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TMI Blog2009 (11) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) in directing the AO to allow assessee's claim of relief under s. 80HHC of the IT Act, when no such claim was made in the return of income despite having positive income and failed to fulfill the requirement of s. 80HHC(4) of the Act and also when no claim was preferred in prescribed Form 10CCAC with certificate from the chartered accountant. 3.1 The Department has also filed additional grounds of appeal against action of learned CIT(A) in holding that amount of Rs. 5,79,17,456 claim towards local cess and surcharge is allowable as deduction in asst. yr. 2002-03 (wrongly mentioned as 2001-02) without noting the fact that the Hon'ble Supreme Court vide its order dt. 31st July, 2001 has held that the local cess and surcharges are not collectable after 4th April, 1991 and as a result, liability to pay such amount ceased to exist during the impugned assessment year. Since, it is legal ground, same is admitted. However, it is noticed that claim of the assessee in this regard has been dismissed for the year under consideration. Therefore, Revenue cannot be said to be aggrieved by such order of learned CIT(A). So plea of Revenue in this regard is dismissed being infructuous, but, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isposed of as being allowed." 3.3 Aggrieved by this order of learned CIT(A), the Department has come up in appeal and it was emphatically argued that since assessee has not made any claim in the return of income about deduction under s. 80HHC, despite having positive income. So, in view of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) such claim has rightly been denied by the AO and the learned CIT(A) is not legally or factually justified in passing the direction to consider the claim under law. It was thus, urged for reversal of the order of the learned CIT(A), whereas, the learned counsel for the assessee relied upon the order of the learned CIT(A) and pleaded for confirmation of the same as there was special circumstances for not preferring claim in the return of income. It was urged for confirmation of the impugned order in this regard. 3.4 We have heard both the sides, considered the materials on record, as well as case relied upon by the learned CIT(A). It is not in dispute that despite having positive income, assessee did not make any claim with regard to s. 80HHC deduction in the return of income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome a note was also put to the effect that though the assessee is eligible for deduction under s. 80HHC, the same is not being claimed as the total income has been reduced to nil." 3.6 From all the above four judgments, it would transpire that either clear claim about the deduction have been made in the return or in one of the cases, a note was put up along with the return of income that although the assessee is eligible for deduction under s. 80HHC, the same is not being claimed as the total income has been reduced to nil. But in the case in hand, there is a positive income as specifically noted by the AO and not rebutted by the assessee either before the AO or before the learned CIT(A) or before us. Therefore, in our considered view, the reliance placed by the learned CIT(A) to pass the impugned direction is uncalled for and misplaced. 3.7 As such, considering the entirety of the facts. and circumstances and material on record, we find that the assessee has not made any claim of s. 80HHC deduction in the return of income filed. Therefore, the basis of AO and above decision of the Hon'ble Supreme Court would apply. As such, the order of learned CIT(A) would be overturned and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) and remit the matter to the file of the AO with a direction to decide the issue in the light of the above observations of the Tribunal, after affording opportunity of hearing to the assessee. We hold and direct accordingly. 8. Ground No. 5 is general and calls for no adjudication. 9. As a result, appeal of the assessee gets accepted partly for statistical purpose. ITA No. 2011/Mad/2006 (by the Department): asst. yr. 2002-03 10. Following effective grounds have been raised: "2.1 The learned CIT(A) erred in holding that the amount of Rs. 9,09,27,000 claimed towards local cess and local surcharge is allowable as deduction in the asst. yr. 2002-03. 2.2 The learned CIT(A) failed to note that the Supreme Court by its order dt. 31st July, 2001 in SLP Nos. 13102-13107-1996 in the case of D.M.O.V. Tata Iron & Steel Co. 2001 (7) SCC 358 has held that the local cess and surcharge is not collectible after 4th April, 1991 and as a result the liability to pay the local cess and surcharge ceased to exist during the period relevant to impugned assessment year. The assessee also has claimed refund of this amount following the order of Supreme Court. 3.1 The learned CIT(A) erred in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not have any relevance. The CIT(A) also came to the conclusion that the entire payment is admissible as business expenditure for the asst. yr. 2002-03. 11.1 The learned CIT(A) while considering the issue, has concluded by deciding the issue in favour of the assessee as per para 3.1 of his order which reads as under: "3.1 I have considered the detailed finding of my learned predecessor who passed the appellate order for the asst. yr. 2001-02 contained in paras 3 to 3.11 of his order dt. 18th Nov., 2005. In the circumstances stated thereon. I am inclined to agree with the view that the entire claim of Rs. 9,09,27,000 is an admissible deduction against business income of the assessee for the current year under consideration. In response to the remand report called for from the AO with regard to the claim for 1he entire amount of Rs. 9,09,27,000 which has not been adjusted in the books fully, the AO in his report dt. 30th Dec., 2005 while admitting that the entire payment is to be allowed for the asst. yr. 2002-03, however expressed his view that only the actual amount adjusted and actually paid during the previous year relevant to the assessment year has to be allowed. In reply, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er discussion was not there and learned CIT(A) appears to have decided the issue in slipshod method. Keeping in view the entirety of the facts and circumstances and other relevant materials on record, we find it just and appropriate to set aside the order of the learned CIT(A) and restore the matter back on the file of the AO with the direction to decide the same afresh after giving due opportunity to the assessee. We hold and direct. accordingly. 12. As regards ground Nos. 3.1 to 3.3, the Department has challenged that the learned CIT(A) has erred in holding that excise duty and sales-tax should be excluded from the 'total turnover' for the purpose of computing the relief under s. 80HHC and he further failed to recognize the fact when it is settled law that 'excise duty' and 'sales-tax' do form part of that. The learned CIT(A) has failed to note that the term total turnover has been termed in s. 80HHC itself and except to the extent of items excluded from the total turnover therein no other item can be excluded from the same. 12.1 The learned counsel for the assessee submitted that the issue is squarely covered in favour of assessee by the decision of Supreme Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport of granites. Initial processing of return was under s, 143(1). Thereafter, reassessment proceedings were initiated to disallow the assessee's claim of expenditure of local cess and local cess surcharge. Return for asst. yr. 2001-02 was reopened. Assessee had claimed Rs. 5,79,17,455.91 representing the local cess and local cess surcharge which were charged to revenue expenditure under "prior period expenses" under the head, "Local cess and local cess surcharge". The AO disallowed this amount and made the addition of Rs. 5,79,17,456. Assessee made an alternative claim that it should be allowed benefit of deduction under s. 80HHC. AO did not accept this contention on the following premise: "(a) The assessee company has not claimed the deduction under s. 80HHC(4) of the IT Act, 1961 though it had disclosed a positive income of Rs. 2,97,86,549. (b) The assessee has not complied with the requirements of s. 80HHC(4) of the IT Act, 1961 in the matter of making the claim in the prescribed Form 10CCAC and the report of the accountant along with the return of income. (c) The proceedings have been reopened under s. 147 of the IT Act, 1961 for the benefit of Revenue and it is not open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 693 (AP), Shivanand Electronics and CIT vs. Gupta Fabs. In the relied upon case of CIT vs. A.N. Arunachalam, the facts are slightly different, in as much, that the Tribunal has observed, the preparation of the audit report was beyond the control of the assessee and hence the assessee could considerably delay the filing of the return of income itself so that it is accompanied by the audit report. In such an event, the ITO could not deny the deduction since the purpose of the section would have been fulfilled even though the return itself would have been filed beyond the prescribed time. The AO is directed to ascertain the availability of profits of business eligible for deduction at the first instance and then apply the law as laid down in the relied upon case of CIT vs. Hemsons Industries and CIT vs. Gupta Fabs. This ground is disposed of as being allowed." 19. I have carefully considered the rival submissions and relevant records. An assessee is entitled to claim s. 80HHC deduction not just because it has positive profits but only when the profits can be said to be qualifying for such deduction under the sanguine provisions of the Act. In this case the assessee's plea is that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment proceedings into an appeal or revision in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income'." 22. The Hon'ble apex Court. had clearly expounded that in reassessment, assessee can make claims relatable to items sought to be taxed as "escaped income". It is not the case of the Revenue here that assessee's claim for s. 80HHC deduction in this regard is on matters other than the income resulting from the disallowance of assessee's claim of Rs. 5,79,17,456 in reassessment. 23. The case law of Hon'ble apex Court in the case of Goetze (India) Ltd. vs. CIT is not applicable on the facts of the case. The order of the Hon'ble apex Court reads as under: "The question raised in this appeal relates to whether the appellant assessee could make a claim for deduction other than by filing a revised return. The assessment year in question was 1995-96. The return was filed on 30th Nov., 1995, by the appellant for the assessment year in question. On 12th Jan., 1998, the appellant sought to claim a deduction by way of a letter before the AO. The dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be considered in the light of the questions which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, Courts must carefully try to ascertain the true principle laid down by the decision." 25. It is further noted that Art. 265 of the Constitution of India declares that, no tax can be collected except by authority of law. Again, CBDT Circular No. 14(XL-35) of 1955, dt. 11th April, 1955 states that, officers of the Department must not take advantage of the ignorance of an assessee as to its rights. It is settled law that CBDT circulars are binding on Revenue authorities. Furthermore, the Hon'ble apex Court in the case of CIT vs. V.MR.P. Firm (1965) 56 ITR 67 (SC) has expounded that, if a particular income is not taxable under IT Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. 26. Under the circumstances, in my opinion, there is no infirmity in the learned CIT(A)'s direction to the AO to ascertain the availability of profits of business eligible for deduction at the first instance and then apply the law as laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 5th Nov., 2008 As I do not agree with the questions framed by my learned Brother, following question is formulated and referred for nominating Third Member: "(1) Whether on the facts and circumstances of the case, assessee's claim of deduction under s. 80HHC, pursuant to disallowance of expenditure in reassessment proceedings, needs to be remitted to the file of the AO or the CIT(A)'s order directing the AO to consider assessee's claim needs to be overturned and assessee's plea dismissed?" PRADEEP PARIKH, VICE PRESIDENT (AS THIRD MEMBER): 13th Oct., 2009 There being a difference of opinion between the two Members who originally heard these group of appeals, the Hon'ble President was pleased to nominate the Zonal Vice President as the Third Member by his order dt. 11th Aug., 2009. Thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence on the basis of the points of difference formulated by both the Members without modifying the questions. As a matter of fact, all the three questions encompass all the relevant issues revolving around the same controversy and as such reformulation of the questions is not necessary. 3. The brief facts are that the assessee company which is an undertaking of the Government of Tamil Nadu is engaged in manufacture and export of granites. For the year under consideration, it declared a total income of Rs. 2,97,86,549. It is not in dispute that this total income constituted entirely income from other sources. It is also not in dispute that under the head business income there was no positive income. The return was processed under s. 143(1) accepting the returned income. Subsequently, it was noticed by the AO that a sum of Rs. 5,79,15,455 representing statutory liability of local cess and local cess surcharge remained outstanding at the end of the relevant accounting year and hence disallowance was required to be made under s. 43B of the Act. It was also noticed that some disallowance was required to be made under s. 14A of the Act. Accordingly, the assessment was reopened under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the disallowance made by the AO that it became eligible to claim the deduction. Moreover, in the statement accompanying the return, necessary computation for deduction under s. 80HHC was mentioned. Accordingly, he directed the AO to verify that in the original return no claim of deduction under s. 80HHC was made because it had only income from other sources and that the computation under s. 80HHC was given in the statements accompanying the return. If these facts were found to be true, he directed the AO to grant deduction under s. 80HHC to the assessee. 6. The learned Departmental Representative has put on record his written submissions. The main contention in the written submissions as well as in his oral arguments is that there was no claim for deduction under s. 80HHC in the original return of income and the prescribed audit report not accompanying the return, the claim cannot be entertained in the reassessment proceedings in the light of the decision in the case of Sun Engineering. It is also contended that the assessee could have filed a revised return under s. 139(5) on discovery of any omission or any wrong statement in the return of income. It is further contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in absence of any business income. It is not in dispute that the total income returned by the assessee was income from other sources only. It is also not in dispute that deduction under s. 80HHC can be claimed only when there are business profits as computed under the Act and as explained in cl. (baa) of s. 80HHC. Had the assessee claimed deduction under s. 80HHC against income from other sources, it would have been disallowed and in addition to that, the assessee would have been visited with a penalty under s. 271(1)(c) for furnishing inaccurate particulars of income. Under these circumstances, the assessee cannot be expected to claim the said deduction. Nonetheless, the assessee was aware of the fact that in case it had business income, it would have claimed the impugned deduction and that explains the submission of the computation of the deduction in the statements accompanying the return. This conduct of the assessee signifies that though it is entitled to deduction under s. 80HHC, it is not claiming it on account of absence of business profits. This is one aspect of the matter. Coming to the second aspect, no sooner the disallowance of local cess was proposed by the AO, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led the prescribed audit report and claimed deduction under s. 80HHC. The AO as well as the CIT(A) did not allow the assessee to file the audit report on the ground that it ought to have been filed along with the return of income or during the original assessment proceedings. The Court held that the spirit behind sub-ss. (5) and (9) of s. 139 r/w s. 80HHC is that the assessee should be given a fair and reasonable opportunity to claim the benefit as available under the statute and any denial on technical ground is not justified. The Court upheld the order of the Tribunal allowing the claim of deduction under s. 80HHC and directing the AO to examine the claim afresh after considering the prescribed audit report. This judgment squarely covers the issue in favour of the assessee. 9. Answering the first question raised by the learned JM, it is held that the order of the CIT(A) directing the AO to consider the deduction under s. 80HHC need not be reversed. Answering the second question raised by the learned JM, the order of the CIT(A) directing the AO to consider the said deduction despite there being no claim in the original return also need not be reversed. To answer the question rais ..... X X X X Extracts X X X X X X X X Extracts X X X X
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