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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Mr. A. Sharma, Mr. Manu K. Giri
  • Ms. Suruchii Aggarwal
Judges
  • Justice R.V. Easwar
  • Justice Badar Durrez Ahmed
Acts
  • section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the said Act)
  • Act.6. Serial 20 of the 13th schedule to the Income-tax Act
  • section 147/148 of the I.T Act, 1961.(K.K
  • Central Excise Tariff Act, 1985,
  • provisions of section 80-IC(2)
  • section 80-IC
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • Mr. A. Sharma, Mr. Manu K. Giri
  • Ms. Suruchii Aggarwal
Judges
  • Justice R.V. Easwar
  • Justice Badar Durrez Ahmed
Acts
  • section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the said Act)
  • Act.6. Serial 20 of the 13th schedule to the Income-tax Act
  • section 147/148 of the I.T Act, 1961.(K.K
  • Central Excise Tariff Act, 1985,
  • provisions of section 80-IC(2)
  • section 80-IC
See more information ...
Smart Summary

Structured Summary of the Opinion (Badar Durrez Ahmed, J.)

Factual and Procedural Background

These writ petitions challenge notices issued under section 148 of the Income-tax Act, 1961 (all dated 16.12.2011) seeking to re-open assessments for assessment years 2005-2006 to 2008-2009. For assessment year 2007-2008 no regular assessment had been completed under section 143(3); only an intimation under section 143(3) had been sent. For the other three years assessment orders under section 143(3) had been passed (2005-06 on 29.03.2007; 2006-07 on 26.12.2008; 2008-09 on 30.12.2010). The notices for 2005-06 and 2006-07 were issued beyond four years from the end of the relevant assessment years, engaging the proviso to section 147.

The petitioner (Proprietor OM Shiva Industries / Sh. Ajay Kumar Sharma) manufactures PET bottles and in assessment year 2005-2006 claimed a deduction under section 80-IC of the Income-tax Act, asserting substantial expansion in plant & machinery during financial year 2004-2005. The assessing officer issued reasons for belief that income had escaped assessment, relying on the contention that PET bottles were an article specified in Serial No. 20 of the 13th Schedule, which would disqualify the claim under section 80-IC. The petitioner had filed Form No. 10CCB with the return and answered Serial No. 14(ii)(e) as "N.A." The assessing officer originally allowed the deduction in the assessment order dated 29.03.2007 after noting that "the assessee has filed necessary evidences".

The petitioner submitted letters to the assessing officer before completion of the assessment (dated 27.12.2006, 13.03.2007 and 23.03.2007) explaining the claim. The petitioner objected to the proposed re-opening, arguing that its product falls under Central Excise heading 3923.30.90 (carboys, bottles, flasks and similar articles — "other") and thus is not within the 13th Schedule range 39.09 to 39.15 (Serial No. 20). The assessing officer rejected the objections by an order dated 17.02.2012, and the revenue issued the notices under section 148, prompting these writ petitions.

Legal Issues Presented

  1. Whether the notices issued under section 148 read with section 147 of the Income-tax Act were justified for re-opening the assessments for assessment years 2005-2006 to 2008-2009?
  2. Whether the petitioner's product (PET bottles) falls within Serial No. 20 of the 13th Schedule to the Income-tax Act (i.e., excise classifications in the range 39.09 to 39.15) so as to disqualify the petitioner from claiming deduction under section 80-IC(2)?
  3. Whether the petitioner can be held to have "failed to disclose fully and truly all material facts" for the purposes of invoking the proviso to section 147 where the petitioner answered "N.A." to Serial No. 14(ii)(e) on Form No. 10CCB and the assessing officer had previously allowed the deduction after examining evidence?

Arguments of the Parties

Petitioner's Arguments

  • The petitioner manufactures PET bottles which fall under Central Excise heading 3923.30 (sub-heading 3923.30.90 - "other") and therefore do not fall within the excise classifications 39.09 to 39.15 specified at Serial No. 20 of the 13th Schedule.
  • Because the PET bottles are not within Serial No. 20, the item on Form No. 10CCB (Serial No. 14(ii)(e)) was correctly answered as "N.A.", and that answer was not false or inaccurate.
  • Section 80-IC(2) excludes from deduction only undertakings manufacturing articles specified in the 13th Schedule; since petitioner's product is not in the 13th Schedule list, the deduction was rightly claimed and allowed by the assessing officer after examination of evidence.
  • The assessing officer had accepted the claim in the assessment order (noting that "the assessee has filed necessary evidences") and the petitioner had furnished explanatory letters before completion of the assessment; the assessing officer's subsequent rejection of objections did not address the petitioner's contention that the product falls outside Serial No. 20.

Respondent's Arguments

  • The respondent (revenue) supported issuance of the section 148 notices and the reasons given for re-opening, asserting that the petitioner's product falls within Serial No. 20 of the 13th Schedule such that deduction under section 80-IC is not allowable.
  • The respondent relied upon the assessing officer's reasons stating that the petitioner had claimed deduction under section 80-IC despite manufacturing an article specified in the 13th Schedule and had indicated "N.A." in the relevant column of Form 10CCB.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court's analysis proceeded by examining the statutory prohibition and the specific classifications relied upon by the revenue:

  1. Statutory framework: The court noted that section 80-IC(2) excludes from deduction any undertaking which manufactures any of the articles specified in the 13th Schedule to the Income-tax Act.
  2. Content of the 13th Schedule (Serial No. 20): Serial No. 20 of the 13th Schedule is limited to "Plastics and articles thereof" falling within excise classifications 39.09 to 39.15. The court reproduced the relevant entry showing the excise classification range.
  3. Petitioner's product classification: The petitioner argued, and the court accepted, that PET bottles manufactured by the petitioner fall under Central Excise heading 3923.30 and sub-heading 3923.30.90 ("other"). That sub-heading is outside the 39.09–39.15 range specified in Serial No. 20 of the 13th Schedule.
  4. Logical consequence on the Form No. 10CCB answer: Because the petitioner's product does not fall within Serial No. 20, the answer "N.A." to Serial No. 14(ii)(e) of Form No. 10CCB was correct. Therefore the petitioner did not make a false or inaccurate disclosure by answering "N.A.".
  5. Assessment history and evidentiary record: The court observed that in assessment year 2005-2006 the assessing officer had allowed the deduction after noting that the petitioner "has filed necessary evidences." The petitioner also sent multiple letters explaining the claim before completion of the assessment and had raised objections to the re-opening on the ground that the revenue had misread the 13th Schedule.
  6. On the merits of re-opening: Given that the petitioner's product clearly did not fall within the negative list in the 13th Schedule, the court concluded that no reasonable person could have had reason to believe that income had escaped assessment. Therefore the assessing officer could not even have taken a prima facie view that income had escaped assessment sufficient to validate re-opening under section 147/148.
  7. Application to all assessment years: The court found the analysis applicable both to the years where the four-year limitation issue arises and to those where it does not. For the year (2007-2008) with only an intimation under section 143(3), the court similarly held re-opening was not justifiable because the petitioner's product did not fall within the negative list.
  8. Conclusion from reasoning: Because the central premise for re-opening (that the petitioner manufactured an item in Serial No. 20) was incorrect, the notices under section 148 and ensuing proceedings lacked justification and were therefore quashed.

Holding and Implications

Holding: The writ petitions are allowed; the notices issued under section 148 of the Income-tax Act and all proceedings pursuant thereto are quashed.

Direct consequences and disposition:

  • All proceedings arising from the impugned section 148 notices are quashed.
  • All pending applications related to these writ petitions are disposed of.
  • There shall be no orders as to costs.

Broader implications: The opinion does not purport to lay down a new legal precedent beyond its application to the facts of this case; the court's decision rests on the correct classification of the petitioner's product outside Serial No. 20 of the 13th Schedule and the consequent absence of any failure to disclose material facts justifying re-opening.

Show full summary ...

    Ajay Kumar Sharma v. Commissioner Of Income Tax & Anr.

    Badar Durrez Ahmed, J. (Oral):— These writ petitions are directed against the notices issued under section 148 (all dated 16.12.2011) intending to re-open assessments pertaining to the assessment years 2005-2006 to 2008-2009. Insofar as the assessment year 2007-2008 is concerned, a regular assessment had not been completed under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the said Act’) and only an intimation under section 143(3) had been sent. As regards the other three years, assessment orders had been framed under section 143(3) of the said Act.

    2. In assessment year 2005-2006, the assessment was framed on 29.03.2007 Similarly, for assessment years 2006-2007 and 2008-2009 the assessment orders were passed on 26.12.2008 and 30.12.2010, respectively. It should also be pointed out that insofar as the impugned notices relate to the assessment years 2005-2006 and 2006-2007, they have been issued beyond the period of four years from the end of the respective assessment years and therefore the proviso to section 147 of the said Act would be attracted.

    3. The learned counsel for the petitioner drew our attention to the proceedings pertaining to the assessment year 2005-2006 which was the first year in which the petitioner had made a claim of deduction under section 80-IC of the said Act inasmuch as there was a substantial expansion in the plant and machinery during the financial year 2004-2005. The petitioner manufactures PET bottles.

    4. The learned counsel for the petitioner drew our attention to the purported reasons for the belief that income had escaped assessment. The said purported reasons read as under:—

    “Name & address of the Assessee:Sh. Ajay Kumar Sharma

    Prop. OM Shiva Industries 181, Azad Mara, Vivekanand Pari. Delhi

    PAN:ARGPS9602P

    Status:Individual

    Assessment Year:2005-2006

    Reasons for the belief that income has escaped assessment

    Return of income for the AY 2005-2006 in this case was filed on 30.10.2005 declaring an income of Rs. Nil after claiming deduction of Rs. 26,36,700/- u/s 801C of the I.T Act, 1961. Assessment for this year was completed u/s 143(3) vide Order dated 29.03.2007 at income of Rs. Nil.

    Assesee is engaged in the manufacture of pet bottles in Industrial area, Barotiwalan, district Solan Himachal Pradesh. In the earlier years i.e, up to the AY 2004-2005, assessee was claiming deduction u/s 801B in respect of Industrial undertaking. This year assessee claimed deduction u/s 801C on the ground that he had undertaken substantial expansion in Plant & Machinery during F.Y 2004-2005. In support of this claim, Assessee filed audit report u/s 801C on Form No. IOCCB along with his Return of Income for AY 2005-2006 placed on record.

    The claim of the assessee being in respect of manufacturing of pet bottles in the state of Himachal Pradesh; pet bottles being an article specified in the Thirteenth Schedule (Sr. No. 20) Assessee was not entitled to deduction of Rs. 26,36,700/- u/s 801C despite which Assessee claimed deduction u/s 801C (Form No. 10 CCB), in col. 14(ii)(e)- “Does the undertaking or enterprise manufacture of produce any article or thing specified in the Thirteenth Schedule”. Assessee reported N.A” despite the fact that the claim of the Assessee being in respect of manufacturing of pet bottles being an article specified in the Thirteenth Schedule (Sr. N. 20), assessee was not entitled to deduction u/s 801C. Accordingly, I am satisfied that there is a failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment for the said assessment year and income chargeable to tax of Rs. 26,36,700/- has escaped assessment for the assessment year 2005-2006 by reason of the failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment for his assessment for A.Y 2005-2006. I have therefore, reason to believe that the sum of Rs. 26,36,700/- chargeable to tax has escaped assessment for the AY 2005-2006. Thus, the same is to be brought to tax under section 147/148 of the I.T Act, 1961.

    (K.K MITRA)

    Income Tax Officer,

    Ward No. 33(1),

    New Delhi.”

    It is apparent that in response to serial No. 14(ii)(e) of form No. 10 CCB filed along with return, the petitioner/assessee had indicated ‘NA’ meaning thereby that the same did not apply. The question was whether the undertaking or enterprise manufactures or produces any article or thing specified in the 13th schedule.

    5. It should be pointed out that by virtue of section 80-IC(2) of the said Act, the deduction thereunder is not to be given to an undertaking which manufactures any of the articles specified in the 13th schedule to the said Act.

    6. Serial 20 of the 13th schedule to the Income-tax Act reads as under:—

    Activity or article or thing Excise classification Sub-class under National Industrial Classification (NIC), 1998 XXX XXX XXX 20. Plastics and articles thereof 39.09 to 39.15

    It is clear from the above that the plastics and articles which are referred to at serial No. 20 of the 13th schedule pertain to the goods falling within the excise classification in the range of 39.09 to 39.15 The learned counsel for the petitioner submitted that the PET bottles manufactured by the petitioner fell within chapter 39 but under heading 39.23 and sub-heading 3923.30.90 The heading 3923.30 relates to ‘Carboys, bottles, flasks and similar articles’. Sub-heading 3923.30.10 refers to ‘insulated ware’ and 3923.30.90 refers to ‘other’. It is under this sub-heading that the PET bottles manufactured by the petitioner falls. It was therefore pointed out by the learned counsel for the petitioner that the PET bottles manufactured by the petitioner do not fall within the articles specified in the 13th schedule to the said Act and therefore do not form part of the negative list in respect of which the deduction under section 80-IC cannot be claimed.

    7. It was pointed out further by the learned counsel for the petitioner that the only purported reason indicated for re-opening of the assessment was that the PET bottles manufactured by the petitioner were not entitled to deduction under section 80-IC because they fell within the serial No. 20 of the 13th schedule of the said Act.

    8. The reasoning adopted in the two years for which the re-opening is being sought after four years from the end of the relevant assessment year was that since the petitioner had answered ‘Not Applicable’ with regard to serial No. 14(ii)(e) of form 10 CCB, the petitioner had failed to disclose full and true material facts necessary for his assessment. Apart from this, the learned counsel for the petitioner also drew our attention to the assessment order dated 29.3.2007 pertaining to the assessment year 2005-2006 wherein the assessing officer had allowed the deduction claimed by the petitioner and had specifically noted as under:—

    “the assessee has filed necessary evidences”

    It was also pointed out by the learned counsel that prior to the completion of the assessment, several letters including the letters dated 27.12.2006, 13.03.2007 and 23.03.2007 had been written by the petitioner to the assessing officer explaining, inter alia, the claim for deduction under section 80-IC. The learned counsel for the petitioner also drew our attention to the objections which were taken by the petitioner to the purported reasons for re-opening of the assessment. In the objections the petitioner had specifically taken the plea that the 13th schedule of the said Act and, particularly, serial No. 20 thereof has been misrepresented by the revenue inasmuch as it has not realized that the product manufactured by the petitioner fell within the heading no. 39.23 and was therefore not in the negative list which dealt with articles falling within headings 39.09 to 39.15 of the Central Excise Classification. Unfortunately this aspect of the matter has not been dealt with appropriately, if at all, by the assessing officer in the order dated 17.02.2012 rejecting the objections raised by the petitioner.

    9. We have also heard the learned counsel for the respondent who has supported the issuance of the notices as also the purported reasons and the order rejecting the objections. However, we are inclined to agree with the submissions made by the learned counsel for the petitioner. The entire sub-stratum of the notices issued under section 148 of the said Act is that the petitioner's product namely PET bottles fall within the negative list stipulated in serial No. 20 of the 13th schedule of the said Act. We have noted the arguments of the learned counsel for the petitioner that the product manufactured by them falls under 3923.30.90 of the Central Excise Classification which is not within the range of products specified in serial No. 20 of the 13th schedule of the said Act, that is, within headings 39.09 to 39.15 Therefore clearly, the submission of the learned counsel for the petitioner is correct. The petitioner's product does not fall within the negative list stipulated in the 13th schedule of the said Act. If that be the case, then, the answer given by the petitioner in serial No. 14(ii)(e) of form 10 CCB filed along with the return is not wrong, false or inaccurate. Therefore, the petitioner cannot be held to have failed to fully and truly disclose all material facts necessary for its assessment.

    10. Insofar as the other assessment years are concerned where the issue of limitation of four years does not arise, the position would not be any different. This would be so because on a reasonable interpretation of the provisions of section 80-IC(2) read with serial No. 20 of the 13th schedule of the said Act read with the First schedule to the Central Excise Tariff Act, 1985, it would be clear that the petitioner's product does not fall within the negative list and therefore the petitioner had rightly claimed deduction under section 80-IC of the said Act which the assessing officer in the years in which the assessment had been completed under section 143(3) had allowed after examining the necessary evidence. Even in respect of the year in which there was no assessment order under section 143(3), that is, the assessment year 2007-2008, we feel that the same cannot be re-opened because no reasonable person can be attributed with any reason to believe that income had escaped assessment when the petitioner's product clearly does not fall within the negative list. Thus, in view of the established facts in this case, the assessing officer could not even have taken the prima facie view that there were reasons to believe that income had escaped assessment. Consequently, we feel that, in the facts and circumstances of this case, the issuance of notices under section 148 of the said Act was not warranted. The said notices are quashed and all proceedings pursuant thereto are also quashed.

    11. The writ petitions are allowed. All pending applications also stand disposed of. There shall be no orders as to costs.

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    Comments

    Ajay Kumar Sharma v. Commissioner Of Income Tax & Anr.
    (Feb 18, 2013)