from any business carried on, or services rendered, by entrepreneur or Developer, in Unit or Special Economic Zone, as case may be: 5 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur Provided that provisions of this sub-section shall cease to have effect in respect of any previous year relevant to assessment year commencing on or after 1st day of April, 2012. 12. proviso to sub-section (6) to section 115JB was introduced by Finance Act, 2011 and CBDT vide Circular No. 2/2012, dated 22-5-2012 has explained said amendment which reads as under: 19. Provisions relating to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) in case of Special Economic Zones 19.1.1 Under existing provisions of section 10AA, deduction of hundred per cent is allowed in respect of profits and gains derived by unit located in Special Economic Zone (SEZ) from export of articles or things or from services for first five consecutive assessment years; of fifty per cent for further five assessment years; and thereafter, of fifty per cent of ploughed back export profit for next five years. 19.1.2 Further, under section 80-IAB. deduction of hundred per cent is allowed in respect of profits and gains derived by undertaking from business of development of SEZ notified on or after 1st April, 2005 from total income for any ten consecutive assessment years out of fifteen years beginning from year in which SEZ has been notified by Central Government. 19.1.3 Under existing provisions of sub-section (6) of section 115JB, exemption is allowed from payment of minimum alternate tax (MAT) on book profit in respect of income accrued or arising on or after 1st April, 2005 from any business carried on, or services rendered, by 6 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur entrepreneur or Developer, in Unit or Special Economic Zone (SEZ), as case may be. 19.1.4 Further, under existing provisions of sub-section (6) of section 115-O, exemption is allowed from payment of tax on distributed profits [Dividend Distribution Tax (DDT)] in respect of total income of undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after 1st April, 2005 out of its current income. Such distributed income, in hands of recipient, is also exempt from tax under sub-section (34) of section 10 of Act. 19.1.5 above provisions were inserted in Income-tax Act by Special Economic Zones Act, 2005 (SEZ Act) with effect from 10th February, 2006. 19.2.1 There was no sunset date provided for exemption from MAT in case of entrepreneur or Developer, in Unit or SEZ or from DDT in case of undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining SEZ. 19.2.2 availability of exemption from minimum alternate tax in case of SEZ Developers and units in SEZs has now been sunset in Income Tax Act as well as SEZ Act and provisions of section 115JB(6) will cease to have effect from 1-4-2012. 7 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur 19.2.3 Applicability - These amendments take affect from 1st April, 2012 and will accordingly apply in relation to assessment year 2012-13 and subsequent years. 13. It is thus seen that Special Economic Zones Act, 2005 had initially inserted sub-section (6) in section 115JB of Act to provide that provisions of section 115JB shall not apply to income accrued or arising on or after 1-4-2005 from any business carried on, or services rendered, by entrepreneur in unit of SEZ or developer of SEZ. Thus, company carrying on specified business in unit in SEZ or as developer of SEZ was not liable to pay MAT on profits derived from said business. However, Finance Act, 2011 brought-in sunset clause and inserts proviso to sub- section (6) to provide that, with effect from 1-4-2012, provisions of sub- section shall cease to have effect. Accordingly, SEZ developer or any entrepreneur carrying on business in SEZ unit (being company) would be liable to pay MAT on profits arising from development of SEZ or business carried on in SEZ unit with assessment year 2012-13 and onwards. 14. In instant case, it is not in dispute that assessee carries on its business in SEZ Unit and its income will therefore be subject to provisions of Section 115JB of Act. On bare reading of provisions of sub- section (6) to section 115JB, it is crystal clear that provisions of section 115JB will apply to assessee company for assessment year beginning assessment year 2012-13 onwards. Therefore, while passing assessment order u/s 143(3), where Assessing officer has forgot to invoke provisions of section 115JB of Act, matter clearly falls within purview of section 154 of Act and same can be rectified as mistake apparent from record. 8 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur 15. Now, coming to another contention of ld AR that in view of sub- section (5) to section 115JB of Act, entire income of assessee cannot be brought to tax under Section 115JB given that income of assessee company is exempt as per provisions of section 10AA of Act. In this regard, we refer to sub-section (5) to section 115JB of Act which reads as under: (5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being company, mentioned in this section. 16. above provisions thus provide that all other provisions of this Act shall apply to assessee company subject to any thing otherwise provided in or barred by section 115JB of Act. said provisions have been explained in CBDT Circular No. 13 of 2001 where it was stated as under: 2. Instances have come to notice of Board that large number of companies liable to tax under new MAT provisions of section 115JB are not making advance tax payments. It may be emphasised that new provision of section 115JB is self-contained code. Sub-section (1) lays down manner in which income-tax payable is to be computed. Sub-section (2) provides for computation of "book profit". Sub-section (5) specifies that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being company mentioned in that section. In other words, except for substitution of tax payable under provision and manner of computation of book profits, all provisions of tax including provision relating to charge, definitions, recoveries, payment, assessment, etc., would apply in respect of provisions of this section. 9 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur 17. In sub-section (6) to section 115JB, as we have noted above, it has been specifically provided that income accruing or arising from business carried on by assessee company in its SEZ Unit shall be subject to MAT provisions for assessment year beginning 2012-13 onwards. Therefore, provisions of sub-section (5) is subject to provisions of sub-section (6) of section 115JB and reading both provisions harmoniously, it is clear that income of assessee company shall be subject to provisions of MAT under section 115JB of Act. 18. sub-section (5) to section 115JB has also been subject matter of interpretation by Courts and it would be relevant to refer to these decisions which have been brought to our notice during course of arguments by ld AR. In case of CIT vs Metal & Chromium Plater (P) Ltd (Supra), issue for consideration before Hon ble Madras High Court was whether claim under section 54EC for computing capital gains can be allowed while computing book profits as per section 115JB of Act. In that context, Hon ble Madras High Court has held that section 115JB is self-contained code of assessment and levy of tax is on book profits after effecting various adjustments as set out in terms of explanation thereto. It was further held that provisions of sub-section (5) of section 115JB open assessment to application of all other provisions contained in Income Tax Act except specifically barred by that section itself. It was accordingly held that section 115JB admits grant of relief under section 54EC of Act. In instant case, assessee company is eligible for relief under Section 10AA of Act however sub-section (6) specifically provides that MAT provisions continue to apply to assessee company beginning assessment year 2012-13 onwards. In other words, application of other provisions of Act as so provided in sub-section (5) has been barred by virtue of sub-section (6) to section 115JB of Act. Therefore, this decision of Hon ble Madras High 10 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur Court doesn t support case of assessee company rather our reading of provisions of sub-section (5) to section 115JB has been fortified by this decision. 19. In case of Neha Home Builders (P) Ltd vs CIT (Supra), issue for consideration before Co-ordinate Bench was whether ld CIT has jurisdiction to issue directions u/s 263 of Act to Assessing officer not to allow deduction u/s 80IB(10) while computing book profits u/s 115JB of Act. In that context, referring to provisions of sub-section (5) to section 115JB, it was held that where income is not taxable in view of section 80IB(10), same has to be excluded while computing book profits. In instant case, it is no doubt true that income of assessee company is eligible for benefit u/s 10AA of Act, however, on combined reading of provisions of sub-section (5) and (6) of section 115JB, no adjustment can be made to book profits as MAT provisions have been specifically made applicable to assessee company in respect of its income from business carried on in its SEZ Unit for assessment year 2012-13 and onwards. Therefore, this decision of Co-ordinate Bench doesn t support case of assessee company. 20. We have also gone through other decisions relied upon by ld AR. However, we find that these decisions are distinguishable mainly for reason that in none of these decisions, provisions as contained in sub-section (6) to section 115JB have been examined and/or discussed which clearly provides that MAT provisions will be applicable to income from business carried on by assessee company in its SEZ unit. Therefore, in view of specific provisions so contained in sub-section (6) of section 115JB, these decisions doesn t support case of assessee company. 11 ITA No. 769/JP/2018 M/s Safeflex International Limited, Jaipur Vs. ITO, ward 6(3), Jaipur 21. In light of above discussions and in entirety of facts and circumstances of case, we affirm order of ld CIT(A) and matter is decided in favour of Revenue and against assessee company. In result, appeal of assessee is dismissed. Order pronounced in Open Court on 22/08/2019. Sd/- Sd/- (Vijay Pal Rao) (Vikram Singh Yadav).Judicial Member Accountant Member Jaipur Dated:- 22/08/2019 Ganesh Kr.Copy of order forwarded to:1. Appellant- M/s Safeflex International Ltd., Jaipur 2. Respondent- ITO, Ward- 6(3), Jaipur 3. Dr@ CIT 4. CIT(A) 5. ] DR, ITAT, Jaipur. 6. Guard File {ITA No. 769/JP/2018} By order, Asst. Registrar 12 Safeflex International Ltd. v. ITO, Ward-6(3), Jaipur