Wp/201890/2015 Of M/S Shilpa Medicare Limited v. The Commissioner Of Income Tax Kalaburagi And Ors

Digitally signedby RENUKALocation: HighCourt OfKarnataka NC: 2024:KHC-K:2969WP No. 201890 of 2015 IN THE HIGH COURT OF KARNATAKA|KALABURAGI BENCH DATED THIS THE 15 DAY OF APRIL, 2024 BEFORE THE HON'BLE MR. JUSTICE V SRISHANANDA WRIT PETITION NO.201890/2015(TIT) BETWEEN: M/S. SHILPA MEDICARE LIMITED,REPRESENTED BY ITS MANAGING DIRECTOR ©MR. VISHNUKANT BHUTADA,AGE:53 YEARS10/80, FIRST FLOOR, |RAJENDRA GUNJ,RAICHUR-584102.. PETITIONER (BY SRI A. SHANKAR, SR. COUNSEL FOR-SRI MANJUNATH MALLAYYA SHETTY, ADVOCATE) AND: 1.THE COMMISSIONER OF INCOME TAX, |GULBARGA,AAYAKAR BHAVAN,SEDAM ROAD, |GULBARGA -585105. 2.THE JOINT COMMISSIONER OF INCOME-TAX,OFFICE OF THE JOINT COMMISSIONER OFINCOME TAXAAYAKAR BHAVAN,OPP. AYYAPPA SWAMY TEMPLE, |UDAYA NAGAR,RAICHUR-584101.. -).- 3.THE DEPUTY COMMISSIONER/THE ASSISTANTCOMMISSIONER OF INCOME TAX,CIRCLE-1,OFFICE OF THE DEPUTY COMMISSIONER OF|INCOME TAX,OPP, AYYAPPA SWAMY TEMPLEUDAYA NAGAR.RAICHUR-584101.. (BY SRI M. THIRUMALESH, ADVOCATE) RESPONDENTS THIS WRIT PETITION IS FILED UNDER ARTICLES 226AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TQ)ISSUE A WRIT OF CERTIORARI OR DIRECTION IN THE NATUREOF A WRIT OF CERTIORARI QUASHING THE NOTICE ISSUED|UNDER THE PROVISION OF SECTION 148 OF THE ACT BY)RESPONDENT|NO.3AS|ENCLOSEDANDMARKEDAS|ANNEXURES -Al & Ad2, ETC. THIS WRIT PETITION COMING ON FOR’ FURTHERHEARING THIS DAY, THE COURT MADE THE FOLLOWING: ORDER Heard Sri A. Shankar, learned Senior Counsel for the)petitioner and Sri M. Thnirumalesn, learned counsel for therespondents. 2DThe present writ petition is filed with the following prayer. “(a) Issue a writ of Certiorari or direction in thenature of a writ of certiorari quashing the notice|issued under the provision of section 148 of the Act.issued Dy the Respondent No.3 as enclosed and|marked as Annexure-'Al & AZ’. The details of the|Annexure-Al and AZ are as follows: |) Notice under section 148 of the Act dated|28.03.2014 vide PAN: F, No.|DCIT/C-1/RCR/2013-14 for the assessment.year 2008-09- Annexure-Al. ii) Notice under section 148 of the Act dated|28.03.2014 vide PAN: F, No.|DCIT/C-1/RCR/2013-14 for the assessment.year 2009-10 - Annexure-A2. (Db) Issue a writ of Certiorari or direction in thenature of a writ of certiorari quashing the notice|issued under the provision of section 143(2) of theAct issued by the Respondent No.3 as enclosed andmarked as Annexure-'B1 & BZ’. The details of theAnnexure-B1 and BZ? ere as follows: |) Notice under section 143(2) of the Act dated27.09.7014 vide PAN: AADCS8/7/S88F for tassessment year 2008-09 - Annexure-B1 ii) Notice under section 143(2) of the Act|dated 77.09.7014 vide PAN: AADCSS8/8S8F fothe assessment year 2009-10 - Annexure-B2 (c) Issue a writ of Certiorari or direction in the|nature of a writ of certiorari quasning the orderspassed against the objections to 148 notice filed bythe petitioner by the Respondent No.3 as enclosed|and merked as Annexure-Cl1l & C2". The details ofthe Annexure-Cl1 and CZ? are as follows /) Order passed for the assessment year 2008-09 vide F.No. Scrutiny/JCIT/RR/RCR/2014-15|dated 06.02.2015 for the assessment year|2OO8-O9 - Annexure - Cl. ii) Order passed for the assessment’ year2009-10 vide F.No. Scrutiny/JCIT/RR/RCR/|2014-15 dated 16.07.7015 for the assessment.year 2009-10 - Annexure - C2.| (d) Declare that the unabsorbed depreciation andnet loss of 100% EOU for the assessment year|2008-09 and 2009-10 claimed set off by thepetitioner against the profits from the other units Is|In accordance with law. (e) Declare that the Respondent No.3 erred in lawin invoking the provisions of section 14/7 of the Acton mere surmise, conjunctures and suspicion which.resulted in reasons to suspect without naving any|reasons to believe as contemplated under the.provisions of section 147 of the Act. (1) And pass sucn other orders as this Hon’bie-Court deems fit and proper in the interest ofjusticeand eguity.” ii) Order passed for the assessment’ year2009-10 vide F.No. Scrutiny/JCIT/RR/RCR/|2014-15 dated 16.07.7015 for the assessment.year 2009-10 - Annexure - C2.| (d) Declare that the unabsorbed depreciation andnet loss of 100% EOU for the assessment year|2008-09 and 2009-10 claimed set off by thepetitioner against the profits from the other units Is|In accordance with law. (e) Declare that the Respondent No.3 erred in lawin invoking the provisions of section 14/7 of the Acton mere surmise, conjunctures and suspicion which.resulted in reasons to suspect without naving any|reasons to believe as contemplated under the.provisions of section 147 of the Act. (1) And pass sucn other orders as this Hon’bie-Court deems fit and proper in the interest ofjusticeand eguity.” 3.Brief facts for disposal of the writ petition are asunder: a)PetitionerIS.a Public.LimitedCompanyincorporated under the Companies Act, 1956 and it is inthe business of manufacturing of bulk drugs andintermediaries and also owns windmill whicn generate thepower. Petitioner intimated the Assistant Deputy Director,Cochin Special Economic Zone("CSEZ’for short), vide|letter 25.03.2008 that petitioner being the 100% ExportOriental Unit("EOU’for short) commenced its commercialoperations on 21.03.2008. The Assistant DevelopmentCommissioner (‘ADC’for short), CSEZ, vide letter dated04.06.2008 communicated to the petitioner about thepermission issued for setting up of 100% EQOU for a periodof 5 years from the date of commencement of theproduction. The petitioner commenced its commercialproduction on 21.03.2008, the permission granted by theAssistant Development Commissioner, CSEZ, was valid forup to 21.03.2013. Petitioner further requested for renewal -6§- of EOU status before O2 [two] months of expiry ofpermission. b)|When the matter stood thus, petitioner filed|return of income tax for the assessment year 2008-09 on2/.09.72008ancdeclared|tnetotalincome.as|Rs.9,62,38,590/-. A specific mention was made in thecolumns in the return ‘Deduction Under Section 10B’ InScnedule 10B, the petitioner shown as ‘Nil’. Office copy ofthe said return is marked as Annexure-D. Said return wasprocessed under Section 143(1) of the Income Tax Act on30.03.2010. Petitioner has filed a declaration in writing on31.07.2008 in the office of the Income Tax, Circle-1,Raicnur. In the said declaration it was. specificallymentioned that provisions of Section 10B are _ noapplicable for the relevant assessment year. Petitioner inits return set of the unabsorbed depreciation of EOU unitfor the year 2008-09. Likewise, for the assessment year2009-10 similar returns were filed. However, petitionerwas surprised to receive notice under Section 147 of theIncome Tax Act vide Annexure -—- Al and Annexure - A? fothe assessment years 2008-09 and 2009-10, respectively.| -/- NC: 2024:KHC-K:2969WP No. 201890 of 2015 C)The petitioner replied the same. But without|considering the reply in proper perspective, the JointCommissioner of Income Tax passed orders underAnnexures - Cl and C2 for the relevant years. Being.aggrieved by the same, the petitioner is before this Court. 4Sri A. Shankar, learned Senior Counsel for the)petitioner, submits that the orders at Annexures -— Cl and C2are up against the provisions of the Act, and the Joint.Commissioner did not properly appreciate the fact that the.petitioner nad the status of EOU for a period of 5 years and.therefore, Section 10B was not applicable to the petitioner —.Company. 5.In that regard, the petitioner had also placedjudgment of the Bombay High Court to substantiate the|contention taken by the petitioner. But the Joint Commissioner|did not appreciate the said argument of the petitioner, on the.ground that the decision rendered by the Bombay High Court isnot by the jurisdictional Hign Court and therefore, the Joint)Commissioner is not bound by the decision of the Bombay High.Court and passed the orders at Annexures —- Cl and C2. -8- 5.In that regard, the petitioner had also placedjudgment of the Bombay High Court to substantiate the|contention taken by the petitioner. But the Joint Commissioner|did not appreciate the said argument of the petitioner, on the.ground that the decision rendered by the Bombay High Court isnot by the jurisdictional Hign Court and therefore, the Joint)Commissioner is not bound by the decision of the Bombay High.Court and passed the orders at Annexures —- Cl and C2. -8- 6.He further submits that the Division Bench of this.Court tn tne case of.Karle International (P) Ltd., Vv.Assistant Commissioner of Income fax, Circle-6(10,.Bangalore, reported in(2021) 430 ITR 74 (Karnataka)dated07.09.2020has specifically held that even if Section 70of the Income Tax Act would be applicable for 100% EOU, the.assessee can seek for exemption and therefore, exemption.under Section 10B set of against the profit. Even though|Section 7O would be applicable, when an assessee files adeclaration,then|Section10B|could|notbe.invokedautomatically and therefore, sought for allowing the writpetition. 7]Sri A. Shankar also submits that the Departmentcarried the decision rendered by the Division Bencn inVKarleInternational (P) Ltd.,Fcase to the Apex Court and the.Hon’‘ble Apex Court dismissed the Special Leave Petition filed bythe Department and thus, the law with regard to the non-application of Section 10B even though Section 70 of the Act is applicable to the 100% EOU has been settled. 8.Per contra, Sri M. Thirumalesh, learned counsel, forthe respondents however tried to distinguish the case on hand on facts even though he could not dispute the position of law|rendered by the Division Bench of this Court in case of..Karle.International (P) Ltd.,Freferred to supra. QOThis Court in the lignt of the rival contentionsperused the material on record meticulously. 10.Admittedly, petitioner is 100% EOQU had thepermission till up to 20.03.2013. Further, petitioner nas also)made an application for renewal of its status 02 months before|expiry of enquiry for the relevant assessment years, namely,2008-09, 2009-10 petitioner was having the 100% EOU status|and whereby the declaration filed by the petitioner with Income.Tax Office, Circle-1, Raicnur, claiming that the provisions ofSection 10B are not applicable to the petitioner - Company was.within the scope of the petitioner — CompanyInasmuchas even|thougn Section 7O of the Act was made applicable to thepetitioner, it was the choice of the petitioner to seek for non-application of Section 1OB by filing a declaration. 11.Said position of law is not in dispute in view of thejudgment of the Division Bench of this Court inAKarleInternational (P) Ltd.,Fcase supra. The relevant paragraphs with regard to the said position of law is dealt with by the|Division Bench tin Para Nos.6 to Q. “6.We have considered the submissions made by thelearned counse/ for the parties and nave perused the|record. Before proceeding further, it is apposite to takenote of the relevant statutory provisions namely Section|10B(i), 10B(5), 10B(6)(ii), and Section 70 as well as|tne para 5.2 of the Circular issued by the Central Board|of Direct Taxes. Section 10B(1) Subject to the provisions of this section, adeduction of such profits and gains as are derivedby a hundred per cent export-oriented undertakingfrom the export of articles or things or computer|softwereforaperiodOf|tenconsecutiveassessment years beginning with the assessmentyear relevant to the previous year in which theundertaking begins to manufacture or producearticles or things or computer software, as thecase may be, snall be allowed from the totalincome of the assessee. Section 10B(5) The deduction under sub-Section (1) shall not beadmissible for any assessment year beginning on.or after the ist day of April 2001, unless theassessee furnishes in the prescribed form, alongwith the return of income, the report of anaccountant, as defined in the Explanation below -11- Section 10B(1) Subject to the provisions of this section, adeduction of such profits and gains as are derivedby a hundred per cent export-oriented undertakingfrom the export of articles or things or computer|softwereforaperiodOf|tenconsecutiveassessment years beginning with the assessmentyear relevant to the previous year in which theundertaking begins to manufacture or producearticles or things or computer software, as thecase may be, snall be allowed from the totalincome of the assessee. Section 10B(5) The deduction under sub-Section (1) shall not beadmissible for any assessment year beginning on.or after the ist day of April 2001, unless theassessee furnishes in the prescribed form, alongwith the return of income, the report of anaccountant, as defined in the Explanation below -11- subD-Section (2) of Section 288, certifying thatthe deduction has been correctly claimed _ iaccordance with the provisions of tnis section. Section 10B(6)(i1) Notwithstanding anything contained in any other.provision of this Act, in computing the total incomeof the assessee of the previous year relevant tothe assessment year immediately succeeding the.last of the relevant assessment year, or of anypreviousYeadl,relevanttodhysubsequent|assessment year- (i) = XXxXxx. (li) no loss referred to in sub-section (1)of Section 72 or sub-Section (1) or sub-Section (3) of Section 74, in so far as|such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any ofthe relevant assessment years ending|before the 1st day of April 2001.of Section 72 or sub-Section (1) or sub-Section (3) of Section 74, in so far as|such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any ofthe relevant assessment years ending|before the 1st day of April 2001. Section /0O(1) Save as otherwise provided in this act, where the.net result for any assessment year in respect ofany source falling under any head of income, otherthan “Capital gains’, is a loss, the assessee snallbe entitled to have the amount of such loss set off -17- against nis income from any other source under.the same head. (2) Where the result of the computation made for.any assessment year under Sections 48 to 55 inrespect of any short-term capital asset is a loss,the assessee shea/l/ be entitied to have the amounof such loss set off against the income, if any, asarrived at under a similar computation made for.the assessment year in respect of any othercapital asset. (3) Where the result of the computation made forany assessment year under Sections 48 to 55 inrespect of any capital asset (other than a short-term capital Asset) is a loss, the assessee shall beentitled to have the amount of such loss set offagainst the income, if any, as arrived at under asimilar computation made for the assessment year.in respect of any other capital asset not being ashort-term capital asset. Para 5.7 of Circular dated 10.7.7013 The income computed under various heads ofIncome|In|accordancewitntheDrOVISIONsof Chapter IV of the IT Act snall be aggregated inaccordance with the provisions of Chapter VI ofthe IT Act, 1961. This means that first the income./ loss from various sources i/.e., eligible andineligibleunits,UndertheSd [Thead|are|aggregated in accordance with the provisions. of Section /O of the Act. Thereafter, the incomefrom one ahead Is aggregated with the income or.loss of the other head in accordance with theprovisions of Section 71 of the Act. If after givingeffect to the provisions of Sections 7/70 and 71 othe Act there is any income (where there is nobrought forward loss to be set off in accordancewitn the provisions of Section 7/72 of the Act) anthe same its eligible in accordance with theDrOVISIONSOf|ChapterVl[-Aor Sections10A, 10B etc. of the Act, the same _ shail ballowed in computing the total income of theGSSECSSCEC of Section /O of the Act. Thereafter, the incomefrom one ahead Is aggregated with the income or.loss of the other head in accordance with theprovisions of Section 71 of the Act. If after givingeffect to the provisions of Sections 7/70 and 71 othe Act there is any income (where there is nobrought forward loss to be set off in accordancewitn the provisions of Section 7/72 of the Act) anthe same its eligible in accordance with theDrOVISIONSOf|ChapterVl[-Aor Sections10A, 10B etc. of the Act, the same _ shail ballowed in computing the total income of theGSSECSSCEC J.|Section 10B of the Act was substituted by FinanceAct, 2000 w.e.f. 01.04.2001. Section 10B as it stands Is not a provision in the nature of an exemption but!provides for a aqeduction of such profit and gains as arederived by 100% export oriented undertaking from the|export of articles or things or computer software for 10|consecutiveassessment.Yed Fsbeginningwiththeassessment year relevant to the previous year in which|theundertakingbegins|tomeanufactureOf|produce. Section 10B does not contain any pronibition to|prevent an assessee from setting off losses from one|source against income from anotner source under the|same head of income as prescribed under Section 70 of|the Act. Section 10B(6)(ii) of the Act restricts carry|forward and set off of loss under Sections 77 and 7/4 ofthe Act but does not provide anything regarding intra-head set off under Section 7O and jinter-head set off -14- under Section 7/1 of the Act. The Dusiness [ncome can becomputed only after set off of Dusiness loss against|the business income in the year as_ per. provisionof Section /O of the Act. Section 10A of the Act Is a code by itself and it ts pertinent to note that Section|10A(6)(ii) does not preciude the operation of Sections|70 and 71 of the Act. Para 5.2 of the Circular issued by the Central Board of Direct Taxes dated 16.07.7013clearly provides that income / loss from various Sourcesi.e. eligible and ineligible units under the same head are.aggregated in accordance with provisions of Section 70. 8. It is equally well settled legal proposition that where|the assessee does not want the benefit of deduction from the taxable income, the same cannot be thirst upon it.|There is no provision which makes compulsory on the|part of income tax officer to make deduction in all cases.(See: COMMISSIONER OF INCOME-TAX Vs. MAHINDRA|MILLS’ (2000) 243 ITR 56 (SC). From the return ofincome for the assessment year 2008-09 in Schedule BP,|SI.No.35(ill), the assessee nas shown the deduction|under Section 10B of the Act as zero. Similarly, atSI. No. 5thedssesseehasfiledthedeductionunder Section 10B as not applicable. Thus, from perusal|of return of assessment year 2008-09 it is evident that|theaSSCSSCEChas not;claimeddydeductionunder Section 10B of the Act in respect of any of the|three units of the assessee. It is pertinent to mention|nere that Section 10B(5) read with Rule 16E manaates|that the assessee has to file audit report in Form-56G for|claimingdeductionUnder Section10OB oftheAct. Aamittedly, in the instant case, the assessee has not|filed any auait report in Form-56G which is a mandatory|reguirement for claiming deduction under Section 10B ofthe Act. Therefore, the deduction under Section 10B of|the Act cannot be thirst upon the assessee. Aamittedly, in the instant case, the assessee has not|filed any auait report in Form-56G which is a mandatory|reguirement for claiming deduction under Section 10B ofthe Act. Therefore, the deduction under Section 10B of|the Act cannot be thirst upon the assessee. 9.Admittedly, in the instant case, two units of theassessee namely unit No.II and unit WNo.III wereexport oriented units and were eligible for exemption.|The assessee had sustained loss in respect of unit No.I|and therefore, the assessee had claimed set off, as|permissible under Section 70 of the Act and had offeredthe balance as income taxable under the head income.from business of Rs.12,89,/62/- wnich has been)declared in the return. The provisions of Section /O ofthe Act have to be given effect to. It is pertinent to|mention nere that Income Tax Appellate Tribunal Nad|taken a similar view in MINDTREE CONSULTING (P)|LTD., supra, which was upneld by a Division Bencn of|this Court [n COMMISSIONER OF INCOME-TAX Vs..YOKOGAWA INDIA LTD., supra. Similar view has been.taken by Bombay High Court in GALAXY SURFACTANTS|LTD., supra. We respectfully agree with the view taken|by the Division Bencn of this Court as well as BombDayHigh Court. It is pertinent to mention here that decision of the|Supreme Court in YOKOGAWA, supra is not an authority|for the proposition that an assessee cannot claim set off|under Section 70 of the Act and therefore, the aforesaid|decision has no application to the facts of the case. Since| -16- we Nave dealt witn the issues invoived in this appeal with|reference to the return filed for the assessment year|2008-09 on 30.08.2009, therefore, it is not necessary for|us to deal with the contention raised by the /earned|counsel for the revenue that the return had filed beyondprescribed period and therefore, has no legal sanctity. In view of preceding analysis, the substantial question oflaw framed by this Court are answered in favour of the|assessee and against the revenue. In the result, the|order of the income tax appellate tribunal date|12.10.2012 in so far as it contains the finding against theAssessee /s hereby quasned. ° 1)|On careful reading of the above paragrapns ofVKarle International (P) Ltd.,FCa SCSUPId, It is crystal clearthat the petitioner nas cnosen to file declaration for the.relevant assessment years Defore the jurisdictional Income TaxOfficer seeking that the Section 10B would not be applicable tothe assessee. 13.Tnerefore, the orders at Annexures - Cl and C2could not have been passed by the Joint Commissioner.Accordingly, the same needs to be quasned by this Court. NC: 2024:KHC-K:2969 WP No. 201890 of 2015 14.Hence, the following: ORDER The writ petition is allowed. Annexures — Al and A2, and Annexures - Ci and C2 are quashed. Sd/- JUDGE| SBS|List No.: 1 S| No.: 1.