M.K. Industries v. Dy. CIT - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 2281 (Kol-Trib) : (2012) 046 (II) ITCL 0361 INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial orderOne of possible views taken by AO--Assessee was engaged in blending of different varieties of tea and packaging of the same. Assessee filed its return of income on 31-10-2002 claiming exemption under section 10B on account of income derived from 100% Export-Oriented Unit, assessee being engaged in export of manufactured packed tea. Assessment was framed under section 143(3) after issuing notice under section 143(2) and assessing officer while completing assessment, allowed exemption under section 10B in respect of income derived from 100% EOU, assessee being engaged in export of blended/manufactured tea. Subsequently, Commissioner after going through the records noticed that the assessment framed by assessing officer appears to be erroneous and prejudicial to the interest of revenue, hence, notice under section 263 was issued to assessee firm, requiring it, to show cause, as to why the claim of exemption under section 10B be not withdrawn. The assessee in response to show-cause notice, filed reply and paper book with supporting evidence on 22-1-2007 in respect of its claim under section 10B. But, CIT, finally concluded after considering the submissions of the assessee that the facts of this case are identical with the judgments of Calcutta High Court in the case of Apeejay Pvt. Ltd. v. CIT 1994 TaxPub(DT) 104 (Cal-HC) : (1994) 206 ITR 367 (Cal) and Brook Bond India Ltd. v. CIT 2004 TaxPub(DT) 1396 (Cal-HC) : (2004) 269 ITR 232 (Cal), hence, following these two judgments, CIT set aside the assessment by holding the assessment framed under section 143(3) vide order dated 31-3-2005 as erroneous and prejudicial to the interest of revenue and directed the assessing officer to disallow deduction under section 10B. Held: Where the assessing officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and he has taken one of possible view with which the Commissioner does not agree, it cannot be treated that the assessment order is erroneous so as to prejudicial to the interest of revenue unless the view taken by assessing officer is unsustainable in law. In the present case, the view taken by the assessing officer is not unsustainable, rather, it is a view which is sustainable in view of the decision of Kerala High Court in the cases of Tata Tea Ltd. and Girnar Industries. In view of the above facts and circumstances, revision order passed under section 263 is not sustainable in law and hence, quashed. The assessee claimed exemption under erstwhile provisions of section 10B of the Act as the assessee's EOU units were set up during previous year 1999-2000 relevant to assessment year 2000-01 and during the said period definition of 'manufacture' includes processing as per the definition of clause 3 of explanation to section 10B of the Act. Although the said section was substituted by Finance Act 2000 w.e.f. 01-4-2001 the assessee claimed exemption under EOU unit, which was set up in view of the provisions including processing in the definition of manufacture for the purpose of section 10B of the Act. The assessee firm's units are situated at Falta and Mumbai and have been permitted to function as EOU by the Development Commissioners of the respective export processing zones and also granted greed card by the Development Commissioners of the Export processing zones for the project of manufacturing of tea. It is also registered with the Central Excise Authorities. The assessee has described the procedure of tea blending in which it is engaged, i.e., blending of various teas purchased from market, filling in paper sacks, marking of paper sacks, weighment, staking and container stuffing, pre packing inspection for exports, etc., etc. The Kerala High Court in Tata Tea Ltd. has considered the decision of Supreme Court in the case of Tara Agencies. Whether in such circumstances Commissioner can revise the assessment framed under section 143(3) dated 31-3-2005 for the assessment year 2002-03 by invoking the provisions of section 263. First of all, as argued by assessee's counsel Shri R. Salarpuria that the assessing officer has considered the issue in details and now after the decision of Kerala High Court in the case of Tata Tea Ltd., the issue has become highly debatable and two views are possible on this issue. For this, the assessee referred to the revision order of Commissioner wherein he admitted that the assessee is engaged in the activity of blending, packaging and export of tea but according to Commissioner this cannot be described as 'manufacture or produce of any article or thing' and at the most this can be described as a process or blending. As Kerala High Court has taken note of the fact that the definition of manufacture contained in section 2 (r) of the Special Economic Zones Act, 2005 was incorporated in section 10AA of the Act w.e.f. 10-2-2006 and it includes processing or blending within its ambit. Kerala High Court has also considered the fact that the industry is located in the Special Economic Zone and hence, the definition of manufacture as contained in Chapter IX of the Export Import Policy 2002-2007 was also considered for deciding the issue for the assessment years 2001-02 and 2002-03. In the present case, also assessment year involved is 2002-03 and assessing officer in assessment year 2001-02 has already allowed exemption under section 10B. Similarly, Kerala High Court in Girnar Industries has considered the introduction of section 2(r) of Special Economic Zones Act, 2005 in the provisions of section 10AA as applicable to section 10A reading with the definition of manufacture as provided in EXIM Policy as applicable to assessment year 2004-05. And in the case of Tata Tea Ltd. is made applicable even to assessment years 2001-02 and 2002-03. In the present case, the assessing officer has taken a possible view by allowing the exemption under section 10B for the assessment year 2002-03, i.e., the present assessment year and the same was under revision before Commissioner. Even the assessing officer has allowed exemption under section 10B for the first assessment year 2001-02, which is not in dispute. [Para 7] In view of the above facts and case laws of Tata Tea Ltd. and Girnar Industries, as referred by the counsel, the case law of Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT 2000 TaxPub(DT) 1227 (SC) : (2000) 243 ITR 83 (SC), is applicable to the facts of this case. Supreme Court has considered the phrase 'prejudicial to the interest of the revenue', and interpreted that it has to be read in conjunction with an erroneous order passed by the assessing officer and every loss of revenue as a consequence of an order of assessing officer, it cannot be treated as prejudicial to the interest of revenue. Supreme Court discussed example, where the assessing officer adopted once of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and he has taken one view with which the Commissioner does not agree, it cannot be treated that the assessment order is erroneous so as to prejudicial to the interest of revenue unless the view taken by assessing officer is unsustainable in law. [Para 8] From the assessment order passed under section 143(3) after due consideration of facts as well as the revision order of Commissioner passed under section 263 that there is no dispute regarding the fact that the assessee is exclusively engaged in blending and packaging of tea for export and is not manufacturing or producing any other article or thing but still it is recognised as a 100% EOU unit by a Board appointed by central government in exercise of powers conferred under section 40 of the Industries (Development & Regulation) Act, 1951 and the Rules made thereunder. This recognition is within the meaning of term contained in the definition clause of section 10B and it is not the case of revenue that assessee's unit is not engaged in export of tea bags or tea packets or is not a 100% EOU unit. Further, it is a worse position that the assessee was even denied deduction under section 80HHC which is available to merchant exporter, which the assessee is. Hence, the assessing officer while framing assessment has taken a possible view and in terms of the decision of Supreme Court in the case of Malabar Industrial Co. Ltd., the assessing officer has taken the course permissible in law and where two views are possible and the assessing officer has taken one view, with which the Commissioner does not agree, it cannot be said that the assessment order is erroneous so as to be prejudicial to the interest of revenue. In the present case, the view taken by the assessing officer is not unsustainable, rather, it is a view which is sustainable in view of the decision of Kerala High Court in the cases of Tata Tea Ltd. and Girnar Industries. In view of the above facts and circumstances, revision order passed under section 263 is not sustainable in law and hence, quashed. [Para 9] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 2281 (Kol-Trib) : (2012) 046 (II) ITCL 0361

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderOne of possible views taken by AO--Assessee was engaged in blending of different varieties of tea and packaging of the same. Assessee filed its return of income on 31-10-2002 claiming exemption under section 10B on account of income derived from 100% Export-Oriented Unit, assessee being engaged in export of manufactured packed tea. Assessment was framed under section 143(3) after issuing notice under section 143(2) and assessing officer while completing assessment, allowed exemption under section 10B in respect of income derived from 100% EOU, assessee being engaged in export of blended/manufactured tea. Subsequently, Commissioner after going through the records noticed that the assessment framed by assessing officer appears to be erroneous and prejudicial to the interest of revenue, hence, notice under section 263 was issued to assessee firm, requiring it, to show cause, as to why the claim of exemption under section 10B be not withdrawn. The assessee in response to show-cause notice, filed reply and paper book with supporting evidence on 22-1-2007 in respect of its claim under section 10B. But, CIT, finally concluded after considering the submissions of the assessee that the facts of this case are identical with the judgments of Calcutta High Court in the case of Apeejay Pvt. Ltd. v. CIT 1994 TaxPub(DT) 104 (Cal-HC) : (1994) 206 ITR 367 (Cal) and Brook Bond India Ltd. v. CIT 2004 TaxPub(DT) 1396 (Cal-HC) : (2004) 269 ITR 232 (Cal), hence, following these two judgments, CIT set aside the assessment by holding the assessment framed under section 143(3) vide order dated 31-3-2005 as erroneous and prejudicial to the interest of revenue and directed the assessing officer to disallow deduction under section 10B. Held: Where the assessing officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and he has taken one of possible view with which the Commissioner does not agree, it cannot be treated that the assessment order is erroneous so as to prejudicial to the interest of revenue unless the view taken by assessing officer is unsustainable in law. In the present case, the view taken by the assessing officer is not unsustainable, rather, it is a view which is sustainable in view of the decision of Kerala High Court in the cases of Tata Tea Ltd. and Girnar Industries. In view of the above facts and circumstances, revision order passed under section 263 is not sustainable in law and hence, quashed.

The assessee claimed exemption under erstwhile provisions of section 10B of the Act as the assessee's EOU units were set up during previous year 1999-2000 relevant to assessment year 2000-01 and during the said period definition of 'manufacture' includes processing as per the definition of clause 3 of explanation to section 10B of the Act. Although the said section was substituted by Finance Act 2000 w.e.f. 01-4-2001 the assessee claimed exemption under EOU unit, which was set up in view of the provisions including processing in the definition of manufacture for the purpose of section 10B of the Act. The assessee firm's units are situated at Falta and Mumbai and have been permitted to function as EOU by the Development Commissioners of the respective export processing zones and also granted greed card by the Development Commissioners of the Export processing zones for the project of manufacturing of tea. It is also registered with the Central Excise Authorities. The assessee has described the procedure of tea blending in which it is engaged, i.e., blending of various teas purchased from market, filling in paper sacks, marking of paper sacks, weighment, staking and container stuffing, pre packing inspection for exports, etc., etc. The Kerala High Court in Tata Tea Ltd. has considered the decision of Supreme Court in the case of Tara Agencies. Whether in such circumstances Commissioner can revise the assessment framed under section 143(3) dated 31-3-2005 for the assessment year 2002-03 by invoking the provisions of section 263. First of all, as argued by assessee's counsel Shri R. Salarpuria that the assessing officer has considered the issue in details and now after the decision of Kerala High Court in the case of Tata Tea Ltd., the issue has become highly debatable and two views are possible on this issue. For this, the assessee referred to the revision order of Commissioner wherein he admitted that the assessee is engaged in the activity of blending, packaging and export of tea but according to Commissioner this cannot be described as 'manufacture or produce of any article or thing' and at the most this can be described as a process or blending. As Kerala High Court has taken note of the fact that the definition of manufacture contained in section 2 (r) of the Special Economic Zones Act, 2005 was incorporated in section 10AA of the Act w.e.f. 10-2-2006 and it includes processing or blending within its ambit. Kerala High Court has also considered the fact that the industry is located in the Special Economic Zone and hence, the definition of manufacture as contained in Chapter IX of the Export Import Policy 2002-2007 was also considered for deciding the issue for the assessment years 2001-02 and 2002-03. In the present case, also assessment year involved is 2002-03 and assessing officer in assessment year 2001-02 has already allowed exemption under section 10B. Similarly, Kerala High Court in Girnar Industries has considered the introduction of section 2(r) of Special Economic Zones Act, 2005 in the provisions of section 10AA as applicable to section 10A reading with the definition of manufacture as provided in EXIM Policy as applicable to assessment year 2004-05. And in the case of Tata Tea Ltd. is made applicable even to assessment years 2001-02 and 2002-03. In the present case, the assessing officer has taken a possible view by allowing the exemption under section 10B for the assessment year 2002-03, i.e., the present assessment year and the same was under revision before Commissioner. Even the assessing officer has allowed exemption under section 10B for the first assessment year 2001-02, which is not in dispute. [Para 7] In view of the above facts and case laws of Tata Tea Ltd. and Girnar Industries, as referred by the counsel, the case law of Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT 2000 TaxPub(DT) 1227 (SC) : (2000) 243 ITR 83 (SC), is applicable to the facts of this case. Supreme Court has considered the phrase 'prejudicial to the interest of the revenue', and interpreted that it has to be read in conjunction with an erroneous order passed by the assessing officer and every loss of revenue as a consequence of an order of assessing officer, it cannot be treated as prejudicial to the interest of revenue. Supreme Court discussed example, where the assessing officer adopted once of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and he has taken one view with which the Commissioner does not agree, it cannot be treated that the assessment order is erroneous so as to prejudicial to the interest of revenue unless the view taken by assessing officer is unsustainable in law. [Para 8] From the assessment order passed under section 143(3) after due consideration of facts as well as the revision order of Commissioner passed under section 263 that there is no dispute regarding the fact that the assessee is exclusively engaged in blending and packaging of tea for export and is not manufacturing or producing any other article or thing but still it is recognised as a 100% EOU unit by a Board appointed by central government in exercise of powers conferred under section 40 of the Industries (Development & Regulation) Act, 1951 and the Rules made thereunder. This recognition is within the meaning of term contained in the definition clause of section 10B and it is not the case of revenue that assessee's unit is not engaged in export of tea bags or tea packets or is not a 100% EOU unit. Further, it is a worse position that the assessee was even denied deduction under section 80HHC which is available to merchant exporter, which the assessee is. Hence, the assessing officer while framing assessment has taken a possible view and in terms of the decision of Supreme Court in the case of Malabar Industrial Co. Ltd., the assessing officer has taken the course permissible in law and where two views are possible and the assessing officer has taken one view, with which the Commissioner does not agree, it cannot be said that the assessment order is erroneous so as to be prejudicial to the interest of revenue. In the present case, the view taken by the assessing officer is not unsustainable, rather, it is a view which is sustainable in view of the decision of Kerala High Court in the cases of Tata Tea Ltd. and Girnar Industries. In view of the above facts and circumstances, revision order passed under section 263 is not sustainable in law and hence, quashed. [Para 9]