Pr. Commissioner Of Income Tax I, Ludhiana v. Appel

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.143 of 2015 (O&M)Date of decision: 26.4.2016 Pr. Commissioner of Income Tax I, Ludhiana Vs. ..--. Appel M/s B.B.F. Industries Limited ....Responden CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MRS. JUSTICE RAJ RAHUL GARG 1. Whether Reporters of local papers may be allowed to see the judgment?2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present:Mr. Rajesh Katoch, Advocate for the appellant-assessee. Ms. Radhika Suri, Sr. Advocate with Ms. Rajni Pal, Advocate,for the respondent. Ajay Kumar Mittal,J. 1.This order shall dispose of ITA Nos.143, 146, 147, 190 and 191 of2015 as learned counsel for the parties are agreed that similar questions areinvolved in all these appeals. However, the facts are being extracted from ITA No. 143 of 2015. 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated20.11.2014 Annexure A.IV passed by the Income Tax Appellate Tribunal,Chandigarh (in short, “the Tribunal’) in ITA 1162/CHD/2012 for the assessmentyear 2006-07. The appellant had filed CM No.25157-CII of 2015 seekingpermission to amend the substantial questions of law. The said application wasallowed vide order dated 09.12.2015 and the following amended substantial questions of law were taken on record:- Whether on the facts and circumstances of the case the Hon'bleIncome Tax Appellate Tribunal was right in law in quashing thereopening of the assessment under sections 147/148 of the IncomeTax Act, 1961, holding the same to be a mere change of opinion andalso on the grounds that the assessee at the time of original assessmentproceedings had disclosed all the primary tacts before the AssessingOfficer, whereas the proceedings under section 147 of the Income TaxAct, 1961 were initiated within the period of four years from the endof the relevant assessment year and hence first proviso to section 147)of the Income Tax Act, 1961 was not applicable in the case of theassessee?Income Tax Appellate Tribunal was right in law in quashing thereopening of the assessment under sections 147/148 of the IncomeTax Act, 1961, holding the same to be a mere change of opinion andalso on the grounds that the assessee at the time of original assessmentproceedings had disclosed all the primary tacts before the AssessingOfficer, whereas the proceedings under section 147 of the Income TaxAct, 1961 were initiated within the period of four years from the endof the relevant assessment year and hence first proviso to section 147)of the Income Tax Act, 1961 was not applicable in the case of theassessee? i1) Whether the Hon'ble Income Tax Appellate Tribunal is justified to holdthat proceedings under section 147 of the Income Tax Act, 1961 arebased upon change of opinion whereas the assessee had claimeddeduction under section 80IB of the Income Tax Act, 1961 on varioussubsidies whereas the same was not admissible in view of the law laiddown by the Hon'ble Apex Court in the case ofLiberty India vs. CIT!(2009) 317 ITR 218 (SO)?that proceedings under section 147 of the Income Tax Act, 1961 arebased upon change of opinion whereas the assessee had claimeddeduction under section 80IB of the Income Tax Act, 1961 on varioussubsidies whereas the same was not admissible in view of the law laiddown by the Hon'ble Apex Court in the case ofLiberty India vs. CIT!(2009) 317 ITR 218 (SO)? 111) Whether on the facts and in the circumstances of the case, the Hon'bleIncome Tax Appellate Tribunal was justified in allowing relief to theassessee by holding that various subsidies i.e. Interest subsidy, freightsubsidy and insurance subsidy received by the assessee are capitalreceipt in nature?Income Tax Appellate Tribunal was justified in allowing relief to theassessee by holding that various subsidies i.e. Interest subsidy, freightsubsidy and insurance subsidy received by the assessee are capitalreceipt in nature? 111) Whether on the facts and in the circumstances of the case, the Hon'bleIncome Tax Appellate Tribunal was justified in allowing relief to theassessee by holding that various subsidies i.e. Interest subsidy, freightsubsidy and insurance subsidy received by the assessee are capitalreceipt in nature?Income Tax Appellate Tribunal was justified in allowing relief to theassessee by holding that various subsidies i.e. Interest subsidy, freightsubsidy and insurance subsidy received by the assessee are capitalreceipt in nature? iv) Whether on the facts and in the circumstances of the case, the Hon'bleIncome Tax Appellate Tribunal was justified in allowing relief to theassessee by also accepting its alternative plea that after reducing thesesubsidies from the expenditure incurred, no further income was leftunder the head of subsidy, whereas actually by reducing the subsidyfrom the expenses, the assessee is claiming deduction under sectionSOIB on these subsidies in indirect manner by enhancing the profit ofthe eligible business to that extent?Income Tax Appellate Tribunal was justified in allowing relief to theassessee by also accepting its alternative plea that after reducing thesesubsidies from the expenditure incurred, no further income was leftunder the head of subsidy, whereas actually by reducing the subsidyfrom the expenses, the assessee is claiming deduction under sectionSOIB on these subsidies in indirect manner by enhancing the profit ofthe eligible business to that extent? Vv) Whether the Hon'ble Income Tax Appellate Tribunal is justified in lawin allowing deduction under section 80IB of the Income Tax Act,1961 on various subsidies received by the assessee, whereas the sameis not allowable in view of the law laid down by the Hon'ble ApexCourt in the case ofLiberty India vs. CIT,(2009) 317 ITR 218(SC)?7in allowing deduction under section 80IB of the Income Tax Act,1961 on various subsidies received by the assessee, whereas the sameis not allowable in view of the law laid down by the Hon'ble ApexCourt in the case ofLiberty India vs. CIT,(2009) 317 ITR 218(SC)?7 Questions No.(i) and (11) have been claimed in ITA No.143 of 2011 only whereasQuestions No.(ili) to (v) have been claimed in all the other connected appealswhich are identical. 3A few facts relevant for the decision of the controversy involved asnarrated in ITA No.143 of 2015 may be noticed. Return declaring an income at=1,58,69,445/- was filed on 29.11.2006 and assessment was completed under section143(3) of the Act on 26.11.2008 at an income of=a2,15,83,400/-. Later on, theassessment was reopened under section 147 of the Act on 9.3.2011 and assessmentwas completed on 30.11.2011 at an income of |=a3,29,06,269/- after disallowingdeduction under section 80IB of the Act amounting toL1,05,05,352/- on accountof various subsidies by not treating the subsidies as part of profits eligible fordeduction under section 80IB of the Act. Aggrieved by the order, the assesseefiled appeal before the Commissioner of Income Tax (Appeals) |CIT(A)] againstreopening of assessment as well as disallowance of deduction under section 80IB Assessing Officer regarding reopening of assessment under section 147 of the Actas well as disallowing deduction under section 80IB of the Act. Still not satisfied,the assessee filed appeal before the Tribunal. Vide order dated 20.11.2014,Annexure IV, the Tribunal quashed the reopening of assessment under section 147of the Act by relying upon various judgments and allowed the appeal. However,the issue relating to deduction under Section 80IB of the Act on various subsidieswas adjudicated in favour of the assessee. Hence the instant appeals by theTEVENUE. Assessing Officer regarding reopening of assessment under section 147 of the Actas well as disallowing deduction under section 80IB of the Act. Still not satisfied,the assessee filed appeal before the Tribunal. Vide order dated 20.11.2014,Annexure IV, the Tribunal quashed the reopening of assessment under section 147of the Act by relying upon various judgments and allowed the appeal. However,the issue relating to deduction under Section 80IB of the Act on various subsidieswas adjudicated in favour of the assessee. Hence the instant appeals by theTEVENUE. 4We have heard learned counsel for the parties.|5.Adverting to Questions No.(i) and (11) as noticed above, regarding theissue qua reopening of the assessment relating to assessment year 2006-07 undersection 147 of the Act on the ground of mere change of opinion, it has beencategorically recorded by the Tribunal that the assessee had disclosed completefacts before the Assessing Officer at the stage of original assessment which wereduly verified and thus, on mere change of opinion, reopening of the assessmentcould not be held to be valid and justified. The relevant findings recorded by theTribunal on this issue read as under:- “17. The assessee, thereafter filed objections before Assessing Officerexplaining that how assessee was eligible for deduction undersection SOIB in respect of Unit I and Unit I] at Samba, however, theAssessing Officer rejected the objections of the assessee vide letterdated 14.11.2011 (PB-57). In this letter, Assessing Officer acceptedthat mistake has been detected which led to change of opinion. It is,therefore, clear that all facts were known to the revenue departmentat the time of original assessment proceedings in respect of claimunder section 80IB of the Act for Samba units and the AssessingOfficer verified all the facts and there was no failure on the part ofthe assessee to disclose complete facts before Assessing Officer atassessment stage. No new material has come in existence andpossession of the Assessing Officer for reopening of the assessment.explaining that how assessee was eligible for deduction undersection SOIB in respect of Unit I and Unit I] at Samba, however, theAssessing Officer rejected the objections of the assessee vide letterdated 14.11.2011 (PB-57). In this letter, Assessing Officer acceptedthat mistake has been detected which led to change of opinion. It is,therefore, clear that all facts were known to the revenue departmentat the time of original assessment proceedings in respect of claimunder section 80IB of the Act for Samba units and the AssessingOfficer verified all the facts and there was no failure on the part ofthe assessee to disclose complete facts before Assessing Officer atassessment stage. No new material has come in existence andpossession of the Assessing Officer for reopening of the assessment. No tangible material was found against assessee and no freshmaterial came on record for reopening of the assessment. Thedecisions which are referred to in the reasons for reopening of theassessment i.e. decisions of the Hon'ble Supreme Court in the casesof Sterling Foods and Liberty India Limited (supra) were alreadyconsidered by Assessing Officer while passing the originalassessment order. Therefore, it is clearly a case of change ofOpinion on the part of the Assessing Officer and therefore, on merechange of opinion, reopening of the assessment could not be held tobe valid and justified. No tangible material was found against assessee and no freshmaterial came on record for reopening of the assessment. Thedecisions which are referred to in the reasons for reopening of theassessment i.e. decisions of the Hon'ble Supreme Court in the casesof Sterling Foods and Liberty India Limited (supra) were alreadyconsidered by Assessing Officer while passing the originalassessment order. Therefore, it is clearly a case of change ofOpinion on the part of the Assessing Officer and therefore, on merechange of opinion, reopening of the assessment could not be held tobe valid and justified. 18. Considering the above propositions of law decided in variousjudgments quoted above, it is clear that Assessing Officer is notjustified in reopening the assessment on mere change of opinion,The learned counsel for the assessee, on the basis of the replies filedbefore Assessing Officer at the original assessment proceedings hasbeen able to prove that assessee disclosed all primary fact beforeAssessing Officer at the time of making original assessment orderdated 26.11.2008. The Assessing Officer, after examining thereplies and details on record, accepted the substantial claim ofassessee of deduction under section 80IB in respect of units atSamba. Thus, the Assessing Officer formed the opinion on the basisof the facts and material on record by accepting the claim ofassessee on the same issue on which assessment was reopened. Thedecision cited by learned DR would not support the case of therevenue because of the findings recorded above. 19. Considering the above discussion, we do not find any justificationfor the authorities below to justify the reopening of the assessment.The reopening of the assessment is thus clearly bad in law and isliable to be quashed. We accordingly set aside the orders of theauthorities below in assessment year 2006-07 and quash thereopening of the assessment under section 147/148 of the Act.Appeal of assessee is allowed in assessment year 2006-07 on thiseround, XxXXKXKXKXKXKXXKKXXKKKXKKKXXKXKKKKXKKKKKX”” Adverting to Questions No.(i11) to (v), they relate to different subsidies, le. interest on working Capital subsidy, Insurance subsidy and Freight subsidyreceived by the assessee and the issue therein is whether deduction under sectionSOIB of the Act was allowable in respect of these subsidies or not, poAfter examining the matter and the case law on the point and inter aliarelying upon judgment of the Gauhati High Court inCIT vs. Meghalaya SteelsLimited,(2013) 356 ITR 235 where various judgments including judgment of theSupreme Court in the case of Liberty India vs. CIT(supra) were considered, theTribunal held that the Freight subsidy, insurance subsidy and interest subsidy arederived from industrial undertaking and eligible for deduction under section 80IB ofthe Act. § The revenue had challenged the aforesaid decision of the Gauhati HighCourt by way of Special Leave Petition. The Apex Court in>Commissioner ofIncome vs. M/s Meghalaya Steels Limited,Civil Appeal No.7622 of 2014 decidedon 9.3.2016 had affirmed the decision of the Gauhati High Court and dismissed theappeal of the revenue. The relevant observations made by the Apex Court in M/sMeghalaya Steels Limited'scase (Supra), read thus:- “18. The judgment inSterling Foodslays down a very important test inorder to determine whether profits and gains are derived from businessor an industrial undertaking. This Court has stated that there should bea direct nexus between such profits and gains and the industrialundertaking or business. Such nexus cannot be only incidental. Ittherefore found, on the facts before it, that by reason of an exportpromotion scheme, an assessee was entitled to import entitlementswhich it could thereafter sell. Obviously, the sale considerationtherefrom could not be said to be directly from profits and gains by theindustrial undertaking but only attributable to such _ industriundertaking inasmuch as such import entitlements did not relate to “18. The judgment inSterling Foodslays down a very important test inorder to determine whether profits and gains are derived from businessor an industrial undertaking. This Court has stated that there should bea direct nexus between such profits and gains and the industrialundertaking or business. Such nexus cannot be only incidental. Ittherefore found, on the facts before it, that by reason of an exportpromotion scheme, an assessee was entitled to import entitlementswhich it could thereafter sell. Obviously, the sale considerationtherefrom could not be said to be directly from profits and gains by theindustrial undertaking but only attributable to such _ industriundertaking inasmuch as such import entitlements did not relate to manufacture or sale of the products of the undertaking, but related onlyto an event which was post manufacture namely, export. On anapplication of the aforesaid test to the facts of the present case, it canbe said that as all the four subsidies in the present case are revenuereceipts which are reimbursed to the assessee for elements of costrelating to manufacture or sale of their products, there can certainly besaid to be a direct nexus between profits and gains of the industrialundertaking or business, and reimbursement of such_ subsidiesHowever, Shri Radhakrishnan stressed the fact that the immediatesource of the subsidies was the fact that the Government gave themand that, therefore, the immediate source not being from the businessof the assessee, the element of directness 1s missing. We are afraid wecannot agree. What 1s to be seen for the applicability of Sections 80-IBand 8Q-IC is whether the profits and gains are derived from thebusiness. So long as profits and gains emanate directly from thebusiness itself, the fact that the immediate source of the subsidies is theGovernment would make no difference, as it cannot be disputed thatthe said subsidies are only in order to reimburse, wholly or partially,costs actually incurred by the assessee 1n the manufacturing and sellingof its products. The “profits and gains” spoken of by Sections 80-IBand 80-IC have reference to net profit. And net profit can only becalculated by deducting from the sale price of an article all elements ofcost which go into manufacturing or selling it. Thus understood, it 1sclear that profits and gains are derived from the business of theassessee, namely profits arrived at after deducting manufacturing costand selling costs reimbursed to the assessee by the Governmentconcerned.’ Adverting to the judgments relied upon by the learned counsel for the > appellant-revenue, it may be noticed that the decisions inCIT vs. Ceramics India,(2012) 821 CCH 0261 (Gau.HC),CIT vs. Kiran Enterprises» (O10) 327 ITRS20(HP) andCIT vs. Gheria Oil Gramudyog Workers Welfare Association,(2011) 330 ITR 117(HP), suffice it to notice that they were based on individual factsituation involved therein. Moreover, in view of the judgment of the Supreme CourtIn Meghalaya Steels Limited'scase (Supra), the appellant cannot derive anyadvantage from the said pronouncements.| 10...The findings recorded by the Tribunal are based on appreciation ofmaterial on record and the relevant case law on the point. Learned counsel for theappellant-revenue has not been able to show any illegality or perversity 1n the saidfindings. Thus, the substantial questions of law are answered accordingly. Theappeals stand dismissed. April 26, 2016gs’ (Ajay Kumar Mittal)Judge(Raj Rahul Garg)Judge|