M/S. Scientific Publishing Services Pvt. Ltd v. Deputy Commissioner Of Income Tax, Company Circle Vi(1), 7[Th] Floor, New Block, Aayakar Bhavan

THE HON'BLE MR.JUSTICE K.RAVICHANDRABAABU W.P.No.4808 of 2014and M.P.No.1 of 2014 M/s. Scientific Publishing Services Pvt. Ltd.,Represented by its Chief Financial Officer and CompanySecretary, Sri S.DayaluNo.6 & 7, 5[th] Street,SPS Building, Mylapore,Chennai – 600004....PetitionerVs. Deputy Commissioner of Income Tax,Company Circle VI(1),7[th] Floor, New Block, Aayakar Bhavan,121, Mahatma Gandhi Road,Nungambakkam,Chennai – 600034....Respondent Prayer : Writ Petition filed under Article 226 of theConstitution of India praying to issue a Writ of Certiorari tocall for the records in C.No.Co.Cir.VI (1)/Reassessment/2013-14dated 20.01.2014 relating to the Assessment Year 2007-08 on thefile of the respondent and quash the same. The petitioner is aggrieved against the proceedings of therespondent dated 20.01.2014 relating to the Assessment Year2007-08, wherein and whereby, the objections filed by thepetitioner against the reopening of the assessment was rejected. (a) The petitioner is a Company engaged in the business ofprovision of diversified knowledge processing etc. Thepetitioner is an assessee under the respondent and has beenfiling returns of income with all required Annexures within thestipulated time. Section 10B of the Income Tax Act, 1961provides for a deduction of 100% of the profits derived by a 1/9 https://hcservices.ecourts.gov.in/hcservices/ newly established 100% Exported Oriented Undertaking. Section10B(3) as existed prior to 01.04.1999 reads as follows:- “(3) The profits and gains referred to in sub-section (1) shall not be included in the total incomeof the assessee in respect of any ten consecutiveassessment years, beginning with the assessment yearrelevant to the previous year in which the undertakingbegins to manufacture or produce articles or things,specified by the assessee at his option.” (b) The petitioner has set up a Unit engaged in themanufacture and export of computer software in the FinancialYear 1996-97 i.e. the Assessment Year 1997-1998. The provisionsof Section 10B, as it stood prior to 01.04.1999, granted to anassessee, a tax holiday benefit in respect of any fiveconsecutive assessment years from within a block of eight years,of income derived from the manufacture and export of computersoftware. The period of five years was extended to ten years,vide amendment to Section 10B(3) vide Finance Act, 2000 witheffect from 01.04.1999 which reads as follows :- “(3) The profits and gains referred to in sub-section (1) shall not included in the total income ofthe assessee in respect of any [ten] consecutiveassessment years, [***] beginning with the assessmentyear relevant to the previous year in which theundertaking begins to manufacture or produce articles orthings.” (c) Units that claimed a benefit under Section 10B wereeligible to claim the same for the unexpired period of ten yearscommencing from the first year of claim. The petitioner optedto claim of deduction commencing from the Assessment Year 1998-99. Such option is available to the assessee insofar as theprovisions of Section 10B granted a relief in respect of anyfive Assessment Years falling within a period of eight years.The consistent legal position adopted by the petitioner is thus,that it is entitled to claim deduction under Section 10B of theAct for a period of ten years commencing from the AssessmentYear 1998-99 in terms of the law prevailing at the relevantpoint of time. (d) Returns of income were filed by the petitioner from theAssessment Year 1998-99 onwards claiming deduction under Section10B of the Act. The Income Tax Department, after a thoroughscrutiny of the returns filed by the petitioner, accepted theentitlement of the petitioner to claim deduction under Section10B in respect of the Assessment Years commencing from 1998-99for the period of 1998-99 to 2007-08. While this is so, the 2/9 (d) Returns of income were filed by the petitioner from theAssessment Year 1998-99 onwards claiming deduction under Section10B of the Act. The Income Tax Department, after a thoroughscrutiny of the returns filed by the petitioner, accepted theentitlement of the petitioner to claim deduction under Section10B in respect of the Assessment Years commencing from 1998-99for the period of 1998-99 to 2007-08. While this is so, the 2/9 petitioner states and submits that with respect to AssessmentYear 2007-08, a return of income was filed on 17.10.2007returning total income of an amount of Rs.1,57,325/- andclaiming deduction of an amount of Rs.64,82,19,112/- underSection 10B of the Act. The assessment was taken up fordetailed scrutiny by the respondent by issuing notice underSection 143(2) of the Act dated 18.07.2008. All the particularssought for were duly furnished by the petitioner to therespondent. Since the petitioner was also engaged ininternational transactions, the matter was referred to theTransfer Pricing Officer to verify the Arm's Length Price inrelation to the international transactions. The TransferPricing Officer vide order dated 29.10.2010 under Section 92CA(3) of the Act suggested an adjustment of Arm's Length Price.Pursuant thereto, an order of draft assessment was passed by theAssessing Officer, wherein, apart from incorporating theadjustments, as suggested by the Transfer Pricing Officer, theAssessing Officer effected an adjustment to the computation ofdeduction under Section 10B of the Act. (e) Thus, the Assessing Authority accepted the eligibilityof the petitioner to relief under Section 10B. In respect ofother issues arising out of draft assessment order, thepetitioner filed their objections before the Dispute ResolutionPanel. The said authority, while deleting the transfer pricingadjustment, has however decided the adjustment relating tomethodology of computation of deduction under Section 10B wasdecided against the petitioner. The said order was challengedbefore the Income Tax Appellate Tribunal. By order dated11.05.2012, the Tribunal allowed the appeal of the petitioner.Thus, the adjustment made and confirmed by the DisputeResolution Panel relating to the computation relief underSection 10B was reversed by the Income Tax Appellate Tribunal,insofar as it related to ensuring parity between the exportturnover and import turnover while computing the deduction underSection 10B of the Act. At this juncture, it is relevant topoint out that the Income Tax Department did not, at any stageof proceedings before any of the authorities, raise any disputeregarding the eligibility of the petitioner herein to claim orbe granted the relief under Section 10B of the Act. (f) While this is so, the petitioner was surprised toreceive a notice dated 26.03.2013, proposing to reopen theassessment in respect of the Assessment Year 2007-08 by statingthat the respondent has reason to believe that income chargedunder the tax relevant to the said Assessment Year had escapedassessment. In response to the said notice, the petitionerfiled a return of income and sought the reasons for reopeningthe assessment. The respondent through communication dated29.10.2013, furnished the reasons. The petitioner filed their 3/9 objections against the reopening through communication dated18.11.2013. However, the Assessing Officer rejected theobjections and passed the impugned order on 20.01.2014. Hence,the present writ petition is filed before this Court. 3. The respondent filed a counter wherein, it is stated asfollows :- 3/9 objections against the reopening through communication dated18.11.2013. However, the Assessing Officer rejected theobjections and passed the impugned order on 20.01.2014. Hence,the present writ petition is filed before this Court. 3. The respondent filed a counter wherein, it is stated asfollows :- (a) As per provisions of Section 10B prior to 01.04.1999,the relief is granted in respect of any five assessment yearsfalling within a period of eight years. But the provisions ofSection 10B with effect from 01.04.1999, granted a relief for aperiod of ten consecutive Assessment Years beginning with theAssessment Year relevant to the previous year in which theundertaking begins to manufacture or produce articles or thingsor computer software. The petitioner wrongly interpreted theprovisions of Section 10B to his own benefits for the period often years commencing from the first year of claim i.e. from theAssessment Year 1998-99. But the petitioner was actuallyeligible to claim a benefit under Section 10B from theassessment year relevant to the previous year in which theCompany began to manufacture, i.e. from the Assessment Year1997-98. The petitioner cannot combine both the amendments andclaim the benefit in the 11[th] year when the Act does not allowit. (b) Before issuance of notice under Section 148 of the Act,the dispute was related to computation of relief. Later, it wasbrought to the notice of the respondent that the petitionerclaimed deduction under Section 10B of the Act in the 11[th] yeari.e. Assessment Year 2007-08, from the Assessment Year relevantto the previous year in which the company begun to manufacturei.e. Assessment Year 1997-98. This issue was not fully andtruly disclosed by the petitioner during any other proceedingsbefore the respondent or any other Appellate Authorities. Whenthe respondent noticed that the eligibility of claim ofdeduction in the Assessment Year 2007-08 itself was wrong, heissued the notice under Section 148 of the Act rightly as perthe provision under Section 147 of the Act. (c) While inserting the Section 10B in the Finance Act,1988, w.e.f. 01.04.1989, the petitioner have option to seekrelief for the year when the activities of manufacture resultedin income between the block of 8 years and not in the yearswhere the activities of manufacture resulted in loss. Later,this Section was amended, which restricted the petitioner'srelief for ten consecutive assessment years beginning with theassessment year relevant to the previous year in which theundertaking begins to manufacture, irrespective of income orloss eared by the petitioner. When there was an option to thepetitioner to pick any five assessment years falling within a 4/9 period of eight years, the petitioner enjoyed the reliefwhenever it earned income. But, when the act amended so thatrelief will be allowed for a ten consecutive years from thecommencement of manufacture, the petitioner refused to acceptthe eligibility of claiming deduction under Section 10B of theAct automatically expired by the Assessment Year 2006-07 eventhough this position of law is well within the knowledge of thepetitioner. 4. Mr.N.V.Balaji, learned counsel appearing for thepetitioner submitted as follows :- 4/9 period of eight years, the petitioner enjoyed the reliefwhenever it earned income. But, when the act amended so thatrelief will be allowed for a ten consecutive years from thecommencement of manufacture, the petitioner refused to acceptthe eligibility of claiming deduction under Section 10B of theAct automatically expired by the Assessment Year 2006-07 eventhough this position of law is well within the knowledge of thepetitioner. 4. Mr.N.V.Balaji, learned counsel appearing for thepetitioner submitted as follows :- The respondent having examined the issue of eligibilityunder Section 10B in detail at the time of original assessmentand accepted the same, more particularly, when all particularsand details required have been duly furnished by the Assessee,is not justified in reopening the assessment by taking adifferent view with regard to the claim of deduction underSection 10B. There is no failure on the part of the petitionerto disclose any details in respect of the claim made. Theimpugned reopening proceedings have been initiated beyond aperiod of four years from the end of the relevant AssessmentYear and since there has been no failure to make a full andcomplete disclosure of all material particulars, the bar oflimitation set out in the proviso to Section 147 is attracted.The petitioner claimed the benefit of deduction under Section10B by relying upon Section 10B (3) of the Income Tax Act, asexisted prior to 01.04.1999. The benefit of deduction wasclaimed by the petitioner not from the first year from the dateof manufacture but on the other hand from the second year of thedate of manufacture, in view of the fact that Section 10B(3), asexisted prior to 01.04.1999 permitted to take benefit of fiveconsecutive years falling within a period of eight yearsbeginning with the Assessment Year relevant to the previousyear, in which the undertaking begins to manufacture.Therefore, the materials detail furnished by the petitioner atSerial No.6 and 7 filed along with the return, are proof andactual particulars and therefore, the respondent is notjustified in taking a different view based on the materialsalready furnished and existed at the time of originalassessment. The very same issue with regard to 10B deductioncame up for consideration before this Court in “MBI KitsInternational Vs. ITO” case reported in “[2018] 408 ITR 1(Madras), wherein, this Court found that the reopening was badsince the Assessing Officer therein, has originally chosen toallow the deduction based on the materials filed already, andthereafter, changed his opinion and has chosen to reopen theassessment, which cannot be done after a period of four years. 5/9 The above said decision of this Court was confirmed in writappeal in W.A.No.200 of 2019 dated 24.06.2019. 5. Per contra, Mr.A.P.Srinivas, learned standing counselappearing for the respondent after reiterating the contentionsraised in the counter affidavit further submitted as follows :- 5/9 The above said decision of this Court was confirmed in writappeal in W.A.No.200 of 2019 dated 24.06.2019. 5. Per contra, Mr.A.P.Srinivas, learned standing counselappearing for the respondent after reiterating the contentionsraised in the counter affidavit further submitted as follows :- The petitioner is not entitled to seek benefit under Section10B of the Act, both under the said provisions as existed priorto 01.04.1999 and after the amended Act in 1999. Thepetitioner, infact, has not disclosed true and full materialsfact while filing the return. The petitioner has wronglyclaimed the number of consecutive year as 10[th] year for claimingthe deduction for unit No.1 while infact, it is only 11[th] year.He further submitted that in view on the decision made by theApex Court in “Commissioner of Income Tax, Delhi Vs. Kelvinatorof India Limited” case reported in “2010 320 ITR 561”, theAssessing officer has rightly reopened the assessment andtherefore, the same need not be interfered by this Court. Thelearned counsel further pointed out that the decision relied onby the learned counsel appearing for the petitioner in MBI KitsInternational case, is factually distinguishable and therefore,the same cannot be applied to the present facts andcircumstances. 6. Heard both sides and perused the materials placed beforethis Court. 7. The point for consideration in this writ petition is asto whether the reopening of the assessment relevant toAssessment Year 2007-08 beyond the period of four years, can besustained on the reasons stated by the Assessing Officer whichwas confirmed in the impugned order. 8. In respect of the relevant Assessment Year 2007-08,admittedly, the notice under Section 148 was issued on26.03.2013 after a period of four years. Therefore, it is to beseen as to whether the petitioner has failed to disclose trueand full material particulars before the Assessing Officer atthe time of filing the original return. In this case, the issueinvolved for reopening is based on the claim made under Section10B of the Income Tax Act. According to the petitioner, date ofcommencement of manufacture of the product was 01.04.1996. 9. The respondent is not disputing the above said date ofcommencement of manufacture. The dispute is in respect of theclaim of the petitioner regarding the number of consecutive yearfor which the deduction is claimed at Serial No.8 of Annexure-Afiled along with return for the Assessment Year 2007-08. The 6/9 https://hcservices.ecourts.gov.in/hcservices/ petitioner has referred the number consecutive years as 10[th]year for unit 1. It is contended by the petitioner that sincethe deduction was claimed from the second year of thecommencement of manufacture, the number of consecutive year iscorrectly referred to as 10th year at Serial No.8 and therefore,the petitioner has not made any false statement. It is to benoted at this juncture that though, the relevant provisionsunder Section 10B (3) prior to amendment made in the year 1999,granted the benefit of deduction for five consecutive assessmentyears falling within a period of eight years beginning with theAssessment Year relevant to the previous year in which theundertaking begins to manufacture, the Assessing Officer hasgranted deduction to the petitioner for continuous nine yearstill the Assessment Year 2007-08. 10. Therefore, I do not think that the Revenue is justifiedin contending that the petitioner is entitled only for fiveconsecutive assessment years as covered under Section 10B (3),as existed prior to 01.04.1999 and contend that the presentclaim made by the petitioner is based on any false information.Even otherwise, this Court has to only see that as to whetherthese two relevant dates referred to at Serial Nos.7 and 8, arefactually incorrect, so as to derive a conclusion that thepetitioner has not truly and fully disclosed the material facts.As this Court finds that there is no dispute with regard to thedate of commencement of manufacture of the product namely01.04.1996, when the petitioner has chosen to claim directionfrom the second year onwards, the number of consecutive yearsfor which deduction is claimed referred to at Serial No.8 iscertainly the 10[th] year and therefore, such statement by thepetitioner at Serial No.8, cannot be termed as false statementor claim. 11. When such being the position, I find that the AssessingOfficer is not justified in reopening the assessment in theabsence of failure on the part of the assessee to truly andfully disclose the material fact. At this juncture, it isrelevant to note that the finding rendered by this Court in MBIKits International case at paragraph Nos.15 and 16 which readsas follows :- “15. According to the Revenue, if the date ofcommencement of manufacture or production referred toin the Column No.7 in Form No.56G as 28.03.2000 istaken as true, the deduction claimed was at theeleventh year and not at the tenth year. The petitionerseeks to explain that the entry made in Column No.7 ofForm 56G was by mistake and on the other hand, theactual date of commencement of manufacture was only oncommencement of manufacture or production referred toin the Column No.7 in Form No.56G as 28.03.2000 istaken as true, the deduction claimed was at theeleventh year and not at the tenth year. The petitionerseeks to explain that the entry made in Column No.7 ofForm 56G was by mistake and on the other hand, theactual date of commencement of manufacture was only on 7/9 25.05.2000. At the same time, Column No.8, which dealswith number of consecutive year for which the deductionclaimed, was rightly stated as tenth year. Therefore,the question that arises for consideration, under theabove stated circumstances, is as to whether thesecontradictory statement made by the petitioner can bebrought under the purview of non disclosure of fullyand truly all material facts necessary for hisassessment, to attract the extended period oflimitation. 7/9 25.05.2000. At the same time, Column No.8, which dealswith number of consecutive year for which the deductionclaimed, was rightly stated as tenth year. Therefore,the question that arises for consideration, under theabove stated circumstances, is as to whether thesecontradictory statement made by the petitioner can bebrought under the purview of non disclosure of fullyand truly all material facts necessary for hisassessment, to attract the extended period oflimitation. 16. No doubt, Column No.7 and 8 contradicts eachother with regard to the commencement of manufacture.However, when one of such column has specificallyreferred the number of consecutive year as the tenthyear to claim 10B deduction and when the AssessingOfficer has also considered and allowed such deduction,it has to be construed that such deduction was grantedby the Assessing Officer by forming his opinion basedon the conjoined consideration of materials alreadyplaced. In other words, it cannot be stated that thepetitioner has availed the benefit under Section 10B bygiving false details. If the date of manufacture asreferred to in Form 56G is taken as the right date, theAssessing Officer ought not to have allowed thededuction. Likewise, if the number of consecutive yearreferred to in Form 56G as tenth year is taken as thetrue statement, the Assessing Officer was right inallowing the deduction. Therefore, it is evident thatby furnishing the wrong date of manufacture as28.03.2000, the petitioner has not either deceived orsuppressed any material fact before the AssessingOfficer to claim deduction under Section 10B. If theexact date of manufacturing could be ascertained orgathered from the conjoined consideration of othermaterial documents, such as relevant certificates ofregistration by the competent authority, mere wrongmentioning of the date in Column 7 cannot be construedas non disclosure of true and material facts,especially when column 8 of statement supports theclaim. One can understand and appreciate the stand ofthe Revenue for reopening the assessment, if theassessee, by giving a false informationregarding the date of commencement ofmanufacture as 28.03.2000 alone, had obtained deductionunder Section 10B. Thus, it is seen that the AssessingOfficer, who has originally chosen to allow thededuction based on the materials filed already, has nowchanged his opinion and has chosen to reopen the 8/9 https://hcservices.ecourts.gov.in/hcservices/ assessment, which in my considered view, cannot be doneafter a period of four years.” 12. It is further seen that the said order of this Court wasconfirmed by the Division Bench in writ appeal in W.A.No.200 of2019 dated 24.06.2019 wherein, it is observed as follows :- “Keeping aside all these issues, we have examinedthe correctness of the order passed by the learnedSingle Bench and we note with approval the findings ofthe learned Single Bench in paragraphs 16 and 17 ofthe impugned order. The above finding rendered by thelearned Single Bench is just and proper. As pointedout by the learned Single Bench every non-disclosureof material facts will not or cannot be a justifiablereason for reopening an assessment. We reiterate thatwhat was required to be considered is that, substanceover form. Therefore, we are of the considered viewthat the learned Single Bench was perfectly right inallowing the writ petition which had been done afterthorough examination of the facts and the legalposition. In our considered view the revenue has notmade out any grounds to interfere with the orderpassed by the learned Single Bench.” 13. Therefore, this Court, is of the view that going by thefacts and circumstances of the case, the reopening is barred bylimitation, as the Assessing Officer has not satisfied that theassessee has failed to disclose the material facts truly andfully. Accordingly, this writ petition is allowed and theimpugned order is set aside. No costs. Connected miscellaneouspetition is closed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar The Deputy Commissioner of Income Tax,Company Circle VI(1), 7[th] Floor, New Block, Aayakar Bhavan,121, Mahatma Gandhi Road, Nungambakkam,Chennai – 600034. +1 cc to M/s.A.P.Srinivas, Advocate Sr.No. 95804+1 cc to M/s.N.V.Bajai, Advocate Sr.No. 96512AKM/08.01.2020/9P-4C / W.P.No.4808 of 2014