Friday, 11 October 2013

CBDT issues circular on income-tax deduction from salaries for financial year 2013-14

IT : Section 192 of The Income-Tax Act - Deduction of Tax at Source - Salary - Instructions for Income-Tax Deduction from Salaries During The Financial Year 2013-2014 Under Section 192


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SEBI permits listing of SMEs without IPO

SEBI : SEBI (Listing of Specified Securities on Institutional Trading - Platform) Regulations, 2013


Foreign borrowing norms eased; banks can access overseas funds from certain other entities permitted

FEMA/ILT : FEM (Borrowing or Lending in Foreign Exchange) (Fifth Amendment) Regulations, 2013 - Amendment in Regulation 4


Deposits received in course of business won’t be held as deemed dividend; ITAT differentiates deposi

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DRP has to pass a speaking order even if TPO doesn't take up impugned matter independently

IT/ILT: Where TPO clubbed payment for allied services with royalty paid by assessee and determined ALP at NIL, in view of fact that TPO discussed only transaction of royalty payment throughout his order and had not taken up any other allied payments independently, DRP was not justified to sustain addition with regard to other allied payment without giving any cogent reason


Recipient of GTA services can avail of abatement of 75%

ST: Recipient of GTA services may avail abatement at 75 per cent, subject to furnishing of declaration that GTA service provider had not availed of Cenvat Credit and benefit of Notification No. 12/2003-ST


'Earnest Money' not a loan or deposit; its repayment in cash does not violate sec. 269T provisions

IT: 'Earnest Money' not a loan or deposit; its repayment in cash does not violate section 269T provisions


Deemed commencement of business if assessee stated supplying water from its partially completed cana

IT: Where State of Gujarat set up a Nigam for execution of Sardar Sarovar Project and one of purposes of setting up Nigam was to supply water through canal and during previous year when State faced scarcities of drinking water assessee had supplied drinking water through its partially completed main canal, it could be said that business had been set up during previous year


MOSER BAER INDIA LTD. Vs. DEPUTY COMMISSIONER OF INCOME-TAX AND ANR.











*IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment reserved on : 17th July, 2013
Judgment pronounced on: 22nd August, 2013

+ WP(C) 1004/2013

MOSER BAER INDIA LTD. ..... Petitioner
Through Mr. Ajay Vohra, Ms. Kavita
Jha and Mr. Vaibhav
Kulkarni, Advocates.
versus

DEPUTY COMMISSIONER OF INCOME-TAX AND ANR.
..... Respondents
Through: Mr. Kamal Sawhney,
Advocate.

CORAM:
HON'BLE MR. JUSTICE SANJ IV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJEEV SACHDEVA, J.

1. The petitioner by way of the present petition has

challenged the order dated 01.02.2013, passed by the

Deputy Commissioner of Income Tax and the issuance

of notice dated 04.05.2011 under Section 148 of the

Income Tax Act, 1961 (hereinafter referred to as "the

Act") and the proceedings initiated pursuant thereto.

2. Assessment year in issue is 2005-06.

3. The petitioner is a company engaged in the business of

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WP(C) 1004/2013 Page 1 of 18
manufacture and sale of optical and magnetic storage

media projects i.e. CD-Rom, Floppy Disks, etc. The

petitioner during the relevant financial year pertaining to

the Assessment Year 2005-06 had two units one at A-

164, Sector-80, Noida and the other at 66, Udyog Vihar,

Greater Noida. Both the units were eligible for deduction

under Section 10B of the Act.

4. On 31.10.2005, the petitioner filed its return of income

for the Assessment Year 2005-06 declaring a loss of

Rs.1,65,43,08,282/- under the normal provisions of the

Act and book profit under Section 115JB of the Act at a

loss of Rs.40,97,92,770/-. The petitioner claimed

deduction under Section 10B of Rs.29,08,16,451 in

respect of the profit derived from the unit at A-164,

Sector 80, Noida. No such deduction was claimed in

respect of the unit at 66, Udyog Vihar, Greater Noida.

5. Pursuant to the filing of the return, the Assessing Officer

issued various questionnaires on 31.10.2007,

01.10.2008 and 14.11.2008 seeking details/

explanations from the assessee. The questionnaires


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WP(C) 1004/2013 Page 2 of 18
among other details sought explanation from the

assessee qua the claim under Section 10A/10B of the

Act as well as claim of deduction of deferred revenue

expenditure for technical know-how fee. The

petitioner/assessee responded to the questionnaires and

submitted the requisite information/explanation.

6. The assessment of the petitioner was completed under

Section 143(3) of the Act and the claim of the petitioner

under Section 10B and deduction of deferred revenue

expenditure for technical know-how fee were accepted.

The Assessing Officer completed the assessment at an

income of Rs.95,47,60,410/- under the normal provisions

making following additions and disallowances:-

a. Addition of Rs.239,28,55,948 on
account of adjustm ent in the arm's
length price of the international
transaction entered into by the
Petitioner in the relevant financial year.

b. Restricting the claim of deduction under
section 10B of the Act at
Rs.25,42,43,918 as against
Rs.29,08,16,451 claimed by the
Petitioner.

c. Disallowing royalty of Rs.11,50,83,837
being 25% of Rs.46,03,35,350 as


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WP(C) 1004/2013 Page 3 of 18
against actual expenditure on royalty of
Rs.37,73,17,928 claimed by the
Petitioner in the P&L account.

d. Disallowing expenses of Rs.9,33,27,335
alleging the same to be incurred for
earning exempt dividend income
invoking provisions of section 14A read
with Rule 8D of the Income-tax Rules,
1962.

7. On 27.05.2009, the Assessing Officer passed an order

under Section 154 of the Act rectifying the Assessment

Order dated 31.12.2008 and reduced the claim of

deduction under Section 10B of the Act to

Rs.25,24,21,751/- as against deduction of

Rs.25,42,43,918/- allowed in the earlier assessment

order.



8. On 04.05.2011, the Deputy Commissioner of Income Tax

issued a notice to the petitioner under Section 148

proposing to re-assess the income of the petitioner. The

reasons to believe recorded for the said notice are as

under:-

"Return of income was filed on
30.10.2005 declaring loss of
Rs.1,65,43,08,282/-. Assessment under
Section 143(3) was completed on
31.12.2008 at Rs.95,47,60,410/-

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WP(C) 1004/2013 Page 4 of 18
subsequently, rectified under Section
154 on 27.05.2009 at an income of
Rs.87,31,23,193/.

Perusal of assessment record revealed
that the assessee claimed from its total
income the loss/depreciation of
Rs.1,44,81,23,306/- pertaining to
Greater Noida unit (100% E.O.U.) which
was eligible for deduction under Section
10B. As the deduction under Section
10B do not form part of total income, the
loss (being negative deduction) should
also have been excluded from the total
income. The mistake resulted in
underassessment of income of
Rs.144,81,23,306/- involving tax effect
of Rs.76,83,61,555/-. Further, the
assessee was allowed, in computation
of income, a deduction of
Rs.1,36,90,221 on account of deferred
revenue expenditure as one-sixth of
Rs.8,21,41,326/- (sum of
Rs.1,80,05,185/- & Rs.6,41,36,441/-,
being expenditure on technical know-
how pertaining to financial years 2001-
02 and 2002-03. Out of the above,
Rs.19,29,127/- & Rs.25,72,170/- were
debited to P&L a/c in F.Y. 2001-02 and
2002-03 itself as Miscellaneous
Expenditure written off. Out of the
remaining Misc. expenditure of
Rs.7,76,40,029/-, Rs.5,20,83,202/- was
capitalized and Rs.2,55,56,827/- was
written off during financial year 2003-04.
Hence, no balance remained out of the
above expenditure to be written off.
Thus, the deduction of Rs.1,36,90,211/-
was inadmissible and should have been
disallowed. This mistake resulted in
underassessment of income of

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WP(C) 1004/2013 Page 5 of 18
Rs.1,36,90,221/- involving tax effect of
Rs.72,63,911. The failure on the part of
the assessee to disclose true and
correct particulars of its income.

Thus, I have reason to believe that
income of assessee to the extent of
Rs.1,46,18,527/- has escaped
assessment by way of not declaring true
and correct income. Thus, there is
failure on the part of the assessee to
fully and truly disclose true particulars of
its income and the same is required to
be reassessed and taxed which requires
reopening of assessment by initiation of
proceedings under Section 147 by issue
of notice under Section 148. Therefore,
notice under Section 148 is hereby
issued. The notice is issued after
obtaining approval from CIT-II, New
Delhi, vide her letter NO. F.No. CIT-II-
Delhi/Notice u/s 148/2011-12/292 dated
29.04.2011."

9. The petitioner filed objections to the issuance of the said

notice, inter-alia, on the grounds that the issuance of

notice was barred under proviso to Section 147 as the

petitioner had made full and true disclosure of material

facts. Notice under Section 148 seeking to reopen the

assessment was based on change of opinion as no fresh

information or tangible material had come to the

knowledge of the Assessing Officer.



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WP(C) 1004/2013 Page 6 of 18
10. By the impugned order dated 01.02.2013, the Deputy

Commissioner of Income Tax disposed of the objections

raised by the petitioner by rejecting on the grounds

raised by the petitioner. Aggrieved by the disposal of the

objections vide order dated 01.02.2013 and the issuance

of notice under Section 148 proposing to reopen the

assessment, the petitioner has filed the present petition.

11. In terms of the proviso to Section 147, any reassessment

sought to be initiated after the lapse of a period of four

years from the end of the relevant assessment year

already subject matter of an order under section 143(3)

of the Act, is permissible only if:-

".....any income chargeable to tax has
escaped assessment for such
assessment year by reason of the
failure on the part of the assessee to
make a return under Section 139..... or
to disclose fully and truly all material
facts necessary for his assessment, for
that assessment year."

12. The relevant assessment year in the present case is

2005-06 and in terms of proviso to Section 147, the

reassessment notice issued after the expiry of four years

from the end of the assessment year has to satisfy the

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WP(C) 1004/2013 Page 7 of 18
requirements of the said proviso i.e. the assessee has

failed to disclose fully and truly all material facts

necessary for his assessment for that year. In the

present case, the notice seeking to reopen the

assessment has been issued on 04.05.2011, which is

clearly beyond the stipulated period of four years.

13. The contention of the petitioner is that there is full and

true disclosure of all material facts and as such, the

notice seeking to reopen the assessment was barred

and invalid and that the reassessment proceedings were

merely initiated for the purpose of reappraising the

material on record and to change the opinion formed

earlier.

14. The original assessment order passed by the Assessing

Officer was under Section 143(3) of the Act. The

reasons to believe recorded prior to the issuance of

notice dated 04.05.2011, pertain to the following: -

(i) Deduction under Section 10B of the Act;
(ii) Deduction on account of deferred revenue
expenditure being expenditure on
technical know-how.

15. With respect to the deductions under Section 10B, the

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WP(C) 1004/2013 Page 8 of 18
record reveals that the petitioner alongwith the return of

income had enclosed the profit and loss account of both

the units as well as the computation of deduction under

Section 10B in respect of both the units. In the notes

filed to the computation of income, the petitioner had

specifically disclosed that no deduction was being

claimed in respect of the unit at Greater Noida on

account of loss in the said unit and had stated as under

:-

"1. Claim of benefit u/s 10B of the Income-
tax Act, 1961 (`the Act')

The assessee company is engaged in the
business of manufacturing of compact
disks, magnetic disks and other optical
storage media devices, and is eligible to
claim deduction u/s 10B of the Act.
Accordingly, the assessee has claimed
benefit u/s 10B of the Act in respect of
the following units:-
(a) A-164, Sector ­ 80, Noida ­ Phase II ­
The said unit is registered as a 100%
Export Oriented Unit (on May 19, 1998)
and is accordingly eligible for claiming
tax-holiday benefits u/s 10B of the Act.
The said unit had commenced
commercial production w.e.f March 1,
2000. The required Report in Form 56G
in respect of the said benefit claimed u/s
10B of the Act is enclosed.



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WP(C) 1004/2013 Page 9 of 18
(b) 66, Udyog Vihar, Greater Nodia ­ The
said unit is registered as a 100%
Export Oriented Unit (on November
28, 2001) and is accordingly eligible
for claiming tax-holiday benefits u/s
10B of the Act. No deduction u/s 10B
of the Act has been claimed in view
of a loss situation. The required
Report in Form 56G in respect of the
said unit is enclosed.

For computing the profits of the above
undertaking, certain expenses/income
debited/credited in the head office have
been allocated to such units in the ratio
of turnover."

16. By letters dated 31.10.2007, 01.10.2008 and

14.11.2008, specific queries were raised by the

Assessing Officer with regard to the units eligible for

deduction under Section 10B, which queries were replied

to and detailed explanations rendered. After appreciating

the response of the petitioner on the said issue of

deductions under Section 10B of the Act, in respect of

the respective units, the Assessing Officer allowed the

deduction at Rs.25,42,43,918/- as against the deduction

claimed of Rs.29,08,16,451/-. It is pertinent to note that

even the allowed deduction of Rs.25,42,43,918 was

subsequently rectified under Section 154 of the Act to


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WP(C) 1004/2013 Page 10 of 18
Rs.25,24,21,751/-. The original assessment allowing the

deduction claimed by the petitioner under Section 10B

and the subsequent rectification on the same by the

Assessing Officer clearly establishes that the Assessing

Officer had formed a definite opinion on the claim of

benefit under Section 10B as a deduction and also the

fact that the unit at Greater Noida of the petitioner was

eligible for such deduction. It further establishes that

having formed an opinion, the Assessing Officer now

seeks to change the opinion and has thus sought to

reopen the assessment. Further there was disclosure of

full and true material factson the manner and mode of

deduction u/s 10B and deduction was being claimed only

for one unit.




17. With regard to the reasons to believe recorded in respect

of the deferred revenue expenditure, it is pertinent to

note that the petitioner in Note No.2 attached with the

return of income explained as under:-


"3. Deferred Revenue Expenditure Written
Off


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WP(C) 1004/2013 Page 11 of 18
The balance in Miscellaneous
expenditure written off as per annual
accounts of March 31, 20013 was
Rs.77,640,029 (sum of Rs.16,076,058
and Rs.61,563,971, being expenditure
incurred on technical know-how i.e.
Rs.18,005,185 and Rs.64,136,141 less
Rs.1,929,127 and Rs.2,572,170 debited
in profit and loss account in FY 2001-02
and FY 2002-03 respectively). Out of
the above, Rs.52,083,202, being
technical know-how has been
capitalized in the books of account by
adjusting the opening balance and
remaining Rs.25,556,827 has been
written off during the FY 2003-04.

However, as the Company would
deserve the benefit from technical know-
how for years to come, by relying on the
Supreme Court judgment rendered in
Madras Industrial Investment
Corporation Ltd. Vs. CIT (225 ITR 802),
the Company has deferred the cost of
acquisition of technical know-how for a
period of six years while computing
taxable income. Accordingly, a
deduction amounting Rs.13,690,221
(sum of Rs.1/6 th of Rs.18,005,185 and
Rs.64,136,141) has been claimed in the
previous year relevant to the
assessment year 2007-08."


18. During the original assessment proceedings under

Section 143(3) of the Act, the Assessing Officer had

specifically in the questionnaire dated 31.10.2007 raised

the query regarding deduction of Rs.1,36,90,221/- being

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WP(C) 1004/2013 Page 12 of 18
1/6th share of the payment of technical know-how fee

aggregating to Rs.8,21,326 pertaining to the previous

years 2001-02 and 2002-03. Vide letter dated

21.11.2008, the petitioner had submitted

details/explanation and also submitted worksheets for

arriving at the said deduction and treatment of the

deferred revenue expenditure relating to the technical

know-how fee.


19. The fact that the petitioner disclosed the deduction of

deferred revenue expenditure on account of payment of

technical know-how fee in the notes appended to the

return of income and that a specific query was raised

and responded to by the petitioner demonstrates that the

petitioner has made true and full disclosure of all

material facts. The original assessment framed after

receiving the response to the questionnaire specifically

dealing with the said issue further establishes that the

Assessing Officer had formed an opinion on the said

claim of the petitioner.


20. The reasons to believe recorded by the Deputy

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WP(C) 1004/2013 Page 13 of 18
Collector, Commissioner of Income Tax do not suggest

that any fresh or further tangible material had come to

the knowledge of the Assessing Officer whereby a

reasonable bonafide belief could or was formed that

income had escaped assessment on account of failure of

the assessee to disclose truly and fully the material

facts.


21. There appears to be an intensive examination in the first

instance in respect of the said issues which are no w

sought to be made the basis for reopening of the

assessment. It was necessary for the Assessing Officer

to indicate specifically as to what other material or

relevant facts subsequently came to the knowledge of

the Assessing Officer whereby a subjective opinion could

be prima facie formed that the assessee had failed to

disclose truly and fully the material facts. There has to

be a tangible material existing on record for the reasons

to believe which should have a direct nexus to the

formation of such belief.


22. In the case of the petitioner, with respect to the

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WP(C) 1004/2013 Page 14 of 18
Assessment Year 2004-05, a similar issue with regard to

the claim of deduction under Section 10B was raised by

issuance of a notice under Section 148 by the Deputy

Commissioner of Income Tax. The petitioner had filed a

writ petition ­ W.P.(C) 7677/2011, which was allowed

vide judgment dated 06.12.2012 and the notice and the

proceedings consequent thereto were quashed. The

Court while allowing the petition held as under: -

"17. In the present case, the original return of the
assessee was subjected to scrutiny assessment,
under Section 143 (3). The assessee was apparently
closely questioned on various aspects, including its
claim for treatment of the three units, under Sections
10-A/10B of the Act. In response to a query raised
by Respondent No.1, the Petitioner by letter dated
21.02.2005 furnished information regarding the units
eligible for deduction u/s 10A/10B. In the reply the
Petitioner listed all three units as units eligible for
claiming deduction. The issue of deduction under
Sections 10A/10B was specifically examined by the
Assessing Officer during the original assessment.
Furthermore, Form 56F/56G was also submitted
along-with the return of income. In the forms the
Petitioner had specifically claimed deduction u/s
10A/10B in respect of profits of two units whereas
NIL deduction for the third unit. Furthermore, in a
Note (dated 12.01.2005), appended to the return of
income, the writ petitioner specifically disclosed at
Point 1(c) that, the claim for benefit under Sections

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WP(C) 1004/2013 Page 15 of 18
10A/10B of the Act, in respect of 66, Udyog Vihar,
Greater Noida- was eligible for claiming tax- holiday
benefits under Section 10B of the Act. No deduction
under Section 10B of the Act was claimed in view of
a loss situation. The Report in Form 56G for the said
unit to was enclosed. On 27.12.2006 the Petitioner
filed an approval letter from the competent authority
regarding eligibility of the units for deduction u/s
10A/10B; approval letters regarding all three units
were submitted.

18. In the above background of facts, when there was
intensive examination in the first instance in respect
of the issue, which was the basis for re-opening of
assessment, it was necessary for the AO to indicate,
what other material, or objective facts, constituted
reasons to believe that the assessee had failed to
disclose a material fact, necessitating reassessment
proceedings. That is precisely the "tangible material"
which have to exist on the record for the "reasons"
(to believe" bearing a "live link with the formation of
the belief" as spelt out in Kelvinator. When the
assessment is completed, as in the present instance,
under Section 143 (3), after the AO goes through all
the necessary steps of inquiring into the same issue,
the reasons for concluding that reassessment is
necessary, have to be strong, compelling, and in all
cases objective tangible material. This court discerns
no such tangible materials which have a live link that
can validate a legitimate formation of opinion, in this
case. It is not enough that the AO in the previous
instance followed a view which no longer finds
favour, or if the latter view is suitable to the revenue;
those would squarely be change in opinion. Perhaps,

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WP(C) 1004/2013 Page 16 of 18
in given fact situations, they can be legitimate
grounds for revising an order of assessment under
Section 263; but not for re-opening it, under proviso
to Section 147.

19. As a result of the above discussion, it is held that
the impugned notice, under proviso to Section 147,
and consequent reassessment proceedings, are
beyond jurisdiction. They are unsustainable, and are
hereby quashed. The writ petition is allowed in these
terms, without any order as to costs."


23. We were informed that the respondent/revenue

had assailed the said judgment by filing a Petition for

Special Leave to appeal to the Supreme Court and

the said Special Leave Petition bearing SLP (Civil) CC

No.11048/2013 has been dismissed vide order dated

05.07.2013.

24. In view of the above, we are of the considered

opinion that the assessee cannot be held to have

failed to disclose truly and fully all the material facts. It

is also not a case where fresh tangible material has

come to the knowledge of the Assessing Officer. The

Assessing Officer, at the time of original assessment,

clearly formed an opinion on both the issues and a

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WP(C) 1004/2013 Page 17 of 18
notice under Section 148 seeking to reopen the

assessment is clearly an instance of change of

opinion, which is impressible in law.


25. In view of the above, the impugned order dated

1.02.2013 is set aside and the notice dated

04.05.2011 and the proceedings initiated consequent

thereto are hereby quashed.


26. The writ petition is accordingly allowed with costs

of Rs.10,000/-.




SANJEEV SACHDEVA, J.


SANJIV KHANNA, J.
August 22, 2013
st




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WP(C) 1004/2013 Page 18 of 18

M/S. SMCC CONSTRUCTION INDIA LTD. Vs. ASSISTANT COMMISSIONER OF INCOME-TAX











IN THE HIGH COURT OF DELHI AT NEW DELHI


% Judgment reserved on : 10th July, 2013
Judgment pronounced on: 23rd August, 2013


+ W.P.(C) No.2250/2012

M/S. SMCC CONSTRUCTION INDIA LTD.
..... Appellant
Through: Mr. Nageshwar Rao with Ms.
Sayaree B. Malik, Advocates

versus

ASSISTANT COMMISSIONER OF INCOME-TAX
... Respondent
Through: Mr. Sanjeev Sabharwal,
Advocate

CORAM:

HON'BLE MR. JUSTICE SANJ IV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA


SANJEEV SACHDEVA, J.


1. The petitioner by way of the present writ petition
has challenged order dated 15.03.2012 passed by
the Assistant Commissioner of Income Tax

=====================================================================
W.P.(C) 2250/2012 Page 1 of 12
disposing of the objections filed by the petitioner
against issuance of notice under Section 148 of the
Income Tax Act, 1961 (hereinafter referred to as
(the Act) and the very issuance of the notice dated
15.03.2012.

2. The assessment year in issue is 2002-03.


3. The petitioner is an Indian company engaged in the
construction business. On 30.10.2002, the
petitioner filed its return of income under Section
139(1) of the Act. The petitioner declared an
income of Rs.2,26,07,425/-. The petitioner during
the said financial year credited certain prior period
incomes and debited certain prior period expenses
to its profit and loss account. The petitioner
disclosed this fact in the Notes to the Accounts in
its financial statement for the year 2001-02, which
were filed alongwith the return of income. The
return of the assessment was accepted by the
Assessing Officer and assessment order dated
28.02.2005 was passed under Section 143(3) of the
Act and no addition/disallowance was made in the




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W.P.(C) 2250/2012 Page 2 of 12
assessment order.

4. On 31.10.2006, the petitioner was served with a
notice under Section 148 of the Act for reopening
of the assessment on the ground of escapement of
income. In response to the said notice, the
petitioner on 15.12.2006 filed the same return as
had been originally filed under Section 139(1) of
the Act under protest and further requested the
respondents to furnish the reasons recorded for
reopening of assessment under Section 147/148 of
the Act.

5. On 05.02.2007, the reasons were furnished by the
respondent. The reason for reopening of the
assessment as communicated to the petitioner is as
under:-
"It has come to my knowledge that the assessee
has debited a sum of Rs.1,20,765/- in the P&L
account on account of prior period expenses after
netting income of Rs.30,34,463/- and
expenditure of Rs.31,55,228/-. The expenditure
of Rs.31,55,228/- has not been crystallized
during the year 2001-02 relevant to the
assessment year 2002-03, such prior period

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W.P.(C) 2250/2012 Page 3 of 12
expenses should have been disallowed.
Therefore, I have reason to believe that the
assessees income amounting to Rs.31,55,228/-
has escaped assessment. Notice u/s 148 of the
I.T. Act issued to the assessee for the assessment
of the assessees income."

6. The petitioner vide its letter dated 16.03.2007 filed
objections to the notice under Section 148 of the
Act and the reasons recorded by the respondent for
issuance of the same.

7. The petitioner contended that there was no failure
on the part of the petitioner to disclose fully and
truly all the material facts and that all primary and
material facts were placed before the Assessing
Officer during the course of the assessment
proceedings for the subject assessment year and the
relevant material was duly disclosed in Schedule 10
of the Notes to the Accounts of the financials for
the relevant year and no new material had come to
the knowledge of the Assessing Officer and that he
had acted on the basis of mere suspicion.

8. By the impugned order dated 15.03.2012, the


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W.P.(C) 2250/2012 Page 4 of 12
respondent dealt with the objection raised by the
petitioner qua initiation and rejected the same.
With regard to the issue of change of opinion and
the fact that true and complete disclosure had been
made by the petitioner, the finding recorded in the
impugned order is as under:-

"4.2 Coming to the second objection
regarding the proceedings being based on
"mere change of opinion", the law on this
count is also equally settled that mere
change of opinion will not confer
jurisdiction on the Assessing Officer.
Now the question arises what constitutes a
change of opinion. The very expression
,,Change of opinion suggests that an
opinion of sort must have been formed by
the Assessing Officer in the earlier
proceedings which he seeks to alter or
revise in the subsequent proceedings. In
the instant case in the earlier assessment
proceedings the AO has neither applied his
mind to the issue involved nor can he be
said to have formed an opinion in respect
thereof. Therefore, in the proceedings at
hand, it cannot be said to be a case of
change of opinion. The case law cited by
the assessee on the point are
distinguishable on facts and therefore do
not help the cause of the assessee. "


=====================================================================
W.P.(C) 2250/2012 Page 5 of 12
9. Aggrieved by the said order, the petitioner has filed
the present petition. We have examined the record
of the case and also the Income Tax Returns
originally filed and are of the view that the re-
opening cannot be sustained.

10. The petitioner in Schedule 10, Notes to the
Accounts, has mentioned as under:-

12. Details of Prior Period Adjustment.


Current Previous
Year Year
Amount Amount
(Rs.) (Rs.)

Expenditure - -

Subcontract costs 2,911,573 -

Interest Paid 243,655 -

Royalty - -

Income - -

Material Cost (1,986,566) -

Project Related (1,047,897) -
Income


=====================================================================
W.P.(C) 2250/2012 Page 6 of 12
Net 120,765 1,661,890


The Petitioner claims to have further made a
disclosure in the notes to computation of income as
under:
"11. Prior period expenses (Net) Rs. 120,765
(after adjusting prior period income of Rs.
3,034,463) have been claimed in the present
assessment year as liability in respect thereof
was crystallized/settled during the year"

11. The law in respect of reopening of the assessment
under Section 143(3) of the Act is no longer res
integra and has been the subject matter of various
judicial pronouncements. In the recent decision of
the Full Bench of this High Court in Commissioner
of Income Tax-VI, New Delhi vs. Usha
International Limited (2012) 348 ITR 485 (Del)
FB, one of us (Sanjiv Khanna, J) speaking for the
majority held as under:-
"5. For reopening an assessment made under
Section 143(3) of the Act, the following conditions
are required to be satisfied:-






=====================================================================
W.P.(C) 2250/2012 Page 7 of 12
(i) The Assessing Officer must form a tentative
or prima facie opinion on the basis of material that
there is under-assessment or escapement of income;

(ii) He must record the prima facie opinion into
writing;

(iii) The opinion formed is subjective but the
reasons recorded or the information available on
record must show that the opinion is not a mere
suspicion.

(iv) Reasons recorded and/or the documents
available on record must show a nexus or that in fact
they are germane and relevant to the subjective
opinion formed by the Assessing Officer regarding
escapement of income.

(v) In cases where the first proviso applies, there
is an additional requirement that there should be
failure or omission on the part of the assessee in
disclosing full and true material facts. Explanation
to the Section stipulates that mere production of
books of accounts or other documents from which
the Assessing Officer could have, with due
diligence, inferred material facts, does not amount to
"full and true disclosure of material facts". (The
proviso is not applicable where reasons to believe



=====================================================================
W.P.(C) 2250/2012 Page 8 of 12
for issue of notice are recorded and notice is issued
within four years from the end of assessment year.)



12. It would be the proximity of the reasons with the
belief of escapement of income which would be the
determinative factor for reopening of the
assessment. The remoteness of the reasons would
obviate the possibility of a belief and would bring
the case in the realm of mere suspicion which
cannot be a ground for reopening of assessment.

13. The prior period expenses are eligible for deduction
during the current year provided the liability was
determined and crystallized during the relevant
year.

14. The reason to believe recorded by the Assessing
officer "that the assessee has debited a sum of Rs
1,20,765/- in the P & L account on account of prior
period expenses after netting income of Rs
30,34,463/- and expenditure of Rs. 31,55,228/-.
The expenditure of Rs. 31,55,228/- has not been
crystallized during the year 2001 ­ 02 relevant to


=====================================================================
W.P.(C) 2250/2012 Page 9 of 12
the assessment year 2002 ­ 03, such prior period
expenses should have been disallowed" is not based
on any material that had come to the knowledge of
the Assessing Officer. The Assessing Officers has
placed reliance on the notes to the accounts that
were available at the time of the scrutiny
assessment. But the notes also states that the prior
period expenses had crystallized/ settled in the
year. The reasons to believe recorded do not show
as to on what basis the Assessing Officer has
formed a reasonable belief that the said expenditure
had not crystallized during the year relevant to the
assessment year. It is apparent the Assessing
Officer suspects that the income has escaped
assessment. But mere suspicion is not enough. The
reasons to believe must record reasons, the reading
of which should demonstrate, that such a
reasonable belief could be formed on some basis/
foundation and was in fact formed by the Assessing
Officer that income has escaped assessment. No
such reasonable belief can be formed from the
reasons to believe recorded.


=====================================================================
W.P.(C) 2250/2012 Page 10 of 12
15. The words "reason to believe" indicate that the
belief must be that of a reasonable person based on
reasonable grounds emerging from direct or
circumstantial evidence and not on mere suspicion,
gossip or rumour. The reason to believe recorded
do not refer to any material that came to the
knowledge of the Assessing Officer whereby it can
be inferred that the Assessing Officer could have
formed a reasonable belief that the expenditure
referred to had not crystallized during the relevant
year. The reasons to believe recorded that income
has escaped assessment are not based on any direct
or circumstantial evidence and are in the realm of
mere suspicion. The requirement of law is "reason
to believe" and not "reason to suspect". In the
present case Since the reasons to believe recorded
indicate that the Assessing Officer has acted on
mere surmise, without any rationale basis, the
action of reopening of the Assessment is thus
clearly contrary to law and unsustainable.

16. In view of the above, the impugned order dated
15.03.2012 is, accordingly, set aside and the

=====================================================================
W.P.(C) 2250/2012 Page 11 of 12
proceedings initiated pursuant to notice dated
31.10.2006 are hereby quashed.

17. The writ petition is accordingly allowed with costs
of Rs.10,000/-.

SANJEEV SACHDEVA, J.



SANJIV KHANNA, J.
August, 23, 2013
st




=====================================================================
W.P.(C) 2250/2012 Page 12 of 12

M/S. SMCC CONSTRUCTION INDIA LTD Vs. ASSISTANT COMMISSIONER OF INCOME-TAX











IN THE HIGH COURT OF DELHI AT NEW DELHI


% Judgment reserved on : 10th July, 2013
Judgment pronounced on: 23rd August, 2013


+ W.P.(C) No.2250/2012

M/S. SMCC CONSTRUCTION INDIA LTD.
..... Appellant
Through: Mr. Nageshwar Rao with Ms.
Sayaree B. Malik, Advocates

versus

ASSISTANT COMMISSIONER OF INCOME-TAX
... Respondent
Through: Mr. Sanjeev Sabharwal,
Advocate

CORAM:

HON'BLE MR. JUSTICE SANJ IV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA


SANJEEV SACHDEVA, J.


1. The petitioner by way of the present writ petition
has challenged order dated 15.03.2012 passed by
the Assistant Commissioner of Income Tax

=====================================================================
W.P.(C) 2250/2012 Page 1 of 12
disposing of the objections filed by the petitioner
against issuance of notice under Section 148 of the
Income Tax Act, 1961 (hereinafter referred to as
(the Act) and the very issuance of the notice dated
15.03.2012.

2. The assessment year in issue is 2002-03.


3. The petitioner is an Indian company engaged in the
construction business. On 30.10.2002, the
petitioner filed its return of income under Section
139(1) of the Act. The petitioner declared an
income of Rs.2,26,07,425/-. The petitioner during
the said financial year credited certain prior period
incomes and debited certain prior period expenses
to its profit and loss account. The petitioner
disclosed this fact in the Notes to the Accounts in
its financial statement for the year 2001-02, which
were filed alongwith the return of income. The
return of the assessment was accepted by the
Assessing Officer and assessment order dated
28.02.2005 was passed under Section 143(3) of the
Act and no addition/disallowance was made in the




=====================================================================
W.P.(C) 2250/2012 Page 2 of 12
assessment order.

4. On 31.10.2006, the petitioner was served with a
notice under Section 148 of the Act for reopening
of the assessment on the ground of escapement of
income. In response to the said notice, the
petitioner on 15.12.2006 filed the same return as
had been originally filed under Section 139(1) of
the Act under protest and further requested the
respondents to furnish the reasons recorded for
reopening of assessment under Section 147/148 of
the Act.

5. On 05.02.2007, the reasons were furnished by the
respondent. The reason for reopening of the
assessment as communicated to the petitioner is as
under:-
"It has come to my knowledge that the assessee
has debited a sum of Rs.1,20,765/- in the P&L
account on account of prior period expenses after
netting income of Rs.30,34,463/- and
expenditure of Rs.31,55,228/-. The expenditure
of Rs.31,55,228/- has not been crystallized
during the year 2001-02 relevant to the
assessment year 2002-03, such prior period

=====================================================================
W.P.(C) 2250/2012 Page 3 of 12
expenses should have been disallowed.
Therefore, I have reason to believe that the
assessees income amounting to Rs.31,55,228/-
has escaped assessment. Notice u/s 148 of the
I.T. Act issued to the assessee for the assessment
of the assessees income."

6. The petitioner vide its letter dated 16.03.2007 filed
objections to the notice under Section 148 of the
Act and the reasons recorded by the respondent for
issuance of the same.

7. The petitioner contended that there was no failure
on the part of the petitioner to disclose fully and
truly all the material facts and that all primary and
material facts were placed before the Assessing
Officer during the course of the assessment
proceedings for the subject assessment year and the
relevant material was duly disclosed in Schedule 10
of the Notes to the Accounts of the financials for
the relevant year and no new material had come to
the knowledge of the Assessing Officer and that he
had acted on the basis of mere suspicion.

8. By the impugned order dated 15.03.2012, the


=====================================================================
W.P.(C) 2250/2012 Page 4 of 12
respondent dealt with the objection raised by the
petitioner qua initiation and rejected the same.
With regard to the issue of change of opinion and
the fact that true and complete disclosure had been
made by the petitioner, the finding recorded in the
impugned order is as under:-

"4.2 Coming to the second objection
regarding the proceedings being based on
"mere change of opinion", the law on this
count is also equally settled that mere
change of opinion will not confer
jurisdiction on the Assessing Officer.
Now the question arises what constitutes a
change of opinion. The very expression
,,Change of opinion suggests that an
opinion of sort must have been formed by
the Assessing Officer in the earlier
proceedings which he seeks to alter or
revise in the subsequent proceedings. In
the instant case in the earlier assessment
proceedings the AO has neither applied his
mind to the issue involved nor can he be
said to have formed an opinion in respect
thereof. Therefore, in the proceedings at
hand, it cannot be said to be a case of
change of opinion. The case law cited by
the assessee on the point are
distinguishable on facts and therefore do
not help the cause of the assessee. "


=====================================================================
W.P.(C) 2250/2012 Page 5 of 12
9. Aggrieved by the said order, the petitioner has filed
the present petition. We have examined the record
of the case and also the Income Tax Returns
originally filed and are of the view that the re-
opening cannot be sustained.

10. The petitioner in Schedule 10, Notes to the
Accounts, has mentioned as under:-

12. Details of Prior Period Adjustment.


Current Previous
Year Year
Amount Amount
(Rs.) (Rs.)

Expenditure - -

Subcontract costs 2,911,573 -

Interest Paid 243,655 -

Royalty - -

Income - -

Material Cost (1,986,566) -

Project Related (1,047,897) -
Income


=====================================================================
W.P.(C) 2250/2012 Page 6 of 12
Net 120,765 1,661,890


The Petitioner claims to have further made a
disclosure in the notes to computation of income as
under:
"11. Prior period expenses (Net) Rs. 120,765
(after adjusting prior period income of Rs.
3,034,463) have been claimed in the present
assessment year as liability in respect thereof
was crystallized/settled during the year"

11. The law in respect of reopening of the assessment
under Section 143(3) of the Act is no longer res
integra and has been the subject matter of various
judicial pronouncements. In the recent decision of
the Full Bench of this High Court in Commissioner
of Income Tax-VI, New Delhi vs. Usha
International Limited (2012) 348 ITR 485 (Del)
FB, one of us (Sanjiv Khanna, J) speaking for the
majority held as under:-
"5. For reopening an assessment made under
Section 143(3) of the Act, the following conditions
are required to be satisfied:-






=====================================================================
W.P.(C) 2250/2012 Page 7 of 12
(i) The Assessing Officer must form a tentative
or prima facie opinion on the basis of material that
there is under-assessment or escapement of income;

(ii) He must record the prima facie opinion into
writing;

(iii) The opinion formed is subjective but the
reasons recorded or the information available on
record must show that the opinion is not a mere
suspicion.

(iv) Reasons recorded and/or the documents
available on record must show a nexus or that in fact
they are germane and relevant to the subjective
opinion formed by the Assessing Officer regarding
escapement of income.

(v) In cases where the first proviso applies, there
is an additional requirement that there should be
failure or omission on the part of the assessee in
disclosing full and true material facts. Explanation
to the Section stipulates that mere production of
books of accounts or other documents from which
the Assessing Officer could have, with due
diligence, inferred material facts, does not amount to
"full and true disclosure of material facts". (The
proviso is not applicable where reasons to believe



=====================================================================
W.P.(C) 2250/2012 Page 8 of 12
for issue of notice are recorded and notice is issued
within four years from the end of assessment year.)



12. It would be the proximity of the reasons with the
belief of escapement of income which would be the
determinative factor for reopening of the
assessment. The remoteness of the reasons would
obviate the possibility of a belief and would bring
the case in the realm of mere suspicion which
cannot be a ground for reopening of assessment.

13. The prior period expenses are eligible for deduction
during the current year provided the liability was
determined and crystallized during the relevant
year.

14. The reason to believe recorded by the Assessing
officer "that the assessee has debited a sum of Rs
1,20,765/- in the P & L account on account of prior
period expenses after netting income of Rs
30,34,463/- and expenditure of Rs. 31,55,228/-.
The expenditure of Rs. 31,55,228/- has not been
crystallized during the year 2001 ­ 02 relevant to


=====================================================================
W.P.(C) 2250/2012 Page 9 of 12
the assessment year 2002 ­ 03, such prior period
expenses should have been disallowed" is not based
on any material that had come to the knowledge of
the Assessing Officer. The Assessing Officers has
placed reliance on the notes to the accounts that
were available at the time of the scrutiny
assessment. But the notes also states that the prior
period expenses had crystallized/ settled in the
year. The reasons to believe recorded do not show
as to on what basis the Assessing Officer has
formed a reasonable belief that the said expenditure
had not crystallized during the year relevant to the
assessment year. It is apparent the Assessing
Officer suspects that the income has escaped
assessment. But mere suspicion is not enough. The
reasons to believe must record reasons, the reading
of which should demonstrate, that such a
reasonable belief could be formed on some basis/
foundation and was in fact formed by the Assessing
Officer that income has escaped assessment. No
such reasonable belief can be formed from the
reasons to believe recorded.


=====================================================================
W.P.(C) 2250/2012 Page 10 of 12
15. The words "reason to believe" indicate that the
belief must be that of a reasonable person based on
reasonable grounds emerging from direct or
circumstantial evidence and not on mere suspicion,
gossip or rumour. The reason to believe recorded
do not refer to any material that came to the
knowledge of the Assessing Officer whereby it can
be inferred that the Assessing Officer could have
formed a reasonable belief that the expenditure
referred to had not crystallized during the relevant
year. The reasons to believe recorded that income
has escaped assessment are not based on any direct
or circumstantial evidence and are in the realm of
mere suspicion. The requirement of law is "reason
to believe" and not "reason to suspect". In the
present case Since the reasons to believe recorded
indicate that the Assessing Officer has acted on
mere surmise, without any rationale basis, the
action of reopening of the Assessment is thus
clearly contrary to law and unsustainable.

16. In view of the above, the impugned order dated
15.03.2012 is, accordingly, set aside and the

=====================================================================
W.P.(C) 2250/2012 Page 11 of 12
proceedings initiated pursuant to notice dated
31.10.2006 are hereby quashed.

17. The writ petition is accordingly allowed with costs
of Rs.10,000/-.

SANJEEV SACHDEVA, J.



SANJIV KHANNA, J.
August, 23, 2013
st




=====================================================================
W.P.(C) 2250/2012 Page 12 of 12

KRISHAK BHARATI COOPERATIVE LTD. Vs. JOINT COMMISSIONER OF INCOME TAX











$~29.
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 1279/2007


Date of decision: 4th October, 2013


KRISHAK BHARATI COOPERATIVE LTD.
..... Appellant
Through Mr. S. Ganesh, Sr. Advocate with
Ms. Surekha Raman, Advocate.

versus

JOINT COMMISSIONER OF INCOME TAX
..... Respondent
Through Mr. Rohit Madan, Advocate.

CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJIV KHANNA, J. (ORAL):

This appeal by the assessee, which relates to Assessment Year

1995-96, raises the following substantial questions of law, which were

admitted for hearing vide order dated 6th September, 2011:-

" (1) Whether in the facts and circumstances of
the case, the Tribunal was justified in holding
that service charges received from the Heavy
Water Board of Department of Atomic Energy
could not be considered as profit derived from
the industrial undertaking to qualify for
deduction under Section 80-I of the Act?

(2) Whether-
(i) interest income from employees on advances;
ITA No. 1279/2007 Page 1 of 8
(ii) service charges from Heavy Water Plan;
(iii) equipment hire charges;
(iv) crane hire charges;
(v) Ammonia Tanker hire charges; and
(vi) interest income from banks and financial
institutions are the items of income eligible for
deduction under section 80-I of the Income Tax
Act."

2. The said order dated 6th September, 2011 records that in an

earlier decision dated 15th November, 2006 in the case of the

appellant, reported as (2008) 300 ITR 92 (Delhi), service charges,

equipment hire charges and interest on loans to employees, it was held

would not be entitled to special deduction under Section 80-I of the

Income Tax Act, 1961 (Act, for short). On an appeal filed by the

appellant-assessee, the Supreme Court remanded the case to the

tribunal in respect of service charges. Insofar as equipment hire

charges and interest on loan to employees were concerned, the same

were not pressed having regard to the small amount involved. The

order dated 6th September, 2011 records; whether earlier decision

reported in (2008) 300 ITR 92 (Delhi) would be applicable or not, was

a question, which would be examined at the time of final arguments.

3. Having heard learned counsel for the appellant, we feel that the

aforesaid decision in the case of the assessee, which pertains to

Assessment Year 1994-95, squarely applies as far as equipment hire

charges and interest on loan to employees are concerned. It has been

ITA No. 1279/2007 Page 2 of 8
held in the said decision reported in (2008) 300 ITR 92 (Delhi) that

the two amounts do not constitute profits and gains "derived from"

industrial undertaking as mentioned in sub-section (1). Section 80-I

stipulates that the profit and gains derived by an assessee must directly

relate to gains/income of an industrial undertaking engaged in

manufacture or production of articles or things. The said decision of

the Division Bench is binding on us and the issue raised is squarely

covered. The same question/issue raised was considered and the

claim/contention of the appellant-assessee was rejected. We

accordingly following the said judgment reject the said claim. We

also record that crane hire charges would be also covered by the

aforesaid decision, which refers to equipment hire charges.

4. Ammonia tanker hire charges are also covered by decision of

this Court in the case of the appellant-assessee in ITA No. 955/2008

and other connected appeals, which were disposed of on 23 rd April,

2012. In the said decision, we have referred to the concept of

"derived from" and it was held that income earned from tanker hire

charges were not covered by the term "profits and gains derived from

an industrial undertaking". Learned counsel for the appellant has

submitted that a wrong factual statement was made by the appellant

that the carriage wagons were owned by the Railways. He submits

that carriage wagons were owned by the appellant and ammonia had
ITA No. 1279/2007 Page 3 of 8
to be transported to the consumer/customer in the specialised

container wagons. Ammonia had to be transported in highly

compressed and liquefied form.



5. Paragraph 14 of order dated 23rd April, 2012 in ITA No.

955/2008 reads as under:-

"14. Tank hire charges were received by the
appellant-assessee from the consumers to
whom Ammonia was supplied. It represents
payment for transportation. On query, it is
accepted/stated by the appellant that these tank
hire charges were separately billed and these
tanks were the carriage wagons owned by the
Railways. Transportation charges when
separately billed and charged cannot be
included in the profit and gain from
manufacturing activity undertaken by an
industrial unit. There is no evidence or material
that the transport charges paid and received
were intrinsically connected and linked with the
manufacturing activity and have to be treated as
sale proceeds for the goods sold. Normally,
transportation is after or post manufacture. The
onus was on the appellant assessee to show and
establish that in the present case, because of the
peculiarity of facts, transportation charges
should be treated as sales proceeds or part of
sale proceeds of the goods manufactured and
were intrinsically connected and had live link
with the manufacturing activity. In the absence
of aforesaid evidence and material placed by
the appellant assessee, the transportation
charges cannot be treated as profit and gain
derived from the manufacturing activity, which
qualifies for deduction under Section 80-I"

6. Even if we accept the contention of the appellant that the railway

wagons were owned by the appellant-assessee, we do not think the
ITA No. 1279/2007 Page 4 of 8
final outcome as held in ITA No. 955/2008 requires reconsideration.

The words "derived from" are much narrower and restrictive than the

words "attributable to". Income is said to be derived from an

industrial undertaking only if it is directly related to the running of the

industrial undertaking itself. It would not include income or gains

from any other commercial activity undertaken by the assessee.

Section 80-I specifically refers to and covers profit and gain derived

from an industrial undertaking. Sub-section (2) stipulates that the

industrial undertaking should manufacture or produce an article or

thing as specified. Thus, the emphasis is on the profits and gains of

the industrial undertaking, which manufactures or produces an article

or thing as specified. Transportation of ammonia, as in case of other

products, may require specialised container vessels or

wagons/transport vehicles, but the income derived would be earned

from transportation. Transport charges were specifically and

separately paid, would not be income or profits derived from an

industrial undertaking, which manufactured or produced articles or

things. Transportation even in specialised vehicles or wagons, was/is

a separate commercial activity. The said activity could be undertaken

by a third person, other than the appellant. The third party

transporters could/can have specialised vehicles or wagons for

transportation of ammonia. The aforesaid activity of transportation
ITA No. 1279/2007 Page 5 of 8
was post-manufacture and relates to activities outside the four walls of

the industrial complex or undertaking where manufacture or

production took/takes place. The Supreme Court in Liberty India

versus Commissioner of Income Tax, (2009) 9 SCC 328 had

examined the question whether duty drawbacks etc. payable could be

treated as profits and gains derived by an industrial undertaking under

Sections 80-I, 80(IA) and 80(IB). It has been held that the said

amounts received do not qualify and cannot be treated as profits and

gains derived from an industrial undertaking. Referring to sub-

Section (5) of Section 80(IA) it was observed that for computation of

profits of eligible undertaking, we have to only look at the source of

income of the assessee relating to the eligible undertaking and exclude

any other income arising from other commercial activities indulged in

by the said assessee. It was elucidated:-

"33. On perusal of sub-section (5) of Section
80-IA, it is noticed that it provides for the
manner of computation of profits of an eligible
business. Accordingly, such profits are to be
computed as if such eligible business is the only
source of income of the assessee. Therefore, the
devices adopted to reduce or inflate the profits
of eligible business has got to be rejected in
view of the overriding provisions of sub-section
(5) of Section 80-IA, which are also required to
be read into Section 80-IB. [See Section 80-
IB(13).] We may reiterate that Sections 80-I,
80-IA and 80-IB have a common scheme and if
so read it is clear that the said sections provide
for incentives in the form of deduction(s) which
ITA No. 1279/2007 Page 6 of 8
are linked to profits and not to investment.

34. On an analysis of Sections 80-IA and 80-IB
it becomes clear that any industrial undertaking,
which becomes eligible on satisfying sub-
section (2), would be entitled to deduction
under sub-section (1) only to the extent of
profits derived from such industrial undertaking
after specified date(s). Hence, apart from
eligibility, sub-section (1) purports to restrict
the quantum of deduction to a specified
percentage of profits. This is the importance of
the words "derived from industrial
undertaking" as against "profits attributable to
industrial undertaking".
(emphasis supplied)




7. To examine whether the income was derived from an industrial

undertaking, it is imperative to trace the source of profit or income to

manufacture/production. Transportation, as noted above, is post-

manufacture and takes place after the goods or articles have been

manufactured in the industrial undertaking. They relate to activity of

transportation of the said articles or goods from the factory to the

place of the consumer/customer. It is a service and does not partake

character and is not a part of manufacture. Question No. 2(ii) in

respect of ammonia tanker hire charges is, therefore, to be decided

against the appellant-assessee.

8. Question No. (1) and item No. (ii) of question No. (2) are inter-

connected. The said issue is covered in favour of the appellant-

assessee and against the revenue vide judgment dated 24th July, 2013
ITA No. 1279/2007 Page 7 of 8
in ITA No. 1248/2010 titled Krishak Bharti Cooperative Limited

versus Deputy Commissioner of Income Tax and Another. In the

said judgment after examining the nature and character of the service

charges, the agreement between the appellant and Heavy Water

Board, Department of Atomic Energy, Government of India, a

Division Bench has opined that the appellant-assessee would be

entitled to benefit under Section 80-I in respect of service charges

received and the same were profits and gains derived from an

industrial undertaking. Question Nos. (1) and (2)(ii) are accordingly

answered in favour of the appellant-assessee and against the Revenue.

The appeal is disposed of. No order as to costs.




SANJIV KHANNA, J.



SANJEEV SACHDEVA, J.
OCTOBER 04, 2013
VKR




ITA No. 1279/2007 Page 8 of 8

Machinery purchased under Textile Upgradation Scheme is eligible for depreciation at 50%

IT : Machinery purchased under Textile Upgradation Fund Scheme and used only for embroidery purpose is eligible for depreciation at rate of 50 per cent


Another remedy with petitioner would result in dismissal of winding up petition

CL : Availability of other remedy to petitioner would result in dismissal of winding up petition filed against respondent-company


No accumulated profit is bad for co. but not so for shareholder as no accumulated profit means no de

IT : In view of provisions of section 2(22)(e), 'deemed dividend' taken together in hands of all persons cannot exceed accumulated profits of company and, therefore, where assessee, a director in two companies, took loan from those companies, in view of fact that said companies were having tax or excise liability during assessment year under consideration and as a result there were no accumulated profits in their hands in beginning of year, amount of loan taken by assessee from said companies co


Depreciation allowed on plant, though ready to use, yet couldn't be used due to shortage of material

IT : Where assessee claimed depreciation on plant and Assessing Officer declined depreciation on plea that plant had never been put to use for purposes of business during whole of previous year, since assessee's business was a going concern and plant could not be put to use due to raw material paucity, assessee was entitled to depreciation on plant