TMI Blog2009 (11) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... s) : PRADEEP PARIKH., U. B. S. BEDI., SHAMIM YAHYA. ORDER-U.B.S. BEDI, J.M.: November, 2007 These three appeals comprise cross-appeals one by the assessee and other by the Revenue against the order of learned CIT(A)-XI, Chennai, dt. 18th Nov., 2005 for asst. yr. 2001-02 and Department's appeal against the order of learned CIT(A)-III, Chennai, dt. 26th June, 2006 relevant to asst. yr. 2002-03. 2. These appeals were heard together and therefore these are being disposed of by a single order for the sake of convenience. ITA Nos. 827 327/Mad/2006 (Cross-appeals): asst. yr. 2001-02 3. In Revenue's appeal in ITA No. 827 jMadj2006, Department has challenged action of learned CIT(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 481 (Mad) 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. 5.4 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 cases of Hemsons Industries and CIT vs. Gupta Fabs. This ground is disposed 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 696 of the judgment, Hon'ble Andhra Pradesh High Court has clearly recorded of assessee having made a claim in the return about deduction under s. 80HH and similarly in the case of CIT vs. Gupta Fabs (2005) 274 ITR 620 (P H), the facts recorded in the bottom of p. 621 running to p. 622 of the judgment reads as under: "The assessee is an exporter. During the year 1997-98, it received incentives and duty drawbacks amounting to Rs. 3,24,083 on exports. In the return filed for the asst. yr. 1998-99, the assessee claimed exemption to the extent of Rs. 2,08,802 in lieu of incentives and duty drawbacks received in the previous financial year and showed the assessable income as nil. In the computation of total income attached with the return of income 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Benches of Tribunal in this regard are consistently restoring the matter on the file of AO in various cases while following earlier decisions including in ITA No. 2336/Mad/2007 in the case of V. Ramakrishna Sons (P) Ltd. vs. Asstt. CIT dt. 13th June, 2008 with the following direction: "5. We have heard both sides and perused the materials on record. This issue is set aside to the file of the AO and decide the issue in the light of the order of the Tribunal, Delhi Bench in the case of Wimco Seedlings Ltd. vs. Dy. CIT (2007) 109 TTJ (Del)(TM) 462 : (2007) 107 ITD 267 (Del)(TM) and disallow only the actual expenditure incurred for earning this exempted income. 7.2 Taking consistent view and following the above order, we set aside the order of the learned 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. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO who passed the order for the asst. yr. 2001-02 by applying s. 43B and stating that the claims have not been made in the years of payment. On appeal, the CIT(A)-XI in his order dt. 18th Nov., 2005 after considering the complete history relating to the levy of local cess and local surcharge and interest thereon has come to the conclusion that the matter has crystallized only when the Supreme Court rendered its final order on 31st July, 2001 relevant for the asst. yr. 2002-03. According to his findings, the taxable event arises for the asst. yr. 2002-03 with the rendering of the decision of the Supreme Court and hence, the letter dt. 31st May, 2001 issued by the State Government on the basis of which the assessee made the claim for the asst. yr. 2001-02 would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at the most be set aside and restored to the file of the AO for reconsideration, whereas, the learned counsel for the assessee has pleaded for confirmation of the impugned order in this regard all the pica that amount has already been deposited with the Government and this is a genuine business expenditure, which has rightly been allowed in appeal by the learned CIT(A) and his order should be confirmed. 11.3 We have heard rival submissions and perused the materials on record and find that the learned CIT(A) in the context of additional ground has just accepted the plea of the assessee without even passing formal order for admitting additional ground of appeal and without considering the fact that such claim was not directly made before the AO. Otherwise also, proper 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und Nos. 3.1, 3.2 and 3.3 in the appeal of the Revenue. 13. As regards, ground No. 4, same is general and calls for no adjudication. 14. In the result, appeal of the Revenue gets partly accepted for statistical purpose. SHAMIM YAHYA, A.M.: 3rd Nov., 2008 15. I have gone through the order of my learned Brother. Despite persuasion, I am not able to agree on the issue in ITA No. 827/Mad/2006 as to whether learned CIT(A)'s direction to the AO to consider assessee's claim for deduction under s. 80HHC, was justified. 16. In this case, the assessee is a Government of Tamil Nadu undertaking engaged in the business of manufacture and export 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdictional High Court in the case of CIT vs. A.N. Arunachalam (1994) 122 CTR (Mad) 87 : (1994) 208 ITR 481 (Mad) held that furnishing of audit report for claiming of a deduction under Chapter VI-A is not mandatory and the same can be filed before completion of the assessment. Reliance was placed also in the decision in CIT vs. Gupta Fabs (2005) 274 ITR 620 (P H) and CIT vs. Shivanand Electronics (1994) 119 CTR (Bom) 94 : (1994) 209 ITR 63 (Bom). I have considered the rival submissions and find that the claim of the appellant has to be considered in the light of judicial precedents in the cases of CIT vs. Hemsons Industries (2001) 171 CTR (AP) 527 : (2001) 251 ITR 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 thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entally has been relied upon by the AO himself. In this case, Hon'ble apex Court expounded that: "A matter not agitated in the concluded assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the items sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to the assessee to put forward claims for deduction of any expenditure in respect of that income or regarding the non-taxability of the items at all. Sec. 147, being for the benefit of the Revenue and not the assessee, the assessee cannot be permitted to convert the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , did it become eligible to claim the deduction. Moreover, assessee has also claimed that in a statement accompanying the return, necessary computation for deduction under s. 80HHC was mentioned. 24. The Hon'ble apex Court in Sun Engineering Works (P) Ltd. case cited above had expounded that Supreme Court decision should not be considered de hors the context. It was held: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have 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, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) or reversed? 2. Whether, the learned CIT(A)'s action for considering deduction under s. 80HHC could be upheld when such deduction was not claimed in the return filed which return was stated by the assessee to be treated in response to notice under s. 148 vide letter dt. 19th May, 2003 in view of the judgment of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) or reversed?" SHAMIM YAHYA, A.M.: 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., 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bench. It further held that he has no right to enlarge, restrict and modify and/or formulate any question of law on his own on the difference of opinion referred by the Members of the Tribunal. Be that as it may, I proceed to dispose of the reference 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it was not applicable in the assessee's case because in the present case, the assessee had not failed to claim the deduction in the original return. No deduction was claimed because it had income only from other sources and it was only on account of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to escaped income. In the light of this principle, let us examine the facts of the present case. It is true that the total income returned by the assessee was a positive income. But the question is, could the assessee claim deduction under s. 80HHC 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee claimed a loss and assessment was completed under s. 143(3) without disallowance of interest. In the reassessment proceedings under s. 147, the loss was converted into profit on account of disallowance of profit (sic). The assessee immediately filed 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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