Commissioner Of Income Tax-I, Chandigarh v. M/S Rana Polycot Ltd

ITA No. 400 of 2005 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 400 of 2005 Date of Decision: 25.2.2011 Commissioner of Income Tax-I, Chandigarh ....Appellant. Versus M/s Rana Polycot Ltd. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Senior Standing Counsel,for the appellant.for the appellant. Mr. Animesh Sharma, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 31.3.2005 passed by the Income Tax AppellateTribunal, Chandigarh Bench “B” (hereinafter referred to as “theTribunal”) in ITA No. 867/Chandi/2000, for the assessment year 1997-98, claiming the following substantial questions of law:- “(a)Whether, in the facts and circumstances of the case,the Hon'ble ITAT has erred in holding that theassessee has validly withdrawn its exemption u/s10B, earlier claimed in the original return by validly filing a revised return u/s 139(5) on 31.3.98 in spite ofthe specific provisions of sub-section (7) of Section10B applicable for the relevant period? (b)Whether, in the facts and circumstances of the case, the Hon'ble ITAT has erred in law in holding furtherthat the assessee has rightly claimed the impugnedinterest as income from business source by ignoringthe decision of the Apex Court in the case ofTuticorin Alkalies Ltd. (227 ITR 172)?” 2.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are that the assessee filed original return on30.11.1997 for the assessment year 1997-98. The assessee hadearned interest income of Rs.33,99,620/- on deposits made in banksand other companies for pre-operative period and post-operative period.It claimed exemption under Section 10B of the Act being 100% exportoriented unit. The assessee filed revised return under Section 139(5) ofthe Act on 31.3.1998 by declaring the income at Rs.7,07,433/- afterwithdrawing the exemption claimed u/s 10B of the Act as per provisionsof Section 115JA of the Act. The case of the assessee was taken up forscrutiny by issuing notice under Section 143(2) on 30.6.1998 and itsassessment was completed on 25.10.1999 at a total income ofRs.33,87,620/-.. The Assessing Officer held the interest income astaxable under the head “other sources” and the income earned onsurplus funds after commencement of business also as “income fromother sources” and accordingly taxed the entire interest income ofRs.33,99,620/- as “income from other sources”. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax(Appeals) [in short “the CIT(A)”] who vide order dated 5.10.2001 deletedthe addition holding that the assessee was entitled to file revised returnunder Section 139(5) of the Act and to withdraw exemption as claimedunder Section 10B of the Act in the original return. Against the order ofthe CIT(A), the revenue filed an appeal before the Tribunal who videorder dated 31.3.2005 dismissed the appeal. This gave rise to therevenue to approach this Court by way of the present appeal. 3.We have heard learned counsel for the parties. 4.At the outset, learned counsel for the revenue concededthat in so far as question (b) is concerned, no argument was raisedbefore the Tribunal and, therefore, this question does not arise forconsideration in this appeal. Accordingly, question (b) is declined. 5.The only point for consideration in this appeal is, whetherthe assessee was justified in filing the revised return under Section 139(5) of the Act. 3.We have heard learned counsel for the parties. 4.At the outset, learned counsel for the revenue concededthat in so far as question (b) is concerned, no argument was raisedbefore the Tribunal and, therefore, this question does not arise forconsideration in this appeal. Accordingly, question (b) is declined. 5.The only point for consideration in this appeal is, whetherthe assessee was justified in filing the revised return under Section 139(5) of the Act. 6.Learned counsel for the revenue relied upon the judgmentsof Madras High Court in Commissioner of Income Tax v. SouthernPetro Chemical Industries Corporation Ltd., [1998] 233 ITR 400 andthat of Madhya Pradesh High Court in Deepnarain Nagu andCompany v. Commissioner of Income Tax, [1986] 157 ITR 37 tocontend that the assessee was not entitled to file the revised returnunless there existed wrong statement or some omission in the originalreturn. 7.On the other hand, learned counsel for the assessee hasplaced reliance upon the decisions of this Court in Beco Engineering Co. Ltd. Vs. Commissioner of Income-Tax, Rohtak (1984)148 ITR478 and Commissioner of Income Tax Vs. Friends Corporation(1989) 180 ITR 334 and submitted that the assessee was entitled to filethe revised return under Section 139(5) of the Act and withdraw itsclaim under Section 10B of the Act. 8.We have given our thoughtful consideration to therespective submissions of learned counsel for the parties and do notfind any merit in the submission made by the learned counsel for therevenue. 9.This Court in Beco Engineering Co. Ltd.'s case (supra)where the assessee had filed revised return withdrawing its claim fordepreciation, as filed in the original return, has held as under:- “It is well settled that in case an assessee filesrevised returns, they are to be taken intoconsideration for the purpose of making anassessment. The original returns cannot be advertedto for that purpose. In this view , we are fortified bythe observations of the Allahbad High Court inNiranjan Lal Ram Chandra V. CIT [1982] 134 ITR352, wherein it was observed that once a revisedreturn has been filed under s.139(5), the originalreturn is substituted by the revised return as a resultof the amendments made in the original return by therevised return.” 10. The Madras High Court in Southern Petro ChemicalIndustries Corporation Ltd's case (supra) after noticing the judgments of this Court in Beco Engineering Co. Ltd. and FriendsCorporation's cases (supra) had followed its earlier decision inDasaprakash Bottling Co. Vs. CIT (1980) 122 ITR 9 and taken acontrary view as held by this Court. We are bound by the judgment ofthis Court in Beco Engineering Co. Ltd. and Friends Corporation'scases (supra) and are unable to subscribe to the view taken by theMadras High Court. 11.Further, the CIT(A) while allowing the claim of the assesseein para 3.3 of its order had recorded as under:- “3.3The submissions made by the appellant havebeen given careful consideration. The issue forconsideration is whether the assessee was entitled tofile a revised return and to withdraw the claim forexemption under section 10B of the I.T. Act, whichhad been claimed in the original return. There is nodispute that the original return under section 139(1)had been filed in time, therefore, the assessee wascompetent to file a revised return under section139(5) of the I.T. Act. In the original return, theappellant had claimed exemption under section 10Bof the I.T. Act. Later on the appellant realised thatthe market conditions were not conducive for exportand he would not be able to fulfil the exportobligations for eight years, therefore, a revised returnwas filed in which claim for exemption under section10B was withdrawn and the assessee offered to be assessed under section 115JA and the tax was alsopaid accordingly. Sub-section 2(ia) of section 10Bmakes it mandatory that export of the assesseeshould not be less than 75% of total sales during theprevious year relevant to eight assessment yearsbeginning from the date of commercial production.Since there was a slump in the economy due tomarket conditions, the appellant probably felt that itwould be impossible to maintain export sales to theextent of 75% of total sales in the following years.Therefore, prudency demanded that the assesseeshould not claim the exemption under section 10B ofthe I.T. Act. The explanation offered by the appellantsounds to be convincing. Since the appellant hadfiled the original return in time and the claim undersection 10B had been made for the first time, he wasfree to withdraw the claim before any assessmentwas made. The addition has been made by theAssessing Officer on the ground that the appellantwas not competent to file the revised return and hadno right or option to withdraw the claim under section10B of the I.T. Act. Since the appellant wascompetent to file the revised return, the whole caseof the Assessing Officer collapses on this groundalone. The Assessing Officer has observed in theorder that, as required under section 10B(5), the assessee had given written undertaking that it shouldbe considered as a 100% export oriented unit undersection 10B for subsequent years. It is seen that theassessee has not given any such undertaking. In thereturn, it has been mentioned that the assessee is100% export oriented unit and its income is exemptunder section 10B of the I.T. Act. Subsequently thereturn was revised under section 139(5) of the I.T.Actwithdrawing the claim for exemption under section10B of the I.T.Act, which was followed by a letterdated 31.3.1998 wherein it was undertaken that theassessee will not avail any benefit under section 10Bof the I.T.Act even in the subsequent years. In thecircumstances, the Assessing Officer has erred inholding that the interest earnest represents incomefrom other sources. Since interest is a revenuereceipt, therefore, it is held to be a business incomeand since the interest income has been included inthe profit & loss account, the interest paid onborrowed funds is automatically set off against theinterest income. In other words, the interest earnedon deposits which has been held to be businessincome and which is reflected in the profit & lossaccount, gets set off against the interest paid whichdebited to the profit & loss account. Thus, thisground of appeal is allowed.” ITA No. 400 of 2005 12.The Tribunal had affirmed the aforesaid view of the CIT(A).13.Learned counsel for the revenue has not been able to showthat the approach of the CIT(A) and the Tribunal was incorrect in anymanner. 14.In view of the above, we find no merit in this appeal and thesame is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE February 25, 2011gbs (ADARSH KUMAR GOEL)JUDGE