Income Tax Appellate Tribunal - Jaipur
Saraf Export, Churu vs Acit, Jhunjhunu on 8 November, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 32/JP/2017
fu/kZkj.k o"kZ@Assessment Year : 2006-07
M/s Saraf Export, cuke The ACIT,
RIICO Industrial Area, Sardarshahar, Vs. Circle
Distt. Churu. Junjhunu
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AATFS 9394 N
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Suresh Ojha (Advocate)
jktLo dh vksj ls@ Revenue by: Shri Prithvi Raj Meena (Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 07.09.2017.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 08/11/2017.
vkns'k@ ORDER
PER SHRI KUL BHARAT, JM
This Appeal by the assessee is directed against the order of the Commissioner of Income Tax Appeal-5, Jaipur dated 04/11/2016 pertaining to the Assessment Year 2006-
07. The assessee has raised the followings grounds of appeal:-
"1. That the order passed by the Commissioner of Income-Tax (Appeals)-5, Jaipur is illegal and against the law.
2. That the CIT(A) should have accepted that the action taken by the Assessing Officer u/s 147 of Income Tax Act 1961 is illegal and against the law.
3. That the Commissioner of Income-tax (Appeals) should have appreciated that the provisions of the statute is binding on the Revenue Officer which was neither declared unconstitutional nor stayed by any of the competent court.
4. That the Order passed by the CIT(A) is against the judicial decorum and discipline because the Judgment of Supreme Court referred in 259 ITR page 19 was not followed by the AO as well as by the CIT(A).2 ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
5. That the CIT(A) should have appreciated that in the initial year the deduction was allowed cannot be rejected in the subsequent year.
6. That the CIT(A) should have appreciated that the notice was not in the prescribed form, the notice was no notice in the eye of law.
7. That the charging of interest is illegal and against the law.
8. That the cost may kindly be awarded to the appellant."
2. By way of Ground no. 1 to 6, the assessee has challenged the correctness and legality of the reopening of assessment.
3. Facts giving rise to these grounds are that, in this case the assessment u/s 143(3) of the Act was completed on 04-02-2008. Thereafter, an order u/s 154 for the Income Tax Act, 1961(hereinafter referred to as the Act) was passed on 08-02-2010 whereby the deduction claimed by the assessee was withdrawn in view of the Judgment of Hon'ble Supreme Court in the case of M/s Liberty India vs. CIT 317 ITR 218.
3.1 The order passed u/s 154 of the Act was challenged and reached to the stage of this Tribunal. The issue was decided against the Revenue. Subsequently, the Assessing Officer proceeded to reopen the assessment by issuing notice u/s 148 which was duly served upon the assessee. It is recorded by the AO that reasons for reopening were duly supplied to the assessee. Thereafter, considering the submission of the assessee the Assessing Officer disallowed the claim of the deduction claimed u/s 80IA of the Act.
Against this, the assessee preferred an appeal before Ld. CIT(A), who after considering the submissions, dismissed the appeal.
4. Now, the assessee is in further appeal before this Tribunal.
3 ITA No. 32/JP/2017.M/s Saraf Exports, Churu.
5. Apropos to Ground no. 1 to 6, Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. For the sake of clarity the submissions of the assessee are reproduced as under:-
"As regards ground no. 1 & 2, I want to draw you kind attention towards order of the CIT(A), towards reopening of the assessment. In this connection, I want to draw your kind attention towards facts contained in the Paper Book being submitted separately. The submission presented before the CIT(A) is at page 1-8 and objection submitted before the Assessing Authority at page 9-10. The firm came into existence from the Assessment Year 2005-06. The Assessment Year 2005-06 being the first year, the assessment of the initial year was completed y/s 143(3) of the Income Tax Act and the deduction claimed by the assessee was allowed by the Assessing Officer and order of the Income Tax Officer dated 30.07.2007 is valid order till date is attached herewith. This is to be kept in mind while considering the Appeal for the Assessment Year 06-7 that is second year.
The immediate question which can be germin, whether the assessment can be reopened, if in the initial year deduction/exemption was allowed u/s 147 of IT Act. This was the issue before the Assessing Officer. The assessment of the year 2006-07 was completed u/s 143(3) of the Income Tax Act and reopened by exercising the powers of section 147 of the IT Act. Thus, after receiving the notice, the assessee obtained reasons for reopening of the assessment and submitted the objection before the Assessing Officer. Copy thereof is at page 9-10 of the Paper Book.
The Assessing Authority not disposed off objection submitted by the assessee inspite of the judgment of the Hon'ble Supreme Court, that if any objection is being submitted in response to notice, it should be dealt with and decided first, but nothing was done by AO and now matter is before your good-self.
In absence of disposing off the objection submitted before the AO, the entire assessment completed by the Assessing Officer became null and void in view of the judgment of Hon'ble Supreme Court delivered in case of G.K.N. Shaft, reported in 259 ITR page 19. This was also argued before the CIT(A) but despite specific 4 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
submissions, the CIT(A) not thought it fit so as to deal with this submission and summarily rejected. It is, therefore, humbly prayed that order passed by the Assessing Authority as well as the commissioner of Income Tax (Appeal) may kindly be declared illegal and against the law.
I also want to submit that there is prescribed proforma for giving notice in each Section and that had been prepared by the Central Board of Direct Taxes. CBDT also prescribed one proforma in case of reassessment u/s 147 of the Income Tax Act i.e. ITNS 34. A copy of the same is being submitted in the Paper Book along with prescribed proforma at page 11 & 12, the notice issued was not in prescribed proforma. In this respect, I want to draw your kind attention towards the fact that one specific ground was taken but the CIT(A) failed to adjudicate in the prescribed notice. Therefore, the order of the CIT(A) is not in accordance with the law and judicial discipline.
The attention was specifically drawn towards the order of Hon'ble Tribunal delivered in case of M/s Verma Tractors. The ratio of the order is applicable in toto because in that case also proper lines were not struck off in the notice issued u/s 147 of the IT Act and the same situation exists in case of the assessee. Furthermore, the attention of the CIT(A) was also drawn towards the judgment of the Hon'ble Rajasthan High Court wherein it was held that notice must be in the prescribed proforma. The notice so issued was not in the prescribed proforma. The judgment referred above is a judgment of Rajasthan High Court reported in 88 STC page 21; therefore, ratio thereof is applicable. Though the judgment was delivered in case of Sales tax but the principles lay down therein is applicable. Under these facts and circumstances, you will observe that the order of the Assessing authority was on the basis of illegal notice and the assessment completed on the illegal notice is not an order in the eyes of law. It is, therefore, submitted that the order passed by the Assessing Authority and sustained by the CIT(A) may kindly be declared as illegal. It will be worthwhile to submit that the judgment of Hon'ble Rajasthan High Court is based on the Judgment of Hon'ble Supreme Court. Under these facts and circumstances, it is humbly prayed that the Ground No. 1 & 2 may be decided in favour of the assessee.5 ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
As far as ground of re-opening of assessment is concerned, I want to submit that the reopening is on the basis of change of opinion i.e. Judgment of Hon'ble Supreme Court and the assessee relied upon the judgment of Hon'ble Supreme Court in case of Simplex Concrete Pipes (I) Limited. The judgment of Hon'ble Supreme Court on the issue of the law that whether on the basic of the judgment of Supreme Court, the assessmednt can be re-opened or not. The assessee also relied upon the judgment of Rajasthan High Court delivered in the case of M/s Vardhman Industries wherein the Hon'ble Rajasthan High Court also held that there cannot be re-opening of assessment on the ground of change of opinion. The CIT(A) fails to appreciate and sustained the order. It is also submitted that the reasons for reopening of the assessment may kindly be declared as illegal and against the law.
As regards ground no. 3, I want to draw your kind attention towards the fact that there is provision in the constitution u/s 28(i) (iiie). The provision of the Section is still on the statues and the Hon'ble Rajasthan Court adjudicated that this provision is not withdrawn. Therefore, it is still applicable. In this respect, I want to draw your kind attention towards the fact that the Hon'ble Rajasthan High Court has categorically considered amended procedure while delivering the judgment in the case of M/s Saraf Season Udyog reported in 40 TAX WORD 196. In view of the above facts and circumstances, you will observe that this judgment of Rajasthan High Court and cannot be overlooked although the same was overlooked by CIT(A) while passing the order. It is therefore, submitted that this ground may kindly also be considered and allowed.
As regards Ground no. 4 is concerned, it is stated that the judgment of Hon'ble High Court and Supreme Court is having the character of binding nature and the same should have been followed. The Assessing Officer as well as CIT(A) failed to follow the same. Therefore, may kindly be accepted and order may kindly be declared as illegal and against the law and Act of the lower authorities may kindly be declared against judicial decorum and discipline.6 ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
As regards ground no. 5, it is stated that if in the initial year, deduction has been allowed, the same cannot be rejected in the subsequent years. In this respect, it is stated that If allowed in the initial year cannot rejected in subsequent year As far as the issue in respect of the fact in which if in the initial year the deduction has been allowed in the subsequent year same cannot be changed. In this respect I want to draw your kind attention towards the order of Income Tax Appellate Tribunal delivered in case of Tyco Valves & Controls (India) vs. Department of Income Tax on 23 August,2012 the relevant few portion are being reproduced hereunder:
"Therefore, the start point of the limitation for claiming the benefit following from section 10B would commence from the year of manufacture or production of the undertaking. If the conditions prescribed in the section are not satisfied in the year of commencement of production.
We hold that in the absence of any disturbance in respect of relief granted in initial year, there was no legal justification of disturb the continuous deduction of section 10B in any of the subsequent assessment year."
The above order of the Hon'ble Tribunal is crystal clear in respect of fact that if in the initial year the deduction has been claimed cannot be disturbed in the succeeding year. The ration of the order of the Tribunal is applicable in toto.
I further want to draw your kind attention towards the order of Tribunal in cased of Samruddhi Industries Ltd. delivered by the ITAT Pune Bench in which the Hon'ble bench is also of the same view. I am reproducing hereunder the relevant portion of the order of Tribunal (para 14) as under for your ready reference:
"Assessee and without any changed circumstances, the said claim was sought to be denied in a subsequent year, and such an attempt was negated by the Hon'ble High Court. In the instant case, as we have noted earlier the circumstances have changed after the initial assessment year and therefore, the claim is sought to be denied on valid grounds and without disturbing the claim in the initial year because the circumstances in the initial year have not under gone any change."7 ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
I want to also draw your kind attention towards the judgment delivered by Karnataka High Court in case of ACE multi Axes System Ltd. the relevant portion thereof is being reproduced hereunder:
"Industrial growth which is required to be achieved, if two interpretations are possible, the courts have to learn in favour of extending the benefit of deduction to an assessee who has availed the opportunity given to him under law and has grown in his business. Therefore we are of the view, if a small scale industry, in the course of 10 years, stabilizes early, makes further investments in the business and it results in it's going outside the purview of the definition of a small scale industry, that should not come in the way of its claiming benefit under sec. 80IB for 10 consecutive years, from the initial assessment year. Therefore the approach of the authorities runs counter to the scheme and the intent of the Legislature. Thereby - they have denied the legitimate benefit, an incentive granted to the assessee. Both the said orders cannot be sustained. Therefore the substantial question of law is answered in favour of the assessee and against the Revenue. Hence we pass the following."
The ratio of the judgment is also applicable in case of the assessee. In the decision of CIT vs. Art and Craft Export Art reported in 246 CTR Page 463 delivered by the Hon'ble High Court Bombay the Hon'ble Court held that once exemption has been accepted in the earlier year than in the subsequent year for the Rule of consistency such deduction / exemption has to be allowed. The same has been reproduced as under:-
"As regards questions (a) and (b) are concerned, counsel for the Revenue fairly stated that the decision of the Tribunal in the case of the assessee for the earlier years in , holding that assessee is engaged in the manufacturing activity and, therefore, entitled to deduction under section 80IB of the IT Act, 1961 has been accepted by the Revenue in the earlier years. No argument is advanced to establish that the said decision of the Tribunal for the earlier years is erroneous. In these circumstances, question (a) and (b) raised by the Revenue cannot be entertained."8 ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
From the perusal of above you will observe that it is a rule of law that if the exemption / deduction have been allowed is initial year in that case same cannot be disturbed in the subsequent year.
It will be worthwhile to mention here that the order of the Assessing Officer is still a valid order neither reverse nor stayed by any of the competent court therefore in these fact and circumstances the order is a good order and following the same the deduction claimed may kindly be allowed. It will be worthwhile to mention and draw your kind attention further towards the following order of Income Tax Appellate Tribunal delivered in case of Smt. Urmila Bhandari ITA Nos. 766, 2593/Del/2013 by the ITAT, Delhi Bench H New Delhi wherein in the same set of circumstances the Hon'ble Tribunal dismissed the appeal of the department. The relevant portion is being reproduced hereunder:
"In the Income Tax Appellate Tribunal Delhi Benches: "H" New Delhi Before Shri I.C. Sudhir, J.M. And Shri J. Sudhakar Reddy, A.M. ITA Nos. 766,2593/Del/2013 Assessment years: 2009-10, 2010-11 ITO, Ward-2, Room No. 210, 1st Floor, Income Tax Building, IDPL Veerbhadra, Rishikesh Uttrakhand VS.
Smt. Urmila Bhandari Prop. M/s Hotel Narayana Palace, Tapovan Badrinath Marg, Tehri Garhwal, Rishikesh, Uttrakhand
15. The proposition laid down in this judgment applies to the facts of this case. The AO has examined the condition of allowability of the claim u/s 80IC in the initial assessment year of the claims i.e. A.Y. 2005-06 itself in an order passed u/s 143(3) of the Act. This was followed in the subsequent A.Y. 9 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
These assessments are not disturbed till date. There is no change in the facts and circumstances of the case. Only fresh view, contrary to the earlier view is taken during this impugned Assessment year on the same set of facts and exemption is denied. This cannot be permitted as held by the Jurisdictional High Court in the case of Delhi Patra Prakasham Ltd. (supra). Respectfully following the same, we uphold the order of the Ld. CIT (A) for different reasons."
From the perusal of above judgment you will observe that the disallowances of claim of the assessee are against the law. You are requested to kindly accept the appeal of the assessee.
As regards ground No. 6, it is stated the same is in respect of the prescribed proforma . I have already submitted my submission in earlier para while submitting illegality in respect of the Section 147 of IT Act."
5.1 Per contra Ld. D/R vehemently opposed the submissions and supported the order of the authorities below. He submitted that allowability of deduction is no more res-
integra. The issue has been decided by the Hon'ble Supreme Court in the case of CIT vs. M./s Liberty (Supra) in favour of the Revenue. He further contended that Ld. AR has concealed the fact that the Hon'ble Jurisdictional High Court in assessee's own case has decided the issue against the assessee in the assessee's own case pertaining to the Assessment Year 2008-09 in D.B. Income Tax Appeal no. 7 of 2014. Therefore, he urged that this appeal deserves to be dismissed, with cost.
5.2 We have heard the rival contentions, perused the material available on record. By way of the present appeal, the assessee has challenged the correctness of the order passed by the authorities below. As per the assessee, the Assessing Officer has not 10 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
followed the due process of law as laid down qua the reopening of the assessment. It is contended that where the Assessing Officer had passed an order u/s 154 of the Act in that event reopening of the assessment is not permissible. It is stated that this objection was not disposed of by separate orders. He further contended that another objection of the assessee was that once a deduction is given cannot be withdrawn in subsequent years. It is also contended that re-opening cannot be based upon change of opinion. Another submission of the assessee is that the AO was required to dispose of the objection by way of speaking order in the case in hand AO has not done so. Therefore, he urged that Assessment is vitiated and deserves to be quashed on this ground alone.
First contentions of Ld. Counsel for the assessee is that issue of allowability of deduction u/s 80IB of the Act is required to be examined in the initial year. It is contended that year 2005-06 being the initial year, and the deduction was allowed in that year by AO.
Therefore, it cannot be disturbed in subsequent year. We find that the similar submissions were made before the Hon'ble High Court in DB Income Tax Appeal No. 7/2014 (Supra) same was recorded by the Hon'ble High Court as under:-
"9. Per contra, Mr. Suresh Ojha, learned counsel for the assessee respondent contended that incentives are part of the business income and deduction under Section 80-IB of the Act of 1961 is required to be allowed on the business income and once the export incentives are also part of business income/receipts then deduction under Section 80-IB is required to be allowed on the total profit of the assessee. He also contended that in the case of assessee itself for the assessment year 2005-06 and 2006-07, the ITAT had allowed the claim under Section 80-IB of the Act of 1961 and such assessments have become final as the same has not been challenged by the revenue before this Court, and when the claim has been allowed in the past on same set of facts and material, deductions having been claimed on the same facts, the order of the Tribunal is required to be followed in the light of 11 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
judgment rendered in the case of Radhasoami Satsang Vs. CIT 1992 AIR 377 (SC) and other judgments. He also contended that when two reasonable constructions are possible then the one which is more favourable to the assessee has to be adopted and relied on the judgment in the case of CIT Vs. Vegetable. Products Ltd., (1973) 88 ITR 192 (SC).
10. He further contended that the initial order of claim u/Sec. 80-IB was for assessment year 2005-06 and determination is required to be seen in initial year and if claim in initial year is found in order, it deserves to be subsequently in subsequent Year. In this regard, he has also relied upon Saurashtra Cement Chemical Industries Ltd. Vs. CIT, Gujarat 123 ITR 669. He also-contended that the judgment in Liberty India (supra) has not considered the amended Section 28(iiid) and 28(iiie) of the Act of 1961, and the order of the Tribunal is just and proper and is not required to be interfered with.
11. We have heard the counsel for the parties and perused the impugned order so also other material and judgments cited at the Bar.
12. In our view the order of the Tribunal is not sustainable in law as when the AO and CIT(A) relied upon the judgment of Liberty India (supra), which, in our view, covers the controversy but surprisingly, the Tribunal has not at all cared to discuss the judgment of the Apex Court which is binding on all the authorities u/Art. 141 of the Constitution of India including the Tribunal. The Tribunal relied upon its own order for the assessment year 2005-06 and 2006-07 respectively which in our view, is unsustainable in law in the light of the judgment of Liberty India (supra) which was available before the ITAT even when the earlier appeals were decided.
13. It would be appropriate to quote relevant para of the impugned order of the Tribunal:
2.7 It is an undeniable and undisputed fact that Assessing Officer has passed the impugned order based on the verdict given in the Liberty India (supra). The perusal 12 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
of the judgment reveals that their Lordships have not considered the amended provision. As against which is rightly pointed out by the ld. AR, the Hon'ble Rajasthan High Court in the decision of Saraf Seasoning Udhyog (supra) have discussed and relied on even the amended provision. Further it is trite that when any amended provision is not considered or for that matter, any relevant provision of the Act is not considered while giving a judgment, it is treated as in per curium. 2.8 The Hon'ble High Court has taken its view while deciding the case of Chokshi Contracts (P) Ltd. in 251 ITR 587 (Raj.) that in case amended provisions of the Act:
are not considered the judgment looses the character of a binding nature. The Court has also held as under:-
"Coming to the judgment relied on by the Id. Counsel for the Revenue in Shree Engineer's case (supra), we are of the opinion that the answer question no.3 which was referred by the Tribunal has been rendered solely with the reference to the earlier decision of the Court in 'Vishnu Oil and Dal Mills' case (1996) 218 ITR 71 (Raj.) only without noticing the relevant provisions of Section 80A and 80AB and Section 80B(5) and also Section 80HH(9). It may be noticed that the decision in Vishnu Oil and Dal Mills case (1996), 218 ITR 71 (Raj.) dealt with the question whether in computing the gross total income for the purpose of Chapter VI-A requires adjustments of unabsorbed carry forward loss or unabsorbed carry forward depreciation in terms of Part D of Chapter IV or in terms of Chapter VI of the Act, which as seen above has to be computed without taking into account the provisions of Chapter VI-A, but after taking into account the provisions of the Act-whether under Chapter IV or Chapter VI. However, the Court was not dealing with the interaction of the various sections contained in Chapter VI-A on the issue of deduction of any amount which is to be allowed under Chapter VI-A. Thus the decision rendered in Shree Engineers' case without reference to the relevant provisions of the Act merely by reference to Vishnu Oil Mills case (1996), 218 FIR 71 (Raj.) was per incuriam and cannot be taken as a binding precedent and does not assist the Revenue in any manner."13 ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
2.9 Similar view has been taken by the Jodhpur Bench in the case of M/s Bothra International, Jodhpur in ITA No. 37/JU/2011- A.Y. (2002-03) dated 21.9.2012. Therefore, the decision of Liberty India will not rule the field after amendment. Moreover in any other case, the issue becomes a debatable one in the light of the above decision. It is settled position of law that where any issue is debatable, it cannot be corrected u/s 154 of the Act. In this regard, the Honble Apex Court in the case of T.S. Balaram (ITO) Vs. Volkart Brothers and others reported in 82 ITR 50 (SC) is relevant wherein an action taken by Assessing Officer u/s 154 of the. Act was found to be illegal. The Hon'ble Apex Court has held thus:-
"In Satyanarayn Laxminarayan Hedge Vs. Malikarjun Bhavanappa Tirumale, this court while spelling out the scope of the power of `a High. Court under Article 226 of the Constitution rule that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record- see Sidhramappa Andannappa Manvi v. Commissioner of Income-tax (2). The power of the officers mentioned in Section 154 of the Income-Tax Act, 1961, 'to correct "any mistake apparent from the record." In this case, it is not necessary for us to spell out the distinction between the expressions "error apparent on the face of the record" and "mistake apparent from the record." But suffice it to say that the Income-tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent."
We have found that the allowance of deduction is not a daring, obvious, patent and apparent from record. Hence, it cannot be rectified, in view of our above discussion. Accordingly, we accept the appeal of the assessee and set aside the finding of the Ld. CIT (A) by reversing the same and allow this appeal."....
Sd/ Sd/-
(Hari Om Maratha) (N.K. Saini)
Judicial Member Accountant Member
14
ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
Jaipur Dated 17/12/2013
[Underlining by us]
14. On perusal of Para 2.7 and 2.9 of the Tribunal's order it is clear that the Tribunal finds judgment of Liberty India is per incurium and further found that the issue on facts is debatable and holds that where the issue is debatable it cannot be corrected under Section 154 of the Act of 1961. It is to be noticed that the year under appeal is not an order u/Sec. 154 and the Assessing Officer has passed an order under Section 143 (3) from the stage of passing of the assessment o der and has not passed a rectificatory order under Section 154 of the Act of 1961 which has been considered in the case of Bothra International (supra).
15. We have reproduced Para 2.9 of the order of the Tribunal. and we find that the instant case- is 'not a case of a rectificatory order or mistake apparent from record rather it is a case of regular scrutiny assessment and not an order under Section 154 of the Act of 1961. Therefore, the very foundation and premise on which the ITAT has proceeded is wholly perverse.
16. Counsel for the assessee contended that since in the initial year, the claim has been allowed by the Tribunal and attained finality, therefore the view in the subsequent years was required to be followed and though the principles of law of precedence may not apply but expected to maintain consistency. Be that as it may, in the appeal memo it is observed by the appellant that the tax effect was low in Assessment Year 2005-06 and 2006-07 and in the light of the circular of the Central Board of Direct Taxes, no appeal was preferred. Law of consistency does not mean that an order not sustainable in law is also required to be followed. One wrong cannot make subsequent act correct and therefore in our view such a claim of the counsel for the assessee deserves to be outrightly rejected.
17. We may reiterate and also hasten to add that if the initial assessment order is legally unsustainable & perverse, it need not be followed though for diverse 15 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
reasons may have attained finality. It may be true that consistency in order is required to be maintained but in our view the claim allowed by the Tribunal in the assessment year 2005-06 and 2006-07 is not sustainable and Tribunal has decided , contrary to the law laid down by Apex Court in Liberty India (supra) and as the said judgment was available before the ITAT who decided , the appeals for the Assessment. Year 2005-06 and 2006-07. This also-: highlights that it requires extra cautious approach by the authorities (Revenue) and standing counsels which should not sweep the matters. Under the carpet taking advantage of monetary limits fixed by CBDT.
This Court in Commissioner of Income Tax Vs. M/s. Garment Crafts in DB ITA No.42/2008 decided on 12.1.2016 held that if a substantial question is covered by the judgment of the Apex Court and this Court and is no more res integra then the circular of Central Board of Direct Taxes about tax effect may not be binding to non-suit the Revenue.
18. Having said so, we will deal with question of deduction under Section 80-IB as to whether the same is allowable or not as held in M/s. Garment Craft (supra):-
"Sec. 80-IB of the Income Tax Act provides for deduction at a specified percentage in respect of profits and gains derived from the eligible industrial undertakings and other infrastructure development undertaking on fulfillment of .specified Conditions for a period of 10 or 12 consecutive assessment years from initial assessment year, as the case may be.
On perusal of Sec. 80-IB, in our view, it postulates that the deduction u/Sec. 80-IB is available to the eligible industrial undertaking where the gross total income of the eligible assessee includes any "profits and gains derived from any eligible business"
referred to in the section (emphasis supplied). What has to be seen is "derived from"
and not "attributable to". The expression "derived from" is restrictive as against "attributable to", which is wider. There should be immediate nexus and not distant nexus. In our view DEPB/duty draw back benefits do not form part of net profit of 16 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
undertaking as they are riot derived from the eligible business but are incentives under a particular scheme.
The Hon'ble Apex Court in the case of CIT Vs. Sterling Foods (supra), where the controversy was relating to deduction u/Sec. 80-HH of the Act, had an occasion to consider about the profits from sale of import entitlements, its nature and observed ad-infra:-
"We do not think that, the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in the circumstances, only be said to be the Export Promotion Scheme of the Central Government where under the export entitlements become available. There must be, for the application of the words "derived from", a direct nexus between the profits and gains and only industrial undertaking. In the instant case, the nexus is not direct and only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration there from cannot, in our view, be held to constitute a profit and gain derived from the assessee's industrial undertakings".
Thus, Hon'ble Apex Court in the identical circumstances relating to import entitlements clearly held that it does not constitute profit and gains derived from assessee's industrial undertaking.
15. The judgment of the Hon'ble Apex Court in the case Liberty India Vs. CIT (supra) , in our view, is also directly on the issue as in the instant case u/Sec. 80-IB of to Act. The Hon'ble Apex Court, in para 14 has observed: "Analyzing Chapter VI-A, we find that section 8018/80-IA are a code by themselves as they contain both substantive as well as procedural provisions. Therefore, we need to examine what these provisions prescribe for "computation of profits of the eligible business". It is evident that section 80-IB provides for allowing of deduction in respect of profits and gains derived from the eligible business. The words "derived from" are narrower in connotation as compared to the words "attributable to". In other words, by using the expression "derived from", Parliament intended to cover sources not beyond the first degree. In the present batch of cases, the controversy which arises for 17 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
determination is : whether the DEPB credit/duty drawback receipt comes within the first degree sources ? According to the assessee(s), DEPB credit/duty drawback receipt reduces the value of purchases (cost neutralization), hence, it comes within first degree source as it increases the net profit proportionately. On the other hand, according to the Department, DEPB credit/duty drawback receipts do not come within first degree source as the said incentives flow from the incentive schemes enacted by the Government of India or from section 75 of the Customs Act, 1962. Hence, according to the Department, in the present cases, the first degree source is the incentive scheme/provisions of the Customs Act. In this connection, the Department places heavy reliance on the judgment of this court in Sterling Foods [1999] 237 ITR 579. Therefore, in the present cases, in which we are required to examine the eligible business of an industrial undertaking, we need to trace the source of the profits to manufacture. (see CIT v Kirloskar Oil Engines Ltd. reported in [1986] 157 ITR 762." The Hon'ble Court analysed Duty Exemption Remission Scheme and held DEPB as an incentive. It held in para 18 as under:
"Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Scheme(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression "profits derived from industrial undertaking" in section 80-IB."
It held in para 24 as under:
"In the circumstances, we hold that duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of section 80-I/80-IA/80-IB of the 1961 Act"
Thus, in our view, the judgment is directly and squarely on the issue and the issue is no more res integra. It may also be relevant to observe that the judgments rendered by this Court in the case. of Saraf Seasoning Udyog (supra) and CIT Vs. Chokshi Contacts (P) Ltd. (supra) are judgments prior to the judgment of the Hon'ble Apex Court in the case of Liberty India Vs. CIT (supra) and thus are per incurium. The judgments in the case of Topman Exports Vs. CIT (supra) and Vikas Kalra Vs. CIT :
(2012) 247 CTR 0382, in our view, are in context of sec. 80HHC read with 18 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
explanation (baa) of the Income Tax Act, and accordingly are distinguishable. The other judgments, relied upon by counsel for the assessees, are also distinguishable in view of what we have noticed hereinabove and the arguments of the counsel for the assessees find no force and are hereby rejected."
Respectfully, following the same, the objection of Ld. Counsel for the assessee that issue of deduction is required to examined in the initial year and once the order of earlier attains finality it cannot be disturbed is dismissed. Now, coming to the contention of Ld. Counsel that its objections against re-opening was not disposed of by way of speaking order. We find merit into this contention of Ld. Counsel for the assessee. The AO has not passed any speaking order, even in the Assessment Order there is no whisper about the objections raised by AO that assessment cannot be re-opened where the AO had invoked provision of Section 154 of the Act. Moreover, AO has discussed the reply of the Assessee raised during the course of re-assessment proceeding. Ld. Counsel has relied upon the order of Hon'ble Supreme Court rendered in the case of G.K.N Driveshaft's (India) Ltd. vs. ITO 259 ITR 19, wherein the Hon'ble Supreme Court has observed as under:-
"However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years."19 ITA No. 32/JP/2017.
M/s Saraf Exports, Churu.
From the above observation, it can be inferred that AO was required to dispose of objections by way of speaking order before proceeding with the assessment. Now question arises whether the assessment can be annulled on the ground that the Assessing Officer has not disposed of the objection in the manner he was expected to do. The Hon'ble Bombay High court in the case of Allan Cold Storage Ltd. vs. Income Tax Officer and Others [2006] 287 ITR 1 (Bom), considering the decision of Hon'ble Supreme Court in the case of G.K.N. Driveshaft's (India) Ltd. vs. ITO (Supra) under the identical facts has held as under:-
"8. Having noted this scenario, in our view the proper course will be to interfere with the assessment order passed in all four matters by the concerned officer. We are aware that when an alternative remedy is resorted to, the writ jurisdiction is not to be exercised, but that is a rule of self-limitation. The orders challenged in the present matter are clearly against the law laid down by the apex court and, therefore, the exercise of writ jurisdiction is called for. That being so, we allow all these petitions and quash and set aside the orders of assessment passed in all these four petitions. Inasmuch as the assessment orders are set aside, the appeals filed by the petitioners no longer required to be prosecuted. The same will stand disposed of.
9. Now that the impugned orders are set aside, the first respondent, after hearing the petitioners, will separate speaking orders on the objections which the petitioners have filed."
Similar view has been expressed by the Hon'ble Bomaby High Court in the Judgment dated 2nd March 2010 in the case of IOT Infrastructure & Energy Services Ltd. vs. Assistant Commissioner of Income Tax & Anr. (2010) 233 CTR (Bom) 175, wherein the Hon'ble Court held as under:-
20 ITA No. 32/JP/2017.M/s Saraf Exports, Churu.
"4. In the circumstances, the petition shall stand disposed of in the following terms:
(i) The order of reassessment dt. 23rd Dec. 2009 and the order issued by a nothing dt. 21st dec. 2009 disposing of the objections of the assessee are quashed and set aside:
(ii) The AO shall pass a fresh order on the objections raised by the assessee to the proposed reassessment within a period of four weeks from today after furnishing an opportunity of being heard to the assessee and serve a copy of the said order upon the petitioner.
(iii) In the event that an order adverse to the assessee is passed, effect shall not be given to the order for a period of four weeks thereafter to enable the assessee to seek recourse to its remedies against the order.
(iv) If within the period specified in cl. (iii) above, the order passed as per cl.
(ii) above is not stayed by a Court and there is no order restraining the AO from passing a reassessment order, the AO would be at liberty to pass an order of reassessment within a period of two weeks from the expiry of the period set out in cl. (iii) above.
(v) In order to facilitiate completion of the entire exercise set out herein above, for a period of ten weeks from today, the notice dt. 16th March, 2009 shall remain stayed;
(vi) All the rights and contentions of the parties are kept open and this order shall not be constructed as the expression of any opinion by the Court on the merits of rival contentions."
Respectfully, following the judgments of the Hon'ble Bombay High Court, we hereby set aside the assessment order, and direct the AO to dispose of the objection by way of separate speaking order and in case, if the objections are rejected he would make 21 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.
assessment afresh as per law. The grounds raised in this appeal are disposed in the terms indicated herein above.
6. In the result, Appeal of the Assessee is partly allowed for statistical purpose.
Order pronounced in the open court on Wednesday, the 08th day of November 2017.
Sd/- Sd/-
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(VIKRAM SINGH YADAV) ( KUL BHARAT )
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Jaipur
Dated:- 08/11/2017.
Pooja/
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. The Appellant- M/s Saraf Export, Churu.
2. The Respondent- The ACIT, Circle Jhunjhunu.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (ITA No. 32/JP/2017) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 22 ITA No. 32/JP/2017. M/s Saraf Exports, Churu.