TMI Blog2004 (9) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in not accepting the contention of the assessee that for the purpose of computing deduction under section 80HHC the negative figure computed under clause ( a ), ( b ) or ( c ) of sub-section ( iii ) of section 80HHC of the Act has to be ignored in view of the provisions of the Act. 4.On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in not interpreting the provisions of section 80HHC in accordance with the plain language of the section and also ignoring the judgments of the various Tribunals including that of the jurisdictional Delhi Tribunal on the same issue. 5.On the facts and in the circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in not accepting the contention of the assessee that interest under sections 234B and 234C of the Act cannot be charged without there being specific order for the levy of such interest in the assessment order. 6.On the facts and in the circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that interest under sections 234B and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lates to computation of deduction under section 80HHC, the assessee s counsel Shri C.S. Aggarwal argues and reiterated the same arguments through the written submissions as under : It was challenged that loss suffered by the assessee, under any of the clause ( a ), ( b ) or ( c ) of section 80HHC(3) deserves to be ignored and deduction be directed to be allowed in respect of amount computed under proviso to section 80HHC(3) of the Income-tax Act as per the computation made by the appellant and as such it was prayed that the deduction claimed be allowed, by ignoring the loss. In support of the aforesaid submissions the appellant had relied on the various orders of the Hon ble Tribunal i.e. Kolkata Bench as also of the Cochin Bench in the case of T.C. Usha v. DCIT reported in 106 Taxman 305 (Mag.). It was submitted though a reference had been sought by the Revenue against the aforesaid order, yet the revenue had accepted the order of the Tribunal, so far as the computation of the allowability of deduction under the proviso to section 80HHC(3) of the Income-tax Act which would be evident from the judgment of Hon ble Kerala High Court reported in 264 ITR 368 . It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in 154 ITR 172. In the alternative it was submitted if the Hon ble Bench is of the opinion that it is not able to get persuaded with the view expressed by the Special Bench of the Hon ble Tribunal. It should make a reference to the Hon ble President of ITAT for constituting a larger Bench of five members or more. It was submitted that the ld. DR in his submission has stated that the order of the Special Bench of ITAT is " per incuriam ". It is submitted with great respect, that the said submission is not only incorrect but it is highly improper and is thus unjustified. Per incuriam means as under : " Per incuriam" : Through want of care, inadvertently. A mistaken decision of a court, it was held in Young v. Bristol Aeroplane Co. Ltd. (1946) 1 All. ER 98 that the Court of Appeal (q.v.) was not bound to follow one of its earlier decisions if satisfied that it was reached per incuriam . Application of the doctrine should be made only in the case of decision given in ignorance or forgetfullness of some inconsistent statutory provision or of some authority binding on the court concerned (1955) 2 QB 379. The Law Lexicon 1997 Per incuriam : Though inadvertence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted/set off against export profits computed under the other sub-clause of clause ( c ) for the purpose of computing deduction under section 80HHC(1) of the Income-tax Act." In para 7 it noted specifically the judgment of the Hon ble Bombay High Court in the case of IPCA Laboratories Ltd. v. Dy. CIT (No. 1) [2001] 251 ITR 401 and that of the Hon ble Kerala High Court in the case of CIT v. Smt. T.C. Usha [2003] 132 Taxman 297 and after noticing the contentions of the Ld. counsel of the assessee in paras 20 to 22 observed in para 23 as under : "We have carefully considered the matter. There is no direct authority of any High Court on the interpretation of the proviso. The proviso deals with export incentives. It envisages an additional deduction for export incentives. They are first excluded from the profits of the business by explanation ( baa ). This only shows that export incentives cannot be treated as part of the profits of the business. But as rightly pointed out on behalf of the assessee, they are brought back within the purview of the deduction by the proviso. In the main provisions of sub-section (3), what is dealt with is only the result of the export, business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of interest from the profits of the business, it is only the 90 per cent of the net interest remaining after allowing a set off of interest paid, which has a nexus with the interest received that can be reduced and not 90 per cent of the gross interest." It is submitted that the Hon ble Supreme Court in its judgment in the case of S. Shanumugavel Nadar v. State of Tamil Nadu [2003] 263 ITR 658 has held on the principle of application of rule of precedence. The Hon ble Mr. Justice R.C. Lahoti (as His Lordship then was now Chief Justice) speaking for the court observed as under : ". . . The application of the doctrine depends on the nature of the appellate or revisional; order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction. Recently a three judge Bench of this court had an occasion to deal with doctrine of merger in Kunhayammed v. State of Kerala 6 SCC 359 [2000] 245 ITR 360 and this court reiterated that the doctrine of merger is not of universal or unlimited application; the nature of jurisdiction exercised by the superior forum and the content of subject-matter of challenge laid or which could have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question, whether it was a case of review, or whether the review application should have been filed in the High Court or the Supreme Court. Such a question is not arising before us. Under article 141 of the Constitution, it is the law declared by the Supreme Court, which is binding on all courts within the territory of India inasmuch as no law was declared by this court, the Full Bench was not precluded from going into the question of law arising for decision before it and in that context entering into and examining the correctness or otherwise of the law stated by the Division Bench in M. Varadaraja Pillai s case (1972) Mad. LW 760 and either affirming or overruling the view of the law taken therein leaving the operative part untouched so as to remain binding on the parties thereto. Inasmuch as, in the impugned judgment, the Full Bench has not adjudicated upon the issue arising for decision before it, we do not deem it proper to enter into the merits of the controversy for the first time in exercise of the jurisdiction of this court under article 136 of the Constitution. We must have the benefit of the opinion of the Full Bench of the High Court as to the vires of the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CA Laboratories are in harmony, then it will not only be an artificial harmony, but it will lead to an absurd situation wherein the exporter would not get any deduction on incentives in cases of loss. This will cause undue hardship to the tax payers, not intended by the Legislature. ( vii )Accordingly the findings of the Hon ble Special Bench, the decision of the Hon ble Supreme Court and High Court in the case of M/s. IPCA Laboratories Ltd. were discussed in detail and contradictions were pointed out. The precise issue with which the present case is concerned has been dealt as Q.No. ( ii ) by Hon ble Spl. Bench up to para 22, the Hon ble Spl. Bench has discussed the arguments of the parties. Their observations and findings are contained in paras 23, 24, 25, 26 27 and their decision is contained in para 49( ii ). It was pointed out during the course of argument that the Hon ble Spl. Bench has made the following observations : ( a )There is no direct authority of any High Court on the interpretation of the proviso to sub-section (3) of section 80HHC. The proviso goes on to enlarge the scope of the deduction by including the export incentives and therefore proviso stands on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the question before the High Court and Supreme Court was whether losses on one item as under clause ( c ) of sub-section (3) could be set off against profit under another item under clause ( c ) including incentive. Thus incentives under proviso of sub-section (3) was very much taken into consideration by both the High Court and Supreme Court. The Hon ble Spl. Bench therefore erred in holding that incentives were not considered by Bombay High Court in IPCA Laboratories. In IPCA the exporter had suffered losses under clause ( c ) of sub-section (3). But both the Hon ble Supreme Court High Court did not ignore this loss and denied any deduction on incentives also. It cannot be the case of the Hon ble Spl. Bench that the Hon ble Justices of High Court did not know what they were doing when they denied any deduction to assessee even on incentives. If there was any doubt, although in the humble opinion of the undersigned, there was no scope of any doubt it has been removed by the Highest Court of Land. The Hon ble Supreme Court has also denied any deduction to the exporter even on incentives in the IPCA Laboratories Ltd. s case ( supra ) by setting off the trading/manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted that Bombay High Court decision in IPCA was cited before the Kerala High Court but it did not find favour with them. Now the Hon ble Supreme Court has upheld Bombay High Court decision in IPCA Laboratories Ltd. s case ( supra ) in totality. The Smt. T.C. Usha s case ( supra ) stands overruled in all respect including on the question of incentives followed by Special Bench. An identical argument was taken before the Hon ble Supreme Court that a liberal interpretation should be put to the provisions of section 80HHC so that maximum incentives accrue to the exporters. The Hon ble Supreme Court has held as follows : "When though a liberal interpretation has to be given to such a provision the interpretation has to be as per the wording of this section. If the wordings of the section are clear then benefits, which are not available under the section cannot be conferred by ignoring or misinterpreting words in a section." The Hon ble Supreme Court has further held : "It is clear from a reading of sub-section (1) of section 80HHC(3) that a deduction can be permitted only if there is positive profit in the exports of both self manufactured goods as well as trading goods. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (3) cannot be set off against incentives. The Supreme Court says that if there is a loss in sub-section (3) no deduction of any kind will be available to the assessee. Reading these two observations together would mean that in the present case no deduction will be allowed to the assessee. Since there is no positive figure under sub-section (3)( c ), the assessee would not get any deduction as per the observation of the Hon ble Special Bench as it will not be entitled to aggregate the figure worked out under sub-section (3)( c ) with the incentives under proviso. And since there is no positive figure under sub-section (3) the assessee will not get any deduction under sub-section (1) of section 80HHC. Clearly this cannot be an intention of the Legislature. Neither the plain reading of the section suggests such situation. Therefore, a more logical and liberal interpretation would be that losses under sub-section (3) would mean profit as worked out after aggregating with the incentives. It has been held by the Hon ble Supreme Court ". . .We, therefore, hold that a plain reading of section 80HHC makes it clear that in arriving at the profits earned from export of both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Special Bench in the case of Lalsons Enterprises v. Dy. CIT [2004] 89 ITD 25 (Delhi) (SB). To support his argument he also drew our attention to various precedents on record. 6. We have given our thoughtful consideration to the pleas raised with reference to record before us. At the time, when Special Bench of the Tribunal rendered its decision on 25-2-2004 the Apex Court decision in IPCA Laboratories Ltd. s case ( supra ) had not been pronouced. The Supreme Court rendered the said decision on 11-3-2004. In the said decision Apex Court has laid down that being incentive provision such provision needs to be liberally interpreted but liberal interpretation has to be as per the wording of section 80HHC of the Act. If as per the wordings of the section the benefit is not available, then no benefit can be conferred by ignoring or misinterpreting the words contained in the section. On the same, the Court has further held as under : ". . . It would not be denied that the word profit in section 80HHC(1) and sections 80HHC(3)( a ) and 3( b ) means a positive profit. In other words if there is a loss then no deduction would be available under section 80HHC(1) or 3( a ) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Following respectfully the views expressed and law laid down by Apex Court, the conclusion would be that if there is a loss in the main section then no deduction would be available to the assessee and the question of applicability of proviso would not come into play in such cases. 7. We are again fortified in our views the Hon ble Court has held as under : ". . . For purposes of such computation both profits and losses have to be taken into account. Thus the word profit in section 80HHC(3) will mean profits after taking into account losses, if any. More importantly, in our view the term profit in section 80HHC both in sub-section (1) and in sub-section (3) means a positive profit worked out after taking into consideration the losses, if any. Thus the word profit has the same meaning in section 80HHC sub-sections (1) and (3)." (p. 531) Sub-section (1) provides deduction on profit from exports. Sub-section (3) provides the computation of such profits. Hon ble court has held that profits in both sub-sections means profits after considering losses. Therefore, while construing sub-section (3) we cannot exclude losses as computed in the main section and consider the positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f judicature at Delhi. The decision taken by the Hon ble Delhi High Court shall therefore bind the issue. The Assessing Officer merely gave direction to charge interest. He did not pass any specific order. However, in computation form forming part of assessment order section under which interest is charged was clearly mentioned and the interest stood computed and quantified. The assessment order stood modified by the decision of the Ld. CIT(A) who had coterminus powers with that of Assessing Officer to amend assessment. The Assessing Officer had already raised demand on account of interest pursuant to computation Form ITNS 150 which was signed by the Assessing Officer. In Kanpur Coal Syndicate s case ( supra ). The Apex Court while speaking on plenary power of the first appellate authority has expressed its opinion as under : ". . . The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the ITO. He can do what the ITO can do and also direct him to do what he has failed to do. If the ITO has the option to assess one or other of the entities in the alternative, the AAC can direct him to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT for that year will be set off against the MAT credit available. (4)The credit allowed will not bear any interest." 14. The issue of chargeability of interest is therefore a highly debatable issue and was therefore beyond the scope and ambit of rectification under section 154 of the Act. There is also a cleavage of opinion as to whether interest at all can be charged under section 234B where the proviso of section 115JA is applicable on regular assessment. The one view favourable to the assessee has been taken by the Hon ble Madras High Court in the case in CIT v. Holiday Travels (P.) Ltd. [2003] 263 ITR 307 by holding that section 234B does not exclude the provision of section 115J and there is no mention that section 115JA is not applicable, thereby coming to the conclusion that the assessee s company is liable to interest under section 234B irrespective of the fact that section 115J was invoked subsequently. However, in Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519 (Kar.) a different view has been taken where the Court held that the entire exercise of computing income or the book profits of the company could be done only at the end of the financial year and he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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