COMMR OF INCOMETAX AP-I HYD V. M/S.DECCAD POLYPACKS LTD. HYD

ITTA/101/2001

AI Insights

The case revolves around the dispute concerning the computation of deductions under Sections 80HH and 80-I of the Income Tax Act, 1961, where the assessee claimed deductions without setting off the unabsorbed investment allowance in the original return. The Assessing Officer, during the processing of the return under Section 143(1)(a), made adjustments by setting off the unabsorbed investment allowance, which led to the filing of an appeal by the assessee. The Income Tax Appellate Tribunal initially allowed the appeal but referred certain questions of law to the High Court for clarification. The High Court, after examining the legal provisions and relevant case laws, concluded that the adjustments made by the Assessing Officer were not permissible as the issue was debatable at the time of the return filing, and thus, any adjustments should have been made only during a regular assessment under Section 143(3).

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 719059 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 03-12-2013
• Assessment Year: misc
• Other Referred Cases: CIT v. Tarun Udyog, CIT vs. Hindustan Electrographites, Modern Fibotex vs. DCIT, Khatau Junker Ltd. vs. K.S. Pathania, H.H. Sir Rama Varma Vs. CIT, Sabarkantha Zilla Kharid Vechan Sangh Ltd. Vs. CIT, Narayana Row (S.A.L.) CIT Vs. Model Mills Nagpur ltd., Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd., CIT Bombay Vs. Scindia Steam Navigation Co. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S RAVI; P KIRAN
• Assessee Lawyers: S R ASHOK; S REDDY
• Keywords: Deductions; Income Tax; Legal interpretation; Prima-facie adjustment; Unabsorbed Investment Allowance
• Section: 154; 80HH; 143(1)(a); 143(1A); 80I

Judgement Text

"HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No.101 OF 2001 JUDGMENT:- (per Hon’ble Sri Justice Challa Kodanda Ram) At the instance of the Revenue, the Income Tax Appellate Tribunal, Hyderabad Bench-‘A’ had referred the following questions of law: 1. “Whether, on the facts and circumstances of the case, the Appellate Tribunal is right in deleting the adjustments made to the quantum allowance U/s.80HH and 80I of the I.T. Act?” 2. “Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the intimation given U/s. 143(i)(a) is beyond the scope of that Section?” 3. “Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in deleting the additional tax levelled U/s.143(1A)?” 4. “Whether on the facts and in the circumstances of the case, the Appellate Tribunal is correct in adjudicating the validity of proceedings U/s.143(1) (A) in an appeal arising out of proceedings U/s. 143(1)(a) in an appeal arising out of proceedings U/s.154 of the I.T.Act”? 2) The brief facts of the case are that the assessee filed an appeal before the Income Tax Appellate Tribunal with regard to the enhancement of the income returned from Rs.17,17,757/- to Rs.20,18,362/-. The assessee company, in its original return, claimed deductions under Sections 80HH and 80-I of the Income Tax Act (for short, “the Act”) on the income without setting off the unabsorbed investment allowance amounting to Rs.5,78,605/-. The said return was processed under Section 143(1)(a) of the Act on 01.10.1993 and the deductions under Sections 80HH and 80-I of the Act had been computed after setting off the aforesaid unabsorbed investment allowance. Being aggrieved, the assessee company filed a petition under Section 154 of the Act before the Assessing Officer claiming deductions under Sections 80HH and 80-I of the Act in view of the decision reported in CIT v. Tarun Udyog[1] and the same was rejected by the Assessing Officer. Aggrieved by the same, the assessee filed the appeal before the Income Tax Appellate Tribunal, Hyderabad Bench-A. The Income Tax Appellate Tribunal by its order dated 18.10.2000 in I.T.A.No.769/Hyd/1996 for the assessment year 1992-93 allowed the appeal deleting the additional tax in relation to adjustment with regard to computation of deductions under Sections 80HH and 80-I of the Act and levying additional tax in relation to such adjustments while setting aside the said order dated 18.10.2000, referring the above said questions for opinion of this Court. Hence, this appeal. 3) Heard the learned Senior Standing Counsel for the Income Tax Department Sri S.R. Ashok, assisted by Sri S. Seshidhar Reddy, for the Income Tax Department and the learned Senior Advocate for the assessee Sri S. Ravi, assisted by Sri P. Kiran. 4) The Tribunal in its order has recorded the following: “It is true that the law relating to the manner of computation of deductions available under Sections 80HH and 80-I of the Act has been settled by the successive decisions of the Hon’ble Supreme Court reported in 203 ITR 1027 and 205 ITR 433, etc. In the circumstances, the deductions claimed by the assessee should have been computed after giving effect to the unabsorbed balances of investment allowance. As far as the assessment is concerned, the above position is correct. But, we are concerned here with the issue whether the re-working of deductions under Sections 80HH and 80-I of the Act could be made under the provisions of Section 143(1)(a) of the Act through the medium of prima- facie adjustment contemplated there under. The return of income was filed on 31.12.1992. At that time, the law relating to the deductions as aforesaid was filed. It is apparent from the fact that the decision of the Orissa High Court in Tarun Udyog (1 supra) has upheld the view taken by the assessee in this case. At that point of time, the said decision alone was available as a direct case- law on the subject. It is not proper to say that there was no dispute on this point simply because of the wordings in Section 80AB of the Act. It was much disputed at that time. The issue was debatable was manifest from the fact that the Orissa High Court decided the matter in favour of the assessee, whereas the subsequent decisions of the Supreme court were in favour of the revenue. Therefore, while the issue was subject to much discussion and amenable to different views, the assessee was justified in relying on the only decision available at that point of time, which was in its favour. The Supreme Court has held in a recent decision in CIT vs. Hindustan Electrographites. [2] That the applicable in a case is the law obtaining on the date of filing of the return. This was the view taken by the High Court of Calcutta in an earlier occasion in the case of Modern Fibotex vs. DCIT [3] . In that view of the matter, there is no doubt that the assessee was bound by the law as it stood at the time of filing of the return of income. The return was filed on 31.12.1992. At that time, the issue was not settled by the decisions of the Apex Court, and the only decision of the Orissa High Court in Tarun Udyog (1 supra) was in its favour. Therefore, one has to hold that the point at issue was very much a debatable one at the time when the assessee filed the return. Therefore, no alteration in the quantum of deductions claimed by the assessee under Sections 80HH and 80-I of the Act could be made by way of prima facie adjustments while processing the return under Section 143(1)(a) of the Act. Any such thing can be done only in the course of a regular assessment. This is particularly so, in view of the Bombay High Court decision in the case of Khatau Junker Ltd., and another vs. K.S. Pathania and another [4] . Therefore, we are of the view that the assessing officer has gone wrong in restricting the quantum of deductions claimed under Sections 80HH and 80-I of the Act, while processing the returns under Section 143(1)(a) of the Act. In this view of the matter, we set aside the adjustments made by the assessing officer, and delete the additional tax levied in relation to those adjustments.” 5) The short questions in this present appeal are that 1) Whether on account of the fact the issue relating to the allowability of deductions under Section 80 HH and 80 I of the Act on the income without setting of the unabsorbed investment allowance being debatable? 2) Whether a prima facie adjustment can be made under Section 143 (1A) of the Act? 6) The facts on record would reveal that as on the date of the Assessing Officer processing the return under Section 143(1A) of the Act i.e. 01.10.1993, whether deduction under Section 80HH and 80 I of the Act should be computed after setting off the unabsorbed investment allowance or not was in a fluid stage, on account of the fact that the judgment of the Orissa High Court reported in Tarun Udyog case (1st Supra) was in favour of the assessee and that was only a decision available on the issue. The Orissa High Court judgment was not accepted by the department as in the opinion of the Assessing Officer in terms of Sections 80 AB and 80 B(5) of the Act, the deductions under Chapter VIA could be allowed only after setting of unabsorbed balances sought by the assessee under section 154 of the Act. The Crucial aspect that is required to be considered by the Assessing Officer under Section 154 of the Act is whether the prima facie adjustment which has been made as on the date of 01.10.1993 could have been made at all. In the light of the judgment of the Supreme Court reported in Hindustan Electrographites (2nd Supra), it is impermissible to make prima facie adjustments while processing the return under Section 143 (1)(A) of the Act. 7) Sri S. Seshidhar Reddy, learned Standing Counsel for the Department would submit that the view taken by the Assessing Officer while passing the order under Section 154 of the Act is unexceptionable and in fact as on that date the law is well settled on account of the judgment of the Supreme Court reported in the cases of H.H. Sir Rama Varma Vs. CIT[5] and Sabarkantha Zilla Kharid Vechan Sangh Ltd., Vs. CIT[6], holding that the deduction under Section 80 HH and 80 I of the Act can be allowed only after setting off unabsorbed investment allowance. He would also point out that in that view of the matter, the judgment of the Orissa High Court in Tarun Udyog Ltd., (1st Supra) is of no avail to the assessee. He would also submit that once the law is declared by the Supreme Court such declaration is only enunciation of law and the same would be from the time the statutory provision came into existence. He would further submit that the Assessing Officer while passing common order under Section 154 of the Act could not have taken the opinion contrary to the law declared by the Supreme Court. He would place reliance on the judgment of the Supreme Court reported in Narayana Row (S.A.L.) CIT Vs. Model Mills Nagpur ltd.,[7] and also the judgment reported in the case of Assistant Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd.,[8]. 8) In our opinion the judgments in Narayna Row case (7th Supra) and Saurashtra Kutch case (8th supra) have no application to the facts of the case as in the first judgment the Supreme Court was concerned with refund of excess tax paid. The application seeking refund was treated by the High Court as a request for rectification which was ordered. The Supreme Court confirmed the same noticing even the Commissioner while dealing with the said application for refund treated that the application as an application for rectification. 9) As a matter of fact, the judgment of the Calcutta High Court was approved by the Supreme Court, which held for the purpose of attracting Section 143 (1A) of the Act, the law as applicable as on the date of filing of the return should be the basis for processing the return. 10) Likewise, the issue involved in the Saurashtra Kutch Stock Exchange Ltd., case (8th Supra) is with regard to what could be considered as a mistake apparent from the record. This judgment was relied on by the learned counsel to support his contention that the rectification application filed under Section 154 of the Act itself was not maintainable as it cannot be said that the Assessing Officer had committed an error which is borne on the face of record. He would further submit that the original order made by the Assessing Officer was in the light of Section 80 (AB) of the Act and other statutory provisions. In that view of the matter, the original order of the Assessing Officer is valid and the refusal made by the Assessing Officer in refusing the same under Section 154 of the Act cannot be found fault. 11) On the other hand the learned counsel for the respondent/assessee would submit that the issue is squarely covered by the judgment of the Supreme Court in Hindustan Electrographites (2nd Supra), which in fact had approved the judgment of the Calcutta High Court reported in Modern Fibotex (3rd supra). He would further submit that the provisions of Section 23 (1A) of the Act as applicable at relevant point of time were penal in nature imposing an additional burden on the assessee. And invocation of Section 23 (1A) of the Act by the Assessing Officer at the time of passing the original assessment was not in order on account of the fact that the return filed by the assessee is based on the law prevailing on the date of filing of the return. He would draw the specific attention of the Court to the Para-9 in the case of Hindustan Electrographites (2nd supra), wherein it was held that “The High Court was further of the view that there was limitation on the power under Section 143(1)(a) and that the Assessing Officer must determine the question of assessment thereunder by applying the law prevailing when the return was filed”, which was made while referring to the judgment of the Calcutta High Court in Modern Fibotex India Ltd., case (3rd Supra). 12) The learned counsel would also relied on the Judgment of the Delhi High Court reported in Samtel Color Limited Vs. Union of India (UOI) and Ors.,[9] wherein it was held as under: 19. The next question raised for consideration is to the law prevailing at a particular time - whether the time when the return was filed on when the Assessing Officer makes the adjustments - would be relevant for judging whether the deduction, allowance or relief claimed by the assessed in the return of income was correct or not?. Alternatively put, whether the question of correctness of the return is to be considered in the light of the law prevailing at the time of filing of the return or at the time of adjustment by the Assessing Officer. 20. In Modern Fibotex case (3rd Supra) the Calcutta High Court, when called upon to consider a similar question, held that the power of the Assessing Officer under Section 143(1)(a) of the Act was to determine the correctness of the return in the light of the law prevailing at the time when the return was filed. It was observed: \"Without going into the question as to whether the provisions are penal in nature, but keeping in mind the consequences of an adjustment made and the insistence upon the assessed filing a correct return, it would follow that the date for judging the question of adjustment must be the actual date of the return in the light of the law then prevailing. To hold otherwise, manifestly shocks one's sense of justice that an act, correct at the time of doing it, should become incorrect by some new enactment\" Clarifying further with reference to the amendment in law involved in that case the Court said: \"Additionally, the change in the law by amendment of Section 28 took place several months after the return was filed by the assessed. This Court is not determining the validity of the amendment of Section 28, but is merely determining the scope of the power under Section 143(1)(a). The assessed's return could have been taken up by the Assessing Officer under Section 143 prior to the amendment. In that event, no adjustment would have been made and no intimation would have been sent. An assessed's liability cannot be made to depend upon such a fortuitous circumstance.\" 24. We have, Therefore, no hesitation in holding that the question of prima facie adjustment under Section 143(1) (a) of the Act has to be considered with reference to the date on which the return of income is filed and not with reference to the events subsequent thereto. 33. Testing the rival stands on the touchstone of the interpretation given by us to the legal provisions, particularly to the first proviso to Section 143(1)(a) of the Act, we are of the opinion that insofar as the claim of the assessed in treating the sales promotion assistance as capital receipt is concerned, in view of the fact that a similar claim in respect of earlier year had been accepted by the Assessing Officer in a regular assessment, it seems difficult to hold that it was prima facie inadmissible as on the date of filing of return for the relevant assessment year. Merely because later on the claim was sought to be withdrawn or the issue was finally decided by the Apex Court against the assessed after the filing of the return, it cannot be held that as far as the assessed is concerned, the claim in the return was incorrect at the threshold. 13) The judgment of the Supreme Court and the judgment of the Delhi High Court squarely covers the point in issue in favour of the assessee. As a matter of fact, the Tribunal while deciding the issue had followed the judgment of the Supreme Court reported in Hindustan Electrographites (2nd Supra). In the light of the judgments referred to supra, taking the view, the Assessing Officer has to take into consideration while processing the return under Section 143 (1A) of the Act, the law prevailing as on the date of the filing of the return. The order originally passed by the Assessing Officer on 01.10.1993 itself not being in conformity with the statutory scheme an order of the Tribunal in holding that in setting aside the assessment order cannot be faulted. However, it may be noticed that the Tribunal had taken care to apply the law as laid down by the Supreme Court in the cases of H.H. Sir Rama Varma and Sabarkantha Zilla Kharid Vechan Sangh Ltd., (5th and 6th supra) by observing that “Therefore, no alteration in the quantum of deductions claimed by the assessee under Section 80-HH and 80-I of the Act could be made by way of prima facie adjustments while processing the return under Section 143 (1) (a). Any such thing can be done only in the course of a regular assessment.” 14) In the light of the discussion above, Question Nos.1 to 3 are required to be answered in the negative i.e. against the revenue and in favour of the asssessee. So far as Question No.4 is concerned on perusal of the order of the Tribunal we find that there was no question raised and argument advanced with respect to the said issue and in that view of the matter, and in view of the judgment of the Supreme Court in CIT Bombay Vs. Scindia Steam Navigation Co. Ltd.,[10] the question cannot be said to have arisen from the order of the Tribunal. Hence, we decline to answer the same. 15) Accordingly, the appeal is disposed of. No order as to costs. Miscellaneous Petitions, if any, pending in this appeal shall stand closed. ____________________ G. CHANDRAIAH, J ____________________________ CHALLA KODANDA RAM, J Date: 03.12.2013. Ssv HON'BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No.101 OF 2001 Date:03.12.2013. Ssv [1] 191 ITR 688 [2] 243 ITR 48 [3] 212 ITR 476 [4] 196 ITR 55 [5] 205 ITR 433 [6] 203 ITR 1027 [7] 1967 (064 ITR 0067 [8] 305 ITR 227 (SC) [9] 99 (2002) DLT 764 [10] AIR 1961 SC 1633 "