International Flavours and Fragrances India Private Limited v. The Deputy Commissioner of Income-tax, Large Taxpayer Unit-II, Chennai
[Citation -2020-LL-0519-14]

Citation 2020-LL-0519-14
Appellant Name International Flavours and Fragrances India Private Limited
Respondent Name The Deputy Commissioner of Income-tax, Large Taxpayer Unit-II, Chennai
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 19/05/2020
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags export promotion industrial park • infrastructure development • manufacturing activity • eligible for exemption • process of manufacture • benefit of deduction • benefit of exemption • escaped assessment • change of opinion • full and true disclosure • reopening of assessment
Bot Summary: In these Writ Petitions, the petitioner has challenged the impugned notices dated 30.03.2015 30.03.2016 issued by the respondent under Section 148 of the Income Tax Act, 1961, to re-open the completed assessments for the Assessment Years 2009-10 and 2010- 11 and consequential impugned communications dated 14.12.2015 and 28.11.2016 for the respective Assessment Years. The respondent has however issued the impugned notice dated 30.03.2016 under Section 148 of the Income Tax Act, 1961 to the petitioner, to re-open the Assessment Year 2010-11. The petitioner replied to the same and asked the respondent for reasons to reopen the assessment vide letter dated 28.04.2015. The petitioner submitted its objections against the reasons of the re-opening the assessment vide letter dated 21.07.2015. The petitioner obtained an interim stay in this Writ Petition on 08.01.2016. In the impugned communications dated 14.12.2015 and 28.11.2016, the respondent has not denied that the petitioner had truly and fully disclosed all the materials that were required for completing the assessments. The respondent is however precluded from disturbing the deductions allowed to the petitioner in the respective assessment orders under Section 80IB of the Income Tax Act, 1961.


W.P.Nos.309 & 44102 of 2016 IN HIGH COURT OF JUDICATURE AT MADRAS Reserved On 10.02.2020 Pronounced On 19.05.2020 CORAM HON'BLE MR.JUSTICE C.SARAVANAN W.P.Nos.309 & 44102 of 2016 and W.M.P.Nos.205 & 37910 of 2016 and 31025 & 31026 of 2019 M/s. International Flavours and Fragrances India Private Limited, 1-5, Seven Wells Street, St. Thomas Mount, Chennai 600 016. ... Petitioner in both W.Ps. Vs. Deputy Commissioner of Income-tax, Large Taxpayer Unit II, 1775, Jawaharlal Nehru Inner Ring Road, Anna Nagar Western Extension, Chennai 600 101. ...Respondent in both W.Ps. Writ Petitions filed under Article 226 of Constitution of India praying to issue Writ of Certiorari, to call for records of respondent and quash impugned notices under Section 148 of Act, 1961 in AAACB1376K dated 30.03.2015 & 30.03.2016 and consequential impugned orders of respondent in http://www.judis.nic.in Page No 1 of 20 W.P.Nos.309 & 44102 of 2016 AAACB1376K/DCIT, LTU-II/15-16 and AAACB1376K/147/16-17 dated 14.12.2015 & 28.11.2016 for Assessment Years 2010-11 & 2009-10 respectively. For Petitioner : Mr.Sandeep Bagmar R in both W.Ps. For Respondent : M/s. Hema Muralikrishnan, Standing Counsel, in both W.Ps. COMMON ORDER By this common order both Writ Petitions are being disposed. 2. In these Writ Petitions, petitioner has challenged impugned notices dated 30.03.2015 & 30.03.2016 issued by respondent under Section 148 of Income Tax Act, 1961, to re-open completed assessments for Assessment Years 2009-10 and 2010- 11 and consequential impugned communications dated 14.12.2015 and 28.11.2016 for respective Assessment Years. 3. By impugned notices/communications, respondent has rejected objections of petitioner as not tenable to re-open ____________ http://www.judis.nic.in Page No 2 of 20 W.P.Nos.309 & 44102 of 2016 assessments and held that proceedings have been validly initiated under Section 148 of Income Tax Act, 1961. 4. brief facts of cases are that petitioner is engaged in manufacture of flavour essences, mixed seasoning powders (dry mix) and formulated perfumery compounds etc. petitioner started new manufacturing unit in State of Jammu & Kashmir in year 2007 after obtaining all necessary registrations and approvals with installed capacity of 5000 MT per annum. petitioner has claimed deduction under Section 80IB of Income Tax Act, 1961. In this regard, respondent had specifically asked for details of new undertaking vide separate notices dated 30.11.2012 and 06.12.2012 for Assessment Year 2009-2010. petitioner replied to same vide separate letters dated 19.02.2013. 5. By another notice dated 23.01.2014, respondent further sought few more details regarding new undertaking from petitioner for Assessment Year 2010-2011. petitioner also replied to same. Subsequently, respective assessment orders dated http://www.judis.nic.in Page No 3 of 20 W.P.Nos.309 & 44102 of 2016 26.02.2013 & 28.02.2014 were passed. W.P.No.309 of 2016 Assessment Year 2010-2011 6. respondent has however issued impugned notice dated 30.03.2016 under Section 148 of Income Tax Act, 1961 to petitioner, to re-open Assessment Year 2010-11. petitioner replied to same and asked respondent for reasons to reopen assessment vide letter dated 28.04.2015. By communication dated 07.05.2015, respondent has given reasons for re-opening assessment. petitioner submitted its objections against reasons of re-opening assessment vide letter dated 21.07.2015. respondent has thereafter issued impugned communication dated 14.12.2015. In impugned communication, respondent has observed that Assessing Officer has not examined issue or formed opinion and since no opinion was formed, change of opinion cannot be said to exist or arise. http://www.judis.nic.in Page No 4 of 20 W.P.Nos.309 & 44102 of 2016 7. Aggrieved by same, W.P.No.309 of 2016 was filed by petitioner. petitioner obtained interim stay in this Writ Petition on 08.01.2016. W.P.No.44102 of 2016 Assessment Year 2009-2010 8. During pendency of proceedings in W.P.No.309 of 2016, respondent issued impugned notice dated 30.03.2015 under Section 148 of Income Tax Act, 1961, to re-open assessment for Assessment Year 2009-2010. In this connection also communications were exchanged. reasons for re-opening assessment were communicated vide communication dated 26.08.2016. petitioner filed its objections dated 09.09.2016 which has culminated in impugned communication dated 28.11.2016 of respondent. respondent has overruled objection of petitioner with similar reasons. 9. Aggrieved by same, petitioner has been filed W.P.No.44102 of 2016. ____________ http://www.judis.nic.in Page No 5 of 20 W.P.Nos.309 & 44102 of 2016 10. Heard learned counsel for petitioner and learned standing counsel for respondent. 11. reasons for re-opening assessment for respective Assessment Years are similar. Communication dated 26.08.2016 of respondent issued for Assessment Year 2009-2010 is succint. It reads as under:- As per return of income filed by assessee for AY 2009-10, assessee has claimed deduction u/s. 80IB(4) for sum of Rs.8,70,83,000. From details submitted by assessee, it was ascertained that, assessee company has claimed deduction in respect of profit from undertaking at Jammu and Kashmir. assessee is in business of preparing Mixed Seasoning powders (dry mix). Liquid flavours and formulated perfumery compounds, commission u/s. 131(1)(d) was issued to ACIT, Circle I, Jammu to examine facts as applicable to claim made u/s 80IB(4). report was received on 12.03.2015 as per which it was ascertained that assessee is carrying out process of blending and mixing various natural ingredients to prepare dry mix powders and liquid flavours. Since activity carried out by assessee do not amount to manufacture, hence claim made by assessee u/s 80IB(4) should be disallowed and brought to tax. ____________ http://www.judis.nic.in Page No 6 of 20 W.P.Nos.309 & 44102 of 2016 12. reasons given in communication dated 07.05.2015 for re- opening assessment for Assessment Year 2010-2011 is little more elaborate. It would suffice to re-produce following paragraph from communication dated 07.05.2015:- As per definition of manufacture u/s. 2(29BA), transformation in article should result in different name, character and use. In present case, mixing of these raw materials does not change character and use of product. Since, even raw material being various powders (flavours) are commercially saleable and consumable, utilization and character do not change. 13. conjoint reading of two extracted portions give reason for exercise undertaken by respondent. 14. I have heard learned counsel for petitioner and learned standing counsel for respondent. I have also perused records and documents produced before me. 15. impugned communications dated 28.11.2016 and 14.12.2015 for respective Assessment Years issued in light of ____________ http://www.judis.nic.in Page No 7 of 20 W.P.Nos.309 & 44102 of 2016 decision of Hon ble Supreme Court in GKN Drive Shafts (India) Ltd Vs. ITO, (2003) 259 ITR 19 are neither order nor Show Cause Notice and therefore has given rise to present Writ Petitions. 16. petitioner has set up its manufacturing unit in erstwhile State of Jammu and Kashmir in year 2007. petitioner had availed benefit of Exemption Notification No.56/2002-CE dated 14.11.2002 as amended by Notification No.34 of 2008-CE dated 10.06.2008. 17. Chapter 21 of Central Excise Tariff Act, 1985 deals with Miscellaneous Edible Preparations. In relation to products following under aforesaid tariff labeling or relabeling of containers or repacking from bulk packs to retail packs or adoption of any other treatment to render product marketable to consumer, also amounts to Manufacture . 18. Heading 2103 of Central Excise Tariff Act, 1985specifically deals with sauces and preparations therefor, mixed Condiments and Mixed Seasonings; Mustard Flour and Meal and Prepared Mustard. Sub- ____________ http://www.judis.nic.in Page No 8 of 20 W.P.Nos.309 & 44102 of 2016 heading 2103 90 40 --- deals with Mixed, condiments and mixed Seasoning. relevant Heading and Sub- heading are reproduced below. 2103 Sauces and preparations therefor, mixed Condiments and Mixed Seasonings; Mustard Flour and Meal and Prepared Mustard. 2103 10 00 - ............... 2103 20 00 - ............... .......... 2103 90 40 --- Mixed, condiments and mixed seasoning. 19. Similarly, Chapter 33 Central Excise Tariff Act, 1985 deals with Essential Oils and Resinoids, Perfumery, Cosmetic or Toilet Preparations. Heading 3302 specifically deals with Mixtures of odoriferous substances and mixtures (including alcoholic solutions) with basis or one or more of these substances, of kind used as raw materials in industry; other preparations based on odoriferous substances, of kind used for manufacture of beverages. 20. Sub-heading 3302 10 10 deals with Synthetic flavouring ____________ http://www.judis.nic.in Page No 9 of 20 W.P.Nos.309 & 44102 of 2016 essences. Relevant Heading and Sub-heading are reproduced below:- 3302 Mixtures of odoriferous substances and mixtures (including alcoholic solutions) with basis or one or more of these substances, of kind used as raw materials in industry; other preparations based on odoriferous substances, of kind used for manufacture of beverages. 3302 10 - ............... 3302 10 10 --- Synthetic flavouring essences. Thus, activity undertaken by petitioner amounts to manufacture. 21. above notification exempts manufacturer engaged in manufacture of goods specified in 1st and 2nd schedule to Central Excise Tariff Act, 1985 other than goods specified in Annexure I appended to said notification and cleared from such unit located in Industrial Growth Centre, Industrial Infrastructure Development Centre, or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area as specified in Annexure II from excise duty and additional duty of Excise ____________ http://www.judis.nic.in Page No 10 of 20 W.P.Nos.309 & 44102 of 2016 as is equivalent to amount of duty paid by manufacturer of goods, other than amount of duty paid by utilisation of CENVAT credit under CENVAT Credit Rules 2002. 22. above notification contemplates payment of Excise duty on manufactured goods and refund of such duties other than amount of duty paid by utilisation of CENVAT credit under provisions of CENVAT Credit Rules, 2002. 23. respondent has reopened assessment based on Commission issued under Section 131 of Income Tax Act, 1961 and that Asst. Commissioner of Income Tax, Circle 1, Jammu has reported that petitioner has only blenders and vessels in premises which are used for mixing raw materials to prepare end product. According to respondent activity does not amount to manufacture within meaning of Section 2(29BA) as transformation in article should result in different name, character and use. According to respondent activity undertaken namely mixing of raw materials does not change character and use of product and that raw materials being various powders (2 flavours) are commercially saleable ____________ http://www.judis.nic.in Page No 11 of 20 W.P.Nos.309 & 44102 of 2016 and consumable and that there is no change in utilisation character. 24. It is case of petitioner that respondent s counterpart under Central Excise Act, 1944 sitting in same building as that of respondent who are really concerned with manufacturing activity have accepted activity undertaken by petitioner amounted to manufacture and has also refunded amounts payable by petitioner for respective financial years. He has enclosed sample of order dated 21.8.2008, 15.05.2009, 29.07.2009 and 21.5.2010 as detailed below:-. April 2008 - Rs.34,11,688/- March 2009 - Rs.19,06,746/- April 2009 - Rs.14,14,097/- March 2010 - Rs.30,14,351/- 25. definition of Manufacture in Section 2(29BA) of Income Tax Act, 1961, is broader than definition of Manufacture in Section 2(f) of Central Excise Act, 1944. Section 2(29BA) of Income Tax Act reads as under:- (29BA) "manufacture", with its grammatical variations, means change in non-living physical object or article or thing, (a) resulting in transformation of object or article ____________ http://www.judis.nic.in Page No 12 of 20 W.P.Nos.309 & 44102 of 2016 or thing into new and distinct object or article or thing having different name, character and use; or (b) bringing into existence of new and distinct object or article or thing with different chemical composition or integral structure; 26. Whether activity undertaken by petitioner amounted to manufacture or not, was deliberated upon before respective assessment orders were passed. In this connection reference may be made to communication of respondent dated 26.12.2013. In said letter, petitioner was specifically asked to explain process of manufacture in specific and in detail with regard to flavours produced, essences produced, flavouring essences formulated perfumery compounds and synthetic food colours preparation for claiming benefit of deduction under Section 80IB of Income Tax Act, 1961. Details of plant and machinery installed in Jammu plant along with bills. Petitioner has furnished all details. 27. It is only thereafter assessments were completed for respective Assessment Years. Therefore, mere change in opinion of Assessing Officer subsequent to passing of assessment orders would ____________ http://www.judis.nic.in Page No 13 of 20 W.P.Nos.309 & 44102 of 2016 be contrary to law laid down by Hon ble Supreme Court in CIT Vs. Kelvinator of India Ltd, (2010) 320 ITR 561 and in Income Tax Officer Vs. Techspan India Private Limited, (2018) 6 SCC 685 and in Jeans Knit Private Limited Vs. Deputy Commissioner of Income Tax, (2018) 12 SCC 36. 28. mere change in opinion of Assessing Officer does not clothe Assessing Officer with jurisdiction or power to reopen assessment under Section 148 of Income Tax Act, 1961 for purpose of proviso to Section 147 of Income Tax Act, 1961. 29. In impugned communications dated 14.12.2015 and 28.11.2016, respondent has not denied that petitioner had truly and fully disclosed all materials that were required for completing assessments. 30. respondent has merely stated that while passing respective assessment orders, Assessing Officer did not examine ____________ http://www.judis.nic.in Page No 14 of 20 W.P.Nos.309 & 44102 of 2016 issue or has formed any opinion and since no opinion was formed in 1st place question of change of opinion does not arise. 31. To invoke Section 148 of Income Tax Act, 1961 for purpose of proviso to Section 147 of Income Tax Act, 1961, there should be case of failure to truly and fully disclose material facts required for assessment. In this case, I find that there were deliberations on very issue as to whether activity undertaken by petitioner amounted to manufacture or not before respective assessment orders were passed for respective Assessment Years by respondent s predecessor. 32. I am unable to countenance this stand of respondent. In any event it would not clothe Assessing Officer with power to reopen completed assessment under Section 148 of Income Tax Act, 1961 for purpose of proviso to Section 147 of Income Tax Act, 1961 if there was truly and fully disclosure for assessment. 33. Further, Central Excise Department has also accepted ____________ http://www.judis.nic.in Page No 15 of 20 W.P.Nos.309 & 44102 of 2016 fact that petitioner was engaged in manufacture of excisable goods which were eligible for exemption under Notification No.56 of 2002-CE dated 14.11.2002 as amended by Notification No.34 of 2008- CE dated 10.06.2008. Therefore, change of opinion based on report of Asst. Commissioner of Income Tax, Circle 1, Jammu under Section 131 of Income Tax Act, 1961 cannot amount to failure on part of assessee to truly and fully disclose information/documents required for purpose of completing assessments. 34. Reopening of assessment to deny deduction under Section 80IB of Act, is therefore without jurisdiction. Therefore, proviso to Section 147 of Income Tax Act, 1961 puts embargo on respondent from proceeding further as no action shall be taken under this section after expiry of four years from end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on part of assessee to make return under Section 139 or in response to notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for ____________ http://www.judis.nic.in Page No 16 of 20 W.P.Nos.309 & 44102 of 2016 that assessment year. 35. At same time, if in course of such proceedings respondent comes to conclusion that there were other grounds on which assessment can be reopened, respondent can assess or reassess such income in light of Explanation 3 to Section 147 of Income Tax Act, 1961. 36. In light of above discussion, I direct petitioner to participate in proceedings before respondent. respondent is however precluded from disturbing deductions allowed to petitioner in respective assessment orders under Section 80IB of Income Tax Act, 1961. 37. respondent may however look for such other aspects which may come within purview of Explanation 3 to Section 147 of Income Tax Act, 1961 to demand tax while passing orders. 38. Since dispute pertains to Assessment Years 2009-10 and http://www.judis.nic.in Page No 17 of 20 W.P.Nos.309 & 44102 of 2016 2010-2011, respondent is directed to bring closure to proceedings within period of three months from date of receipt of copy of this order in light of above observations. 39. present Writ Petitions stand disposed with above observations. No cost. Consequently, connected Miscellaneous Petitions are closed. 19.05.2020 Index : Yes/No Internet :Yes/No jen To Deputy Commissioner of Income-tax, Large Taxpayer Unit II, 1775, Jawaharlal Nehru Inner Ring Road, Anna Nagar Western Extension, Chennai 600101. http://www.judis.nic.in Page No 18 of 20 W.P.Nos.309 & 44102 of 2016 C.SARAVANAN, J. jen Pre-Delivery Common Order in W.P.Nos.309 & 44102 of 2016 and W.M.P.Nos.205 & 37910 of 2016 and 31025 & 31026 of 2019 http://www.judis.nic.in Page No 19 of 20 W.P.Nos.309 & 44102 of 2016 19.05.2020 http://www.judis.nic.in Page No 20 of 20 International Flavours and Fragrances India Private Limited v. Deputy Commissioner of Income-tax, Large Taxpayer Unit-II, Chennai
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