Roopa Steam Calnedering Worksno.tra Ginning Factory Compouna v. The Assistant Commissioner Of Income Tax,Circle I, Tirupur

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 23.07.2019 Judgment Reserved On:Judgment Pronounced On:18.07.2019 23.07.2019 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYANTax Case Appeal Nos.764, 855, 856, 973,974 and 975 to 978 of 2009 T.C.A.No.764 of 2009 Ahill Knit Exports,No.271/1, Karumarampalayam,Uthukuli Road,Tirupur - 641 601. ... Appellant/Appellant in TCA.764/2009DEE CEE EXPORTS ... Appellant/Appellantin TCA.855/2009 & 856/2009 LIMITEX ... Appellant/Appellant in TCA.973/2009J.CREATIONS ... Appellant/Appellant in TCA.974/2009 & 975/2009 B.RAJALAKSHMI ... Appellant/Appellant in TCA.976/2009 ROOPA STEAM CALNEDERING WORKSNo.TRA Ginning Factory Compouna ... Appellant/Appellantin TCA.977/2009 & 978/2009 -VS- The Assistant Commissioner of Income Tax,Circle I, Tirupur.... Respondent/Respondentin all TCAs PRAYER: Tax Case Appeal filed under Section 260A of theIncome Tax Act, 1961 against the order of the Income TaxAppellate Tribunal Chennai 'A' Bench, dated 31.03.2009 in ITA https://hcservices.ecourts.gov.in/hcservices/ No.760/Mds/2008, for the Assessment year 2003-04. (TCA.764/2009)dated 2.2.2009 in ITA No.815/Mds/2008 for the Assessment Year2000-01(TCA.855/2009) dated 02.02.2009 in ITA No.816/MDS/2008for the Assessment Year 2003-04 (TCA.856/2009) dated 02.02.2009in ITA No.814/MDS/2008 for the Assessment Year 2003-04(TCA.973/2009) dated 02.02.2009 in ITA No.817/MDS/2008 for theAssessment Year 2003-04 (TCA.974/2009) dated 02.02.2009 in ITANo.818/MDS/2008 for the Assessment Year 2004-05 (TCA.975/2009)dated 02.02.2009 in ITA No.775/MDS/2008 for the Assessment Year2004-05 (TCA.976/2009) dated 18.05.2009 in ITA No.931/MDS/2008for the Assessment Year 2002-03 (TCA.977/2009) dated 18.05.2009in ITA No.932/MDS/2008 for the Assessment Year 2003-04(TCA.978/2009) against the order dated 05.02.2008 made inC.No.320(4)/2007-08/CIT-III CBE on the file of the Commissionerof Income tax - III, Coimbatore- 641 018 and against the orderdated 24.03.2006 made in PAN/GIR No. AAAFFA 0909D on the file ofthe Assistant Commissioner of Income Tax Circle,Tirupur for theAssessment Year 2003-2004 (TCA.764/2009) against the order dated30.01.2008 made in C.No.320(3)/2007-08/CIT-III/CBEE on the fileof the Office of the Commissioner of INcome Tax-III, Coimbatore(TCA 855 & 856/2009 against the order dated 30.01.2008 made inC.No.320/(20)/2007-08/CIT-III/CBE on the file of theCommissioner of Income Tax III, Coimbatore 641 018 and againsthe order dated 30/08/2005 made in PAN/GIR No.L.315/AAABFL 07054on the file of the Assistant Commissioner of Income Tax, Circle- 1, Tirupur for the Assessment Year 2003 - 2004 (TCA.973/2009)against the order dated 22.02.2008 made in C.No.320(11)/2007-08/CIT-III/CBE on the file of the Commissioner of INcome Tax-III, Coimbatore 641 018 against the order dated 30.08.2005 madein PAN/GIR No.AAACFJ 9319 F/J329 on the file of the AssistantCommissioner of Income Tax, Circle I, Tirupur for the AssessmentYear 2003-04 (TCA.974 & 075/2009) against the order dated30.01.2008 made in C.No.320(2)2007-08/CIT-III/CBE on the file ofthe Commissioner of Income tax -III, Coimbatore and against theorder dated 189.08.2006 made in PAN/GIR.No.ACQPR 8240M/R.718 onthe file of the Assistant Commissioner of Income Tax, Circle -I,Tirupur for the Assessment Year 2004 -05 (TCA.976/2009) againstthe order dated 20.02.2008 made in C.No.320(22)/2007-08/CIT-III/CBE and C.No.320(23)/2007-08 C-III/CBE respectively on thefile of the Commissioner of Income Tax -III, Coimbatore (TCA977/2009 and TCA.978/2009). For Appellantin all the appeals:Mr.R.SivaramanFor Respondentin all the appeals:Mr.T.R.Senthil KumarSenior Standing Counsel &M/s.K.G.Usharani T.S.SIVAGNANAM, J. For Appellantin all the appeals:Mr.R.SivaramanFor Respondentin all the appeals:Mr.T.R.Senthil KumarSenior Standing Counsel &M/s.K.G.Usharani T.S.SIVAGNANAM, J. These appeals have been filed by the assessee under Section260A of the Income Tax Act, 1961 (hereinafter referred to as"the Act") challenging the orders passed by the Income TaxAppellate Tribunal Chennai 'A' Bench (hereinafter referred to as"the Tribunal") dated 31.03.2009 and the common order dated02.02.2009. The appeals were admitted by a common order dated15.09.2009 on the following Substantial Questions of Law: 1. Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right inlaw in upholding the action of the Commissionerof Income Tax u/s. 263 when there are two viewspossible in completing the assessment? 2. Whether on the facts and circumstances of thecase, the Appellate Tribunal was right in law injust confirming the order of the Commissioner ofIncome Tax u/s. 263 without even adverting tothe submissions made by the appellant andwithout rendering any finding to the factwhether duty drawback is entitled to thededuction under 80IB of the Act? 3. Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right inholding that duty drawback receipt cannot beconstrued as profits derived from industrialundertaking eligible for deduction u/s.80IB? With the consent of the learned counsels on either side,T.C.A.No.764 of 2009 is taken as the lead case since the factsare identical and the substantial questions of law framed forconsideration are also identical, a decision in T.C.A.No.764 of2009 would cover the other cases as well though the assessmentsare for different years and the Tribunal had rendered twoseparate orders one dated 31.03.2009 impugned in T.C.A.No.764 of2009 and the other common order dated 02.02.2009 impugned in theother tax case appeals. 2.We have heard Mr.R.Sivaraman, learned Counsel for theappellants/assessees and Mr.T.R.Senthil Kumar, learned SeniorStanding Counsel and M/s.K.G.Usharani, learned Junior StandingCounsel for the respondent/revenue. 3.First we take up for consideration Substantial Questionof law No.3, as to whether the Tribunal was right in holdingthat duty drawback receipt cannot be construed as profitsderived from an industrial undertaking eligible for deduction under Section 80IB of the Act. This question has been answeredagainst the assessee by the Hon'ble Supreme Court in the case ofLiberty India vs. Commissioner of Income Tax [(2009) 183 Taxman349(SC)]. The issue which fell for consideration before theHon'ble Supreme Court was whether profit from Duty EntitlementPassbook Scheme (DEPB) and Duty Drawback Scheme could be said tobe profit derived from the business of the IndustrialUndertaking eligible for deduction under Section 80IB of theAct. The question was answered against the assessee with thefollowing reasons: under Section 80IB of the Act. This question has been answeredagainst the assessee by the Hon'ble Supreme Court in the case ofLiberty India vs. Commissioner of Income Tax [(2009) 183 Taxman349(SC)]. The issue which fell for consideration before theHon'ble Supreme Court was whether profit from Duty EntitlementPassbook Scheme (DEPB) and Duty Drawback Scheme could be said tobe profit derived from the business of the IndustrialUndertaking eligible for deduction under Section 80IB of theAct. The question was answered against the assessee with thefollowing reasons: "16.DEPB is an incentive. It is given underDuty Exemption Remission Scheme. Essentially, itis an export incentive. No doubt, the objectbehind DEPB is to neutralize the incidence ofcustoms duty payment on the import content ofexport product. This neutralization is providedfor by credit to customs duty against exportproduct. Under DEPB, an exporter may apply forcredit as percentage of FOB value of exports madein freely convertible currency. Credit isavailable only against the export product and atrates specified by DGFT for import of rawmaterials, components etc.. DEPB credit under theScheme has to be calculated by taking into accountthe deemed import content of the export product asper basic customs duty and special additional dutypayable on such deemed imports. Therefore, in ourview, DEPB/Duty Drawback are incentives which flowfrom the Schemes framed by Central Government orfrom Section 75 of the Customs Act, 1962, hence,incentives profits are not profits derived fromthe eligible business under Section 80-IB. Theybelong to the category of ancillary profits ofsuch Undertakings." Thus, by applying the decision in the Liberty India's case, theSubstantial Question of law No.3 is answered against theassessees. 4.Substantial Question of law Nos.1 and 2 areinterconnected and interlaced in the sense that the assesseequestions the invocation of the power of the Commissioner ofIncome Tax (Appeals)(CIT(A)) under Section 263 of the Act on theground that the assessment orders passed by the Assessng Officercannot be stated to be erroneous or prejudicial to the interestof revenue. Therefore, Substantial Questions of law Nos.1 and 2are taken up together for decision. 5.The assessment in the lead case pertain to the assessmentyear 2003-2004. The assessee is engaged in the business ofmanufacturing and export of hosiery garments, it filed itsreturn of income on 27.11.2003 admitting a total income of Rs.43,56,130/-. The assessment was completed under Section 143(3) of the Act on 24.03.2006 on a total income ofRs.61,44,040/-. In the said order, deduction under Section 80IBof the Act was allowed to the tune of Rs.33,22,896/- being 25%of Rs.1,32,91,583/- which is income under the head "Profits andgains of business of profession". This income ofRs.1,32,91,583/-includesdutydrawbackreceiptofRs.1,33,44,053/-. The assessment order having been brought tothe notice of CIT(A), it was opined that the deduction underSection 80IB of the Act on the duty drawback receipt is notcorrect and not as per the provisions of the Act and thereforeheld that the assessment order passed under Section 143(3) ofthe Act dated 30.08.2005 is erroneous and prejudicial to theinterest of revenue warranting remedial action under Section 263of the Act. 6.Based on such information, the CIT(A) issued notice dated07.12.2007 proposing withdrawal of deduction under Section 80IBon the duty drawback receipt which was allowed by the AssessingOfficer. The assessee was directed to furnish their objectionsto the proposed action. The objections raised by the assesseewere two fold. Firstly on the merits of the matter stating thatthere is a direct nexus between the business of the industrialundertaking and the receipt of the duty drawback to come to theconclusion that duty drawback is derived from the business ofthe industrial undertaking. The assessee can no longer putforthsuch a submission in the light of the law laid down in the lightof the decision if the case of Liberty India which has heldagainst the assessee, taking note of which we had decided thesubstantial question of law No.3 against the assessee. Thesecond objection raised by the assessee was that the issue as towhether the duty drawback should be treated as income eligiblefor deduction under Section 80IB of the Act or not was thesubject matter of several decisions which were in favour of theassessee and therefore when two views were possible, Section 263of the Act cannot be invoked as the twin conditions contemplatedunder Section 263 of the Act should be satisfied. 7.The CIT(A) considered the objections, took note of thedecisions of this Court in Commissioner of Income Tax vs. JameelLeathers and Uppers [(2001) 246 ITR 97], Commissioner of IncomeTax vs. Viswanathan & Co. [(2003) 26 ITR 737], Commissioner ofIncome Tax vs. Ritesh Industries Ltd. [(2005) 142 Taxman 551(Delhi)], Commissioner of Income Tax vs. J.B.Exports Ltd.[(2006) 152 Taxman 189 (Delhi) and held that the issue wassettled in favour of the revenue and it cannot be stated thatthere were two views when the Assessing Officer completed theassessment. It was further held that the twin conditions forinvoking Section 263 of the Act, namely, that the assessmentorder must be erroneous and it must be prejudicial to theinterest of the revenue have been satisfied and it does not in any manner violate the decision of the Hon'ble Supreme Court inthe case of Commissioner of Income Tax (Central), Ludhiana vs.Max India Ltd. [(2007) 295 282(SC)]. Accordingly, the CIT(A)directed the Assessing Officer to revise the order of assessmentand withdraw the deduction allowed under Section 80IB of the Acton the duty drawback. The assessee filed an appeal before theTribunal reiterating the grounds raised before the CIT(A) intheir objections to the notice issued under Section 263 of theAct. The Tribunal after taking note of the decisions which wererelied on by the CIT(A) as well as the decision of this Court inthe case of M/s.Sakthi Footwear vs. Assistant Commissioner ofIncome Tax in TC(A).Nos.1066 and 1067 of 2008 dated 06.08.2008dismissed the appeal filed by the assessee. this is how theassessee is before us by way of these appeals. 8.In Malabar Industrial Co. Ltd. vs. Commissioner of IncomeTax [(2000) 109 Taxman 66 (SC)], the Hon'ble Supreme Court heldthat the phrase "prejudicial to the interest of the revenue"under Section 263 of the Act has to be read in conjunction withthe expression "erroneous" order passed by the AssessingOfficer. It was pointed out that every loss of revenue as aconsequence of an order of the Assessing Officer cannot betreated as prejudicial to the interest of the revenue. By wayof illustration, it was pointed out that when the Income TaxOfficer adopted one of the courses permissible in law and it hasresulted in loss of revenue; or where two views are possible andthe Income Tax Officer has taken one view with which theCommissioner does not agree, it cannot be treated as anerroneous order prejudicial to the interest of revenue unlessthe view taken by the Income Tax Officer is unsustainable inlaw. The decision in the case of Malabar Industries Co. Ltd.was followed in the case of Max India Ltd. Therefore, we are toconsider as to whether there were two views possible when theAssessing Officer completed the assessment and granted thebenefit of deduction under Section 80IB of the Act. On areading of the assessment order dated 24.03.2006, it is clearthat there is absolutely no discussion by the Assessing Officerwith regard to the assessees entitlement for deduction underSection 80IB of the Act on the duty drawback receipt. 9.Mr.T.R.Senthil Kumar, learned Senior Standing Counsel forthe respondent/revenue has furnished a tabulated statementmentioning the duty drawback received by all the assessees, fromwhich, we find that in the case of all the assessees the majorportion of the deduction claimed under Section 80IB of the Actpertain to the duty drawback received by the respectiveassessees. In such circumstances, it is incumbent upon theAssessing Officer to discuss the said issue. However, we findthe Assessing Officer only had discussed the issue as to whethersimultaneous claim of deduction under Sections 80HHC and 80IB ofthe Act from the gross total income was permissible or not. Thus, the Assessing Officer failed to take note of this vitalissue which ought to have been considered by the AssessingOfficer while completing the assessment and granting the reliefof deduction under Section 80IB of the Act. Therefore, theorder of the Assessing Officer has to be termed as an erroneousorder and on account of the unwarranted benefit granted to theassessee, it is definitely prejudicial to the interest of therevenue. Therefore, we would be fully justified in affirmingthe order passed by the Tribunal. Thus, the Assessing Officer failed to take note of this vitalissue which ought to have been considered by the AssessingOfficer while completing the assessment and granting the reliefof deduction under Section 80IB of the Act. Therefore, theorder of the Assessing Officer has to be termed as an erroneousorder and on account of the unwarranted benefit granted to theassessee, it is definitely prejudicial to the interest of therevenue. Therefore, we would be fully justified in affirmingthe order passed by the Tribunal. 10.Mr.R.Sivaraman contended that the assessment in the caseof the assessee in T.C.A.No.764 of 2009 was completed underSection 143(3) of the Act on 24.03.2006 and on the said date,the decision in Commissioner of Income Tax vs. India Gelatineand Chemicals Ltd. [(2005) 275 ITR 284(Guj.)] was clearly infavour of the assessee as the said decision was rendered by theHigh Court of Gujarat on 08.04.2004. It is further submittedthat apart from the said decision, there were other decisions ofthe Tribunals which were in favour of the assessee andtherefore, when two views were possible, the assessment ordercannot be faulted nor can it be stated to be erroneous orprejudicial to the interest of revenue for invoking the powerunder Section 263 of the Act. It is further submitted that thedecision in Jameel Leathers and Uppers was distinguished by theTribunal in the case of Assistant Commissioner of Income Tax vs.P.S. Apparels [(2006) 101 TTJ (Chennai) 29 on the ground thatthe decision did not consider the duty drawback receipts butdeals with Section 80J and 80H, wherein the wordings aredifferent. It is further submitted that the decision of theDelhi Tribunal in Deputy Commissioner of Income Tax vs. EltekSGS (P) LTd. [(2006) 10 SOT 178 (Del)] was in favour of theassessee and this decision was subsequently confirmed by theHigh Court of Delhi in Commissioner of Income Tax vs. Eltek SGS(P) LTd. [(2008) 300 ITR 6 (Del)] and therefore the AssessingOfficer was justified in granting the deduction on the dutydrawback receipt. It is further submitted that apart from thatthere were other decisions of the Delhi Tribunal in the case ofMetro Tyres, a decision of the Mumbai Tribunal in the case ofAnil L.Shah and the decision of the Ahmedabad Special Bench inthe case of Nirma Industries. Thus, it is the submission of thelearned counsel that the power under Section 263 of the Actcould not have been invoked by the CIT(A). 11.As pointed out by us earlier, there is no indication inthe assessment order that the Assessing Officer considered theassessee's entitlement for deduction under Section 80IB of theAct on the duty drawback receipts and that he had taken note ofthe decision in India Gelatin and Chemicals Ltd., P.S. Apparels, Eltek SGS (P) Ltd., Metro Tyres, etc. and granted the benefit.As mentioned earlier, the Assessing Officer had not dealt withthis issue while completing the assessment. Therefore, at thisjuncture, the assessee is precluded from raising a contentionthat the Assessing Officer adopted one of the two views thatwere available at the relevant time. 11.As pointed out by us earlier, there is no indication inthe assessment order that the Assessing Officer considered theassessee's entitlement for deduction under Section 80IB of theAct on the duty drawback receipts and that he had taken note ofthe decision in India Gelatin and Chemicals Ltd., P.S. Apparels, Eltek SGS (P) Ltd., Metro Tyres, etc. and granted the benefit.As mentioned earlier, the Assessing Officer had not dealt withthis issue while completing the assessment. Therefore, at thisjuncture, the assessee is precluded from raising a contentionthat the Assessing Officer adopted one of the two views thatwere available at the relevant time. 12.Be that as it may, it has to be seen as to whether theCIT(A) was justified in its reasoning while passing an orderunder Section 263 of the Act and directing the Assessing Officerto withdraw the deduction allowed under Section 80IB of the Act.At the relevant point of time, the decision in Jameel Leathersand Uppers held the field. This decision was clearly againstthe assessee. It is not the case of the assessee that theydistinguished this decision before the Assessing Officer, he hadconsidered the grounds raised by them and then granted thebenefit of deduction under Section 80IB of the Act. Therefore,before us the assessee cannot contend that the Assessing Officertook note of the fact that the decision in Jameel Leathers andUppers was distinguished by the Tribunal in the case ofP.S.Apparels. In the absence of any finding to the said effectin the assessment order, we cannot be called upon to infer thatthe Assessing Officer did so. 13.Apart from the decision in the case of Jameel Leathersand Uppers, there were other decisions of this Court inCommissioner of Income Tax vs. Sterling foods [(1999) 104 Taxman204 (SC)], Viswanathan & Co., Commissioner of Income Tax vs.Sundaram Clayton Ltd. [(2003) 130 Taxman 64 (Mad.)], thedecision of the High Court of Delhi in Ritesh Industries, JBExports Ltd. which were all against the assessee. As pointedout earlier, the major claim for deduction under Section 80IBwas relating to the duty drawback receipts. Therefore, theAssessing Officer having not applied his mind to the said issue,it would be too late for the assessee to now contend that theAssessing Officer had adopted the decisions which were in favourof the assessee at the relevant time. In the case of M/s.SakthiFootwear, this Court held that the mandate of law in Section80IB of the Act is that unless the source of the profit is theundertaking, the assessee is not eligible to claim deduction andmere commercial connection between the income and theindustrial undertaking would not be sufficient. 14.Thus, for all the above reasons we find that the orderpassed by the Tribunal is perfectly valid and legal.Accordingly, the Substantial Question of law Nos.1 and 2 areanswered against the assessee. 15. In the result, the appeals are dismissed and theSubstantial Questions of law are answered against the assessee.No costs. cse Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar To 1.The Assistant Commissioner of Income Tax, Circle I, Tirupur. 2.The Income-tax Appellate Tribunal, “A” Bench, Chennai. 3. The Commissioner of Income Tax - III, Coimbatore. +10CCs to Mr.R.Sivaraman Advocate, SR.No.63892/19 +1cc to Mr.T.R.Senthil Kumar, Advocate, SR.No.63627 T.C.A.Nos.764, 855, 856, 973, 974 and 975 to 978 of 2009Kak(27/09/2019)