Case Law Details
ORDER
Dr. O.K. Narayanan, Vice-President
This appeal is filed by the assessee. The relevant assessment year is 1997-98. The appeal is directed against the revision order passed by the Commissioner of Income-tax-I at Coimbatore, under section 263 of the Income-tax Act, 1961. The revision order has been passed through the proceedings dated 2-3-2009.
2. The Commissioner of Income-tax has revised the assessment order for the main reason that the exemption given by the Assessing Officer to the assessee under section 10B(3) of the Act was erroneous and prejudicial to the interests of Revenue for the following reasons:-
1. Interest, lease rent and miscellaneous income, amounting in all to Rs. 116,60,631, (relatable to the B unit as a whole) which have been considered for computation u/s 80HH, resulting in the claim of Rs. 72,35,141/-, should be eliminated.
2. The cost of machinery replacement amounting to Rs. 2,70,87,334/- relatable to B unit (as a whole), has to be deducted from the profits for the purpose of computation of deduction u/s 80HH.
3. Interest and lease rental income amounting in all Rs. 71,04,395/- relatable to the C unit (100% EOU) have to be excluded from the income considered for claim u/s 10B.
3. The first ground raised by the assessee against the revision order is that the order passed by the Commissioner of Income-tax on 2-3-2009 is barred by limitation.
4. In order to appreciate the above ground, it is necessary to note down the chronology of events in the present case, as furnished by the assessee in the Statement of Facts filed before us, as under:
Your appellant company engaged in the business of manufacture cum sale of cotton yarn & fabric and Polyester swing thread had filed its return of income for the assessment year 1997-98 on 28-11-1997 declaring a Nil income as per normal provision and income of Rs. 2,12,55,606 u/s 115JA of the Income Tax Act. Exemption to the extent of Rs. 3,76,92,276 was claimed u/s 10B in respect of the income from the EOU (C unit).
The return was processed u/s 143(1) on 23-10-1998. The case was selected for scrutiny and a notice under section 143(2) of the Income Tax Act dated 06-08-1999 was issued.
The Assessing Officer has passed an order under section 143(3) dated 29-03-2000 determining the taxable income at Rs. 3,89,85,769. It is pertinent to note that the exemption claimed u/s 10B(3) was not a matter of contention in the assessment order. The Assessing Officer made certain adjustments while determining the revised total income, which is as follows:
(i) Disallowed the claim of replacement of Machinery as revenue expenditure amounting to Rs. 9,46,59,624 by treating it as a capital expenditure and provided appropriate depreciation.
(ii) Disallowed Rs. 35,387 being the provident fund remitted after the due date u/s 43B
(iii) Disallowed Rs. 8,85,135 being the Bonus paid in excess of the provision claimed u/s 43B
(iv) Disallowed Rs. 14,338 u/s 40A(3)
(v) Disallowed the claim of Voluntary Retirement Compensation amounting to Rs. 41,30,897
Aggrieved by the above order, your appellant preferred an appeal before the Commissioner of Income Tax(Appeals-I), Coimbatore, who in his order dated 20-10-2000 allowed the claim of Voluntary Retirement Compensation and directed the Assessing Officer to allow the deduction u/s 80HH (for Synthetic division of B unit) & 80HHC after giving an opportunity to the assessee.
Aggrieved by this order of the Commissioner of Income Tax (Appeals-I), Coimbatore, the Appellant had filed an appeal to the Income Tax Appellate Tribunal for allowing the replacement of machinery as revenue expenditure, who vide order dated 27-03-2003 disallowed the said claim of the assessee.
The Assessing Officer passed an effect giving order dated 02-03-2001 to the order of the Commissioner of Income Tax (Appeals) dated 20-10-2000, determined the total income as per the normal provision as Rs. 2,32,46,780 after allowing deduction u/s 80HH (for Synthetic division of B Unit) and 80HHC, Rs. 35,00,323 and Rs. 35,57,673 respectively.
Aggrieved by the above order of the Assessing Officer dated 02-03-2001, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) on 02-04-2001 for the following issues:
a. To exclude sales tax & excise duty in the total turnover & include lease rent and processing charges as business income for computing deduction u/s 80HHC
b. To compute Deduction u/s 80HHC before set off losses.
c. To allow Deduction u/s 80HH after taking depreciation on the basis of production.
The Assessing Officer has passed another order dated 24-04-2001 u/s 154 by determining total income of Rs. 1,61,52,480, in consequent to the revision of the assessment for the AY 1996-97 to allow depreciation on the replaced machinery of AY 1993-94 & to allow the deduction u/s 80G. In the said order deduction u/s 80HH & 80HHC amounting to Rs. 35,00,323 & Rs. 24,85,982 respectively have been allowed.
The Commissioner of Income-tax(Appeals) had passed an order dated 23-5-2002 in consequent to the appeal filed by the assessee on 2-4-2001, by allowing the appeal partly in favour of the assessee except the claim of deduction u/s 80HHC before setting off losses. Here it is relevant to note that, the Commissioner of Income-tax(Appeals) directed the Assessing Officer to allow the depreciation pertaining to the synthetic division on the basis of production while arriving at the profit of the synthetic division for the purpose of deduction u/s 80HH and to include the lease rent & processing charges in the business profits for the purpose of computation of deduction u/s 80HHC. Aggrieved by the above order of Commissioner of Income-tax(Appeals), the Assessing Officer as well as the assessee preferred an appeal before the Income-tax Appellate Tribunal.
The Assessing Officer had passed an effect giving order dated 2-7-2002, to the order dated 23.5.2002 of the Commissioner of Income-tax(Appeals), determined the total income as Rs. 1,27,51,765 as per the normal computation after allowing deduction u/s 80HHC amounting to Rs. 74,35,443 & Rs. 46,79,745 respectively and assessed tax u/s 115JA on the income of Rs. 2,12,55,610.
The assessee had filed a petition u/s 154 on 10-12-2003 to rectify the mistake in the order dated 2-7-2002 by granting depreciation in excess on replacement of plant and machinery held as capital expenditure for the A.Y. 1994-95 to 1997-98 in consequent to the revision made in the AY 1994-95. It is also pertinent to note that the assessee had filed a statement showing revised computation of total income along with the computation of claiming deduction u/s 80HH & 80HHC. Subsequently the Assessing Officer passed an order u/s 154 dated 28-6-2004 by accepting the revised computation filed by the assessee and determined the total income as per normal computation at Rs. 1,80,62,301 after allowing deduction u/s 80HH and 80HHC, Rs. 72,35,141 and Rs. 59,68618 respectively and income u/s 115JA at Rs. 1,94,64,930.
The Assessing Officer had issued notice u/s 148 on 10-3-2004 to initiate reassessment proceedings and passed an order dated 27-12-2004 u/s 143(3) r.w.s. 147 of the Income-tax Act, by reducing the excess depreciation granted on account of adopting higher WDV and deducting 90% of the other income from the business profits while computing deduction u/s 80HHC and thereby determined the total income as per normal provision at Rs. 1,86,31,750 after allowing deduction u/s 80HH & 80HHC, Rs. 72,35,141 & Rs. 55,90,900 respectively and assessed tax u/s 115JA by determining income at Rs. 1,95,78,340.
The Income Tax Appellate Tribunal had passed an order dated 29-7-2005, in consequent to the appeal filed by the Assessing Officer and the assessee. The Income Tax Appellate Tribunal had rejected the plea of the Assessing Officer to include the sales tax and excise duty in the total turnover and restored the issue of whether lease rent & processing charges are part of the business profit or not to the Commissioner of Income-tax(Appeals) with the directions to decide as per the law. In the said order, the Income Tax Appellate Tribunal also directed the Commissioner of Income-tax(Appeals) to consider the issue of deduction u/s80HHC before setting off losses, as per law.
Consequent to the order of Hon’ble Madras High Court dated 29-4-2005, the effect giving order dated 10-8-2005 was passed, by allowing the claim of expenditure on replacement of machinery amounting to Rs. 9,46,59,624. Total income as per normal provision was determined as ‘Nil’ after allowing the deductions of Rs. 76,28,717 u/s 80HH and Rs. 3,79,672 u/s 80HHC. The tax was assessed u/s 115JA on an income of Rs. 2,11,41,710. It is pertinent to note that the deduction u/s 80HH amounting to Rs. 76,28,717 had been allowed after reducing Rs. 84,83,461, being the expenditure on replacement of machinery pertaining to synthetic decision of B unit.
The Assessing Officer again passed an order dated 4-5-2006 u/s 154 to rectify the mistake of adjustment of the refund pertaining to AY 2002-03 done twice in the order dated 10-8-2005 and considered the income of Rs. 2,11,41,710 as per the order dated 10-8-2005 for the purpose of computation of tax. Then the assessee had filed a petition to delete the interest charged u/s 234D in this order as there was no refund granted u/s 143(1) dated 23-10-1998.
5. In the light of the above details, it is to be seen that the Commissioner of Income-tax has revised the assessment order passed on 4-5-2006. It is to be seen that the matters pointed out by the Commissioner of Income-tax for the purpose of revising the assessment order have already reached finality in the order dated 29-3-2000 passed under section 143(3) and in the order passed to give effect to the order of the Commissioner of Income-tax(Appeals) on 2-7-2002. The order of the Commissioner of Income-tax(Appeals) was dated 23-5-2002. Thereafter, the issues pointed out by the Commissioner of Income-tax were never raised in any of the proceedings. Therefore, as far as these issues are concerned, the relevant assessment order is the order passed on 29-3-2000. It is thereafter, on 24-11-2008, that the notice under section 263 was issued and the order under section 263 was passed on 2-3-2009. It is very clear that the revision order passed by the Commissioner of Income-tax is time barred.
6. The Hon’ble Supreme Court in the case of CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1/162 Taxman 465, has considered the period of limitation for the purpose of section 263 in a case where a series of orders were passed by the assessing authority in the case of that assessee. The Hon’ble Supreme Court held that the period of limitation commenced from the date of the original assessment order, in which the issues sought to be revised by the Commissioner of Income-tax, have been discussed. The Hon’ble Supreme Court held that the subsequent orders passed by the lower authorities on different dates cannot be relied on by the Commissioner of Income-tax for reckoning the period of limitation. It is, therefore, necessary to see that for the purpose of computing the period of limitation, the date of that order is to be considered in which the disputed issues have been considered by the lower authorities, at the latest. The Hon’ble Supreme Court has held that the period of limitation begins from the original assessment in respect of those items.
7. In the facts and circumstances of the case, we find that the revision order passed by the Commissioner of Income-tax in the present case is time barred. Therefore, the said revision order is ab initio void and not sustainable in law. Therefore, it is set aside.
8. In result, the appeal filed by the assessee is allowed.
