Brief History of Cases
In an appeal no.523/2013, the assessee was engaged in the operation of a Container Freight Station (CFS). It filed a return of income on 08.10.2008 declaring total income at Rs. Nil after claiming deduction of Rs.210713675/- u/s 80IA(4) of the Income Tax Act,1961 on the ground that the activities therein qualify as a port. The assessee also produced a certificate dated 13th July, 2006, from the Jawaharlal Nehru Port Trust (JNPT) Nhava Sheva declaring that the assessee to be considered as an extended arm of port related services. However, on enquiry being made under section 133(6) of the IT Act, it was revealed that this certificate was withdrawn by JNPT on 5th October, 2007 and hence the deduction claimed was disallowed by the A.O. Being aggrieved the assessee preferred an appeal before CIT(A) which was dismissed. The assessee approached the Tribunal which allowed its appeal.
In another appeal No.1969/2013, the assessee company was engaged in the business of providing logistic support. A search was carried out on its premises on 10th July, 2009 whereupon a notice under section 153A of the IT Act was issued to the company to file a return of income. On 30th October, 2009, the company filed its return of income declaring total income of Rs.5,54,63,220/- while claiming deduction under section 80 IA(4) of Rs.1,25,77,637/-. Relying upon the order of ITAT Delhi in the case of Container Corporation of India Limited vs. Assistant Commissioner of Income Tax (2012) 346 ITR 140 , it was held that the company was not entitled to deduction u/s 80-IA, thus amount claimed as deduction was added back to income. Aggrieved assessee carried the matter before CIT(A) who upheld the order of Assessing Officer. On a question of scope of assessment u/s 153A and justification of upholding the disallowance of deduction u/s 80-IA(4) by the CIT(A), the special bench of Tribunal held that in case where assessment are already completed before search, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material found during search. On the issue of deduction u/s 80-IA(4) it was concluded that the CFS is a inland port and its income is entitled to deduction under section 80-IA(4) of the IT Act.
Aggrieved by the Tribunal order, Revenue filed the appeal.
The questions of law and the issues arising there-from are common.
Question of Law
The appeal by the Revenue raises the following substantial question of law:-
“Whether, on the facts and in the circumstances of the case, and in law the Hon’ble ITAT is right in holding that the assessee is entitled to deduction under Section 80-IA of the Income Tax Act, 1961 even though activities undertaken by the assessee do not fall within Clause (d) of the Explanation to 80-IA(4) defining the term infrastructure facilities?”
“(i) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is correct in narrowing down the scope of assessment u/s 153A in respect of completed assessments by holding that only undisclosed income and undisclosed assets detected during search could be brought to tax ?
(ii) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is correct in law in holding that the scope of Section 153A is limited to assessing only search related income, thereby denying Revenue the opportunity of taxing other escaped income that comes to the notice of the AO?
(iii) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT was right in limiting the scope of Section 153A only to undisclosed income when as per the section the AO has to assess the total income of the six assessment years?
(iv) Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal erred in holding that the assessee was entitled to deduction u/s 80 IA(4) which was contrary to the Circular of the CBDT No. 10/2005 as also contrary to the fact that JNPT Port had withdrawn its certification of the company ?”
Contention of Revenue
Learned counsel appearing in support of these appeals submitted that the Tribunal has completely misread and misinterpreted section 153A of the IT Act. There is nothing in the language of the provisions which would indicate that the assessment is restricted to incriminating material or the basis of the assessment would be that which is discovered during the search or during the process contemplated by section 132A of the IT Act. In the circumstances, it is not proper to hold that the Special Bench decision would govern the case. The argument of the assessee, if accepted would result in restricting the powers conferred on the Assessing Officer. On the applicability of section 80-IA(4), he submitted that the decision of the Delhi High Court in the case of Container Corporation of India cannot be said to be concluding the issue. The finding that the issue is no longer res integra and a CFS is an inland port whose income is entitled to deduction under section 80-IA(4) of the IT Act cannot be sustained. It was apparent that the certificates issued by JNPT had already been withdrawn. Further all the conditions which enable claiming the deduction needs to be fulfilled. The essential condition of operation of the facility in pursuance of an agreement with the Central Government has not been fulfilled. There was no agreement brought on record. Any communication emanating from any Ministry cannot par-take the character of an agreement.
Contention of Assessee
The learned senior counsel appearing for the assessee (All Cargo Global Logistics Ltd) submitted that the title of the section itself is indicative of the object namely assessment in case of search or requisition. This section contains a non-obstante clause so as to not to restrict the powers which are conferred by virtue of section 153A in the Assessing Officer. However, the exercise of power under that provision is where search is initiated under section 132 or books of account or other documents or assets are requisitioned under section 132A of the Act after 31st May, 2003. The notice under section 153A is founded on search. If there is no incriminating material found during the search, then, the Special Bench was right in holding that the power under section 153A being not expected to be exercised routinely rather it should be exercised if the search reveals any incriminating material. In any event, the issue stands concluded by a Division Bench judgment of this Court rendered in the case of Commissioner of Income Tax (Central) Nagpur vs. M/s. Murli Agro Products Limited in Income Tax Appeal No.36 of 2009 decided on 29th October, 2010. It is, therefore, apparent that the law laid down by this Court is binding on the Revenue. If that is binding then the questions of law and with regard to applicability of section 153A need to be answered against the Revenue and in favour of the assessee. With regard to applicability of section 80-IA(4), it was submitted that the assessees have an infrastructural facility of Inland Container Depot (ICD) which qualifies for deduction under section 80-IA(4) of the IT Act, but even the CFS clearly falls within the provisions. It was held to be an inland port. In that regard, he relied upon a circular of the Central Board of Direct Taxes (Circular No.10 of 2005 dated 16th December, 2005). He also relied upon the judgment of the Hon’ble Delhi High Court in the case of Container Corporation of India Limited vs. Asstt. Commissioner of Income Tax
Held by Bombay High Court
It was held that there is much substance in the contentions of assessee. Reliance upon the Division Bench judgment of this Court in that context is well placed. Division bench outlined the ambit and scope of the powers conferred by section 153A and observed that
‘on a plain reading of Section 153A, it becomes clear that on initiation of the proceedings u/s 153A, it is only the assessment/reassessment proceedings that are pending on the date of conducting search under Section 132 or making requisition u/s 132A of the Act stand abated and not the assessments/reassessments already finalised for those assessment years covered under Section 153A of the Act. In respect of non-abated assessments, the assessment will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. By a circular No. 8 of 2003 dated 18-9-2003 (See 263 ITR (St) 61 at 107) the CBDT has clarified that on initiation of proceedings under Section 153A, the proceedings pending in appeal, revision or rectification proceedings against finalized assessment/reassessment shall not abate. It is only because the finalised assessments/reassessments do not abate. Therefore, the argument of the revenue, that on initiation of proceedings under Section 153A, the assessments/reassessments finalised for the assessment years covered u/s 153A stand abated cannot be accepted. Once it is held that the assessment of a particular year has attained the finality then the deduction allowed u/s 80HHC of the Income-tax Act as well as the loss computed under the assessment would also attain the finality. In such a case, the A.O. while passing the independent assessment order under Section 153A read with Section 143 (3) of the I.T. Act could not have disturbed the assessment /reassessment order which has attained finality, unless the materials gathered in the course of the proceedings u/s 153A establish that the reliefs granted under the finalised assessment/reassessment were contrary to the facts unearthed during the course of 153A proceedings.’
There is a mandate to issue notices under section 153(1)(a) and assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Thus, the crucial words “search” and “requisition” appear in the substantive provision and the provisos. That would throw light on the issue of applicability of the provision.
With regard to applicability of Section 80-IA, it was held that explanation defines the infrastructure facility to mean, inter alia, a port, airport, inland waterway, inland port or navigational channel in the sea. Prior to its substitution by Finance Act of 2007 were the words “or inland port”. Now the word “or” is deleted, but the words are “inland port or navigational channel in the sea”. Thus, an “inland port” was always within the contemplation of the Legislature and it is treated specifically as an infrastructural facility. What the Special Bench observes is that the Delhi High Court’s view in the case of Container Corporation of India Ltd. would enable it to conclude that ICD may not be a port but it is an inland port. The case of Container Freight Station (CFS) is similarly situated in the sense that both carry out similar functions viz. warehousing, customs clearance and transport of goods from its location to the sea-ports and vice versa by rail or by trucks in containers. As per the present norms, operators of these depots and stations who were issued a letter of intent for setting up the same do not require to execute an agreement with the Central Government. Circular dated 16th December, 2005, firstly clarifies that there are certain conditions, including the agreement but pertinently on and from the assessment year 2002-03 structures at the ports for storage, loading and unloading etc. will be included in the definition of port for purposes of section. When the proposal to set up a CFS has been accepted by the Government, there is no requirement of either a specific agreement, Nor can it be said that by virtue of any certification of the JNPT and its subsequent withdrawal the position undergoes any change. Once the facility is nothing but a infrastructural facility set up and within the precincts of the port, then, considering and even otherwise having considered its proximity to the sea port and its activities there is no doubt and it can be safely concluded that the deduction admissible under sub-section (4) of section 80-IA can be claimed by both the ICDs and CFSs. The view taken by the Tribunal is not in anyway perverse or runs contrary to the language of sub-section (4) of section 80-IA or the object of the Income Tax Act, 1961, as a whole. Considering the above grounds the appeals of the revenue was dismissed and answer to substantial questions of law was decided against the Revenue and in favour of the assessee.