Wp/614/2006 Of M/S Velingkar Brothers, Veling Mardol Goa v. Assistant Commissioner Of Income-Tax And 2 Ors

IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NOS. 614 & 615 OF 2006 M/s. Velingkar Brothers, a firm registered under the Partnership Act, 1932 and carrying on business from Veling Mardol, Goa. ….Petitioners V e r s u s 1. Assistant Commissioner of Income Tax,Circle 2(1),EDC Complex, Patto,Panaji Goa. 2. Commissioner of Income Tax,Panaji Goa,Panaji Goa, 3. Union of India, (through the Secretaryto Government of India,Ministry of Finance,New Delhi ) ….. Respondents Mr. D. Pangam, Advocate for the petitioner. Ms. A. Razaq, Advocate for the respondent nos. 1 and 2. -Coram: F. M. REIS & PRITHVIRAJ K. CHAVAN, JJ. Date:- 13th June, 2017 ORAL JUDGMENT ( Per F. M. Reis, J ) Heard Mr. D. Pangam, learned counsel appearing for the petitioners and Ms. A. Razaq, learned counsel appearing forthe respondent nos. 1 and 2. 2. Both the above petitions are taken up together as they involve the same assessee/petitioners herein raising same issuechallenging the notice under Section 147 of the Income Tax Act,1961. The assessment in Writ Petition No. 614 of 2006 is withregard to the Assessment Year 2000-2001 and Writ PetitionNo.615 of 2006 is pertaining to the Assessment Year 2001-2002. 3.The brief facts in Writ Petition No. 614 of 2006 arethat the petitioners had filed their return of income for theAssessment Year 2000-2001 and thereafter a notice dated28.08.2003 was issued under Section 147 of the Income Tax Act( herein after referred to as “the said Act” ) inter alia on theground that the petitioners were not entitled for deduction underSection 10B of the said Act, as the activities carried out by the petitioners were not 100% export oriented unit. The petitionersfiled their reply inter alia disclosing that the petitioners werecarrying out 100% export oriented unit and as such entitled fordeduction in terms of Section 10B of the said Act. TheAssessing Officer after minutely examining the contention byorder dated 15.02.2005 accepted the explanation of thepetitioners and allowed deduction in terms of Section 10B of thesaid Act. On 28.11.2005 the respondents served another noticeunder Section 147 of the said Act inter alia contending that thepetitioners were not entitled for deduction under Section 10B ofthe said Act on the ground that they were not carrying outmanufacture or production business to avail of the benefits of thesaid provisions. The petitioners informed the respondents to treatthe earlier return as return in terms of Section 147 of the said Actand called upon the respondents to furnish the reasons to thepetitioners. But however, no reasons were communicated by therespondents for reopening of the assessment and as such thepetitioners filed the above petition inter alia seeking to quash thenotice under Section 147 of the said Act. In the meanwhile, the respondents sought permission of this Court to complete theassessment which was allowed subject to further orders in theabove petition. In the Assessment Order, the respondents cameto the conclusion that the petitioners were not carrying out anymanufacture or production and as such were disentitled fordeduction under Section 10B of the said Act and accordingly, thededuction allowed in the earlier assessment order came to bedisallowed and added for the purpose of computing taxableincome. The petitioners thereafter amended the petition and alsoraised a challenge to the said assessment carried out by therespondents. 4.The brief facts in Writ Petition No. 615 of 2006 arethat the return filed by the petitioners was taken up for scrutinyunder Section 143 of the said Act. During such scrutiny, anexplanation was sought by the respondents calling upon thepetitioners to explain as to how they were entitled for deductionunder Section 10B of the said Act. The petitioners accordinglysubmitted the explanation which came to be accepted by the 4.The brief facts in Writ Petition No. 615 of 2006 arethat the return filed by the petitioners was taken up for scrutinyunder Section 143 of the said Act. During such scrutiny, anexplanation was sought by the respondents calling upon thepetitioners to explain as to how they were entitled for deductionunder Section 10B of the said Act. The petitioners accordinglysubmitted the explanation which came to be accepted by the Assessing Officer by a reasoned order thereby granting deductionto the petitioners under Section 10B of the said Act. Thereafter,the respondents chose to issue a notice under Section 147 of thesaid Act showing the intention to reopen the assessment of thepetitioners on the ground that there was an escape income whilecarrying out such assessment. The petitioners informed therespondents that the earlier return filed by the petitioners betreated as a return under the said Act and called upon therespondents to furnish the reasons for such reopening of theassessment. But however, the respondents failed to furnish suchreasons and accordingly, the petitioners filed the above petitionchallenging the notice under Section 147 of the said Act. Duringthe pendency of the above petition, the respondents soughtpermission to complete the assessment and accordingly, theAssessment Order was passed thereby rejecting the claim of thepetitioners for deduction under Section 10B of the said Act andcomputing the taxable income of the petitioners accordingly. 5. The respondents filed their reply to the said two petitions inter alia contending that the petitioners were notentitled for deduction under Section 10B of the said Act. It is thecase of the respondents that the petitioners were not 100% exportoriented unit and further they were not carrying out anyproduction and further that the activities which were carried outby the petitioners do not come within the meaning of productionas provided under Section 10B of the said Act. It is furtherpointed out that the petitioners also have an alternate remedy tochallenge the Assessment Order carried out pursuant to the noticeunder Section 147 of the said Act and as such, the question ofinterference in the impugned Assessment Order would not arise.The respondents further contend that as there was an escapeincome while carrying out the regular assessment, therespondents were justified to issue the notice under Section 147of the said Act. It is further pointed out that the petitioners do notmeet the requirements of Section 10B of the said Act on theground that the petitioners were not exporting themselves butthrough some other entities. 6.Mr. Pangam, learned counsel appearing for thepetitioners points out that the main crux of the grievance raisedby the petitioners is on the premise that the reassessment was onthe basis that there was an escape income but however, it is hiscontention that the records would reveal that it is only a changeof opinion which cannot be a ground for reopening of theassessment. The learned counsel further points out that in theorder passed while disposing of the proceedings under Section143 of the said Act, the Assessing Officer after examining thereply filed by the petitioners found that the petitioners met theconditions as contemplated under Section 10B of the said Actand accordingly, allowed the deduction to the petitioners underthe said Act. The learned counsel further pointed out that oncesuch findings had attained finality as there was no challenge tosuch aspect before the Appellate Authority, it was not open to therespondents to issue a fresh notice under Section 147 of the saidAct inter alia contending that the activities carried out by thepetitioners were not production in terms of Section 10B of thesaid Act. The learned counsel further pointed out that the respondents have not furnished the reasons and as such on thisground alone the alleged assessment carried out by therespondents stands vitiated. The learned counsel thereafter hastaken us through the Assessment Order passed by the AssessingOfficer to point out that the deduction in terms of Section 10B ofthe said Act was refused essentially on the ground that theactivities carried out by the petitioners were not manufacture interms of Section 10B of the said Act. The learned counsel furtherpointed out that such extracting of iron ore is “production” interms of Section 10B of the said Act is no longer res integra inview of the judgment of the Apex Court reported in (2004) 13SCC 548 in the case of Commissioner of Income Tax, Goa V/sSesa Goa Ltd. The learned counsel further submits that thecontention of the respondents that there was an escape income istotally misplaced as according to him while carrying out theassessment for the Assessment Year 2000-2001 with regard tothe same activities. While disposing of the proceedings underSection 143 of the said Act, the Assessing Officer had come tothe conclusion that the establishment of the petitioners was 100% export oriented unit and as such entitled for deduction underSection 10B of the said Act. The learned counsel as suchsubmits that the subsequent notice under Section 147 of the saidAct is untenable in law and cannot be sustained. The learnedcounsel further pointed out that in view of the judgment of theApex Court relied upon by the petitioners, the respondents haveno justification to proceed with the proceedings under Section143 of the said Act. The learned counsel as such points out thatthe petitioners were entitled for the relief in both the abovepetitions. 7.On the other hand, Ms. A. Razaq, learned counselappearing for the respondent nos. 1 and 2 has submitted that thepetitioners have an alternate remedy and as such, it is open forthe petitioners to raise the challenge to the Assessment Orderbefore the Appellate Forum. The learned counsel further pointedout that as there was an escape income in the Assessment Years2000-2001 and 2001-2002, the respondents were justified toissue the notice under Section 147 of the said Act. It is further pointed out that the escape assessment is on the basis that thepetitioners were not carrying out any production within themeaning of the provisions of Section 10B of the said Act. Thelearned counsel further pointed out that as the respondents werejustified to issue the notice under Section 147 of the said Act, thequestion of any interference of this Court in the impugned noticewould not arise. It is further submitted that merely because theproceedings under Section 143 of the said Act culminated in thedecision allowing deduction under Section 10B of the said Actwould not preclude the respondents to issue a notice underSection 147 of the said Act in case there was any escapedincome. The learned counsel as such points out that the petitionbe accordingly rejected. 8.We have given our thoughtful consideration to therival contentions and we have also gone through the records. It isundisputed fact that the above petitions were filed immediatelyafter the notice under Section 147 of the said Act came to beserved on the petitioners. At that stage the respondents had not 8.We have given our thoughtful consideration to therival contentions and we have also gone through the records. It isundisputed fact that the above petitions were filed immediatelyafter the notice under Section 147 of the said Act came to beserved on the petitioners. At that stage the respondents had not proceeded to pass the impugned Assessment Order which cameto be passed only subsequently upon seeking permission as statedabove. The fact that there were scrutiny proceedings under thesaid Act for the Assessment Year 2001-2002 has not beendisputed. On perusal of the findings by the Assessing Officer inthe said order, it clearly reveals that the Assessing Officer afterexamining the reply filed by the petitioners and other materialproduced a definite finding was recorded that the petitionerswere entitled for deduction under Section 10B of the said Act.While coming to such conclusion the Assessing Officer foundthat the establishment of the petitioners was a 100% exportoriented unit within the meaning of the provisions of Section 10Bof the said Act. 9.With regard to the Assessment Year 2000-2001, theundisputed fact disclosed that there was an assessment noticeunder the said Act which came to be disposed of by regularAssessing Order after examining the reply filed by the petitionersby coming to the conclusion that the unit of the petitioners was 100% export oriented. The Assessing Officer also came to theconclusion that the petitioners were entitled for relief underSection 10B of the said Act. 10.Considering the said findings arrived at by theAssessing Officer in the earlier proceedings, the question ofissuing a fresh notice under Section 147 of the said Act wouldnot at all be justified. As rightly pointed out by Mr. Pangam,learned counsel appearing for the petitioners, this is not a case ofan escape assessment but a clear case of difference of opinionwhich cannot be a ground for reopening under Section 147 of thesaid Act. Apart from that, the undisputed fact of the case revealsthat the respondents had not furnished the reasons to thepetitioners after they were called upon to do so. On this groundalso the subject proceedings under Section 147 of the said Actstands vitiated. 11.With regard to the contention of the learned counselappearing for the respondent nos. 1 and 2 that the petitioners have an alternate remedy, we find that in the present case theAssessment Order was passed only during the pendency of theabove petitions which necessitated the petitioners to raise achallenge in the present petitions. Considering the view we havetaken while examining the validity of the notice under Section147 of the said Act, we find that the question of considering thecorrectness of the Assessment Order was not at all necessary.But however, on perusal of the impugned Assessment Orderpursuant to the subject notice under Section 147 of the said Act,we find that the deduction under Section 10B of the said Act wasrefused to the petitioners essentially on the ground that the ironore extracted by the petitioners was not manufacture within themeaning of the provisions of Section 10B of the said Act. Thisaspect stands now concluded in view of the judgment of theApex Court in the case of Commissioner of Income Tax, Goa( supra ) wherein the Apex Court has observed at paras 9, 10 and11 thus : “9. The reasoning given by the HighCourts, in the decisions noted by us earlier,is, in our opinion, unimpeachable. This “9. The reasoning given by the HighCourts, in the decisions noted by us earlier,is, in our opinion, unimpeachable. This Court had, as early as in 1961, in ChrestienMica Industries Ltd. v. State of Bihardefined the word “production”, albeit, inconnection with the Bihar Sales Tax Act,1947. The definition was adopted from themeaning ascribed to the word in theOxford English Dictionary as meaning“amongst other things that which isproduced; a thing that results from anyaction, process or effort, a product; aproduct of human activity or effort”. Fromthe wide definition of the word“production”, it has to follow that miningactivity for the purpose of production ofmineral ores would come within the ambitof the word “production” since ore is “athing”, which is the result of humanactivity or effort. It has also been held bythis Court in CIT v. N.C. Budharaja & Co.that the word “production” is much widerthan the word “manufacture”. It was said:(SCC pp. 286-87, paras 7-8) “The word ‘production’ has a wider connotation than the word ‘manufacture’.While every manufacture can be characterised as production, everyproduction need not amount tomanufacture. … The word ‘production’ or ‘produce’ when used in juxtaposition with the word‘manufacture’ takes in bringing intoexistence new goods by a process whichmay or may not amount to manufacture. Italso takes in all the by-products,intermediate products and residualproducts which emerge in the course ofmanufacture of goods.” 10. It is, therefore, not necessary, as hasbeen sought to be contended by the learnedcounsel for the Revenue, that the mined oremust be a commercially new product. Thedecisions and other authorities on thedefinition of the word “ore”, as cited by theappellant, are irrelevant. 11.Learned counsel appearing on behalfof the assessee, correctly submitted thatother provisions of the Act, particularlySection 33(1)(b)(B) read with Item 3 of theFifth Schedule to the Act, would show thatmining of ore is treated as “production”. Section 35-E also speaks of production in the context of mining activity. Thelanguage of these sections is similar to thelanguage of Section 32-A(2). There is noreason for us to assume that the word“production” was used in a different sensein Section 32-A.” 12. Taking note of the said observations and considering the facts and circumstances of the present case, it is not disputedthat the only ground on which the respondents are trying tosustain the impugned assessment after the notice under Section147 of the said Act is on the basis that the petitioners were notcarrying out manufacturing activities, cannot be a ground torefuse the benefits of deduction in terms of Section 10B of thesaid Act. The petitioners in fact as such were entitled for the saiddeduction which otherwise stood concluded by the AssessmentOrder passed in the proceedings under Section 143 of the saidAct in regular Assessment Order. at* O R D E R (i) The notice under Section 147 of the said Act for the Assessment Years 2000-2001 and 2001-2002 both dated 28.11.2005 and the consequentAssessment Order dated 28.12.2006 are quashedand set aside. (ii)Rule is made absolute in the above terms. (iii) Both the petitions stand disposed ofaccordingly. (iii) Both the petitions stand disposed ofaccordingly. PRITHVIRAJ K. CHAVAN, J. F. M. REIS, J.