Case Law Details

Case Name : M/s.Peacock Apparels (P) Ltd Vs The Income-Tax Officer (Madras High Court)
Appeal Number : W.P.(MD)No.2951 of 2015
Date of Judgement/Order : 13/10/2015
Related Assessment Year :
Courts : All High Courts (3795) Madras High Court (286)

Brief about the case

The petitioner is a private limited company carrying on business of manufacture and sale of readymade garments and export of the same. The said Company is an approved 100% (Export Oriented Unit) EOU and thereby it filed its return after claiming exemption u/s 10B of the Income Tax Act for the assessment years 2007-08, 2008-09, 2009-10. The same were accepted under Section 143(1)(a) of the I.T.Act, 1961. Thereafter, each case was selected for a detailed scrutiny and an assessment was made under Section 143(3) on 24.11.2009 allowing recomputed exemption under Section 10B and determining the total income of Rs.40,10,740/-. Thereafter, a notice u/s 147 was issued to the assessee and on enquiring the reasons for issue of such notice the AO replied that the assessee’s EOU had not been approved by the Specified Authority as required as clause (iv) of Explanation 2 to s.10B. Therefore, the assessee-company is not eligible for deduction under Section 10B.

Thereupon, the Company filed an objection through their letter dated 4.6.2014 as required by the Apex Court decision in GKN Driveshaft (India) Ltd Vs. ITO [259 IT 19 (SC)]. However, the Assessing Officer has passed an order dated 18.02.2015 rejecting the objections of the Company and posted the case for hearing and asked for further particulars in a format, which was not received by the Company. In the above background, the present Writ Petitions have been filed.

The petitioner submitted that it had already obtained approval granted by the Development Commissioner for the petitioner unit which shall be considered valid once such an approval is ratified by the Board of Approval for the Export Oriented Unit Scheme, hence the AO does not have any tangible material for reopening the case u/s 148.

The Madras High Court allowed the Writ petition and pronounced in favour of the assessee.

Facts of the case:

  • The assessee is a private limited company dealing in export of readymade garments.
  • The said Company is an approved 100% (Export Oriented Unit) EOU with Green Card and had filed its returns claimimg exemption u/s 10B of the Income Tax Act, 1961 for the assessment years 2007-08,2008-09 and 2009-10.
  • Thereafter, each case was selected for a detailed scrutiny and an assessment was made under Section 143(3) on 24.11.2009 allowing recomputed exemption under Section 10B and determining the total income of Rs.40,10,740/-. Similarly, in the case of W.P.(MD).No.2951 of 2015, it was determined as Rs. 33,15,360/- and in the case of W.P.(MD).No.2952 of 2015, it was determined as Rs.70,66,080/-. While so, the petitioner received a notice dated 27.03.2014 for the assessment years 2007-2008, 2008-2009 and 2009-2010, under Section 148 of the Income-tax Act, 1961.
  • When asked for reasons for issue of notice u/s 147, the AO stated that the income of the company escaped assessment as the exemption u/s 10B was not allowable as the assessee’s EOU had not been approved by the Specified Authgority as required by clause (iv) of Explanation 2 to Section 10B.
  • The assessee averred that the Company is approved by the Specified Authority therefore, the notice dated 27.03.2014 issued by the AO under Section 147 of the Income Tax Act and the consequential order dated 18.02.2015 is liable to be set aside.
  • The assessee further submitted that in case approval is granted by the Development Commissioner for EOU at a latter point of time, it will be considered valid once such an approval is ratified by the Board of Approval for EOU Scheme. Therefore, the reason assigned by the Income tax department for reopening the assessment for the years 2007-2008, 2008-2009 and 2009-2010 of the petitioner Company is unjustifiable.
  • the petitioner has relied upon a judgment reported in Commissioner of Income Tax Vs. Schwing Stetter India P.Ltd, (2015) 93 CCH 0112 ChenHC which stated that AO cannot review his own order merely for the sake of reviewing.
  • The hon’ble Madras High Court did not find any tangible material warranting the AO to reopen the assessment. Since the said reason assigned by the AO is not legally correct therefore the notice issued u/s 147 is not valid.

Contention of the Revenue

  • The revenue averred that since the assessee company was not approved by the Specified Authority as required as clause (iv) of Explanation 2 to s.10B. Therefore, the assessee-company is not eligible for deduction under Section 10B.
  • Consequently the assessee company’s income escaped assessment and so notice u/s 147 is valid.

Contention of the Assessee

  • The petitioner submitted that it had already obtained approval granted by the Development Commissioner for the petitioner unit which shall be considered valid once such an approval is ratified by the Board of Approval for the Export Oriented Unit Scheme, hence the AO does not have any tangible material for reopening the case u/s 148.
  • The assessee averred that the Company is approved by the Specified Authority therefore, the notice dated 27.03.2014 issued by the AO under Section 147 of the Income Tax Act and the consequential order dated 18.02.2015 is liable to be set aside.

Held by Madras High Court

  • Except to state that the EOU has not been approved by the Specific Authority, the first respondent has not assigned any other reason to reopen the assessment order. Since the said reason assigned by the first respondent is not legally correct, it is not open for reopening of assessment of the Company relating to the years 2007-2008, 2008-2009 and 2009-2010.
  • Further,there is no tangible evidence available against the petitioner so as to come the conclusion that there is an escapement of income of assessment and therefore, the first respondent cannot review his own order merely for the sake of reviewing.
  • The petitioner has to succeed in this Writ Petition. Accordingly, this Writ Petition is allowed.
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