Income Tax Appellate Tribunal - Kolkata
Kanoria Chemicals & Industries Ltd., ... vs Department Of Income Tax on 4 April, 2013
आयकर अपीलीय अधीकरण, Ûयायपीठ - "A" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA
(सम¢)Before ौी के. के. गूƯा, लेखा सदःय एवं/and ौी महावीर िसंह, Ûयायीक सदःय)
[Before Shri K. K. Gupta, AM & Shri Mahavir Singh, JM]
आयकर अपील संÉया / I.T.A Nos. 225 to 227/Kol/2012
िनधॉरण वषॅ/Assessment Years: 2003-04 to 2005-06
Assistant Commissioner of Income-tax, Vs. Kanoria Chemicals & Industries Ltd.
Circle-10, Kolkata. (PAN:AABCK1291K)
(अपीलाथȸ/Appellant) (ू×यथȸ/Respondent)
Date of hearing: 04.04.2013
Date of pronouncement: 12.04.2013
For the Appellant: Shri Ajay Kr. Singh, CIT
For the Respondent: S/Shri S. Jhajharia & Sujay Sen
आदे श/ORDER
Per Shri Mahavir Singh, JM:
All these appeals by revenue are arising out of separate orders of CIT(A)-XII, Kolkata in Appeal Nos. 541, 542 & 543/XII/Cir-10/10-11 dated 07.11.2011. Assessments were framed separately by DCIT, Circle-10, Kolkata u/s. 143(3)/154/143(3)/251/147/143(3) of the Income- tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Years 2003-04 to 2005-06 vide his orders dated 28.12.2010.
2. The first common issue in these three appeals of revenue is against the order of CIT(A) in quashing proceedings initiated for reopening u/s. 147 of the Act. For this, revenue has raised exactly identically worded grounds and relevant grounds raised in AY 2003-04 in ITA No. 225/K/2012 read as under:
"1.Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in law in holding that the proceedings u/s. 147 was bad in law.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A is correct in allowing deduction u/s. 80IA which is in contravention of explanation to section 80IA(8)."
3. Since facts and circumstances are exactly identical in all these three years, we will take the facts from AY 2003-04. Briefly stated facts are that the assessee company is an industrial company and derives income from manufacturing of Caustic Soda, Stable Bleaching Powder, 2 ITA Nos.225 to 227/K/2012 Kanoria Chemicals & Ind. Ltd. AYs: 2003-04 to 2005-06 Lindane, Aluminium Chloride, Salt, Pantaerythritol, Accetaldehyde, Formaldehyde, Hexamine, Industrial Alcohol, Acetic Acid, Power, CPW etc. The assessee company had also installed captive power plant for generation of electricity. The assessee filed its return of income for AY 2003-04 on 27.11.2003 declaring nil income and computed book profit u/s. 115JB of the Act amounting to Rs.14,11,88,788/-. The assessee claimed deduction u/s. 80IA of the Act in respect of captive power unit amounting to Rs.28,53,40,470/- and various other deductions on account of dividend income etc. The assessee also filed audited accounts, tax audit report, auditor's report in Form 10CCB in respect of captive power unit and various other details. Original assessment was framed u/s. 143(3) of the act vide order dated 23.03.2006 after seeking details/particulars and clarifications including the details in respect of claim of deduction u/s. 80IA of the Act in respect of captive power unit. The AO while completing assessment u/s. 143(3) of the Act allowed deduction u/s. 80IA of the Act for a sum of Rs.12,98,46,010/- as against the claim of the assessee at Rs.28,53,40,470/-. This deduction was reduced because of reduction in business income due to appellate order. Subsequently, a notice u/s. 148 of the Act was issued on 31.03.2010 i.e. beyond four years from the end of the relevant assessment year and the reasons recorded [(as reproduced in the order of CIT(A)] reads as under:
"The assessee has filed its return of income on 27.11.2003 showing total income of Rs.NIL. The assessee has shown Book Profit u/s. 115JB for Rs.14,11,88,788/- only. Assessment was completed u/s. 143(3) on 23.03.2006 on Book Profit of Rs.16,12,84,720/- and normal income of Rs.12,98,46,010/- and subsequently rectified u/s. 154 on 10.05.2006 determining the normal income at Rs.12,82,80,147/- which is allowed as deduction u/s. 80IA to the extent of income under the head Business only. The assessee has claimed deduction 80IA for Rs.28,53,40,469/- only in the computation of total income. The assessee is claiming deduction u/s. 80IA on power generation unit. Subsequent examination of auditor's report in Form No. 10CCB with reference to Rule 18BBB revealed that the assessee company has sold 4.59 MW/MU of power to UPPCL for Rs.52,74,859/- i.e. @ Rs.11,49,206/- per MW/MU. The assessee has also sold 165.60 MW/MU power by way of inter-unit transfer for Rs.64,02,86,664/- i.e. @ Rs.38,66,465/- per MW/MU. The above detail clearly indicates that the assessee company has shown the sale price for inter unit transfer at a much higher figure i.e. @ Rs.38,66,468/- against sale to UPPCL i.e. @ Rs.11,49,206/- per MW/MU. Section 80IA(8) of the I. T. Act clearly speaks that if -
1) The assessee carries two or more business and one of them is qualified for deduction u/s. 80IA.
2) From the business of a unit which is eligible for deduction u/s. 80IA transfers/sells some goods to another business carried on by the assessee which is not eligible for deduction u/s. 80IA.
3) The consideration for such transfer as recorded in the Books of Account is not equal to the market value of such goods on the date of transfer.
4) The expression market value means the price that such goods or services would fetch in the open market.3 ITA Nos.225 to 227/K/2012
Kanoria Chemicals & Ind. Ltd. AYs: 2003-04 to 2005-06 In such conditions the Assessing Officer is competent to recompute the profit of the eligible unit claiming deduction u/s. 80IA by taking the price of such goods/services at market value.
In the instant case the assessee company is satisfying all the conditions. In the circumstances I am of the opinion that @ Rs.11,49,206/- per MW/MU sale price of 165.60 MW/MU comes to Rs.19,03,08,513/- whereas the assessee has shown the sale consideration at Rs.64,02,86,664/- leading to inflation of income of eligible unit by Rs.44,99,78,150/-. The assessee has claimed deduction of Rs.28,53,40,469/- and out of it only Rs.12,82,80,147/- was allowed on the basis of availability of other income of the assessee.
Hence, it is considered that deduction u/s. 80IA for Rs.12,82,80,147/- as per order u/s. 154 dated 10.05.2006 was wrongly allowed leading to escapement of income to the extent of Rs.12,82,80,147/-."
4. The assessee vide letter dated 05.04.2010 requested the AO to treat original return filed u/s. 139 of the Act as return filed u/s. 148 of the Act and also requested for communication of reasons recorded vide letter dated 06.04.2010. The assessee objected to reopening of the assessment. The assessment u/s. 143(3) r.w.s. 147 of the Act was completed on total income at Rs.10,05,48,780/- on 28.12.2010 thereby withdrawing the entire deduction u/s. 80IA of the Act allowed earlier amounting to Rs. 9,81,28,175/-.
5. Aggrieved, assessee preferred appeal before CIT(A), who after considering submissions of assessee quashed the reassessment proceedings vide para 4 of his order as under:
"4. After careful consideration of the assessment order, written submission and paper book furnished it is noticed that the assessee has filed return on 27.11.2003 along with audited accounts and auditor's certificate in Form No. 10CCB showing total income as NIL and income u/s. 115JB of the I. T. Act, 1961 at Rs.14,11,88,788/-. The assessment was completed u/s. 143(3) on 23.03.2006 at a book profit for Rs.16,12,84,720/- and business income at Nil after allowing the claim u/s. 80UIA for Captive Power Unit. While giving appeal effect to CIT(Appeal)'s order, assessment was reopened by issuing notice u/s. 148 of the I. T. Act, 1961 dt. 31.03.2010. After obtaining the reasons recorded for initiating the proceeding u/s. 147 of the I. T. Act, 1961 assessee challenged the validity of initiation of proceedings. Vide order dt. 28.12.2010 with an addition of Rs.9,81,28,175/- has been made u/s. 80IA. The case has been reopened on the basis of examination of auditor's report in Form No. 10CCB which was available in 143(3) proceedings completed on 23.03.2006 and the disllowance has been made on the basis of Schedule-R to the profit and loss account for the year ended on 31.03.2003 which was filed on 27.11.2003. The disallowance has been quantified on the basis of sale rate to UPPCL and inter unit transfer as per the notes on account. It is evident from the above facts that the case has been reopened on the basis of a change of opinion as assessment has been completed u/s. 143(3) of the I. T. Act 1961 on 23.03.2006 on the basis of same material available on record and there being no failure on the part of the assessee in disclosing the complete facts after a lapse of more than four years from the end of the assessment year. I have carefully considered the case of CIT Vs. Kelvinator Ltd. 320 ITR 561 (SC), the facts of the case are identical, therefore, assessee is entitled to get relief on 4 ITA Nos.225 to 227/K/2012 Kanoria Chemicals & Ind. Ltd. AYs: 2003-04 to 2005-06 ground nos. 1 to 4 because assessment has been reopened on merely change of opinion. Therefore, assessee's appeal is allowed."
6. We have heard rival submissions and gone through facts and circumstances of the case. We find that the admitted facts in this case are that original return of income was filed by the assessee company for AY 2003-04 on 27.11.2003 declaring nil income and also filed computation u/s. 115JB of the Act computing the book profit at Rs.14,11,88,788/-. In this return of income, assessee company claimed deduction u/s. 80IA of the Act in respect of captive power unit amounting to Rs.28,53,40,470/-. This return of income was accompanied by audited accounts, tax audit report, auditor's report in form No. 10CCB in respect to claim of deduction of captive power unit and various other details. During the course of assessment proceedings assessee in response to notices u/s. 143(2) and 142(1) of the Act filed various details and particulars and also made available to AO details in respect of claim of deduction u/s. 80IA of the Act for captive power unit. The AO after going into the details completed assessment u/s. 143(3) of the Act determining total income at nil and computed book profit u/s. 115JB of the Act at Rs.16,12,84,720/-. While completing assessment u/s. 143(3) of the Act, the AO allowed deduction u/s. 80IA of the Act to the extent of Rs.12,98,46,010/-, to the extent of business income available, as against the claim of the assessee at Rs.28,53,40,470/-. This deduction u/s. 80IA of the Act was reduced because of reduction in business income due to appellate order. Subsequently, the AO issued notice u/s. 148 of the Act dated 31.03.2010 by recording the reason that "Subsequent examination of auditor's report in Form No. 10CCB with reference to Rule 18BBB revealed that the assessee company has sold 4.59 MW/MU of power to UPPCL for Rs.52,74,859/- i.e. @ Rs.11,49,206/- per MW/MU. The assessee has also sold 165.60 MW/MU power by way of inter-unit transfer for Rs.64,02,86,664/- i.e. @ Rs.38,66,465/- per MW/MU. The above detail clearly indicates that the assessee company has shown the sale price for inter unit transfer at a much higher figure i.e. @ Rs.38,66,468/- against sale to UPPCL i.e. @ Rs.11,49,206/- per MW/MU." The AO has recorded that in this case assessee company satisfied all the conditions for claiming deduction u/s. 80IA of the Act but according to him, the sale price vis-à-vis inflation is charged at higher rate and so he recorded that the deduction u/s. 80IA of the Act to the extent of Rs.12,82,80,147/- was wrongly allowed leading to the escapement of income. We find that there is no charge that the reopening or the reasons recorded for reopening any way says that any new material has come to the possession of AO for reopening. He has only examined the records which were available before the AO during the course of original assessment proceedings. Only, according to AO, computation of profit of 5 ITA Nos.225 to 227/K/2012 Kanoria Chemicals & Ind. Ltd. AYs: 2003-04 to 2005-06 eligible unit for claiming deduction u/s. 80IA of the Act should be taking the price of such goods/services at market value. Can the AO reopen in such circumstances? This issue has been answered by Hon'ble Supreme Court in the case of CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) and also in the case of CIT Vs. Foramer France (2003) 264 ITR 566 (SC). In the case of Kelvinator of India Ltd., Hon'ble Supreme Court held as under:
"3.1. I have carefully considered the submission of the Ld A.R . There is no dispute that during the course of original assessment proceeding under section 143(3) the details of the interest paid to M/s Binani Cement Ltd was duly furnished by the assessee vide letter dated 15.10.2006. Further it is evident from the assessment order dated 23.03.2007 passed under section 143(3) of the Act , that books of accounts , bank statement and requisitioned detail were examined by the A.O with reference to the details of account filed along with the return. Hence it is evident that the disclosure of the interest paid to M/s. Binani Cement Ltd was very much on record and the same was duly considered by the A.O while passing the assessment order under section 143(3) of the Act. There is no new material in the possession of the A.O as evident from the reason recorded, which could lead to the conclusion that the income has escaped assessment. Now it is a settle law that AO deemed to have applied his mind if facts are on record and reopening u/s 147 on change of opinion is not permissible even within 4 years. The Hon'ble Supreme Court C.I.T. vs. Kelvinator (I) Ltd. - 320 ITR 651- has confirmed the finding of the full Bench decision of the Hon'ble Delhi High Court that on the basis of same facts and materials (and no more) disclosed at the time of original assessment made under section 143(3) of the I. T. Act, by mere change of opinion, the assessment cannot be re-opened u/s.147 of the I. T. Act, 1961.
3.2. In CIT vs. Kelvinator of India Ltd. 256 ITR 1 the Full Bench of the Delhi High Court was considering a case of reopening u/s 147 within 4 years from the end of the assessment year. The Court held that when a regular order of assessment is passed in terms of section 143 (3) of the Act, a presumption can be raised that such an order has been passed on applìcation of mind. It was held that if it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceedìng without anything further, the same would amount to giving premium to an authority exercising quasi- judìcial function to take benefit of its own wrong. It was held that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon a mere change of opinion. On appeal by the department to the Supreme Court HELD dismissing the appeal:
Though the power to reopen under the amended s. 147 is much wider, one needs to give a schematic interpretation to the words reason to believe failing which s. 147 would give arbitrary powers to the AO to re- open assessments on the basis of mere change of opinion, which cannot be per se reason to re-open. One must also keep in mind the conceptual difference between power to review and power to re-assess. The AO has no power to review; he has the power to re-assess. But re- assessment has to be based on fulfillment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the AO. Hence, after 1.4.1989, the AO has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with 6 ITA Nos.225 to 227/K/2012 Kanoria Chemicals & Ind. Ltd. AYs: 2003-04 to 2005-06 the formation of the belief. This is supported by Circular No.549 dated 31.10.1989 which clarified that the words reason to believe did not mean a change of opinion. 3.3. Considering the submission of the assessee and the fact of the case as discussed above, it is held that that the case was reopened by the A.O on mere change of opinion that T.D.S provision will be applicable on the amount reimbursed to Binani Cement Ltd. against the interest paid to the bank. It is a settle issue that the reopening of the proceeding, being merely based on 'change of opinion' should be considered as invalid and illegal and should be cancelled. Accordingly the notice issued under section 148 of the Income Tax Act is quashed and accordingly the order passed under section 147/143(3) is annulled."
Admittedly in this case, the assessment is framed u/s. 143(3) of the Act as well as reopening is beyond four years from the end of the relevant assessment year. It is also admitted fact that while recording reasons the AO has noted that subsequent examination of records revealed means he has examined only the assessment records which were already examined by AO during the course of original assessment proceedings. Nothing new tangible has come to the notice of AO for completion of assessment which forms reason or basis for reopening. Similar view is expressed by Hon'ble Delhi High Court in the case of CIT Vs. Orient Craft Ltd. in ITA No. 555/2012 dated 12.12.2012, wherein vide para 14, Hon'ble Court has observed as under:
In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in CIT vs. Kelvinator (supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-à-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147."
In view of the above, we are of the view that the CIT(A) has rightly quashed the reassessment proceedings and we confirm the same.
7. Coming to the merits of the case, the only common issue ( in all the three years) raised by revenue as regards to the contravention of explanation to section 80IA of the Act defining the market value. For this, revenue has raised following ground no.2 in AY2003-04:
"2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in allowing deduction u/s. 80IA which is in contravention of explanation to section 80IA(8)."7 ITA Nos.225 to 227/K/2012
Kanoria Chemicals & Ind. Ltd. AYs: 2003-04 to 2005-06
8. At the outset, it is to be stated that assessee has relied on tribunal's order in ITA No.334/K/2011, AY 2007-08 in assessee's own case dated 31.08.2012, wherein vide para 8 it has observed as under:
8. Hence, we are of the view that the market value for the purpose of sub-section 8 of section 80IA of the Act is a price arrived at between buyer and seller in the open market where transaction takes place in normal course of business in contrast to a situation where price is fixed between a buyer and a seller in a negotiation done under legislative mandate. The claim of deduction u/s. 80IA of the Act in respect of its captive power undertaking engaged in the business of generation of electric power and power generated by assessee used in its own consumption as well as sale to State Electricity Board, the price at which power was supplied by assessee to Board was determined entirely in term of statutory regulation and such a price cannot be equated with market value as is understood for the purpose of section 80IA(8) of the Act. Since the assessee is an industrial consumer also buying power from other Boards or utilities and such power supplied to assessee can be equated as market value as appearing in explanation appended to section 80IA(8) of the Act and for the purposes of computation of deduction under this section excluding the duties, cess, taxes etc. Even otherwise, this issue is now covered by the decision of Hon'ble jurisdictional High Court in the case of CIT Vs. Graphite India Limited G.A. No.3114 of 2008, ITA No.733 of 2008 dated 10.12.2008. This issue of assessee's appeal is allowed in principle but subject to recomputation of deduction u/s. 80IA of the Act excluding the electricity duty, cess, taxes etc. by the AO."
The Ld. DR has not pointed out anything contrary on facts and he stated that yes Tribunal's order is exactly on similar facts but he stated that revenue has challenged the same before Hon'ble High Court. It means that factually there is no dispute that the facts are similar in this year as what was before the Tribunal in ITA No. 334/K/2011 in assessee's own case. Respectfully following the same, we also confirm the order of CIT(A) on merits. In all the three years the facts and legal position being exactly similar, we dismiss revenue's appeal.
9. In the result, appeals of revenue are dismissed.
10. Order pronounced in the open court on 12.04.2013 Sd/- Sd/-
के . के . गूƯा, लेखा सदःय महावीर िसंह, Ûयायीक सदःय
(K. K. Gupta) (Mahavir Singh)
Accountant Member Judicial Member
तारȣख)
तारȣख) Dated : 12th April, 2013
(तारȣख
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
8 ITA Nos.225 to 227/K/2012
Kanoria Chemicals & Ind. Ltd. AYs: 2003-04 to 2005-06
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - ACIT, Circle-10, Kolkata. .
2 ू×यथȸ/ Respondent - Kanoria Chemicals & Industries Ltd., 71, Park Street,
Kolkata-16.
3. आयकर किमशनर (अपील)/ The CIT(A), Kolkata
4. आयकर किमशनर/ CIT Kolkata
5. ǒवभािगय ूितनीधी / DR, Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy, आदे शानुसार/ By order,
सहायक पंजीकार/Asstt. Registrar.