Northern Strips Limited & Another vs Income Tax Officer Ward (13(3), ...
2009 Latest Caselaw 3331 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                          W.P(C) No. 8265/2008

                                                      24th August, 2009

NORTHERN STRIPS LIMITED & ANOTHER
                                                    ...Petitioner s

                           Through:     Mr. Salil Aggarwal and Mr. Prakash
                                        Kumar, Advocates.

              VERSUS

INCOME TAX OFFICER WARD (13(3), NEW DELHI
                                      ....Respondent

                           Through:     Mr. Subhash Bansal, Sr. Standing
                                        Counsel.


CORAM:
HON‟BLE MR. JUSTICE A. K. SIKRI
HON‟BLE MR. JUSTICE VALMIKI J.MEHTA

1. Whether the Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not?

3. Whether the judgment should be reported in the Digest?

%

VALMIKI J.MEHTA, J

1. The present writ petition seeks quashing of the notice dated 27.3.2008

and the order dated 10.11.2008 passed by the respondent under Section 147/148

of the Income Tax Act, 1961.

W.P.(C) 8265/2008 Page 1

2. The petitioner company is engaged in the business of manufacturing of

cutting and slitting of polyster films. It has its industrial undertaking at Silvasa

which is a notified backward area as specified in the Eighth Schedule of the

Income Tax Act. For the Assessment Year 2001-2002, the petitioner company

filed a return of income under Section 139(1) declaring an income of

Rs.3,37,167/- under the normal provisions of the Act and an income of

Rs.2,58,98,479/- under Section 115 JB of the Act. The petitioner company

claimed a deduction of Rs.2,18,17,975 under Section 80IA of the Act. The

return of income was processed under Section 143(1) and selected for scrutiny

by issuance of notice under Section 143(2) of the Act.

3. During the course of assessment proceedings, the Assessing Officer asked

the petitioner company to explain the basis of the claim of deduction and to

which a detailed note was filed by the petitioner company with respect to

allowability of deduction under Section 80IA of the Income Tax Act. The

petitioner company by its letter dated 10.12.2002 furnished a note before the

Assessing Officer, on the business activity and allowability of deduction under

Section 80IA of the Act. The petitioner company also furnished another reply

dated 24.3.2003, inter alia, with respect to allowability of deduction under

Section 80IA. Vide order dated 31.3.2003, the Assessing Officer allowed the

deduction under Section 80IA to the petitioner/assessee. The income was

assessed at Rs.4,37,450/-, however, the income declared at Rs.2,58,98,479/-

under Section 115JB of the Income Tax Act was taken for taxation purposes.

W.P.(C) 8265/2008 Page 2

4. It is thereafter that the impugned notice was issued to the petitioner under

Section 148 of the Act dated 27.3.2008 and to which by letter dated 21.4.2008,

the petitioner company requested the respondent to furnish a copy of the reasons

recorded for initiating proceedings under Section 147 of the Income Tax Act.

Through the letter dated 29.4.2008, the respondent supplied the reasons

recorded to the petitioner company for initiating proceedings under Section

147/148 of the Act. The petitioner by letter dated 22.10.2008, filed the

objections to the initiation of the reassessment proceedings on receiving the

copy of the reasons. On 10.11.2008, the respondent passed an order dismissing

the objections raised by the petitioner company to the initiation of reassessment

proceedings. Hence this writ petition.

5. We may straightaway refer to the reasons given by the respondent for

reopening of the assessment and which are as under:

"Reasons for reopening the case u/s 147 of the Income Tax Act in the case of M/s Northern Strips Ltd. in Asstt. Year-2001-02

The return of income in this case was filed on 31-10-2001 declaring an income of Rs.3,37,167/- and Book Profit u/s 115 JB of the Act of Rs.2,58,98,479/-. Return was processed u/s 143(1) of the IT Act on 25-02- 2003 and assessment u/s 143(3) of the Act was made on 31-03-2003.

On perusal of the assessment records it has been found that during the year assessee has claimed deduction u/s 80IB of the Act for Rs.2,18,17,975/-. As per section 80IB(2)(iii) of the Act, one of the basic conditions for claim of deduction under this section is that „it manufactures or produces any articles or thing not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of India.‟ During the year under consideration the assessee was engaged in cutting and slitting of polyester film of various sizes, weight and micron. In fact the assessee has been engaged in mere processing and packing business and not any manufacturing or production of any article or thing.

W.P.(C) 8265/2008 Page 3 In view of the above facts, I have reason to believe that the assessee is not entitled to claim deduction u/s 80IA of the Act, and by claiming the same the income has escaped assessment in the AY 2001-02. Since four years has expired from the end of the relevant years, and security assessment was completed u/s 143(3) of the IT Act., therefore, the statutory approval of the Ld. CIT, Delhi-V, New Delhi is required u/s 151(1) of the IT Act.in the case of the assessee for the said assessment year, the reasons recorded above for the purpose of reopening of assessment is put up for kind satisfaction of Addl. CIT, Range-13, New Delhi in terms of the proviso to Section 151 of the Act.

Put up for your kind perusal and forwarding to Ld. Commissioner of Income Tax, Delhi-V, New Delhi for necessary approval please.

(R.K.Sharma) Asstt. Commissioner of Income Tax Circle-13(1), New Delhi."

6. The counsel for the writ petitioner has urged four submissions before this

court:

(i) The reasons given for the assessment do not show any averment that the

assessee has failed to fully and truly disclose all material particulars. This

averment was necessary in as much as the proceedings for reassessment were

initiated after the expiry of a period of four years and hence covered by proviso

to Section 147(2) of the Act. The counsel for the petitioner relies upon the

judgment reported as JSRS Udyog Ltd. Vs. ITO, 313 ITR 321 in support of this

proposition.

(ii) A reference to the reasons reproduced above show that no new fact has

been referred to as the reason for reopening of the assessment and therefore, this

amounts to a mere change of opinion which cannot form the basis for initiation

of proceedings under Section 147/148 of the Act.

W.P.(C) 8265/2008 Page 4

(iii) The Assessing Officer has allowed deduction both in the preceding

assessment years 1999-2000 and 2000-2001 and also for the subsequent years

2002-2003, but after first allowing the same, this is now sought to be deleted

pursuant to proceedings under Section 147/148 of the Act.

(iv) With respect to a group company of the assessee namely M/s Super

Plastic Coats Pvt. Limited, the Assessing Officer has held the same process to

be a manufacturing activity and has allowed deduction under Section 80IA.

Copy of this order is placed at pages 196 to 198 of the writ petition. Even in the

case of the group company, proceedings were initiated under Section 147 /148

of the Act, and which proceedings were dropped by holding that the activity

which was carried on by the group company, and which is similar to the activity

as in the present case, was a manufacturing activity.

It was therefore contended that there is no ground whatsoever for

initiation of proceedings under Section 147/148 of the Act.

7. In response, the counsel for the respondent has basically placed reliance

upon the order dated 10.11.2008 passed by the Income Tax Officer under

Section 147 of the Act. He has more particularly relied upon the following

portion of the order:-

"The perusal of the assessment record of the assessee company it has been found that during the year assessee has claimed deduction 80IB of the Act for Rs.2,18,17,975/-. As per section 80IB (2) (iii) of the Act, one of the basic condition for claim of deduction under this section is that "it manufactures or produces any article or thing not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of

W.P.(C) 8265/2008 Page 5 India". During the year under consideration the assessee was engaged in cutting and slitting of polyester film of various sizes, weight and micron. In fact the assessee has been engaged in mere processing and packing business and not any manufacturing or production of any article of thing. Hence the assessee is not entitled for claiming of deduction u/s 80IA."

8. The contents of the petition are well founded and we have no hesitation in

allowing the present writ petition. The law is well settled that the proceedings

under Section 147/148 cannot be initiated merely because there is a change of

opinion and there are no new facts for justifying the initiation of reassessment

proceedings. A reference to the portion of the final order dated 10.11.2008

quoted above simply states that according to the Assessing Officer, the activity

carried on by the assessee is not a manufacturing activity. In view of the fact

that this very issue was duly considered and the assessee furnished detailed note

as also its letter dated 10.12.2002 and 24.3.2003 justifying the allowability of

deduction under Section 80IA and which was duly allowed by an order passed

under Section 143(3)(3) of the Act, it is clear that there is no basis for initiating

proceedings under Section 147/148. The very fact that deduction has been

allowed in the preceding assessment years as also in the subsequent assessment

years clearly points to the fact that the assessee was entitled to deduction under

Section 80IA. Thus, even on the principle of consistency, there is no reason to

disallow the deduction for the subject Assessment Year 2001-2002. In the case

of the group company of the assessee which carries on similar activity, similar

proceedings were initiated under Section 147/148 and which were ultimately

W.P.(C) 8265/2008 Page 6 dropped by holding the entitlement to deduction under Section 80IA with

respect to the same manufacturing activity.

9. The contention of the counsel for the respondent, by reference to the final

order dated 10.11.2008, clearly carries no weight because the relevant portion of

the order reproduced above does not show any new material or even an

averment of failure on the part of the assessee to fully and truly disclose

material particulars.

10. We, therefore, allow the writ petition and quash the impugned notice

dated 27.3.2008 and the order dated 10.11.2008 in the proceedings under

Section 147/148 of the Act. Writ in the nature of certiorari is issued quashing

the reassessment proceedings initiated by the respondent in pursuance to the

notice dated 27.3.2008 for the Assessment Year 2001-2002.

                                                         A. K. SIKRI, J



                                                      VALMIKI J.MEHTA, J


August 24, 2009
ib




W.P.(C) 8265/2008                                                          Page 7