Ita/39/2021 Of Commissioner Of Income Tax (Large Tax Payers Unit) Kolkata v. Century Plyboards (India) Ltd

OD-3-5 IN THE HIGH COURT OF JUDICATURE AT CALCUTTASPECIAL JURISDICTION (INCOME TAX)ORIGINAL SIDE HEARD ON : 15.09.2022DELIVERED ON: 15.09.2022 CORAM: THE HON’BLE MR. JUSTICE T.S. SIVAGNANAMAND THE HON’BLE MR. JUSTICE SUPRATIM BHATTACHARYA ITA/159/2018 COMMISSIONER OF INCOME TAX (LARGE TAX PAYERS UNIT), KOLKATA-Versus-M/S. CENTYURY PLYBOARDS (I) LTD. ITA/39/2021 COMMISSIONER OF INCOME TAX (LARGE TAX PAYERS UNIT), KOLKATA-Versus-CENTYURY PLYBOARDS (I) LTD. ITA/65/2021 COMMISSIONER OF INCOME TAX (LARGE TAX PAYERS UNIT), KOLKATA-Versus-M/S. CENTYURY PLYBOARDS (I) LTD. Appearance:Ms. Smita Das De, Adv. ...for the appellant in ITA/159/2018 & ITA/39/2021. Mr. Aryak Dutt, Adv. ...for the UoI in ITA/65/2021. Mr. J. P. Khaitan, Sr. Adv.Mr. Siddhartha Das, Adv.Ms. Swapna Das, Adv.Mr. Sanjoy Bhowmick, Adv. ...for the respondent. (Judgment of the Court was delivered by T.S. Sivagnanam, J.) 1.This appeal filed by the revenue under Section 260Aof the Income Tax Ac, 1961 (the ‘Act’ for brevity) isdirected against the order dated 13[th] July, 2016 passed bythe Income Tax Appellate Tribunal, “C” Bench, Kolkata (the‘Tribunal’) in ITA No.2307/Kol/2013 for the assessmentyear 2008-09. 2.In all the three appeals the common substantialquestion of law in which the appeals were admitted is asfollows: “Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in allowing thebenefit under Section 80IC of the Income Tax Act by notappreciating the facts and evidences on record that theassessee has not undertaken substantial expansion ofbusiness as is required under Section 80IC(2)(b)(iii) ofthe Act for claiming the benefit of exemption underSection 80IC of the Income Tax Act ?” 3.There are two other substantial questions of law onwhich ITA/159/2018 and ITA/65/2021 were admitted which areas follows which we will deal in the later portion of thisjudgment. “(i) Whether on the facts and in the circumstances ofthe case, the learned Tribunal failed to consider thatin cases where no direct nexus between borrowings andinvestments could be established especially wheninvestments and regular business are run out of distinctly separate bank accounts, rule 8(iii) of theIncome Tax Rules, 1962 cannot be invoked ?(ii) Whether on the facts and circumstances of the case,the learned Tribunal erred in law in deleting an amountof Rs.1,17,99,000/- /Rs.1,03,70,000/- added by theAssessing Officer under Section 14A of the Act read withRule 80D(ii) of the Rules?” 4.The decision rendered by the learned Tribunal forthe assessment year 2008-09 had been followed by thetribunal for two other assessment years namely, assessmentyear 2010-11, which was the subject-matter of ITA/65/2021and assessment year 2011-12 which was the subject matter ofITA/159/2018. Therefore, ITA/39/2021 is the lead case andany decision taken in the said appeal would automaticallybe applicable to the two other appeals namely, ITA/159/2018and ITA/65/2021. 5.We have heard Ms. Smita Das De, learned standingcounsel appearing for the appellant/revenue in ITA/159/2018and ITA/39/2021 and Mr. Aryak Dutt, learned counsel for theUnion of India in ITA/65/2021; also Mr. J.P. Khaitan,leaned senior counsel assisted by Ms. Swapna Das, Mr.Siddhartha Das and Mr. Sanjoy Bhowmick, learned Advocatesfor the respondent in all the three appeals.6.It is to be noted that all the three appeals wereheard individually and we have heard the submissions of thelearned standing counsels separately on the three appeals. 5.We have heard Ms. Smita Das De, learned standingcounsel appearing for the appellant/revenue in ITA/159/2018and ITA/39/2021 and Mr. Aryak Dutt, learned counsel for theUnion of India in ITA/65/2021; also Mr. J.P. Khaitan,leaned senior counsel assisted by Ms. Swapna Das, Mr.Siddhartha Das and Mr. Sanjoy Bhowmick, learned Advocatesfor the respondent in all the three appeals.6.It is to be noted that all the three appeals wereheard individually and we have heard the submissions of thelearned standing counsels separately on the three appeals. For the sake of convenience of the Court, a consolidatedjudgment is passed and the Ministry of Law & Justice shallconstrue this judgment and order to be individual judgmentin each of the appeals.7.The short issue which falls for consideration iswhether the learned Tribunal was right in allowing thebenefit to the respondent/assessee under Section 80IC ofthe Act. The revenue’s contention is that the assesseehaving not undertaken any substantial expansion as requiredunder Section 80IC(2)(b) of the Act, they cannot claimexemption under Section 80IC of the Act. To test thecorrectness of the contentions raised by the revenue beforeus, we have carefully examined the order passed by theCommissioner of Income Tax (Appeals),-XII, Kolkata [CIT(A)]dated 14[th] May, 2013. The assessing officer denied theclaim of exemption on the sole ground that the assessee hasnot undertaken any substantial expansion on their unitlocated in the State of Meghalaya, one of the North-EasternState and, therefore, the benefit of Section 80IC cannot begranted. Section 80IC was a new provision which wasinserted with effect from 1[st] April, 2004 allowing ten yearstax holiday in respect of certain undertakings in the Stateof Himachal Pradesh, Sikkim, Uttaranchal and North-EasternStates. The Union Cabinet announced a package of Fiscal and Non-Fiscal concessions for the special category satesof Himachal Pradesh, Sikkim, Uttaranchal and North-EasternStates with a view to give boost to the economy in thoseStates. By insertion of Section 80IC of the Act witheffect from 1[st] April, 2004 deduction was allowed for tenyears from the profits of new undertakings or enterprisesor existing undertakings or enterprises on theirsubstantial expansion in those States during the periodbeginning 24[th] December, 1997 and ending before 1[st] April,2007 in any of the North-Eastern States.8.The CIT(A) has pointed out that deduction has beenallowed to the assessee under Section 80IB of the Act forthe assessment years 2002-03 and 2003-04 and after Section80IC was inserted deduction was allowed for the assessmentyears 2004-05 and 2005-06 with effect from 1[st] April, 2005.The other company got amalgamated with the assessee and theassessee was granted the benefit of deduction under Section80IC of the Act for the assessment years 2006-07, 2007-08and 2009-10. For the subject assessment years 2008-09,2010-11 and 2011-12 which are the subject-matter in thesethree appeals the deduction was disallowed. The reasoningof the assessing officer in all these three years is thatthe assessee has not undertaken any expansion. As rightlynoted by the CIT(A), a consistent approach is required to be adopted by the department unless and until thedepartment is able to establish a factual distinction in aparticular assessment year to justify a different course ofaction. Admittedly, the assessing officer has not pointedout any such factual distinction. That apart, on a readingof Section 80IC(2)(b) of the Act, it is evidently clearthat benefit is available to all existing undertakings andthey are entitled to claim deduction under Section 80IC ofthe Act. Therefore, the CIT(A) while rightly interpretingthe provision held that the assessing officer was notjustified in denying the benefit to the assessee on theground that they have not undertaken substantial expansion.The correctness of the order was tested by the learnedTribunal and it was pointed out that the assessing officercommitted an error in denying the claim of deduction underSection 80IC only on the ground that the assessee has notundertaken substantial expansion and the learned Tribunalapproved the order passed by the CIT(A) holding that it hadrightly come to the conclusion that in respect of certainunits which had claimed deduction earlier under Section80IB of the Act, such unit will continue to get the benefitof the deduction under Section 80IC of the Act subject tothe limitation of ten years period. For better standing we extract the relevant portion of section 80IC(2)(b) of theAct: “80-IC. Special provisions in respect of certain undertakings orenterprises in certain special category States. (1) * * * * * * * * * (2) This section applies to any undertaking or enterprise,-(a) . . . . . . . . . (b) which has begun or begins to manufacture or produceany article or thing, specified in the FourteenthSchedule or commences any operation specified in thatSchedule, or which manufactures or produces any articleor thing, specified in the Fourteenth Schedule orcommences any operation specified in that Schedule andundertakes substantial expansion during the periodbeginning- (i) . . .(ii) . . .(iii) on the 24[th] day of December 1997, and endingbefore the 1[st] day of April, 2007, in any of theNorth-Eastern States.” 9.The above provision is a special provision in respect of certain undertakings or enterprises in certainspecial category States. Sub-Section (1) of Section 80ICstates where the gross total income of an assessee includesin profit and gains derived by an undertaking or anenterprise from any business referred to in sub-Section(2), there shall, in accordance with and subject to theprovisions of Section 80IC, be allowed in computing thetotal income of the assessee, a deduction from such profits and gains as specified in sub-Section (3) of Section 80IC.Sub-Section (2) of Section 80IC deals with the undertakingsand enterprises to which Section 80IC would apply. Clause(b) of sub-Section (2) of Section 80IC would be relevant tothe cases on hand. The said clause (b) of Section 80IC(2)applies to any undertaking or enterprise which has begun orbegins to manufacture or produce any article or thingspecified in the Fourteenth Schedule or commences anyoperation specified in that Schedule. The second categoryof undertakings are those which manufactures or producesany article or thing in the Fourth Schedule; and the thirdcategory being undertakings or enterprises which commencedoperations specified in the Fourteenth Schedule andundertakes substantial expansion during the relevant periodwhich is on 24[th] day of December, 1997 and ending before 1[st]day of April, 2007 in any North-Eastern States.10.On a reading of the order passed by the assessingofficer we find that the assessing officer has missed outone of the categories which have been mentioned in Clause(b) of Section 80IC(2). The assessee would squarely fallwithin the category of undertakings or enterprises whichmanufactures or produces any article or thing as specifiedin the Fourteenth Schedule as the assessee is a mineral based industry which finds place in clause-16 of Part-A ofthe Fourteenth Schedule.11.Thus, we are the of the view that the learnedtribunal rightly affirmed the conclusion arrived at by theCIT(A). In the result, the appeal (ITA/39/2021) filed bythe revenue is dismissed and substantial question of lawwhich was common in all the three appeals is answeredagainst the revenue.12.On the two other substantial questions of law, wehave elaborately heard the learned standing counsels forthe appellants in each appeals and the learned senioradvocate for the respondent/assessee.13. On going through the order passed by the Tribunal,we find that the explanation submitted by the assesseewhile framing the assessment proceedings was rejected bythe assessing officer without adducing any reasons nor anydefect was pointed out by the assessing officer at the timeof assessment and straightway the assessing officer appliedthe machinery provision under Rule 8D of the Income TaxRules, 1962. Furthermore, on facts, the learned tribunalfound that the assessee had sufficient funds and aninference can be drawn that the investment has been madeout from the funds of the assessee. In the case of Kesoram Industries Ltd. vs. Principal Commissioner of Income Tax[1]the Court took into consideration the decision of theHon’ble Supreme Court in Maxopp Investment Ltd. vs. CIT[2]andheld as follows: “Two important issues have been pointed out in theaforementioned decision. Firstly that the provisions ofsection 14A has to be interpreted, particularly, thewords that “in relation to the income” that does notform of total income. Therefore, it was held that theprinciple of apportionment of expenses comes into playas that is the principle which is incorporated insection 14A of the Act. With regard to as to how thepower under section 14A(2) read with rule 8D of theRules could be invoked it was pointed out that theAssessing Officer needs to record satisfaction thathaving regard to the kind of the assessee suo motudisallowance under section 14A was not correct and itwill be in those cases where the assessee in his returnhas himself apportioned but the Assessing Officer wasnot accepting the said apportionment. In any event, theAssessing Officer will have to record its satisfactionto the said effect. . . . . . . . . . We also take note of the decision of this Court in thecase of CIT v. Ashish Jhunjhunwala reported in [2015](12) TMI 905 (Cal), and the decision in Pr. CIT v.Britannia Industries Limited I.T.A.T./45/2017 dated July19,2018. It was pointed out that the assessee has tomake a claim (including a claim that no expenditure wasincurred) with regard to the expenditure incurred forearning income which is not chargeable to tax. Such a 1[2022] 441 ITR 648 (Cal) 2[2018] 402 ITR 640(SC) claim has to be examined by the Assessing Officer andonly if an objective satisfaction is arrived at by theAssessing Officer that the claim made by the assesseecannot be accepted, the Assessing Officer can thenproceed to apply computation mode as provided in rule8D(2) of the Rules.” 14.The decision of the Hon’ble Supreme Court in South Indian Bank Ltd. vs. Commissioner of Income Tax[3]is also inaid of the case of the assessee as the tribunal hasrecorded specific finding that own funds were availablewith the assessee. The relevant paragraphs are quotedhereunder: “27. The aforesaid discussion and the cited judgments advisethis Court to conclude that the proportionatedisallowance of interest is not warranted, under section14A of the Income-tax Act for investments made in tax-free bonds/securities which yield tax-free dividend andinterest to the assessee-banks in those situationswhere, interest-free own funds available with theassessee, exceeded their investments. With thisconclusion, we unhesitatingly agree with the view takenby the learned Income-tax Appellate Tribunal favouringthe assessee. Indian Bank Ltd. vs. Commissioner of Income Tax[3]is also inaid of the case of the assessee as the tribunal hasrecorded specific finding that own funds were availablewith the assessee. The relevant paragraphs are quotedhereunder: “27. The aforesaid discussion and the cited judgments advisethis Court to conclude that the proportionatedisallowance of interest is not warranted, under section14A of the Income-tax Act for investments made in tax-free bonds/securities which yield tax-free dividend andinterest to the assessee-banks in those situationswhere, interest-free own funds available with theassessee, exceeded their investments. With thisconclusion, we unhesitatingly agree with the view takenby the learned Income-tax Appellate Tribunal favouringthe assessee. 28. The above conclusion is reached because nexus has notbeen established between the expenditure disallowed andearning of exempt income. The respondents as earliernoted, have failed to substantiate their argument thatthe assessee was required to maintain separate accounts.Their reliance on Honda Siel (supra) to project such anobligation on the assessee, is already negated. The 3[2021] 438 ITR 1(SC) learned counsel for the Revenue has failed to refer toany statutory provision which obligate the assessee tomaintain separate accounts which might justifyproportionate disallowance.” 15.In the light of the above legal settled position andthe factual discussion done by the tribunal, the revenuehas not made out any case for interference with the orderpassed by the tribunal on the said issue.16.In the result, the appeals (ITA/159/2018 andITA/65/2021) are dismissed and the substantial questionsare answered against the revenue. (T.S. SIVAGNANAM, J.) I agree. (SUPRATIM BHATTACHARYA, J.) A/s./S.Das