M/s Sutures India Pvt. Ltd., Bangalore V. AICIT, Bangalore

ITA 1261/BANG/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0666 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-10-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 20-10-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PREETHI GARG
• Assessee Lawyers: V CHANDRASHEKAR
• Keywords: Revision of order; Opportunity of being heard; Reasonable cause; Assessment record
• Section: 80HHC; 250; 80IA; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.1261/BANG/2008 ASSESSMENT YEAR : 2003-04 M/S. SUTURES INDIA PVT. LTD., NO.118, 3 RD PHASE, 13 TH CROSS, PEENYA INDUSTRIAL AREA, BANGALORE 560 068. : APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 12(3), BANGALORE. : RESPONDENT APPELLANT BY : SHRI V. CHANDRASHEKAR RESPONDENT BY : SMT. PREETHI GARG O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE A PRIVATE LIMITED COM PANY IS DIRECTED AGAINST THE ORDER OF THE CIT, B-III, PASSE D U/S 263 OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVEN GROUNDS, OUT OF WH ICH, GROUND NOS:1, 2, 6 & 7 ARE BEING GENERAL AND NOT VERY SPEC IFIC AND, THEREFORE, IN OUR CONSIDERED VIEW, THEY DO NOT SURVIVE FOR CONSID ERATION. IN THE REMAINING GROUNDS, THE CRUX OF THE GROUSE OF THE AS SESSEE IS LARGELY CONFINED TO THE STAND OF THE LD. CIT IN HOLDING THA T THE ALLOWANCE OF THE ITA NO. 1261/B/08 PAGE 2 OF 9 CLAIM OF THE ASSESSEE U/S 80IA OF THE ACT BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2.1. STRONG RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN SCM CREATION V. ACIT REPORTED IN 304 ITR 319. 3. BEFORE VENTURE INTO CONSIDER THE ISSUE RAISED BY THE ASSESSEE, WE FIND THAT THERE WAS A CONSIDERABLE DELAY IN PREFERR ING THIS APPEAL. THE ASSESSEE, IN ITS APPLICATION FOR CONDONATION OF DEL AY (WITH AN AFFIDAVIT), SUBMITTED THAT THE ENTIRE FILE PERTAINING TO THE AY IN DISPUTE WAS RETAINED BY ITS TAX CONSULTANT WHO HAD INITIALLY ADVISED THE AS SESSEE THAT THERE WAS NO CASE IN APPEALING AGAINST THE ORDER OF THE CIT BEFO RE THE HONBLE TRIBUNAL. HOWEVER, ON BEING COUNSELED BY THE PRESENT COUNSEL, THE ASSESSEE HAD PREFERRED THIS APPEAL, IN DOING SO, CONSIDERABLE DE LAY HAD OCCURRED. IT WAS, THEREFORE, PLEADED THAT AS THE ASSESSEE WAS PR EVENTED BY A REASONABLE AND GENUINE CAUSE IN NOT PREFERRING THE APPEAL WITHIN THE STIPULATED TIME, THE DELAY MAY PLEASE BE CONDONED A ND THE APPEAL BE ADMITTED. 3.1. IN DUE CONSIDERATION OF THE REASONS ADDUCED BY THE ASSESSEE IN ITS SUBMISSION, WE WERE OF THE UNANIMOUS VIEW THAT THE ASSESSEE WAS, IN FACT, PREVENTED BY A REASONABLE CAUSE AND, THUS, THE DELA Y WAS CONDONED AND THE REGISTRY WAS, ACCORDINGLY, DIRECTED TO TAKE THE ASSESSEES APPEAL ON RECORD AND PLACE IT FOR ADJUDICATION IN NORMAL COUR SE. 4. REVERTING TO THE MAIN ISSUE, WE FIND THAT THE LD . CIT - IN A SUO MOTU ACTION HAD VERIFIED THE ASSESSMENT RECORDS OF THE ASSESSEE FOR THE AY UNDER DISPUTE AND FOUND THAT THE ASSESSEE HAD CLAIM ED DEDUCTIONS U/S ITA NO. 1261/B/08 PAGE 3 OF 9 80HHC AND U/S 80IA OF THE ACT WHICH THE AO HAD WRON GLY ALLOWED THE DEDUCTION U/S 80HHC OF RS.1144832/- WITHOUT REDUCIN G THE DEDUCTION ALLOWED U/S 80IA(9) OF THE ACT AND THAT NO AUDIT RE PORT IN FORM 10CCB AS REQUIRED U/S 80IA (7) READ WITH RULE 18BBB OF I.T.R ULES WAS FURNISHED IN SUPPORT OF DEDUCTION CLAIMED U/S 80-IA. 4.1. IN COMPLIANCE TO THE SHOW-CAUSE NOTICE, THE AS SESSEE HAD REBUTTED THE ASSERTION OF THE CIT AND DRAWING STRENGTH FROM THE FINDINGS OF (I) HONBLE TRIBUNAL IN ITA NO:3352/B/2004 IN THE CASE OF FUTURA SURGICARE PVT. LTD. (II) HONBLE APEX COURTS RULING IN MALABAR INDUSTRIES L TD. (SIC) MALABAR INDUSTRIAL CO. LTD. REPORTED IN 243 ITR 83 ; & (III) JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF ITO V. MANDIRA VAKHARIA REPORTED IN 250 ITR 432; IT WAS PRAYED THAT THE INITIATION OF PROCEEDINGS U/ S 263 OF THE ACT BE DROPPED. 4.2. AFTER CONSIDERING THE OBJECTIONS OF THE ASSES SEE, THE LD. CIT, IN HIS IMPUGNED ORDER, HAD OBSERVED THUS (I) THE ASSESSEE HAD CLAIMED DEDUCTIONS U/S 80HHC AND 8 0-IA OF RS.1144832 AND RS.4093489 RESPECTIVELY; - THE AO WITHOUT REDUCING THE DEDUCTION ALLOWED U/S 8 0-IA FROM THE BUSINESS PROFITS AS REQUIRED U/S 80IA(9) OF THE ACT, HAD ALLOWED DEDUCTION U/S 80HHC AS CLAIMED BY THE ASSES SEE; (II) NO AUDIT REPORT IN FORM 10CCB AS REQUIRED U/S 80IA( 7) R.W.R 18BBB WAS FURNISHED ALONG WITH THE RETURN OF INCOME ; (III) AS PER S.80-IA(7), DEDUCTION U/S SUB-SECTION (1) OF S.80-IA SHALL NOT BE ADMISSIBLE UNLESS THE ASSESSEE FURNISHES, AL ONG WITH ITS ROI, THE AUDIT REPORT IN THE PRESCRIBED FORM NO.10C CB. SINCE THE ASSESSEE HAD NOT FURNISHED THE REPORT IN THE PR ESCRIBED FORM NO.10CCB ALONG WITH ITS ROI, THE ASSESSEE WAS NOT E LIGIBLE FOR DEDUCTION U/S 80-IA; (IV) RELIANCE ON ITO V.MANDIRA VAKHARIA REPORTED IN 250 ITR 432 (KAR) WAS DISTINGUISHABLE AS IN THAT CASE THE ASSES SEE HAD FAILED ITA NO. 1261/B/08 PAGE 4 OF 9 TO FURNISH A CERTIFICATE OF THE ACCOUNTANT ALONG WI TH THE RETURN AND THE CERTIFICATE WAS SUBSEQUENTLY FURNISHED ALONG WI TH AN APPLICATION FOR RECTIFICATION. THUS, THE HONBLE C OURT HAD HELD THAT THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/ S 80HHE(4) AND 80GG OF THE ACT TO THE EXTENT PERMITTED BY THE BOAR DS CIRCULAR NO.669 DATED: 25.10.93. HOWEVER, THERE WAS NO BOAR DS CIRCULAR IN THE INSTANT ISSUE TO COME TO THE RESCUE OF THE ASSESSEE; (V) SINCE THE AO OUGHT TO HAVE REDUCED DEDUCTION U/S 80 -IA FROM THE BUSINESS PROFITS FOR THE PURPOSES OF COMPUTING DEDU CTION U/S 80HHC AS REQUIRED U/S 80IA(9) OF THE ACT, THE IMPUG NED ORDER OF THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE. (VI) RELIANCE PLACED ON THE RULINGS OF THE HONBLE TRIBU NAL AND THAT OF THE APEX COURT REFERRED SUPRA WERE DISTINGUISHABLE. 5. AGGRIEVED, THE ASSESSEE HAS COME UP WITH THE PRE SENT APPEAL. DURING THE COURSE OF HEARING, THE ARGUMENT OF THE L D. A R WAS IN CONSONANCE WITH WHAT WAS CONTENDED BEFORE THE LD. C IT. BUTTRESS HIS ARGUMENT; HE DREW STRENGTH FROM THE RULINGS OF THE HONBLE MADRAS HIGH COURT AS WELL AS THE JURISDICTIONAL HIGH COURT REFE RRED SUPRA. 5.1. ON HER PART, THE LD. D R CAME UP WITH A SPIRITED ARGUMENT THAT THE AO HAD GROSSLY ERRED IN ALLOWING THE DEDUCTION U/S 80HHC AS CLAIMED BY THE ASSESSEE WITHOUT REDUCING THE DEDUCTION ALLO WED U/S 80-IA(9) OF THE ACT. TO SET RIGHT THE RECORD AND ALSO TO SAFE-GUAR D THE INTEREST OF REVENUE, THE CIT HAD INVOKED THE PROVISIONS OF S.263 OF THE ACT IN A JUDICIOUS MANNER WHICH REQUIRES TO BE UPHELD. SHE HAS ALSO P LACED RELIANCE ON THE HONBLE TRIBUNALS FINDING IN ITA NO:333(BANG)/2009 DATED: 28/8/2009 AND ALSO THE RULING OF THE HONBLE ITAT, DELHI BENCH C [SPECIAL BENCH] REPORTED IN (2009) 119 ITD 107 [DELHI (SB)] IN SUPP ORT OF THE STAND OF THE CIT. ITA NO. 1261/B/08 PAGE 5 OF 9 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AN D ALSO PERUSED THE RELEVANT RECORDS. 6.1. LET US NOW DEAL WITH THE CONTENTIONS OF THE LD . A.R. (I) THE LD. A.R. HAD PLACED STRONG RELIANCE ON THE FINDING OF THE HONBLE MADRAS HIGH COURT REFERRED SUPRA. WITH DUE RESPECTS, WE WOULD LIKE TO POINT OUT, AS RIGHTLY BROUGHT OUT BY THE HONBLE TRIBUNAL, DELHI SPECIAL BENCH IN ITS FINDING CITED SUPRA, THAT THE APPLICABILITY OF SECTION 80-IA(9) OR SIMILAR PROVIS ION UNDER SECTION 80-IB WAS NOT CONSIDERED BY THE HONBLE HIGH COURT IN THE CASE OF SCM CREATIONS; (II) IN RESPECT OF THE JURISDICTIONAL HIGH COURTS RULING IN THE CASE OF ITO V. MANDIRA VAKHARIA REFERRED SUPRA, WITH DUE RE GARDS, WE ARE OF THE CONSIDERED VIEW, AS HIGHLIGHTED BY THE LD. C IT IN THE IMPUGNED ORDER UNDER DISPUTE, THAT THE CASE BEFORE THE HONBLE COURT WAS THAT THE ASSESSEE HAD FAILED TO FURNISH A CERTIFICATE OF THE ACCOUNTANT ALONG WITH THE RETURN AND THAT THE CERTIFICATE WAS FURNISHED SUBSEQUENTLY ALONG WITH AN APPLICATION FO R RECTIFICATION. THE HIGH COURT RULED THAT THE ASSESSEE WOULD BE EN TITLED TO DEDUCTION U/SS.80HHE(4) AND 80GG OF THE ACT TO THE EXTENT PERMITTED BY THE BOARDS CIRCULAR NO.669 WHEREAS IN THE INSTANT CASE THERE WAS NO SUCH BOARDS CIRCULAR TO COME TO THE ASSESSEES RESCUE. THUS, THE FINDING OF THE JURISD ICTIONAL HIGH COURT DOESNT HELP THE ASSESSEE IN ANY WAY; ITA NO. 1261/B/08 PAGE 6 OF 9 (III) TURNING TO THE VERDICT OF THE HONBLE APEX CO URT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. CITED SUPRA, WITH HIGHE ST REGARDS, WE WOULD LIKE TO POINT OUT THAT THE HONBLE HIGHEST CO URT OF THE COUNTRY HAD RULED THAT - '263. REVISION OF ORDERS PREJUDICIAL TO REVENUE.--- (1) THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ER RONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THER EON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CANCELLIN G THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. EXPLANATION---. . .' A BARE READING OF THIS PROVISION MAKES IT CLEAR THA T THE PREREQUISITE TO THE EXERCISE OF JURISDICTION BY THE COMMISSIONER SUO MOTU UNDER IT, IS THAT THE ORDER O F THE INCOME-TAX OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS , NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUG HT TO BE REVISED IS ERRONEOUS ; AND (II) IT IS PREJUDICIAL T O THE INTERESTS OF THE REVENUE. IF ONE OF THEM IS ABSENT- IF THE ORDER OF THE INCOME-TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOU S BUT IS PREJUDICIAL TO THE REVENUE-RECOURSE CANNOT BE HAD T O SECTION 263(1) OF THE ACT. THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACT ED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLI CATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BE ING ERRONEOUS .. ITA NO. 1261/B/08 PAGE 7 OF 9 THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REV ENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORD ER PASSED BY THE ASSESSING OFFICER . EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE . FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE ; OR WHERE TWO VIEWS AR E POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE V IEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANN OT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE IN TERESTS OF THE REVENUE , UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. IT HAS BEEN HELD BY THIS COURT THAT WHERE A SUM NOT EARNED BY A PERSON IS AS SESSED AS INCOME IN HIS HANDS ON HIS SO OFFERING, THE ORDE R PASSED BY THE ASSESSING OFFICER ACCEPTING THE SAME AS SUCH WILL BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF TH E REVENUE. RAMPYARI DEVI SARAOGI V. CIT [1968] 67 ITR 84(SC) AND IN SMT. TARA DEVI AGGARWAL V. CIT [1973] 88 ITR 323 (SC). WITH DUE RESPECTS, WE WOULD LIKE TO POINT OUT THAT HERE THERE WERE NO TWO VIEWS POSSIBLE IN THE CASE ON HAND - THE INCOM E-TAX OFFICER HAD TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DID NOT AGREE. AS A MATTER OF FACT, THE AO, WITHOUT CONSIDERING THE LEG AL POSITION, HAD WRONGLY ALLOWED DEDUCTION AS CLAIMED BY THE ASSESSE E, AND, THUS, THE RULING OF THE HONBLE APEX COURT IS ON THE DIFFEREN T STANDING. 6.1.1. LET NOW WE CONSIDER THE LD.D.RS PLEA. (I) ON A SIMILAR ISSUE, THE HONBLE TRIBUNAL IN THE CASE OF ACE MANUFACTURING SYSTEMS LIMITED V. CIT (LTU) IN ITA NO.333/B/2009 AFTER ANALYZING THE ISSUE IN DETAIL, HAD OBSERVED THAT ITA NO. 1261/B/08 PAGE 8 OF 9 4. WE FIND THAT IN CASE OF M/S.LEBEN LABORATORIES LTD. V. DCIT (2007) 294 ITR (AT) 1 WHEREIN MUMBAI BENCH OF ITAT HELD THAT SEC.80HHC FALLS UNDER THE HEADING C-DEDUCTIONS IN RESPECT OF CERTAIN INCOME S IN CHAPTER VI-A. THEREFORE, WHILE COMPUTING THE RE LIEF U/S 80HHC, EFFECT HAD TO BE GIVEN TO BOTH THE LIMBS PROVIDED IN SEC.80-IA(9). THEREFORE, THE LOWER AUTHORITIES WERE JUSTIFIED IN REDUCING THE PROFIT S OF BUSINESS OF THE UNDERTAKING BY THE AMOUNT OF PROFIT S ALLOWED AS DEDUCTION U/S 80IA WHILE COMPUTING THE DEDUCTION U/S 80HHC. WE ALSO FIND THAT SPECIAL BENCH IN THE CASE OF ACIT V. ROGINI GARMENTS (2007) 294 ITR (AT)15 (CHENNAI), WHEREIN IT WAS HELD THAT RELEVANT TO SEC.80IA SHOULD BE DEDUCTED FROM PROFIT AND GAIN OF BUSINESS BEFORE COMPUTING RELIEF U/S 80HHC. THUS, THE ISSUE AT HAND HAS BEEN SETTLED (II) THE HONBLE ITAT, DELHI BENCH C (SPECIAL BEN CH) IN THE CASE OF ACIT V.HINDUSTAN MINT & AGRO PRODUCTS (P) LTD. R EFERRED SUPRA, WAS EMPHATIC IN ITS WISDOM IN CONCURRING WIT H THE DECISION OF THE CHENNAI SPECIAL BENCH IN THE CASE O F ACIT V.ROGINI GARMENTS (2007) 108 ITD 49. 6.2. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND ALSO RESPECTFULLY FOLLOWING THE FINDI NGS OF THE HONBLE TRIBUNALS REFERRED SUPRA, WE ARE OF THE UNANIMOUS V IEW THAT THE CIT WAS FULLY JUSTIFIED IN INVOKING THE PROVISIONS OF S.263 OF THE ACT. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSED. ITA NO. 1261/B/08 PAGE 9 OF 9 PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF NOVEMBER, 2009. SD/- SD/- ( GEORGE GEORGE K. ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 13 TH NOVEMBER, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.