The Income Tax Appellate Tribunal ( ITAT ), Ahmedabad while adjudicating an Income Tax Appeal observed that tax exemptions claimed by means of the Vivad Se Vishwas ( VSV ) Scheme may not be re-agitated through Section 263 of the Income Tax Act, 1961, unless any new facts are brought on record.
Two Appeals were filed by Zydus Hospira Oncology Private Limited against the orders passed by the Principal Commissioner of Income Tax (PCIT)-3, regarding the Assessment Year (A.Y.) 2016-17 and A.Y. 2017-18.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The Appellant company is engaged in the business of manufacturing drugs and pharmaceuticals and filed their returns for A.Y. 2016-17 declaring a total income of Rs.65,84,62,870. During scrutiny, the Assessee’s income was assessed at Rs.1,22,84,03,397 and finalized under Section 143(3) read with Section 144C(13) and Section 144B of the Income Tax Act, 1961.
During examination, the PCIT observed that the Assessee had claimed an exemption of Rs. 59,98,80,918 under Section 10AA of the Act by including Revenue from operations under “other income” – these included export incentives which were part of government schemes like Duty Drawback and the sale of Duty Entitlement Pass Book (DEPB) licenses.
The PCIT observed that these export incentives, being part of Government Schemes did not have a direct nexus with the profits derived from the eligible units of the assessee that had been established in Special Economic Zones (SEZs).
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The PCIT was of the view that the Assessee had claimed excess exemption of Rs.7,08,83,828 under Section 10AA of the Act, by leveraging non-exempt income such as export incentives which were part of government schemes such as Duty Drawback and the sale of DEPB licenses while calculating 10AA claim – resulting in the setting aside of the Assessment Order in light of the Supreme Court decision in Liberty India vs. CIT (2023).
Mukesh Patel, representing the Assessee raised a multifaceted argument before the ITAT, averring the non applicability of Liberty India since it dealt with Section 80-IA of the Income Tax Act instead of Section 10AA as relevant here. Additionally, the Assessee contended that the matter had been settled under the VSV, subsequent to which no revision under Section 263 may be initiated.
Prathvi Raj Meena, appearing for the Department, placed reliance on the observations made by PCIT in the impugned order.
Annapurna Gupta, Accountant Member and Siddhartha Nautiyal, Judicial Member, constituting the ITAT Bench noted that the PCIT order failed to address the detailed submissions made by the assessee with reference to the finality of the VSV Act, and inquiries conducted during the original assessment which had been summarily overlooked by the PCIT.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
Observing a gross violation of natural justice, the Bench reaffirmed the finality of an order passed under the VSV Scheme and the inapplicability of Liberty (supra) to the instant case.
The Tribunal proceeded to deem the order by the PCIT unsustainable in nature, commenting that the instant matter regarded the 9th year of claim of deduction by the Assessee, which cannot be disturbed by taking recourse to Section 263 proceedings unless any new facts have been brought on record by the Revenue.
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