Income Tax Appellate Tribunal - Mumbai
Cipla Ltd., Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'G' MUMBAI
BEFORE SHRI P.M.JAGTAP, AM &
SMT. P.MADHAVI DEVI, JM.
I.T.A.NO.4318 & 4319/MUM/2006 -
A.Yrs. 1998-99 & 2000-01
Asst. Commissioner of I.T., Vs. M/s Cipla Limited,
Central Circle 2, 289, Bellasis Road,
Mumbai Mumbai Central,
Mumbai 400 008
PAN NO.AAACC 1450 B
(Appellant) (Respondent)
AND
I.T.A.NOS.6617 & 4006/Mum/2006
A.Yrs. 1999-2000 & 2000-01
M/s Cipla Limited, Asst. C.I.T., C.C.2,
Mumbai Mumbai
(Appellant) (Respondent)
Revenue by : Shri Pragati Kumar.
Assessee by : Shri D. P. Bapat.
ORDER
Per P.MADHAVI DEVI, JM:
These cross appeals are directed against CIT[A] 's separate orders for the assessment year 1992-93 respectively. They are consolidated and heard together and are disposed of by this common order.
2. I.T.A.No.4006/Mum/06 - A.Y 2000-01[assessee's appeal]: In this appeal the assessee has raised the following grounds of appeal-
1. The Commissioner of Income-tax [Appeals], Central-1, Mumbai [hereinafter referred to as the CIT[A] ] erred in upholding the action of the Assistant Commissioner of Income- tax, Central Circle-2, Mumbai [hereinafter called the AO] in initiating the proceedings u/s.147 of the Income Tax Act 2 without the satisfaction of the conditions precedent for doing so.
Without prejudice to the generality it is submitted that the re- assessment is founded on mere change of opinion.
Your Appellant therefore prays that the assessment framed by the AO u/s.143[3] read with section 147 of the Income Tax Act be annulled.
2. Without prejudice to the first ground of appeal your Appellant submits that:
a] The learned CIT[A] has erred in upholding the action of the AO in recomputing the amount of deduction available u/s.80IB of the Income Tax Act by estimating the profits on a global basis.
It is submitted that the learned AO did not have any authority to do so in view of the fact that the learned CIT[A] had not approved, at the very threshold, the validity of the global method adopted by the AO for estimating the profits derived u/s.80-u/s.80IB[10] in the appellate proceedings arising from the original assessment and all the aspects concerning this issue had merged with the order of the CIT[A] .
Further, the learned AO has erred in holding that receipts by way of insurance claims, profit from Joint Venture and Technology fees do not qualify to be included in the profits derived from the undertaking in the context of section 80IB of the Act.
b] The learned CIT[A] further erred in confirming the action of the AO, in holding that receipts by way of DEPB credits, insurance claims, Miscellaneous receipts, sale of scrap, sales tax setoff/refunds, profit from Joint Venture and technology fees do not constitute profits from business in the context of Explanation (baa) to section 80-u/s.80HHC of the Act. It is further submitted that the learned AO did not have any authority to do so in view of the fact that this issue had merged with the order of the CIT[A] .
Without prejudice, the learned CIT[A] has erred in not directing the AO to increase the amount of deduction u/s.80- u/s.80HHC(3) of the Act with reference to DEPB credits in the proportion of export turnover to the total turnover.
3. As regards ground No.1, brief facts of the case are that the assessee company had filed its return of income on 30-11-2000 declaring total income at Rs.105,82,41,790/-. The assessee claimed deduction u/s.80HHC and also u/s.80IA of the Income Tax Act. The 3 assessment was completed u/s.143(3) vide order dated 12-3-2003 assessing the net taxable income at Rs.114,43,77,860/-. Subsequently, it came to the notice of the department that the assessee has been allowed higher deductions u/s.80IA and u/s.80HHC than the actual allowable. AO therefore reopened the assessment u/s.147 after recording the following reasons-
i. While working out the deduction u/s.80-IA by adopting the global profit method, the department has adopted the figure of book profit of the company instead of assessed income. In the books of account assessee has debited Rs.1,33,99,186/- as depreciation (As per Company Law), whereas the depreciation claim as per I.T.Act is Rs.22,11,23,222/-. This has resulted into excess allowance of deduction u/s.80IA amounting to Rs.1,43,45,577/-Rs.14,93,07,372/-Rs.13,49,61,795). ii. Similarly, while working the deduction u/s.80HHC of the I.T.Act, the AO didn't reduce the receipt from Insurance claim, Technology transfer charges, Royalty and other miscellaneous income from the profits and gains of the business. In response to the notice u/s.148 of the Act, the assessee vide letter dated 15-4-2005 stated that the revised return filed on 28-3-2002 may be treated as the return filed in response to notice u/s.148.
4. The assessee, however, vide letter dated 9-1-06 raised objection to the reopening of the assessment on the ground that the re- assessment proceedings have been initiated only due to the change of opinion and also that the issue of computation of the amount eligible for deduction u/s.80IA has not been approved by the CIT[A] and, therefore, the issue stands merged with the order of the CIT[A] and is beyond the scope of re-assessment proceedings. Regarding the computation of deduction u/s.80HHC, it was submitted that there were no new facts brought on record and the re-assessment proceedings are 4 only due to change of opinion. The AO, however, rejected the objections of the assessee and proceeded to re-assess the income of the assessee by recomputing the deductions u/s.80IA and 80HHC of the Act.
5. Aggrieved, assessee filed an appeal before the CIT[A], who confirmed the order of the AO as far as the reopening of the assessment is concerned with regard to the computation of deduction u/s.80IA taking the gross total income into consideration instead of the book profits taken by the AO by holding that the reopening of the assessment has been done within four years of the relevant assessment year and conditions as laid down in sec.147 are fully met. However, as regards computation of deduction u/s.80IA on the global profit method, the CIT[A] held that the same is not permissible as the CIT[A] against proceedings u/s.143[3] has already decided the same and the order of the AO has merged with that of the CIT[A]. As regards the allowability of other income as eligible profits for deduction u/s.80IA in respect of duty draw backs, miscellaneous receipts, insurance claims, sales tax set off/refunds, sale of scrap etc., he held that the issue stands covered by the appellate order passed by the ld. CIT[A] and, therefore, AO has no authority to consider the said issues afresh in the re-assessment proceedings. He, accordingly, granted relief to the assessee. As regards the other income relating to profits from joint ventures, insurance claim, technology fee, he held that the receipts are similar in nature and it cannot be said that such income is 5 directly derived from the industrial undertaking as held by the Hon'ble Supreme Court in the cases of Sterling Foods [237 ITR 579] and Pandian Chemicals [262 ITR 278]. He further observed that the assessee in its submissions has submitted that income under the above heads have not been considered as eligible profit of eligible units and since AO has already taken into account the items in the original assessment order, he held that no fresh adjudication/consideration in re-assessment proceedings is called for. On the issue relating to deduction u/s.80HHC in respect of other income on account of DEPB, insurance claim, miscellaneous receipts, sale of scrap, sales tax set off/refund, profit from joint ventures and technology fee, he observed that this was not the subject matter of consideration before the CIT[A] in the earlier appellate order against order u/s.143(3) and, therefore, AO is justified to take into account the issue in re-assessment proceedings. As regards the DEPB credit, he followed his own order for A.Y 04-05 in assessee's own case to hold that the assessee is not entitled to deduction u/s.80HHC in view of retrospective amendment brought into statute and the assessee is not fulfilling the terms and conditions as laid down therein even for the relevant assessment year. As regards the insurance claim, miscellaneous receipts, sale of scrap, sales tax set off/refund, profit on joint ventures and technology fee etc., CIT[A] followed his own order for A.Y 04-05 and confirmed the order of the AO.
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6. Aggrieved by the reliefs given by the CIT[A] , the revenue is in appeal before us and aggrieved by the confirmation of the order of the AO, the assessee is in appeal before us.
7. As regards ground No.1 of the assessee's appeal, relating to the validity of the re-assessment proceedings, the ld. counsel for the assessee has reiterated the submissions made before the authorities below that the re-assessment is on mere change of opinion and no new facts have been brought on record by the AO for reopening of the assessment. The second ground on which the validity of the reopening is challenged is on the doctrine of merger. He submitted that the assessment order u/s.143[3] had been challenged before the CIT[A] who had considered the same and had passed the appellate order and therefore the assessment order has merged with the Appellate order and the reopening of assessment subsequent thereto would amount to reopening of the order of the CIT[A] , which is not permissible. In support of this contentions of merger, the ld. counsel for the assessee has placed reliance upon the decision of the Hon'ble Bombay High Court in the case of CIT vs. P. Muncherji And Company [167 ITR 671]. On the issue of change of opinion, the ld. counsel for the assessee has placed reliance upon the following decisions-
a) Asteroids Trading And Investments Pvt. Ltd. vs. Dy. CIT 308 ITR 190 (Bom) &
b) Asiant paints Ltd. vs Dy. CIT 308 ITR 195 (Bom)
8. The ld. DR, on the other hand, supported the orders of the authorities below and submitted that where there is under-assessment 7 of income, it would amount to escapement of income and the AO was within his powers to reopen the same within four years from the end of the relevant assessment year. According to him, reopening of the assessment is done within four years as the AO instead of taking the gross total income while computing deduction u/s.80IA has erroneously taken the book profit which has resulted in under- assessment of income and allowance of excess deduction u/s.80IA of the Act. He submitted that the doctrine of merger is also not applicable in this case as the CIT[A] in the appeal against the assessment order u/s.143[3] has only considered the method of computation of deduction u/s.80IA and not as to whether the gross total income or the book profit should be taken into consideration for the said computation. As regards the decisions relied upon by the ld. counsel for the assessee on the reopening of the assessment, he submitted that they are distinguishable on the facts.
9. Having heard both the parties and having considered their rival contentions, we find that reopening of the assessment is within four years from the end of the relevant assessment year and it is on two grounds -
i) that the AO has erroneously taken the book profit into consideration as against the gross total income for computation of deduction u/s.80IA and
(ii) the working of the deduction u/s.80HHC of the Act.8
We have also perused the order of the CIT[A] against the assessment order u/s.143(3) and we find that the issue of adoption of the figure of book profit of the company instead of the gross total income for computation of deduction u/s.80IA was not before the CIT[A]. Therefore, it cannot be said that the order of the AO has merged with the order of the CIT[A] . Therefore, we uphold the order of the CIT[A] to the effect that reopening of the assessment on this ground is valid. As regards the working of deduction u/s.80HHC of the Act, we find that this issue is also not considered by the CIT[A] and, therefore, the reopening of the assessment on this ground is also upheld. As the reopening of the assessment is done within four years from the end of the relevant assessment year due to the prima facie belief of the AO that there is escapement of income by allowing excess deductions u/s.80IA & 80HHC, we are of the opinion that there was no change of opinion and reopening of the assessment done is justified. As regards the assessee's arguments relating to the doctrine of merger and his reliance upon the decision of the Bombay High Court in the case of P. Muncherji And Company [cited supra] is concerned, we find that the said case is distinguishable on facts with that of the assessee. in the said case, the Hon'ble High Court was dealing with the powers of the Commissioner u/s.263 and has held that the order of the Income Tax Officer under appeal completely in the order of the Appellate Asstt. Commissioner and therefore it is not amenable jurisdiction u/s.263 of the Act. But the Hon'ble Bombay High Court in the later case of CIT vs. 9 Ratilal Bacharilal and sons reported in 282 ITR 457 (Bom), after considering the above decision has held that the doctrine of merger could not apply to that part of the order which was not a subject matter of appeal, so as to exclude the revisional jurisdiction of the Commissioner u/s.263. Therefore, we uphold the finding of the CIT[A] on this issue also. In view of the above discussion, ground of appeal No.1 raised by the assessee is rejected.
10. As regards ground No.2(a), we find that the CIT[A] against the original assessment order has already considered the method of computing the amount of deduction available u/s.80IB of the Act by estimating the profits on global basis and has reversed the order of the AO and, therefore, this issue has already merged with the order of the CIT[A] and as such cannot be reconsidered by the AO in the re- assessment proceedings. The finding of the CIT[A] against the order u/s.143[3] r.w.s. 147 is that the action of the AO in adopting the gross total income after taking into consideration the depreciation as per Income Tax Act in granting deduction u/s.80IB of the Act is justified. Therefore, this ground of appeal raised by the assessee is infructuous as the assessee has already been granted relief by the CIT[A] in the appeal filed against the order u/s.143(3).
11. As regards ground No.2(b), we find that this issue has not been decided by the CIT[A] in the original appellate proceedings and, therefore, has not merged with the said order and hence it can be 10 considered in the re-assessment proceedings. Therefore, this ground of appeal of the assessee is rejected.
12. As regards without prejudice ground relating to the computation of deduction u/s.80HHC with reference to DEPB credit, we find that this issue is covered by the decision of the Special Bench of the Tribunal in the case of Topman Exports reported in 318 ITR [AT] 87, and has to be recomputed in accordance with the said decision. Therefore, this ground of appeal is allowed with a direction to the AO to recompute the deduction u/s.80HHC (3) in accordance with the decision of the Special Bench of the Tribunal cited supra. This ground is accordingly allowed for statistical purposes.
13. In the result, assessee's appeal in I.T.A.No.4006/M/06 for A.Y 2000-01 is partly allowed.
14. I.T.A.No.6617/M/06 - A.Y 1999-2000 [assessee's appeal]: In this appeal the assessee has raised the following grounds of appeal-
1. The Commissioner of Income-tax [Appeals], Central-1, Mumbai [hereinafter referred to as the CIT[A] ] erred in upholding the action of the Assistant Commissioner of Income- tax, Central Circle-2, Mumbai k[hereinafter called the AO] in initiating the proceedings u/s.147 of the Income Tax Act without the satisfaction of the conditions precedent for doing so.
Without prejudice to the generality it is submitted that the re- assessment is founded on mere change of opinion.
Your Appellant therefore prays that the assessment framed by the AO u/s.143[3] read with section 147 of the Income Tax Act be annulled.
2. Without prejudice to the first ground of appeal your Appellant submits that:
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a] The learned CIT[A] has erred in upholding the action of the AO in recomputing the amount of deduction available u/s.80IB of the Income Tax Act by estimating the profits on a global basis.
It is submitted that the learned AO did not have any authority to do so in view of the fact that the learned CIT[A] had not approved, at the very threshold, the validity of the global method adopted by the AO for estimating the profits derived u/s.80-u/s.80IB[10] in the appellate proceedings arising from the original assessment and all the aspects concerning this issue had merged with the order of the CIT[A] .
Further, the learned AO has erred in holding that receipts by way of insurance claims, profit from Joint Venture and Technology fees do not qualify to be included in the profits derived from the undertaking in the context of section 80IB of the Act.
b] The learned CIT[A] further erred in confirming the action of the AO, in holding that receipts by way of DEPB credits, insurance claims, Miscellaneous receipts, sale of scrap, sales tax setoff/refunds, profit from Joint Venture and technology fees do not constitute profits from business in the context of Explanation (baa) to section 80-u/s.80HHC of the Act. It is further submitted that the learned AO did not have any authority to do so in view of the fact that this issue had merged with the order of the CIT[A] .
Without prejudice, the learned CIT[A] has erred in not directing the AO to increase the amount of deduction u/s.80HHC(3) of the Act with reference to DEPB credits in the proportion of export turnover to the total turnover.
c) The learned CIT[A] further erred in confirming the action of the AO in adding to the income of your Appellant sum of Rs.7,98,84,453/- on account of Modvat credit on the opening stock.
Without prejudice, the learned AO ought to have made corresponding adjustment by enhancing the amount of profits derived from the industrial undertaking qualified for relief u/s.80-IA of the Act.
15. Ground of appeal No.1 is similar to ground of appeal No.1 raised for A.Y 2000-01 and for the detailed reasons given therein, this ground is rejected.
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16. Ground of appeal No.2(a) is similar to ground of appeal No.2(a) raised for A.Y 2000-01 and for the reasons given therein, this ground is rejected.
17. Ground of appeal No.2(b) is similar to ground of appeal No.2(b) raised for A.Y 2000-01 and for the detailed reasons given therein, this ground is rejected. As regards the without prejudice ground, this is similar to the without prejudice ground raised in the appeal for A.Y 2000-01 and for the reasons given therein this ground is allowed for statistical purposes.
18. As regards ground No.2© it is submitted before us that this issue is covered by the decision of the Delhi High Court in the case of Mahavir Aluminium reported in 299 ITR 77. Respectfully following the same, this issue is remitted to the file of the AO for reconsideration in the light of the above decision. This ground is accordingly allowed for statistical purposes.
19. In the result, assessee's appeal in I.T.A.No.6617/M/06 for A.Y 1999-2000 is allowed.
20. I.T.A.NO.4318/M/06 - A.Y 98-99 [revenue's appeal]: The only grievance of the revenue is that the CIT[A] has erred in cancelling the assessment order u/s.143[3] r.w.s. 147 of the Act for want of jurisdiction.
21. Brief facts of the case are that the assessee company which is engaged in the manufacture of drugs and pharmaceuticals filed its return of income declaring total income of Rs.84,58,91,000/- along 13 with necessary documents and forms. Thereafter, a revised computation of income was filed vide letter dated 10-4-2000 declaring total income of Rs.84,72,87,010/-. The assessment was completed u/s.143[3] on 25-1-2001 assessing total income of the assessee at Rs.90,63,77,459/- wherein deductions u/s.80IA and 80HHC were revised. The assessee filed an appeal against the said order before the CIT[A] who partly allowed the same by revising the additions made on account of reduction in deduction u/s.80IA and the total income was accordingly computed at Rs.85,86,39,067/- by computing the deduction u/s.80IA at Rs.12,80,24,979/- and deduction u/s.80HHC at Rs.16,09,01,888/-. Against the same, both the assessee as well as the revenue have preferred appeals to the ITAT. While the appeals are still pending before the ITAT, it came to the notice of the AO that the assessee has been allowed higher deduction u/s.80IA and u/s.80HHC than the actually allowable deduction. It was observed that while working out deduction u/s.80IA by adopting the global profit method, the department has adopted the figure of book profit of the company instead of the assessed income and in the books of accounts assessee has debited Rs.13,95,44,083/- as depreciation as per the Company's Act whereas the depreciation claimed as per Income Tax Act is only Rs.8,68,98,156/- which has resulted into excess allowance of deduction 80IA amounting to Rs.3,30,42,594/-. It was further observed that while working deduction u/s.80HHC of the Act, AO did not reduce the receipt from insurance claim, technology charges, royalty and other 14 miscellaneous income from the profits and gains of the business and this has resulted into excess of allowance of Rs.26,92,678/-. Observing that the income had escaped assessment, notice u/s.148 was issued. In response to the same, assessee company vide letter dated 15-4-2005 stated that the return filed on 30-11-98 along with the revised computation filed on 10-4-2000 may be treated as return filed in response to notice u/s.148 of the Act. The reasons recorded for reopening were also requested to be furnished to the assessee. The reasons were furnished to the assessee on 26-5-2005. The assessee questioned the validity of the reopening of the assessment after expiry of four years from the end of the relevant assessment year as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The AO however held that the case of the assessee is covered by clause [3] of Explanation 2 to sec.147 and, therefore, he rejected the assessee's objection and proceeded to assess the income of the assessee.
22. Aggrieved by the order of the AO rejecting the assessee's objection to the validity of the reopening of the assessment as well as merits of the additions, assessee filed an appeal before the CIT[A]. The CIT[A] after considering the assessee's submissions and after going through the records, observed that the AO has nowhere in the reasons for reopening of the assessment alleged that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of assessee's income for that assessment 15 year. He also considered the decision of the jurisdictional High Court in the case of Hindustan Lever Ltd. [268 ITR 332] and also the decision in the case of Desai Brothers Ltd. vs. DCIT [272 ITR 335] and came to the conclusion that reopening of the assessment u/s.147 of the Act was not in accordance with law and the conditions as laid down therein were not satisfied and, therefore, the reopening of the assessment is itself not valid and vitiates the assessment. He, accordingly, annulled the assessment and did not go into the merits of the case. Aggrieved by the order of the CIT[A] , the revenue is in appeal before us.
23. The ld. DR supported the order of the AO while the ld. counsel for the assessee placed reliance upon the order of the CIT[A] .
24. After hearing both the parties and after going through the material on record, we find that undisputedly the reopening of the assessment is after the expiry of four years from the end of the relevant assessment year. As rightly pointed out by the CIT[A] , AO in his reasons for reopening has nowhere stated that the escapement of income is due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of its income. As held by the Hon'ble Bombay High Court in the case of Hindustan Lever Ltd. [cited supra], the assessment cannot be reopened unless the condition specified there-under are satisfied i.e. failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of its income. In view of the same, we do not see any 16 reason to interfere with the order of the CIT[A] and the revenue's appeal is dismissed.
25. In the result, revenue's appeal is dismissed.
26. I.T.A.No.4319/M/06 - A.Y 2000-01 [revenue's appeal]:
The grounds of appeal raised by the revenue are as under-
i. On the facts and in law, the Ld. CIT[A] erred in holding that "other income" of the nature of Duty Drawback, Miscellaneous Receipts, interest, sales tax set off sale of scrap is eligible profit for the purposes of deduction u/s.80IB of the Act of the eligible units on the ground that the issue stands covered by the appellate order passed in the appeal against the original assessment order vide No.cita/Ceent.I/AP-5/2003-04 dated 17-11- 2003 without appreciating that the said order has not been accepted by the department and an appeal has been filed before the ITAT on 23-01-2004.
27. As regards this issue, we find that the CIT[A] in the order against the assessment order u/s.143(3) has already considered the issue and therefore the same cannot be reconsidered in the re- assessment proceedings as the order of the AO has already merged with that of the CIT[A] . We, therefore, uphold the order of the CIT[A] and the grounds raised by the revenue are rejected.
28. In the result, revenue's appeal in I.T.A.No.4319/M/06 for A.Y 2000-01 is dismissed.
Order pronounced on this 17th day of February, 2010.
Sd/- Sd/-
(P.M.JAGTAP) (P.MADHAVI DEVI)
Accountant Member Judicial Member
Mumbai: 17th February, 2010.
P/-*
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Copy to-
1) Appellant
2) Respondent
3) CITA Mumbai.
4) CIT City Mumbai
5) DR Bench Mumbai
True Copy By Order
Dy/Asst.Registrar,ITAT MUMBAI.