IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.12.2011 CORAM: THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN W.P.Nos.24476 to 24478 of 2009 and M.P.Nos.1, 1 and 1 of 2009 M/s.Sterilite Industries (India) Ltd. represented by its General Manager (Finance & Accounts) Mr.A.Satish No.55, Pillayar Koil Street No.1, Sai Flats, Kanagam, Tharamani, Chennai-600 113. .. Petitioner in all these writ petitions versus 1. Assistant Commissioner of Income Tax Company Circle VI(4) New Block, VII Floor, room No.705 121, Mahatma Gandhi Salai Chennai-34. 2. Commissioner of Income Tax, Range-III New Block, IV Floor, Room No.410 121, Mahatma Gandhi Salai Chennai-34. .. Respondents in all these writ petitions ----- PRAYER: Writ petition filed under Article 226 of the Constitution of India for the issue of a Writ of Prohibition prohibiting the first respondent from proceeding further in pursuance of the notice in No.AABCS4955Q dated 19.03.2009, issued under Section 148 of the Income Tax Act, for the assessment year 2002-2003, 2003-2004 and 2004-2005. For petitioner : Dr.Debi Prasad Pal Senior Advocate for M/s.R.Janakiraman Arna Mazumdar T.Vasudevan https://hcservices.ecourts.gov.in/hcservices/ For respondents-1 and 2 : Mr.J.Narayanaswamy Senior standing counsel for Income Tax ----- ORDER W.P.Nos.24476 to 24478 of 2009 relate to the assessment years 2002-03, 2003-04 and 2004-05. The assessee herein has come before this Court, challenging the notice of reassessment dated 19.03.2009 for the above-said assessment years issued by the first respondent under Section 148 of the Income Tax Act, 1961. 2. The petitioner herein is a company and an assessee on the file of the first respondent herein. The petitioner is engaged in the manufacture and sale of non-ferrous metals and telephone cables. The petitioner states that it obtained the licence for its industrial undertaking, at Chinchpada Unit (CCR Refinery) at Silvassa in the Union Territory of Dadra and Nagar, Haveli from the Chief Inspector of Factories of Silvassa on 07.06.1996 in Form No.4, as prescribed under the Factories Act, 1948 to manufacture copper. As is evident from the Director's report, forming part of the balance sheet and profit and loss account for the assessment year 1999-2000, the petitioner is stated to have commenced its commercial production of copper in the said Unit from 1st April 1998. Thus, for the first time, in the return filed for the assessment year 1999-2000, the petitioner claimed 100% deduction under Section 80 IB of the Income Tax Act, 1961 in respect of the profits arising from the said manufacturing unit's operations. Thus starting from the assessment year 1999-2000, the deduction under Section 80 IB of the Income Tax Act, 1961, available at 100% for the first five assessment years was granted on the assessment made for the assessment years 2001-02, 2002-03 and 2003-04. 3. It is further seen from the averments in the affidavit filed before this Court that in respect of the Rakholi Unit, the assessee got the licence under the Factories Act on 18th March 1998. As the commercial production in respect of the Rakholi unit started only on 22nd February 1999, the assessee claimed deduction under Section 80 IB of the Income Tax Act in the return filed for the assessment year 2000-01. Thus in respect of Chinchpada Unit, deduction under Section 80 IB was claimed from the assessment year 1999-2000, it being the first year of commencement of commercial production and in respect of Rakholi Unit, the claim was made only from 2000-01. Accordingly, in respect of the claim for the assessment year 2002-03, the petitioner is said to have enclosed Form 10CCB and attached the calculation of book profit under Minimum Alternate tax as per Section 115 JB and claimed an aggregate deduction of Rs.325,72,69,199/- under Chapter VIA, out of which, the claim for deduction under Section 80 IB in https://hcservices.ecourts.gov.in/hcservices/ respect of the eligible Units at Chinchpada Unit and Rakholi Unit, was to the tune of Rs.310,96,28,749/-. As regards the assessment year 2003-04, on the total aggregate claim on deduction under Chapter VIA of Rs.417,67,25,823/-, the deduction under Section 80 IB was to the tune of Rs.404,42,59,243/-. For the assessment year 2004-05, on the total aggregate claim on deduction under Chapter VIA of Rs.186,65,45,794/-, the deduction under Section 80 IB was to the tune of Rs.16,05,90,254/-. As the claim for deduction under Section 80 IB for the assessment years 2002-03, 2003-04 and 2004-05 are well covered under the five year period, the petitioner claimed 100% deduction under Section 80 IB. In the assessment orders passed under Section 143(3) of the Income Tax Act, in respect of assessment years 2002-03, 2003-04 and 2004-05 on 28.2.2005, 30.3.2006 and 28.12.2006 respectively, after verification of the materials called for and produced by the petitioner, the Assessing Officer granted the claim of the petitioner for 100% deduction. A perusal of the orders passed for the respective assessment years shows that the deduction claimed by the assessee for the said Units had been examined with reference to the certificate of the Chartered Accountant and materials produced pursuant to the notices issued by the Officer. Thus, for the assessment year 2002-03, the Chinchpada Unit was in the fourth year and the Rakholi Unit was in the third year for 100% relief; for the assessment year 2003-04, the Chinchpada Unit was in the fifth year and the Rakholi Unit was in the fourth year and for the assessment year 2004-05, the Rakholi Unit was in the fifth year. 4. While matters stood thus, in respect of the assessment made for the assessment year 2003-04, on 20.7.2006, the Assessing Officer initiated rectification proceedings under Section 154 of the Income Tax Act, proposing to rectify certain errors as apparent on the face of the records, which reads as follows: " Particulars of mistake proposed to be rectified: 115JB: To disallow claim u/s 80 HHC. Provision for bad debts and diminution of value of current investment and income tax debited. 143(3): (i) Share issue expenses and FRN issue expenses written off to be disallowed being capital in nature. (ii) IT & WT debited in P & L A/c. (iii) Mistake in ded. u/s. 80 IB in Chinchpada and ACSR Rakholi Units. 5. The assessee filed its objections to the same. A perusal of the records produced before this Court shows that except for the initiation of the rectification proceedings and the assessee filing its objection, there was no further processing of the proceedings. It is a matter of interest to note that in the order passed on 13th October 2009, on the reply filed by the assessee, the first respondent pointed out that as the issues in question were not such https://hcservices.ecourts.gov.in/hcservices/ mistakes apparent from the records requiring rectification under Section 154, proceedings under Section 147 was initiated. 6. It is seen from the documents placed before this Court that the first respondent herein issued notice under Section 148 on 19.03.2009 to reopen the assessment in respect of the assessment years 2002-03, 2003-04 and 2004-05. It was alleged by the Assessing Officer that he had reasons to believe that the income chargeable to the above assessment years had escaped assessment within the meaning of Section 147 of the Act and that he proposed to reassess the income for the said years and required the petitioner to file a return of income within 30 days from the date of receipt of the notice. The assessee filed its reply objecting to the noting and stated that the returns originally filed under Section 139 of the Income Tax Act might be treated as a return filed pursuant to the notice issued under Section 148 of the Income Tax Act. On the reasons sought for by the assessee, the first respondent herein intimated the same vide letter dated 11.5.2009. The reasons given in the notice issued under Section 147 of the Income Tax Act in respect of the assessment year 2003-04 and under Section 154 proceedings originally initiated, are one and the same. The reasons for reopening of assessment under Section 148 in respect of the assessment year 2003-04 were given as follows: i. Assessee has claimed 100% deduction in respect of Rakholi Unit of Rs.13.22 crores and Chinchpada unit of Rs.404.42 crores and was also allowed whereas the assessee is eligible for 30% deduction only since as per 10CCB filed for AYs 2003-04 in respect of Rakholi Unit, date of commencement of operation is 18.03.1998 (Previous Year 1997-98 and initial year 1998-99 and hence current being 6th year). Similarly, in respect of Chinchpada unit, date of commencement of operation was 07.06.1996 (PY 1996-97 & initial year being 1997-98 and hence current being 7th year). Hence, the assessee is eligible for 30% deduction only. Excess deduction allowed to be brought to tax. ii. In the P & L account for Chinchpada Unit, assessee has credited interest income of Rs.7,01,50,976/- and miscellaneous income of Rs.26,43,366/-. Assessee has netted a sum of Rs.9,34,01,802/- being interest received. Since these incomes do not form part of income from manufacturing unit, these are not eligible for deduction u/s.80IB. iii. In the P&L account of Rakholi unit assessee has credited interest income of Rs.6,067/- and miscellaneous income of Rs.67,87,792/-. Since these incomes do not form part of income from manufacturing unit, these are not eligible for deduction u/s.80IB. iv. Provision for Bad debts of Rs.67,17,311/-, provision for diminishing value of investments of Rs.1,17,362/- and income tax of Rs.11,59,66,487/- debited to Profit and Loss account and added to the total income under normal computation was omitted to be https://hcservices.ecourts.gov.in/hcservices/ added to the net profit u/s.115JB as unascertained liability. v. Wrong claim of 80HHC under section 115JB as no deduction is allowable under section 80HHCas per section 80IA(9). vi. Under normal computation: a) Share issue expenses written off of Rs.40,74,600/- and FRN issue expenses written off of Rs.54,61,569/- debited to Profit and Loss account as per column 17(a) of Form 3CD to be disallowed being capital in nature. b) Wealth of Rs.10,89,940/- debited in Profit and Loss account as per clause 17(f) of From 3CD to be disallowed. c) Mistake in deduction u/s.80IB in Chinchpada and ACSR Rakhali unit i.e., by wrongly allowing deduction u/s.80IB in relation to the interest and miscellaneous income allowed as eligible for deduction u/s.80IB. " 7. As far as the assessment year 2002-03 is concerned, the reasons given for the notice issued under Section 148 of the Income Tax Act stated that, taking the date of commencement of operation as 07.06.1996, the deduction in respect of Chinchpada Unit was wrongly granted at 100%. The claim being in the sixth year, the petitioner assessee was entitled to 30% deduction only. 8. The notice issued also referred to the other income credited in the Profit and Loss Account, viz., for Chinchpada Unit; that the assessee had credited interest income of Rs.3,26,64,158/-, which was not derived from manufacturing activity. Since these incomes did not form part of the income from the manufacturing unit, these were viewed as not eligible for deduction under Section 80IB of the Act. 9. Thus for the assessment year 2004-05, under notice dated 19.3.2009, the deduction given in respect of Rakholi Unit at 100% was sought to be withdrawn as in the case of Chinchpada Unit. The notice also referred to the other income being included in the deduction granted under Section 80 IB. Thus, except for the alleged wrong claim under Section 80 HHC and Section 115 JB raised in the reassessment proceedings in respect of assessment year 2003-04, the notice in respect of all the three assessment years under Section 148 of the Act are more or less on identical grounds, particularly with reference to the grant of relief under Section 80 IB in respect of the Chinchpada Unit as well as Rakholi Unit. 10. Immediately on receipt of the reasons for reopening, the petitioner filed its objections on 24.07.2009. While questioning the jurisdiction of the respondent as hit by the limitation of four years as provided for under Section 148(1), the petitioner contended that in the absence of any material to show that there was failure on the part of the assessee petitioner to disclose truly and fully, material facts in making the claim for deduction, the initiation of the proceedings under Section 148 to reopen the assessments for the https://hcservices.ecourts.gov.in/hcservices/ assessment years 2002-03, 2003-04 and 2004-05 after the expiry of four years, is bad in law. The petitioner contended that the notice did not disclose any material based on which the satisfaction for assumption of jurisdiction was arrived at, to reopen the assessments. Thus in the absence of any materials disclosed, on which the Officer is stated to have formed a prima facie view that by reason of any omission or failure on the part of the assessee to disclose fully and truly all material facts, the income of the assessee had escaped assessment, there could be no valid assumption of jurisdiction for the assessment years under consideration. Thus the notice issued after the expiry of four years, hit by the limitation provided therefor under Section 147, there could be no assumption of jurisdiction. Thus, the notices issued are under challenge on the ground of want of jurisdiction, both from the angle of limitation as well as from the absence of materials, disclosing the causal connection on the alleged escapement of tax. 11. As far as the proposal to withdraw 100% deduction in respect of Chinchpada Unit and Rakholi Unit is concerned, the petitioner pointed out that as per Section 80 IB, the five years' period for claiming 100% deduction has to be considered from the date of commencement of production. Given the fact that Chinchpada Unit and Rakholi Unit had their licence granted only on 7th June 1996 and 18th March 1998 respectively, the benefit for five assessment years has to be worked out from the date of commencing of commercial production - 1st April, 1998 being the date of commercial production for the Chinchpada Unit and for the Rakholi Unit, from 22nd February 1999. Thus taking note of the materials produced, when the original assessment rightly considered the claim and thus was found fully satisfied, the question of withdrawal of the benefit did not arise. 12. The petitioner pointed out that the relief under Section 80 IB of 100% was granted by the Officer after fully satisfying himself as to the date of commencement of commercial production. Thus the petitioner pointed out that the view of the first respondent that the relief had to be granted from the date of the licence i.e., from 18.03.1998 in respect of the Rakholi Unit and from 07.06.1996 in the case of Chinchpada Unit, is contrary to the provisions of Section 80 IB of the Act. The petitioner further pointed out that the entire reassessment proceedings, in fact, rested on the view taken by the Assessing Officer that deduction should be made only from the date when the experimental production was started and not when the commercial production had started. Thus, except for the audit objection, there are no materials which led him to form a belief that the income had escaped assessment, to warrant assumption of jurisdiction under Section 147 of the Act. The assessee also referred to Form 10CCB which was required to be filed for claiming deduction under Section 80IB of the Act – a requirement introduced for the first time by Income Tax (23rd Amendment) Rules, 2002, with https://hcservices.ecourts.gov.in/hcservices/ effect from 6.9.2002, which gave the details of commercial production of copper in Chinchpada Unit and Rakholi Unit. 13. As regards the other income which were not stated to have been derived from the manufacturing activity, particularly relating to the first two assessment years, the petitioner made its objection that there was no omission or failure on the part of the assessee from disclosing fully and truly, all material facts. The petitioner pointed out that the interest income earned related to the belated payment from its purchaser as well as sundry items and the claim is supported by the decision of the High Court. As regards the share issue expenses, the same was reflected as capital expenditure debited to the Profit and Loss Account in the Tax Audit Report under Section 44AB of the Act. As regards the income tax and wealth tax debited in the Profit and Loss Account, there was never a claim made for deduction. 14. As regards the computation under Section 115 JB of the Act with reference to the claim under Section 80 HHC, the petitioner contended that the provision under Section 115 JB has an overriding effect over the other provision. The amount of profit eligible for deduction under Section 80HHC could not form part of the book profit as per the Section. For the purpose of Explanation (iii) to Section 115JB, it is not the actual deduction under Section 80HHC that is relevant, but what is relevant is the eligible profit for deduction under Section 80HHC of the Act. As regards the provision for bad debts, it was contended that the same was towards ascertained identified liability and a provision was made in the books of accounts. The amount, though added in the regular computation of the total income, was not added while computing book profit under Section 115 JB of the Act. So too the diminution in the value of current investment. The assessee contended that the above claims were considered by the Assessing Officer after making verification with the records of the petitioner. As such, the question of alleging failure on the part of the assessee from disclosing true and full facts, did not arise. Therefore, the question of granting relief of more than what had been laid down, did not arise. 15. In the reply filed for the assessment year 2003-04, the petitioner specifically pointed out to Section 154 proceedings that on the admitted fact that the proceedings were on account of the alleged mistake on the face of the record, the proceedings taken under Section 147, read with Section 148, alleging that there was failure on the part of the assessee to disclose any material facts truly and fully, fails. Thus there could be no simultaneous assumption of jurisdiction under Sections 148 and 154 on the self same issues. The petitioner further pointed out that on an application made under the Right to Information Act, 2005, the petitioner was supplied with all the details as regards the view of https://hcservices.ecourts.gov.in/hcservices/ the audit party on the relief granted to the petitioner under Section 80 IB of the Act. In the circumstances, the petitioner contends that the reopening of assessment based on audit objection suffers from legal infirmity and hence, the proceedings are liable to be quashed. 16. Learned senior counsel appearing for the petitioner made detailed submissions on Section 147 of the Act, in particular, with reference to the assessments made based on the materials produced and verified by the Assessing Officer. Making particular reference to the proceedings under Section 154 as regards the assessment year 2003-04, he submitted that when once the Officer had assumed jurisdiction under Section 154 of the Act to rectify the errors apparent on the face of the record, the question of further issuance of notice under Section 147 of the Act, alleging that the petitioner had not made a true and full disclosure of facts, did not arise. Placing reliance on the decision reported in [1994] 206 ITR 1 (Bom) (Commissioner of Income Tax Vs. Premier Automobiles Ltd.), he submitted that Section 154 and Section 147 operated on different fields. Even though the first respondent had communicated that there were some inherent difficulties in sustaining the proceedings under Section 154, the fact remains that as of today, there are no orders passed on the objections made. Hence, the assessee is entitled to assume the proceedings as still pending. Pointing out to the date of commercial production in respect of the two units and the materials produced at the time of assessment and examined by the Income Tax Officer, learned senior counsel relied on the decision reported in [1961] 41 ITR 191 (Calcutta Discount Company Ltd. Vs. Income Tax Officer, Companies District, I and another), followed in a series of decisions, the latest decision being [2010] 320 ITR 561 (SC) (Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd.), and pointed out to the consistent view of the Apex Court that in the name of reopening the assessment, there cannot be a review of an assessment made based on the materials. He pointed out that the assumption of jurisdiction under Section 147 presupposes the existence of materials to form the view that by reason of the failure on the part of the assessee from disclosing the full and true facts, there had been an escapement of income, necessitating the reopening of assessment. Thus on a mere point of law as to whether the relief under Section 80 IB has to be granted from the year of operation or the year of commercial production, there could be no assumption of jurisdiction under Section 147 of the Act. When the notice does not disclose the reasons or the materials, the assumption of jurisdiction is bad and it is also hit by the four years' time limit given in the substantive part of Section 147 of the Act. Given the fact that the notice discloses absolutely no materials to provide the link to the assumption of jurisdiction that there had been escapement of income from assessment, the scope of Explanation (1) to Section 147 is no different from what one would have to apply in understanding the https://hcservices.ecourts.gov.in/hcservices/ scope of Section 147 sub section (1). Learned senior counsel submitted that the reasons disclosed does not disclose any material to come to a conclusion that there existed facts necessary to confer jurisdiction on the Officer to proceed under Section 147 of the Act. He further pointed out that even in the backdrop of the Explanation to Section 147(1), one cannot find any material having a bearing on the question of under-assessment, warranting a re-assessment in this case. Making particular submission that the deduction under Section 80 IB is with reference to the date of commercial production, learned senior counsel relied on the decisions reported in [2006] 286 ITR 674 (Commissioner of Income Tax Vs. Elgi Finance Limited), [1974] 93 ITR 548 (Bom) (Commissioner of Income Tax, Poona Vs Hindustan Antibiotics Ltd., [2010] 322 ITR 631 (Delhi) (Commissioner of Income Tax Vs. Nestor Pharmaceuticals Limited) and [1977] 110 ITR 164 (Additional Commissioner of Income Tax Vs. Southern Structurals Limited), and submitted that on the erroneous view taken as to the scope of Section 80 IB of the Act, the proceedings taken to reopen the assessment must fail. He pointed out that the claim of the petitioner originally made and accepted by the respondents as starting from 1998-99 in respect of Chinchpada Unit and from 2000- 2001 in respect of the Rakholi Unit, must not suffer an abortive end, consequent on the erroneous view taken by the Assessing Officer on the provision of law under Section 80IB to revise the assessment under Section 148 for the assessment years 2002-03, 2003-04 and 2004- 05. 17. Learned senior counsel also referred to the decision reported in [2006] 284 ITR 626 (Sunil Kumar Jain Vs. The Income Tax Officer) on the aspect of availability of alternative remedy that when the materials required for assumption of jurisdiction is not there, the petitioner is justified in invoking this Court's jurisdiction. Hence, no exception could be taken in this matter. 18. On notice, the first respondent has filed the counter affidavit before this Court. Raising the issue on the availability of alternative remedy, the counter affidavit supported the proceedings taken under Section 147 of the Act, particularly with reference to Section 80 IB of the Act, that when the petitioner had been granted excessive relief, the assessment is liable to be reopened under Section 147 of the Act. Learned Senior Standing Counsel appearing for the respondents placed heavy reliance on Explanation (1) to Section 147(1) of the Act and submitted that even though the assessee had placed fully and truly the