M/s. L. T. Karle& Co, Bangalore v. ITO, Bangalore

PAGE 1 OF 7 ITA NO.364/BANG/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI GEORGE GEORGE K. J.M. AND SHRI A MOHAN ALANKAMONY A.M. ITA NO.364/BANG/2009 (ASST. YEAR 2003-04) M/S L T KARLE & CO. NO.151 INDUSTRIAL SUBURB YESHWANTHAPUR BANGALORE-22. - APPELLANT VS THE INCOME TAX OFFICER WARD-9(3) BANGALORE. - RESPONDENT APPELLANT BY : SHRI PADAM CHAND KHINCHA C.A. RESPONDENT BY : SMT. JECINTA ZIMIK VASHAI ADDL. C IT O R D E R PER GEORGE GEORGE K : THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTE D AGAINST THE CIT(A)-II'S ORDER DATED 26.02.2009. THE RELEVANT ASSESSMENT YEAR IS 2003-04. 2. THE ASSESSEE IS A FIRM. IT IS ENGAGED IN THE B USINESS OF MANUFACTURE AND EXPORT OF GARMENTS. DURING THE PRE VIOUS YEAR RELEVANT TO THE CONCERNED ASST. YEAR THE ASSESSEE WAS RUNNING TWO UNITS. FOR ONE UNIT DEDUCTION U/S 80HHC OF THE I T ACT WAS CLAIMED AND FOR THE OTHER UNIT DEDUCTION U/S 10B OF THE ACT WAS CLAIMED. PAGE 2 OF 7 ITA NO.364/BANG/2009 2 2.1 RETURN OF INCOME WAS FILED ON 28.11.2003 WHIC H WAS ACCEPTED U/S 143(1) OF THE ACT. THEREAFTER NOTICE U/S 148 WAS ISSUED ON 13/9/2004 AND WAS DULY SERVED ON THE ASSESSEE. THE ASSESSEE O BJECTED TO THE ISSUANCE OF NOTICE U/S 148 OF THE ACT AND ALSO CHALLENGED TH E PROPOSED ADDITIONS THAT WAS SOUGHT TO BE MADE ON MERITS. HOWEVER THE ASSE SSEES OBJECTIONS/SUBMISSIONS WERE REJECTED AND REASSESSME NT ORDER WAS PASSED VIDE ORDER DATED 10/3/2006. AS PER THE REASSESSMEN T ORDER THE TAXABLE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.29 02 2 67/-. IN THE REASSESSMENT THE A.O. HAD MADE THE FOLLOWING CHANG ES IN THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80HHC OF THE ACT:- DEDUCTION U/S 80HHC OF THE ACT IS NOT ALLOWED ON TH E GROUND THAT THE INCOME OF THE APPELLANT FROM MANUFACTURING ACTIVITY IS NEGATIVE. THIS IS ARRIVED AT BY EXCLUDING INCOME FROM JOB WORK WHICH IS CONSIDERED BY THE ASSESSING OFFICER AS NON MANUFACTURING ACTIVITY. FURTHER WHILE ARRIVING AT JOB WORK INCOME ONLY DIR ECT EXPENSES RELATED TO JOB WORK HAVE BEEN REDUCED FROM THE GROSS RECEIPTS FROM JOB WORK. 3. AGGRIEVED THE ASSESSEE CHALLENGED THE REASSESS MENT ORDER BEFORE THE FIRST APPELLATE AUTHORITY. 4. IT WAS SUBMITTED BEFORE THE FIRST APPELLATE AUT HORITY THAT THE AO ERRED IN ISSUING OF NOTICE U/S 148 OF THE ACT. IT WAS SUBMITTED THAT THE CONDITIONS PRECEDENT FOR ISSUE OF NOTICE U/S 148 IS NOT PRESENT IN THE FACTS OF THE CASE. IT WAS CONTENDED THAT WHEN THERE WAS TIME LIMIT FOR ISSUANCE OF SCRUTINY NOTICE U/S 143(2) ISSUANCE OF REASSESSM ENT NOTICE U/S 148 IS BAD IN LAW. PAGE 3 OF 7 ITA NO.364/BANG/2009 3 4.1 ON MERITS IT WAS CONTENDED THAT THE AO HAS ER RED IN HOLDING THAT PROFITS ON JOB WORK RECEIPT IS NOT ELIGIBLE FO R DEDUCTION U/S 80HHC OF THE ACT. 5. THE CIT(A) HOWEVER REJECTED THE CONTENTIONS R AISED BOTH ON THE JURISDICTIONAL ASPECT AS WELL AS ON MERITS AND DISMISSED THE APPEAL OF THE ASSESSEE. 6. THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFOR E US RAISING THE FOLLOWING EFFECTIVE GROUNDS:- I) THE AO ERRED IN ISSUING NOTICE U/S 148 OF THE ACT A ND IN COMPLETING THE ASSESSMENT U/S 143 R/W 147 OF THE AC T. THE CONDITIONS PRECEDENT FROM ISSUE OF NOTICE U/S 1 48 OF THE ACT BEING NOT PRESENT THE NOTICE ISSUED WAS BA D IN LAW AND ALL CONSEQUENTIAL PROCEEDINGS ALSO BEING BA D IN LAW ARE LIABLE TO BE QUASHED. II) THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE REOPENING OF THE ASSESSMENT. THE LEARNED CIT(A) HA S ALSO ERRED IN HOLDING AT PARA 3.6 THAT AO WAS REQUI RED TO ISSUE NOTICE U/S 143(2) OF THE ACT BEFORE 1/6/2003. SUCH FINDING BEING AGAINST THE FACT OF THE CASE IS TO BE QUASHED. THE CIT(A) HAS FURTHER ERRED IN HOLDING I N PARA 3.9 THAT NOTICE U/S 143(2) COULD NOT BE ISSUED AFTE R 31.3.2004. SUCH FINDING BEING BAD IN LAW AND ON FA CTS REQUIRES TO BE QUASHED. III) THE LEARNED CIT(A) HAS ALSO ERRED IN NOT DECIDING O N THE OBJECTIONS OF THE APPELLANT THAT OBJECTIONS FOR REO PENING AS FILED BY THE APPELLANT HAS NOT BEEN PROPERLY DISPO SED OFF BY HOLDING THAT THIS IS AN ADDITIONAL GROUND. THE CIT(A) HAS NOT PROPERLY APPRECIATED THE FACTS OF THE CASE AND LAW APPLICABLE. THE CONTENTIONAL REVIEW B EING WELL WITH THE GROUNDS OF APPEAL RAISED THE CIT(A) SHOULD HAVE ALLOWED THE APPEAL ON THIS GROUND ALONE. PAGE 4 OF 7 ITA NO.364/BANG/2009 4 IV) (I) IN ANY CASE THE LEARNED AO HAD ERRED IN HOLDING THAT- A) APPELLANT IS NOT ENTITLED TO DEDUCTION U/S 80HHC OF THE ACT. B) PROFIT ON JOB WORK RECEIPT IS NOT ELIGIBLE FOR DEDU CTION U/S 80HHC OF THE ACT AND THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE SAME. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PROPER APPRECIATION OF LAW APPLICABLE THE PROFIT O N JOB WORK RECEIPT IS ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT AND OVERALL THE APPELLANT IS ENTITLED TO DEDUCT ION U/S 80HHC OF THE ACT. (III) THE DEDUCTION U/S 80HHC OF THE ACT AS CLAIMED BY THE APPELLANT IS TO BE ALLOWED. (IV) WITHOUT PREJUDICE IT IS SUBMITTED THAT IN ANY CASE THE ARRIVING OF NET INCOME FROM JOB WORKS AS DONE B Y THE ASSESSING OFFICER IS ERRONEOUS. (V) THE APPELLANT ALSO DENIES LIABILITY TO PAY INTERE ST. THE INTEREST HAVING BEEN LEVIED ERRONEOUSLY IS TO BE DELETED. 7. THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 8. THE LEARNED DR ON THE OTHER HAND SUPPORTED TH E FINDINGS OF THE CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS CHALLENGED THE VALIDITY OF REASSESSMENT. WE SHALL CONSIDER FIRST THE JURISDICTIONAL ASPECT. THE SHOR T QUESTION FOR CONSIDERATION IS WHETHER PROCEEDINGS U/S 147 CAN BE INITIATED OR NOT WHEN PAGE 5 OF 7 ITA NO.364/BANG/2009 5 TIME FOR ISSUANCE OF NOTICE U/S 143(2) HAS NOT EXPI RED. IN THE INSTANT CASE THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 28/1 1/2003. THE SAME WAS PROCESSED U/S 143(1) ON 23.3.2004. TIME FOR ISSUIN G NOTICE U/S 143(2) OF THE ACT WAS AVAILABLE UPTO 30/11/2004 BY VIRTUE OF PROVI SO TO SECTION 143(2)(II). NOTICE U/S 148 WAS ISSUED ON 13/9/2004 BEFORE TIME AVAILABLE FOR ISSUING NOTICE U/S 143(2) HAD EXPIRED. 9.1 CHAPTER XIV OF THE ACT DEALS WITH THE PROCEDU RE OF THE ASSESSMENT. SECTION 139 TO 140A DEAL WITH THE FIL ING OF RETURN AND MATTERS CONNECTED WITH THE RETURN. SECTIONS 142 TO 145A DE AL WITH ASSESSMENT PROCEDURES. IT IS ONLY AFTER SECTION 145A THAT THE SUBJECT OF REOPENING OF ASSESSMENT FOLLOWS. THIS IS ONE INDICATION THAT AN ASSESSMENT COULD BE REOPENED ONLY ON THE TERMINATION OF THE PROCEDURE PR ESCRIBED IN THE PRECEDING PROVISIONS VIZ. FROM SECTIONS 142 TO 14 5A. FURTHER SECTION 147 USES THE EXPRESSION ASSESS OR REASSESS. THE WORD REASSESS IS USED TO INDICATE THE TERMINATION OF PROCEEDINGS AS A RESULT OF AN ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT. THE WORD ASSESS IS USED TO COVER THOSE SITUATIONS WHERE THE RETURN HAD OR HAD NOT BEEN PRO CESSED UNDER SECTION 143(1) BUT THE TIME LIMIT TO ISSUE NOTICE UNDER SEC TION 143(2) HAD EXPIRED. WHEN THE LEGISLATURE HAS LOGICALLY ARRANGED THE RELE VANT PROVISIONS THERE WAS NO NEED TO PUT A SPECIFIC BAR IN SECTION 147/14 8 TO THE EFFECT THAT THE ASSESSING OFFICER CANNOT INITIATE PROCEEDINGS UNDER SECTION 147 WHEN THE TIME AVAILABLE FOR ISSUING NOTICE U/S 143(2) HAS NO T EXPIRED. UNDER THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN SEVERAL CASES (A) THE PROCEEDINGS ARE SAID TO HAVE COMMENCED ONCE THE RET URN IS FILED AND (B) THE PROCEEDINGS TERMINATE WHEN (I) THE RETURN IS PROCE SSED UNDER SECTION 143(1) PAGE 6 OF 7 ITA NO.364/BANG/2009 6 AND THE TIME TO ISSUE NOTICE UNDER SECTION 143(2) I S OVER (II) ASSESSMENT WAS MADE UNDER SECTION 143(3) OR (III) THE ASSESSMENT W AS NO LONGER POSSIBLE UNDER SECTION 143(3). THE PROCEEDINGS UNDER SECTIO N 147 COULD BE INITIATED ONLY AFTER THE EARLIER PROCEEDINGS HAD TERMINATED AS MENTIONED IN (B) ABOVE. THEREFORE THE ORDER DATED 30/3/2006 PASSED U/S 143 (3) READ WITH SECTION 147 WAS NOT VALID. 9.2 IN TAKING THE ABOVE VIEW WE ARE FORTIFIED BY T HE FOLLOWING JUDGEMENTS OF HONBLE MADRAS HIGH COURT AND ALSO TH E ORDER OF THE TRIBUNAL:- CIT V TCP LTD. 323 ITR 346 (MAD.); CIT V PACHAYAPPAN (K.M.) 304 ITR 264 (MAD.); & CIT V QATALYS SOFTWARE TECHNOLOGIES LTD. 308 ITR 249 (MAD.) SUPER SPINNING MILLS LTD. V ACIT 3 ITR (TRIB) 258 ( CHENNAI). 9.3 THE HONBLE HIGH COURT OF MADRAS IN THE CASE O F CIT V TCP LTD. (SUPRA) HAS HELD AS UNDER:- THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT NOTICE UNDER SECTION 148 OF THE ACT COULD NOT BE ISSUED FOR MAKI NG AN ASSESSMENT UNDER SECTION 147 OF THE ACT WHEN TIME LIMIT WAS AVAILABLE FOR ISSUE OF NOTICE UNDER SECTION 143 (2) OF THE ACT FOR MAKING AN ASSESSMENT UNDER SECTION 143( 3) OF THE ACT. 9.4 WE ARE OF THE VIEW THAT THE CIT(A) HAS ERRED I N HOLDING AT PARA 3.6 OF THE IMPUGNED ORDER THAT THE AO WAS R EQUIRED TO ISSUE NOTICE U/S 143(2) BEFORE 1/6/2003. AS STATED EARLI ER BY VIRTUE OF PROVISO TO CLAUSE (II) OF SECTION 143(2) THE TIME LIMIT FOR ISSUANCE OF NOTICE UNDER THAT SUB-SECTION EXPIRED ONLY ON 30/11/ 2004. THE PAGE 7 OF 7 ITA NO.364/BANG/2009 7 CIT(A) HAS FURTHER ERRED IN HOLDING IN PARA 3.9 OF THE IMPUGNED ORDER THAT NOTICE U/S 143(2) COULD NOT BE ISSUED AFTER 31 .3.2004. PROVISO TO SECTION 148 WAS INTRODUCED FOR DIFFERENT REASON. T HE PROVISO TO SEC.148 WAS INSERTED TO VALIDATE THE REASSESSMENT C OMPLETED WHERE NOTICE U/S 143(2) WAS ISSUED BEYOND 12 MONTHS FROM T HE DATE OF FILING OF RETURN. THEREFORE THE CIT(A)S RELIANCE ON THE PROVISO TO SECTION 148 IS MISPLACED. 9.5 IN THE LIGHT OF THE ABOVE REASONING WE HOLD T HAT THE REASSESSMENT COMPLETED PURSUANT TO THE ISSUANCE OF NOTICE U/S 148 IS NOT VALID SINCE TIME LIMIT FOR COMPLETING SCRUTINY A SSESSMENT BY WAY OF ISSUANCE OF NOTICE U/S 143(2) HAD NOT EXPIRED. SIN CE THE JURISDICTIONAL ASPECT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE THE ISSUE ON MERITS IS NOT ADJUDICATED UPON. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER PRONOUNCED ON FRIDAY THE 11 TH DAY OF FEBRUARY 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1) THE ASSESSEE (2) THE REVENUE (3) THE CIT(A) CONCERNED. (4) THE CIT CONCERNED. (5) THE DR (6) GUARD FILE. MSP/4.2. BY ORDER ASST. REGISTRAR ITAT BANGALORE.