M/S.turbo Energy Private Limited,Rep.by Its Whole Time Directormr.s.ravindran v. The Assistant Registrar, Income Tax Appellate Tribunal, Rajaji Bhawan, Besant Nagar, Chennai-90

In the High Court of Judicature at Madras Coram : The Honourable Mr.Justice T.S.SIVAGNANAM The Honourable Mr.Justice N.SESHASAYEE Writ Petition Nos.6648 to 6650 of 2018& WMP.Nos.8241 to 8245 of 2018 M/s.Turbo Energy Private Limited,rep.by its whole time DirectorMr.S.Ravindran...Petitioner Vs 1.The Assistant Registrar, Income Tax Appellate Tribunal, Rajaji Bhawan, Besant Nagar, Chennai-90. 2.The Deputy Commissioner of Income Tax, Large Tax Payer Unit (Appeals)-I, Chennai-34....Respondents PETITIONS under Article 226 of The Constitution of Indiapraying for the issuance of Writs of Certiorarified Mandamus tocall for the impugned orders passed by the 1st respondent dated16.2.2018 (i) for the assessment year 2011-12 in SP.No.57/CHNY/2018 inITA No.190/CHNY/2018,IN WP.6648/18 (ii) for the assessment year 2012-13 in SP.No.58/CHNY/2018in ITA No.191/CHNY/2018 and IN WP.6649/18 (iii) for the assessment year 2014-15 in SP.No.59/CHNY/2018in ITA No. 193/CHNY/2018, IN WP.6650/18 quash the impugned orders and consequently direct the 2ndrespondent not to take any coercive steps to collect theoutstanding demand respectively for the assessment years 2011-12, 2012-13 and 2014-15. (Order of the Court was made by T.S.SIVAGNANAM,J) Heard the learned counsel for the petitioner and thelearned Senior Standing Counsel appearing for the respondentDepartment. With consent, the writ petitions are taken up forjoint disposal. 2. These writ petitions are directed against the commonorder passed by the Income Tax Appellate Tribunal rejecting thepetitions filed by the petitioner requesting for stay ofrecovery of the outstanding demand for the assessment years2011-12, 2012-13 and 2014-15. 3. The demands arose on account of denial of deductionclaimed by the petitioner - assessee under Section 80IC of theIncome Tax Act, 1961 (hereinafter called the Act for brevity).The starting point of the controversy was an Order-in-Originalpassed by the Assistant Commissioner of Central Excise dated04.3.2015 with regard to the claim for exemption made by thepetitioner in respect of their manufacturing unit at Rudrapur.ThepetitionerclaimedexemptionunderNotificationNo.50/2003/CE dated 10.6.2003. 4. During the course of audit of the accounts for the periodfrom April 2010 to November 2012, the Central Excise Authoritiesnoticed that the goods namely 'overhaul kit' and 'secondary kit'of turbo chargers were cleared to Rudrapur from Paiyanoor Unitand that such goods were cleared by the Rudrapur Unit afterrepacking the same and claiming exemption under the saidNotification. The Central Excise Authorities stated that theexemption Notification shall not apply to such goods, which weresubjected to one or more of the following processes namelypreservation during storage, cleaning operations, packing orrepacking of such goods in unit container or labeling or re-labeling of containers, sorting, declaration or alteration ofretail sale price and have not been subjected to any otherprocess or processes amounting to manufacture in the State ofUttarakand or Himachal Pradesh. 5. The Audit Department came to the conclusion that thegoods sent to Rudrapur were subjected to only processes, whichwere stated to be not amounting to manufacture before clearanceto their customers. Therefore, the Central Excise Authoritiescame to the conclusion that the appropriate central excise dutyon such goods have not been paid and not reported to theDepartment. 6. This led to the issuance of show cause notice dated15.12.2014. The petitioner submitted their reply and the https://hcservices.ecourts.gov.in/hcservices/ 5. The Audit Department came to the conclusion that thegoods sent to Rudrapur were subjected to only processes, whichwere stated to be not amounting to manufacture before clearanceto their customers. Therefore, the Central Excise Authoritiescame to the conclusion that the appropriate central excise dutyon such goods have not been paid and not reported to theDepartment. 6. This led to the issuance of show cause notice dated15.12.2014. The petitioner submitted their reply and the https://hcservices.ecourts.gov.in/hcservices/ Assistant Commissioner of Central Excise, by Order-in-Originaldated 04.3.2015, confirmed the demand in the show cause noticeand held the petitioner liable to payment of duty ofRs.1,06,193/-, other cess charges and penalty. The petitionerappears to have not contested the said proceedings and clearedthe duty in full. In respect of the subsequent periods, itappears that the Central Excise Department had issued similardemands, which have been paid by the petitioner without contest.The details in this regard have been stated in paragraph 10 ofthe affidavit in support of the writ petition. 7. Based on the information received from the Central ExciseDepartment, the Assessing Officer, under the Income Tax Act,1961, issued a show cause notice dated 24.3.2015 stating thatthe processes adopted by the petitioner do not amount tomanufacture and that the unit at Rudrapur is not eligible fordeduction under Section 80IC of the Act. As pointed out by theCentral Excise Department, certain of the petitioner's productssuch as 'overhaul kit' and 'core assembly' are not subjected toany manufacturing activity and thus, it is evident that theprofits derived from the other units are shifted to the 80ICunit for the purpose of claiming deduction. Therefore, thepetitioner was directed to show cause as to why the claim underSection 80IC of the Act should not be disallowed. 8. The petitioner submitted their reply dated 28.3.2015 andalso furnished a summary of the total value of the manufacturingactivity and the trading activity in a tabulated format. Thepetitioner also furnished the details relating to process flowchart for the core assembly, etc. The Assessing Officer, byorders dated 31.3.2015, 26.2.2016 and 22.12.2016, rejected thestand taken by the petitioner and disallowed the entire claimfor deduction under Section 80IC of the Act. 9. These orders were put to challenge by the petitionerbefore the Commissioner of Income Tax (Appeals), who, by acommon order dated 20.11.2017, dismissed the appeals. As againstthe common order passed by the Commissioner of Income Tax(Appeals), the petitioner preferred appeals before the IncomeTax Appellate Tribunal. Pending appeals before the Tribunal, thepetitioner filed petitions for stay of recovery of theoutstanding demand for all the three assessment years. TheTribunal, by the impugned orders, dismissed the stay petitionson the ground that the petitioner has not been able to showstrong prima facie case. 10. After elaborately hearing the learned counsel for theparties and perusing the materials placed on record, we, primafacie, find that the Assessing Officer could not have gonebeyond the observations rendered or findings recorded by theCentral Excise Department, as, even in the show cause notice, https://hcservices.ecourts.gov.in/hcservices/ there is a reference only to the findings recorded by theCentral Excise Department. Therefore, we are of the prima facieview that the observations made by the Assessing Officer that50% of the products sold at Rudrapur are not subjected to anymanufacturing activity, appear to be in contradiction with thefindings rendered by the Central Excise Department. 10. After elaborately hearing the learned counsel for theparties and perusing the materials placed on record, we, primafacie, find that the Assessing Officer could not have gonebeyond the observations rendered or findings recorded by theCentral Excise Department, as, even in the show cause notice, https://hcservices.ecourts.gov.in/hcservices/ there is a reference only to the findings recorded by theCentral Excise Department. Therefore, we are of the prima facieview that the observations made by the Assessing Officer that50% of the products sold at Rudrapur are not subjected to anymanufacturing activity, appear to be in contradiction with thefindings rendered by the Central Excise Department. 11. Furthermore, this aspect also touches upon thejurisdiction of the Assessing Officer to render such a finding,when he had no independent material at the first instance whileissuing the show cause notice dated 24.3.2015. If thisinterpretation is to be accepted, then, to the extent wherethere is no manufacturing activity, the Assessing Officer wouldbe justified in denying deduction under Section 80IC of the Act.However, such procedure was not followed by the AssessingOfficer. The Appellate Authority, while testing the correctnessof the orders passed by the Assessing Officer, appears to havenot made an independent exercise to refer to the findingsrecorded and the observations made by the Assessing Officer. 12. This aspect of the matter ought to have been consideredby the Tribunal while exercising jurisdiction by stating thatthe petitioner has made out a prima facie case. In fact, inparagraph 5 of the order of the Tribunal, it explained the factthat the trading volume was only minuscule. If this is the primafacie observation made by the Tribunal, a thorough exerciseshould have been done by the Tribunal as to whether the IncomeTax Officer was justified in denying the entire deduction asclaimed by the assessee. The further observation of the Tribunalthat no separate books of accounts were maintained, prima facie,appears to be not a finding and more so, when the law laid downby the Bombay High Court in the case of CIT Vs. Mazagaon DockLtd. [reported in (1991) 191 ITR 460]. 13. Thus, considering the facts and circumstances as statedabove, we are of the view that the petitioner has made out aprima facie case for grant of interim order during the pendencyof the appeals before the Tribunal. 14. It is seen that the total demand as per the order underSection 143(3) of the Act is Rs.29,93,49,175/-, out of which, anamount of Rs.4,61,39,680/- has been adjusted as against therefund, which was sanctioned to the petitioner for theassessment year 2010-11, thus leaving the remaining demand ofRs.,25,32,09,495/-. After giving effect to the order passed bythe Commissioner of Income Tax (Appeals), the demand payable isRs.14,79,89,350/-, out of which, a sum of Rs.5,00,00,000/- hasbeen paid on 14.3.2018. Thus, the above figures show that 30% ofthe demand has already been adjusted/paid by thepetitioner/assessee. In our considered view, 30% of the demand,having been adjusted/paid, will sufficiently safeguard the interests of the Revenue and will be in tune with the OfficeMemorandum issued by the Central Board of Direct Taxes, whichrationalizes grant of stay orders for the Appellate Authority tofollow by imposing a condition of payment of 20%. Hence, we areof the view that the petitioner has made out a prima facie casefor grant of interim order, as payment of 30% sufficientlysafeguards the interests of the Revenue. interests of the Revenue and will be in tune with the OfficeMemorandum issued by the Central Board of Direct Taxes, whichrationalizes grant of stay orders for the Appellate Authority tofollow by imposing a condition of payment of 20%. Hence, we areof the view that the petitioner has made out a prima facie casefor grant of interim order, as payment of 30% sufficientlysafeguards the interests of the Revenue. 15. Accordingly, the writ petitions are allowed, theimpugned orders are set aside and there will be a stay ofrecovery of remaining outstanding demand for all the threeassessment years till the disposal of the appeals by the IncomeTax Appellate Tribunal. It is made clear that the observationsmade in the preceding paragraphs are only for the purpose ofrecording a prima facie finding to show as to how the petitioneris entitled to grant of interim order during the pendency of theappeals before the Tribunal and this shall, in no manner, weighin the minds of the Income Tax Appellate Tribunal while decidingthe appeals, which shall be done on merits and in accordancewith law. No costs. Consequently, the connected WMPs are closed. 2.The Deputy Commissioner of Income Tax, Large Tax Payer Unit (Appeals)-I, Chennai-34.