Gujarat High Court
Bilag Industries Pvt Ltd vs Assistant Commissioner Of on 7 May, 2013
Author: Akil Kureshi
Bench: Akil Kureshi
BILAG INDUSTRIES PVT LTD....Petitioner(s)V/SASSISTANT COMMISSIONER OF INCOME-TAX OR HIS SUCESSOR C/SCA/3703/2013 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 3703 of 2013 ================================================================ BILAG INDUSTRIES PVT LTD....Petitioner(s) Versus ASSISTANT COMMISSIONER OF INCOME-TAX OR HIS SUCESSOR & 1....Respondent(s) ================================================================ Appearance: MR RK PATEL, ADVOCATE for the Petitioner(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Respondent(s) No. 1 - 2 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 07/05/2013 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Heard the learned counsel for the parties for final disposal of the petition.
Petitioner has challenged the notice dated 9.3.2012 as at Annexure G to the petition issued by respondent No.1, Assessing Officer, under section 148 of the Income Tax Act, 1961 ( the Act for short). The petition arises in the following background.
Petitioner is a company registered under the Companies Act. For the assessment year 2005-06, the petitioner had filed return of income on 29.10.2005. Such return was taken in scrutiny. The Assessing Officer framed assessment under section 143(3) of the Act on 30th December 2008. It is this assessment which was previously framed after scrutiny, the Assessing Officer desires to reopen, for which the impugned notice has been issued.
At the request of the petitioner, the Assessing Officer supplied the reasons recorded by him for issuing such notice. Such reasons read as under:
In this connection, the reasons for initiating proceedings u/s.148 in your case for A.Y. 2005-06 are as under:
Under section 10B of the I.T. Act, 1961, profit and gains of business derived by a hundred per cent export oriented undertaking (EOU) from the export of articles or things were allowable as deduction from the total income, proportionate to the export turnover to the total turnover of the business carried on by the undertaking.
A company was a manufacturer of pesticides and intermediates. In the return of income filed for the assessment year 2005-06, it had claimed deduction of Rs.63,62,37,879 under section 10B of the Act. In the order passed under section 143(3) of the Act, it was restricted to Rs.58,37,74,050 (i.e. 100% of the profit and gains of (EOU) after common expenses like personnel expense, interest expense etc. was allocated to EOU unit from DTA unit @ 20 per cent of such expenses.
From the records it was seen that assessee had claimed depreciation of Rs.31,98,153 on motor car (Annexure 2(a) of Form 3CD) in the DTA unit. However, the EOU unit did not own any motor car. EOU unit had not charged any expenses towards travel, conveyance, etc. However, in completing the assessment Rs.41,582 incurred towards oil and petrol expense by DTA unit was allocated to EOU unit. Considering the above facts, 20 per cent of the depreciation expense incurred by the DTA unit required to be allocated to the EOU unit and expenses of DTA unit reduced to that extent.
Further, it was observed that the total turnover (Rs.188,78,78,189) of the undertaking was arrived at after reducing freight and insurance of Rs.1,22,98,315 from the gross export turnover of Rs.190,01,76,504. However, section 10B of the Act does not provide for deduction of freight and insurance from the total turnover.
Similarly, liability written off and offered under section 41(1) of Rs.37,72,385 and sale of scrap of Rs.82,899 were also not included in the total turnover. The deduction admissible u/s 10B of the Act was Rs.57,81,87,170/-.
Thus, assessee was allowed excess deduction of Rs.55,86,880 (Rs.58,37,74,050) (-) Rs.57,81,87,170) under section 10B of the Act. Further, the reallocation of depreciation of Rs.6,39,631 from DTA unit of EOU unit would enhance income of DTA unit by Rs.6,39,631. I.T. involved on Rs.62,26,511 (Rs.55,86,880 + Rs.6,39,631) was Rs.33,03,732.
The provisions of section 145A of the Act mandate inclusive of accounting for the purpose of the Act in respect of duty, cess and taxes even though the assessee might be following exclusive method of accounting. Assessee was a manufacturer of pesticides and intermediates. Assessee followed mercantile system of accounting. It followed exclusive method of accounting CENVAT as derived from the statement in Annexure 1 to clause 12(b) of Form 3CD, furnishing details of deviation from the method of valuation prescribed under section 145A of the Act. As per annexure 10(a) clause 22(a) of report in Form 3CD, at the end of the previous year ending on 31.3.05, the unutilized CENVAT credit with assessee amounted to Rs.7,76,80,737 (Rs.10,05,05,859) (-) CENVAT credit availed on Capital Goods of Rs.2,28,25,122). The opening balance of unutilized CENVAT credit was Rs.4,65,30,218 only. Thus, the net unutilized CENVAT credit at the end of the previous year was Rs.3,11,50,519 (Rs.7,76,80,737 Rs.4,65,30,218). In view of the provisions of section 145A of the Act which mandate inclusive method of accounting, this portion of un utilized CENVAT credit was to be considered for computing tax.
Incidentally, in Annexure-I to clause 12(b) of the Form 3CD wherein the details of deviation from the method of valuation prescribed under section 145A was furnished, it was observed that the deviation was determined to be nil by increasing cost or purchases by Excise duty of Rs.249775277 incurred on it.
Thus, the Excise Duty element on the entire purchase of inputs made during the year was considered for increasing the cost of purchases. However, the fact was that the entire purchases were not consumed during the year. Hence, in Annexure 1, the purchase was to be increased only by the Excise Duty element on the portion or purchases that were actually consumed. The Excise Duty element on the un-consumed purchases that formed part of inventories was not to be considered for determining the deviation in the method of valuation under section 145A of the Act. Thus, the deviation from the method prescribed was not correctly worked out.
The I.T. Involved on unutilized CENVAT credit of Rs.31,11,150,519 upon application of section 145A of the Act was as follows:
Tax detail Rs.
I.T.on Rs.3,11,50,519@35% 1,09,02,682 Surcharge 2.5% 2,72,567 Edu. Cess @2% on Rs.1,11,75,249 2,23,505 Short Levy of I.T. 1,13,98,754 Interest u/s.234B @ 1% month on Rs.1,13,98,754 from 1.4.05 to 31.12.08 (45 months) I.e. 45% 51,29,439 Total short levy of I.T. 1,65,28,193 Refund and rebate of Excise Duty was covered by the provisions of section of the I.T.Act, 1961 and liable to I.T. Assessee was a manufacturer of pesticides and intermediates. The accountant in clause 13(B) of Form 3CD had reported that refund of Excise Duty paid on export sales of Rs.17766236 was neither passed through the profit and loss account nor offered as income for taxation under the Act. As per clause (1)(h) of Schedule 22 Notes on Account , sales were recognized net of Excise Duty. In view of the above facts, the refund/rebate of Excise Duty on export sales was liable to income tax. The I.T. involved on Rs.17766236 was as under:
Tax detail Rs.
I.T.on Rs.1,77,66,236@35% 62,18,183 Surcharge 2.5% 1,55,455 Edu. Cess @2% on Rs.63,73,638 1,27,473 Total.
65,01,111 Interest u/s.234B @ 1% month on Rs.65,01,111 from 1.4.05 to 31.12.08 (45 months) I.e. 45% 29,25,500 Total short levy of I.T. 94,26,611 The petitioner, thereupon, raised detailed objections before the Assessing Officer under communication dated 14.3.2013. Such objections, however, were disposed of by order dated 26.3.2013. Hence the petition.
Having heard the learned counsel for the parties, we notice that in the reasons, the Assessing Officer has indicated three different grounds for issuing notice for reopening. Such grounds are as under:
That deduction under section 10B of the Act was granted in excess of the petitioner s entitlement to the tune of Rs.66,26,511/-.
That the assessee did not properly account for the unutilized Cenvat credit while valuing the closing stock by applying the inclusive method as provided under section 145A of the Act.
That the assessee had received rebate on excise duty of Rs.1,77,66,236/- on export sales which was not offered to tax.
At the outset, we may record that in the order dated 26.3.2013 passed by the Assessing Officer disposing of the objections of the petitioner, the second ground, namely, that of treatment of unutilized Cenvat credit for valuing of closing stock was dropped in following manner:
In this regard I have verified the factual aspects of the case including the arithmetical calculation submitted in Annexure 1 to clause 12(b) of Form No.3CD. It is seen that the net effect on profit of the assessee company is Rs.Nil even though it has followed the exclusive method of accounting as prescribed in AS-2 of the Accounting Standards issued by the Institute of Chartered Accountants of India. In view of this and the decision of SC in the case of CIT v/s. Indo Nippon Chemicals Co. Ltd. reported in 261 ITR 275 the submission of the assessee company on this ground is accepted.
We therefore have to focus our attention only on two of the grounds mentioned in the reasons recorded. With respect to the first ground of deduction under section 10B of the Act, as pointed by the counsel for the petitioner in the original assessment, the entire claim was scrutinized at length. On 31st October 2007, the Assessing Officer raised several queries in writing calling upon the petitioner to satisfy him on various aspects of the claims arising from the return. In particular, with respect to the deduction claimed under section 10B of the Act, he required following information:
14) On perusal of the profit and loss account, particularly the schedule 15, it has been found that an other income of Rs.23,21,71,560/- has been shown.
Such other income is not directly derived from the activities carried out by the industrial undertaking. You are, therefore, required to explain as to why the same should not be not be excluded while calculating the deduction u/s.10B of the Act as the same is not directly derived from activities carried on by the industrial undertaking it is only attributable to the business of the assessee.
xxxxx Please explain the allocation of expenditure between Bilag-1 Unit and EOU unit. In this regard, you will please justify the allocation of expenditure considering priority and non-priority units. You will also please explain why the expenditure should not be allocated between both the units as was done in A.Y. 2004-095 and subsequently confirmed by the CIT (A).
Such queries were replied by the petitioner under communication dated 22.1.2007, in following manner.
The other income shown in Profit & Loss A/c. of Rs.23,21,21,71,560/- pertains to Bilag Industries Pvt Ltd whereas the deduction u/s.10B is claimed only on the income arising from the operations of 100% EOU unit and hence section 10B has no relevance with respect to other income shown in Profit & Loss A/c.
The details relating to export benefit income of Rs.58,48,05,813/- is attached herewith at Annexure 12.
Yet further correspondence ensued between the parties with respect to this claim. It is not necessary to burden this order with recording of such details. Suffice it to notice that in the order of assessment, the Assessing Officer limited the claim of deduction to Rs.58,37,74,050/- as against the assessee s original claim of Rs.63,62,37,879/-. This claim was made in the original return and was sought to be justified on the basis of documents produced with the return and thereafter during the course of scrutiny assessment.
Likewise, with respect to the question of rebate on excise duty not offered to tax, the assessee had in the return of income itself, disclosed this aspect in para 13 under the head, amounts not credited to the profit and loss and account, one of them being during the year Rs.1,77,66,236/- was claimed as refund of excise duty paid on export sales made under rebate . This claim was also scrutinized when under the earlier noted communication dated 31.10.07, the Assessing Officer raised the following query:
37. Please explain the effect of excise duty refund of Rs.1,77,66,235/- claimed during the year.
In response to such a query, the assessee replied as under:
Out of the excise duty refund receivable of Rs.1,77,66,235/- the company has received Rs.1,36,25,687/- and the balance of Rs.41,40,549/- has been written off during the next year.
In the ultimate order of assessment, no addition was made.
From the above it can be seen that quite apart from the reasons recorded, even from the record, nothing emerges to permit the Assessing Officer to form a belief that income chargeable to tax had escaped assessment for the reason of the assessee s failure to disclose truly and fully all material facts. On the contrary, in addition to there being necessary declaration in the return filed, both the claims were scrutinized by the Assessing Officer. It may be that a certain angle may not be directly addressed by the Assessing Officer while examining the assessee s claim for deduction under section 10B of the Act. However, it cannot be stated that there was any failure on the part of the assessee to disclose true and full facts. Therefore, beyond the period of four years to the relevant assessment year, the assessment could not have been reopened. Most significantly, in the order disposing of the objections of the petitioner, the Assessing Officer recorded as under:
In your case even though the company had disclosed all the particulars during the course of original assessment proceedings carried out u/s.143(3) of the Act, the then AO had inadvertently overlooked the issue of allowability of deduction under section 10B and issue of excise duty refund as income. Accordingly, objections on this count are also rejected.
Even from such order, it can be gathered that this was not a case of any failure on the part of the assessee to disclose truly and fully all material facts.
In the result, the impugned notice dated 9.3.2012 is quashed.
Before closing, we may record one disturbing feature of the matter. That upon receipt of notice for reopening dated 9.3.2012, the petitioner had requested the Assessing Officer under its communication dated 19.3.2012 for supplying the reasons recorded by him. Since the reasons were not supplied, the petitioner reiterated the request under communication dated 18.7.2012. The reasons were ultimately communicated under letter dated 6.3.2013. On 20.3.2013, the petitioner raised objections. Such objections were disposed of on 26.3.2013.
The entire sequence of events will demonstrate that the Assessing Officer effectively frustrated the directives contained in the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd v. I.T.O., 259 ITR 19. The entire purpose to supply reasons recorded by the Assessing Officer to the petitioner-assessee is that the the assessee would have a fair opportunity of raising objections and an expectation that such objections would be considered objectively. In the present case, though the reasons were very much available with the Assessing Officer, he consumed nearly one year in supplying the same leaving less than four weeks before the assessment was to become time-barred. In the meantime, the objections raised by the petitioner were disposed of in four days leaving another about five days for framing the scrutiny assessment. We fail to understand what scrutiny he could have carried out in such a short time. We wonder whether a time has come to give a time-frame for supplying the reasons and also for disposing of such objections which the assessee might have raised within reasonable time on receiving the reasons recorded by the Assessing Officer. We leave that at the present. The petition is disposed of accordingly.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) (vjn) Page 10 of 10