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Simple Food Products (P.) Ltd. v. Commissioner of Income-tax-II, Nagpur

Income Tax Appellate Tribunal

Jul 12, 2017

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Opinion

Factual and Procedural Background

The appeals arise under Section 260-A of the Income Tax Act, 1961 and challenge a common order dated 22 July 2009 of the Income Tax Appellate Tribunal (the Tribunal) relating to assessment years 1999-2000 through 2005-2006 (seven appeals). The appellant (assessee) had originally commenced manufacture/production of milk as a small scale industry and in Assessment Year 1996-1997 claimed deduction under Section 80IA (later Section 80IB after legislative bifurcation effective 1 April 2000). The initial claim for the first year (1996-97) was allowed by an intimation under Section 143(1). For subsequent years the assessee continued to claim deductions under Sections 80IA/80IB.

Notices under Sections 147/148 were issued in April 2002 to reopen assessments for 1999-2000 to 2001-2002, but reassessment proceedings stood abated following notices under Section 153A consequent to a search on 20 January 2005. The Assessing Officer, by order dated 28 December 2006 passed under Section 153 read with Section 143(3), disallowed the assessee's deduction claims for 1999-2000 (and similar orders were passed for subsequent years) on the ground that the assessee did not carry out processing/manufacturing but merely traded in milk.

The assessee's appeals to the Commissioner of Income Tax (Appeals) were dismissed by a common order dated 20 February 2007. On further appeal to the Tribunal, the Tribunal issued a common order dated 22 July 2009 (the impugned order) which the present appeals challenge.

Legal Issues Presented

Whether, given that the Revenue granted deduction under Sections 80IA/80IB to the appellant in the initial assessment year 1996-1997 by an order/intimation under Section 143(1), the appellant was entitled in law to deduction for ten consecutive assessment years as provided in Section 80IB(3)?
Whether, on the facts and material on record, the Tribunal was correct in holding that the production of different varieties of branded milk from raw milk by the assessee did not amount to "manufacture or production of an article or thing" as contemplated in Section 80IB(3)(ii)?

Arguments of the Parties

Appellant's Arguments

The Assessing Officer lacked jurisdiction in the subject assessment years to deny or withhold the Section 80IA/80IB deduction unless the deduction granted in the initial year (1996-1997) had been withdrawn. The appellant relied on this Court's decisions in Commissioner Of Income-Tax v. Paul Brothers and CIT v. Dinshaw Frozen Food Ltd. as supporting authority.
Because the deduction for the initial year had been granted and not withdrawn, the entitlement to deduction for the consecutive ten-year period under Section 80IB(3) continued and thus Question No.1 should be answered in favour of the appellant.
As to Question No.2 (whether production of branded milk from raw milk constituted manufacture), counsel indicated that, in view of a favourable answer to Question No.1, he did not press Question No.2.

Revenue's Arguments

The decisions relied upon by the appellant (Paul Brothers and Dinshaw Frozen Food Ltd.) were said not to apply because in the present case the initial year deduction was granted by an intimation under Section 143(1) (which, it was submitted, is not a full assessment), whereas in Dinshaw the initial-year grant had been by an order under Section 143(3). The Revenue relied on the distinction that an intimation under Section 143(1) is a ministerial act and not an assessment, citing Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd.
It was also submitted that Paul Brothers involved deductions under Sections 80HH and 80J (investment-based deductions), whereas deductions under Sections 80IA/80IB are performance-based, so that a grant in an earlier year would not preclude Revenue from disallowing in later years if facts warrant.
On the basis of these contentions the Revenue maintained that no interference with the Tribunal's order was called for.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner Of Income-Tax v. Paul Brothers (this Court)	The principle that in the absence of the deduction granted in the initial assessment year being withdrawn, the relief available under the relevant Chapter (here Chapter VI-A, including 80IA/80IB) for subsequent years cannot be withheld by the Revenue.	The Court found the Tribunal did not deal with Paul Brothers. It applied Paul Brothers to hold that once deduction is granted in the initial assessment year and not withdrawn, the deduction for the subsequent consecutive period (ten years under Section 80IB(3)) continues and the Revenue cannot withhold it.
CIT v. Dinshaw Frozen Food Ltd. (Income Tax Appeal No. 32/2003) (decided 29.09.2007)	Followed Paul Brothers and held that, absent withdrawal of the initial-year relief, relief under Section 80IA/80IB cannot be withheld for subsequent years.	The Court noted that Dinshaw had followed Paul Brothers and that there was no finding in those orders that the initial-year grant had been by an order under Section 143(3). The Court rejected the Tribunal's attempt to distinguish Dinshaw on the basis that the initial-year grant there was under Section 143(3).
Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. (Apex Court)	The distinction that an intimation under Section 143(1) is a ministerial act and not a full assessment, relevant in the context of reopening assessments.	The Revenue relied on this decision to argue that a 143(1) intimation is not the same as an assessment under Section 143(3), and thus the initial-year intimation here did not preclude subsequent denial of the deduction. The Court observed that Rajesh Jhaveri was decided in the context of reopening and held that it was not determinative of the present issue involving Chapter VI-A deductions; consequently the Court did not accept that Rajesh Jhaveri defeated the applicability of Paul Brothers/Dinshaw to the facts before it.

Court's Reasoning and Analysis

The Court began by recording that the facts and law for all the assessment years in issue were identical and therefore dealt with Assessment Year 1999-2000 to resolve the substantial questions. The Court summarized the factual matrix: deduction initially allowed in 1996-97 by intimation under Section 143(1); subsequent claims under Sections 80IA/80IB; attempts at reassessment; and eventual disallowance by the Assessing Officer for 1999-2000 (and other years) on the ground of mere trading rather than manufacturing.

On Question No.1 (continuity of deduction for ten consecutive years), the Court evaluated the authorities relied upon by both sides. It observed:

The Tribunal recorded that the assessee relied on Paul Brothers but did not analyze or distinguish that decision; the Tribunal also attempted to distinguish Dinshaw on the basis that the initial-year grant in Dinshaw arose under Section 143(3) whereas here it arose under Section 143(1).
The Court examined Dinshaw and Paul Brothers and found that Dinshaw followed Paul Brothers and there was no finding in those decisions that the initial-year grant had been by an order under Section 143(3). Thus the distinction sought by the Tribunal (and advanced by Revenue) on the procedural form of the initial-year grant (143(1) vs 143(3)) was not supported by those decisions.
The Court noted that nothing on record suggested any change in the assessee's manufacturing process between the initial year and the subject years. The Court emphasized that the object of Sections 80IA/80IB is to encourage setting up industries to manufacture goods not specified in the Eleventh Schedule.
The Revenue's argument that Paul Brothers involved investment-based deductions and that 80IA/80IB are performance-based deductions did not persuade the Court. The Court treated the distinction as immaterial for the controlling principle derived from Paul Brothers — namely that once deduction is granted in the initial assessment year, it continues for the statutory period (ten years under Section 80IB(3)) unless the initial-year relief is withdrawn.
The Court also addressed Rajesh Jhaveri (distinction between 143(1) and 143(3) as a ministerial act) but observed that Rajesh Jhaveri was decided in the context of reopening assessments and therefore does not displace the settled position in Paul Brothers and Dinshaw when dealing with Chapter VI-A deductions.

On Question No.2 (whether branded milk production constituted "manufacture"), the Court recorded that the appellant did not press this question in view of the answer to Question No.1, so there was no occasion to examine it.

Holding and Implications

Holding: The Court answered the principal legal question in favour of the appellant. In particular, the Court held that, in the circumstances of this case, the deduction once granted in the initial assessment year continued for the relevant consecutive period and could not be withheld by the Revenue for the subsequent assessment years in the absence of withdrawal of the initial-year relief.

APPEAL ALLOWED. No order as to costs.

Direct effect: The appellant's appeals were allowed and the Tribunal's order was set aside to the extent challenged. The Court relied on and followed the principles in Commissioner Of Income-Tax v. Paul Brothers and CIT v. Dinshaw Frozen Food Ltd. The Court did not exercise any independent factual determination on Question No.2 because that question was not pressed by the appellant.

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ORDER

1. All these appeals under Section 260-A of the Income Tax Act, 1961 (Act) challenge the order dated 22nd July, 2009 of the Income Tax Appellate Tribunal (Tribunal). The impugned order is common order relating to Assessment Year 1999-2000, 2000-2001, 2001-2002, 2002- 2003, 2003-2004, 2004-2005 and 2005-2006. Thus, the seven appeals.

2. All the seven appeals were admitted on the following identical substantial questions of law:—

(1) The Revenue having granted deduction under Sections 80IA/80IB to the appellant in initial assessment year 1996-1997 by assessment order under Section 143(1) was the appellant entitled in law to deduction for 10 consecutive assessment years as provided in Section 80IB(3)?

(2) Under the facts and circumstances of the case and evidence and material on record was the Tribunal right in holding that the production of different varieties of branded milk in assessee's industrial undertaking from raw milk did not amount to manufacture or production of Article or thing as contemplated in Section 80IB(3)(ii) of the Income Tax Act, 1961?

3. It is an admitted position between the parties that the facts and the law applicable for all the subject Assessment years 1999-2000 to 2005-2006 are identical. In the above view, we refer to the facts relating to the Assessment year 1999-2000 for answering the question.

4. Regarding Question No.I:—

(a) In the previous year relevant to Assessment year 1996-1997, the appellant-Assessee commenced manufacture/production as Milk as Small Scale Industry. The appellant - Assessee in the Assessment Year 1996-1997 claimed the benefit of deduction under Section 80IA of the Act. The deduction was claimed under Section 80IA of the Act as the appellant - Assessee derived profit and gains from an Industrial undertakings producing milk. Admittedly, milk is not a produce/good specified the Eleventh Schedule to the Act. The Assessing Officer processed the return under Section 143(1) of the Act allowing the claim of deduction under Section 80IA of the Act.

(b) For the Assessment years 1997-1998 and 1998-1999, the deduction under Section 80IA of the Act was available. However, no occasion to claim deduction under Section 80IA of the Act arose in view of the loss suffered in both the Assessment Years. Nevertheless, it was includable/included in computing the period of 10 years for which the deduction under Section 80IA of the Act would be available.

(c) For the assessment year 1999-2000, 2000-2001 and 2001-2002, the appellant-Assessee continued to claim the benefit of deduction under Section 80IA/80IB of the Act. This was so as with effect from 1st April, 2000 the benefit under Section 80IA of the Act was bifurcated into deduction in respect of profit and gains from Industrial undertaking/enterprises in the infrastructure development i.e. Section 80IA, while deduction in respect of profit and gains of Industrial undertaking other than undertaking engaged in infrastructure development i.e. Section 80IB of the Act. It is an undisputed position before us that the benefit of deduction available under Section 80IA of the Act for the period of 10 years continued to be available under Section 80IB of the Act.

(d) Thereafter, notices dated 16th April, 2002 were issued under Section 147/148 of the Act to reopen assessment for the assessment years 1999-2000 to 2001-2002. It is an undisputed position before us that in-fact, no notice for reopening of assessment for assessment year 1996-1997 was issued even though at that time i.e. 16th August, 2002 the Assessing Officer did have jurisdiction to issue a notice for reopening the assessment for assessment year 1996-1997. Be that as it may, the proceedings for the Assessment Years 1999-2000, 2000- 2001 and 2001-2002, consequent to the reassessment notices stood abated in view of notice issued under Section 153A of the Act, consequent to a search on 20th January, 2005. The notice issued under Section 153A of the Act are with regard to the subject Assessment Years 1999-2000 to 2005-2006 i.e. six previous Assessment Years plus the Assessment Year of the Search.

(e) The Assessing Officer by order dated 28th December, 2006 passed under Section 153 read with Section 143(3) of the Act, disallowed the respondent - Assessee's claim for deduction under Section 80IB of the Act for the Assessment Year 1999-2000. This on the ground that it does not carry out processing/manufacturing activities but only does trading in milk. Similar, orders were passed by the Assessing Officer for the Assessment Years 2000-2001 to 2005-2006.

(f) Being aggrieved, the appellant-Assessee carried the issue in issue in appeal to Commissioner of Income Tax (Appellate) (CIT(A)). By common order dated 20.February, 2007 for the subject Assessment Years, the appeals of the appellant-Assessee were dismissed. This is the ground that the appellant-Assessee did not carry out any processing/manufacturing activity to qualify for relief under Section 80IA/80IB of the Act.

(g) Being aggrieved with the order dated 20th February, 2007 of CIT(A) for the subject Assessment Years, the appellant-Assessee preferred an appeal to the Tribunal. In its appeal, the appellant- assessee inter-alia contended that claim for deduction under Section 80IB of the Act in respect of subject Assessment Years could not be rejected as the deduction granted in the assessment year 1996-1997 i.e. first year has not yet been withdrawn. In support of the aforesaid submissions, the appellant placed reliance upon the decisions of this Court in Commissioner Of Income-Tax v. Paul Brothers. [1995] 216 ITR 548/79 Taxman 378 (Bom) and CIT v. Dinshaw Frozen Food Ltd. (Income Tax Appeal No. 32/2003) decided on 29.09.2007. However, the impugned order of the Tribunal ignored the decision of Paul Brothers ( supra) of this Court and so far as the Dinshaw Frozen Food Ltd. Nagpur ( supra) is concerned, it distinguished the same on the ground that it was rendered in context of the fact that in the initial year, the claim for deduction under Section 80IA/80IBof the Act was allowed under Section 143(3) of the Act, unlike in this case, where the claim under Section 80IA/80IB was allowed in the initial year under Section 143(1) of the Act.

(h) Mr. Thakar learned Advocate for appellant - Assessee in appeal, submits that the Assessing Officer has no jurisdiction in the subject Assessment years to withhold/deny the benefit of deduction under Section 80IA/80IB of the Act, in absence of the deduction thereunder being withdrawn in the initial year of it being allowed i.e. Assessment Year 1996-1997. This issue he submits is no longer res- integra as it stands concluded by the decisions of this Court in Paul Brothers ( supra) and Dinshaw Frozen Food Ltd. Nagpur ( supra). Accordingly, Question No.1 should be answered in favour of the appellant-Assessee.

(i) Mr. Bhattad learned Senior Counsel for the Revenue submits that the decision in Paul Brothers ( supra) and Dinshaw Frozen Food Ltd. Nagpur ( supra) would have no application to the case in hand. This he submits is in view of the fact that there has been no examination of the appellant - Assessee's claim to deduction under Section 80IA/IB of the Act when the same was granted in the initial year to the appellant-Assessee i.e. Assessment Year 1996-1997. Further, it is submitted that so far as Dinshaw Frozen Food Ltd. Nagpur ( supra) is concerned, the initial year of grant of deduction was by virtue of assessment order passed under Section 143(3) of the Act and in this case, it is admittedly an intimation under Section 143(1) of the Act. It is submitted that an intimation under Section 143(1) of the Act is not an assessment but only an Intimation. In support he relies upon the Hon'ble Apex Court decision in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500/161 Taxman 316. Thus, the decision in case of Dinshaw Frozen Foods ( supra) will not apply. So far as the Paul Brothers ( supra) is concerned, Mr. Bhattad, learned counsel points out that the deduction granted in that case was in respect of Sections 80HH and 80-J of the Act. This is a deduction allowed on the basis of investment. While deduction under Section 80IA/80IB Act is a performance based deduction which is available only if the Assessee satisfies by performance the requirements of Section 80IA/80IB of the Act. It is submitted that mere grant of claim in one assessment year would not stop/prohibit the Revenue from denying a claim for deduction in another year, consequent to the facts coming to its notice in the subject Assessment Year.

In the above view, it is submitted that no interference is called for on the aforesaid substantial question of law.

(j) According to us, the entire issue is no longer res-integra. The impugned order of the Tribunal has, after recording that the appellant - Assessee relies upon the decision of this Court in Paul Brothers ( supra) has not dealt with the same. It gives no finding as to why and in what manner it would not apply to the present facts. Further, we find that distinction which has been made in the impugned order of the Tribunal with regard to Dnishaw Frozen Foods Ltd. ( supra) viz. that the assessment in that case has been completed under Section 143(3) of the Act in initial year and it is only in such cases that the Revenue be barred from denying the claim for deduction in the subsequent Assessment Years, unless the claim for deduction has been withdrawn in the initial year when deduction was claimed and allowed unlike an assessment which is completed under Section 143(1) of the Act. We have perused the decision of this Court in Dinshaw Frozen Food Ltd. Nagpur ( supra) which in turn has followed the decision Paul Brothers ( supra). We note that there is no finding in the two orders to the effect that the in the initial year the claim under Section 80IA/IB of the Act was granted by virtue of an order passed under Section 143(3) of the Act. Nothing has been brought on record to indicate that there has been some change in manufacturing process from that existing when the claim was allowed in the initial year i.e. Assessment Year 1996- 1997 and subject Assessments. The intent/object of the deduction under Section 80IA/IB of the Act is to encourage setting up of industries to manufacture goods which are not specified in the Eleventh Schedule to the Act.

(k) The distinction sought to be made by Mr. Bhattad, learned counsel for the Revenue that the claim for deduction in Paul Brothers ( supra) the deduction was an investment based deduction, while in the present case, we are concerned with the performance base deduction. This is in -fact, no distinction. In absence of the Revenue being able to establish that for the subject Assessment Years, the facts with regard to the performance were different from facts with regard to the performance in which the claim for deduction in initial year was allowed, the grant of deduction in the subsequent subject Assessment Year cannot be withheld. The other issue raised by Mr. Bhattad that merely because a claim was allowed in an earlier year would not prohibit the revenue from disallowing the claim in subsequent assessment years is no longer res-integra as this Court in Paul Brothers ( supra) as it is categorically held that in absence of deduction granted in the initial Assessment Years being withdrawn, the relief for subsequent Assessment Years could not be withheld. The basis for the same is found in sub-clause (3) under Section 80IA/IB of the Act which gives deduction for 10 consecutive years to the profit and gains of an Industrial undertaking from initial year of assessment when the deduction was allowed, subject to the condition laid down therein. It is not the Revenue's contention that the condition in clause (3) of Section 80IB of the Act has not been fulfilled. Therefore, once deduction is granted in the initial Assessment Year, the same would continue for the period of 10 consecutive year unless the relief for initial year is also withdrawn at the time of withholding the relief under Section 80IA/IB of the Act.

(l) Mr. Bhattad also points out that under the Act, there is distinction between assessment which has been completed under Section 143(3) of the Act and intimation given to Assessee under Section 143(1) of the Act. In support of, he places reliance in Rajesh Jhaveri Stock Brokers, ( supra) which brings out the distinction, by pointing out that an intimation under Section 143(1) of the Act is only a ministerial act and no examination of the claim is made by the Assessing Officer. However, one must recognize the fact that the aforesaid decision in case of Rajesh Jhaveri Stock Brokers ( supra) was rendered in the context of reopening of assessments. As against that the decisions of this Court in Paul Brothers ( supra) and Dinshaw Frozen Food Ltd. Nagpur ( supra) were while dealing with deduction under Chapter VIA of the Act. This Court in the above two cases has very categorically held that in absence of relief/deduction for the initial year being withdrawn, the relief under Chapter VI-A of the Act (Section 80IA/80IB of the Act) in case of Dinshaw Frozen Food Ltd., Nagpur ( supra) cannot be withheld for the subsequent years. The manner in which the relief has been granted in the initial Assessment Year is not determinative for withholding the relief in the subsequent Assessment Years. In-fact, in Paul Brothers ( supra), our Court had occasion to observe the deduction allowed in the initial year i.e. Assessment Year, 1980-1981 was without any discussion.

(m) According to us, the decision of this Court in Paul Brothers ( supra) and the Dinshaw Frozen Food Ltd. Nagpur ( supra), conclude the issue in favour of the appellant - Assessee and against the Revenue.

(n) Thus, the substantial questions of at No.1 is answered in the affirmative i.e. in favour of the appellant-Assessee and against the Revenue.

5. Regarding Question No.2:—

(a) Mr. Thakar, learned counsel for the appellant - Assessee states that in view of our answer to question No.1 above, he does not press this question.

(b) Therefore, no occasion to examine question No.2 arises.

6. Accordingly, appeal allowed. No order as to costs.