VIJAY SOLVEX LTD. V. CIT

ITA/141/2004

AI Insights

The case involves Vijay Solvex Ltd. appealing against the Commissioner of Income Tax, Alwar, concerning the computation of deductions under Sections 80HH and 80I of the Income Tax Act, 1961. The primary legal questions were whether the 'profits and gains' of the current year of the eligible undertaking or the income computed after reducing depreciation allowance under section 32(1) should be relevant for these deductions, and whether a 'prima facie adjustment' under section 143(1)(a) could be made in respect of the quantum of these deductions when there were more than one arguable methods of computing them. The court referenced previous judgments and interpretations of the relevant sections to arrive at its decision.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 670615 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 26-02-2015
• Assessment Year: misc
• Other Referred Cases: T.S.Balaram ITO Vs. M/s.Volkart Brothers, Kvaverner John Brown Engg.(India) (P) Ltd. Vs. Assistant Commissioner of Income Tax, M/s. Vijay Industries Vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PARINITOO JAIN; MUKESH MEENA
• Assessee Lawyers: SANJAY JHANWAR
• Keywords: Deduction; Depreciation; Income tax appeal; Prima-facie adjustment
• Section: 80HH; 260A; 143(1)(a); 32(1); 80I

Judgement Text

"1 IN THE HIGH COURT OF JUDICATURE FOR RAJASHAN AT JAIPUR BENCH, JAIPUR :: JUDGMENT :: D.B. INCOME TAX APPEAL NO.141/2004 Vijay Solvex Ltd. Vs. Commissioner of Income Tax, Alwar 26.2.2015 HON'BLE THE ACTING CHIEF JUSTICE MR. SUNIL AMBWANI HON'BLE MR. JUSTICE PRAKASH GUPTA Mr.Sanjay Jhanwar for the assessee. Ms.Parinitoo Jain with Mr.Mukesh Meena for the Revenue. ******** Reportable 1. We have heard learned counsels for the parties. 2. This Income Tax Appeal under Section 260A of the Income Tax Act, 1961 was admitted on the following substantial questions of law:- “1. Whether the “Profits and Gains” of current year of the eligible undertaking would be relevant for computing deduction u/s.80HH and 80I of the Act or the income computed after reducing depreciation allowance u/s.32(1) shall be relevant for these deductions? 2. Whether a “prima facie adjustment” u/s.143(1)(a) of the Act can be made in respect of the quantum of deduction u/s.80HH and 80I of the Act. When there are more than one arguable methods of computing these deductions?” 3. The first question, in respect of the same assessee, was decided in favour of the Department and against the assessee, in D.B. Income Tax Appeal No.125/2004 (Vijay Solvex Ltd. vs. Commissioner of Income Tax, Alwar ) decided on 24.02.2015, following the judgment of Division Bench of this Court in D.B.Income Tax Appeal No.185/2004 (Vijay Solvex Ltd. vs. Commissioner 2 of Income Tax, Alwar) alongwith two connected appeals, decided on 06.01.2014. This question is covered in the case of the assessee and is thus, decided in favour of the Department and against the assessee. 4. On question No.2, it is submitted that the adjustment under Section 143(1)(a), cannot be carried out, which is admissible or inadmissible by the Assessing Officer. The word “prima facie” means 'on the face of it', and hence, adjustment referred to in clause (ii) to the proviso of Section 143(1)(a) relates to any error in not claiming any loss carried forward deduction allowance, or relief, which on the face of it, is admissible, and the adjustment referred to in clause (iii) of the proviso relates to an error in claiming any loss, carried forward deduction, allowance or relief, which on the face of it, is not admissible. 5. Learned counsel appearing for the assessee has relied on Instruction No.1814 issued by the Central Board of Direct Taxes on 04.04.1989, explaining the object of amendment in under Section 143, and its relevance for the assessment year 1989-90, and subsequent years, to the effect that the error, in either case, should be patent or obvious or apparent. In fact, for determining whether there is a prima facie error for purposes of making an adjustment under the aforesaid proviso, it will be correct and proper to apply the same test, as has been laid down by the Supreme Court, for purposes of rectification of mistakes under Section 154 of the Act, only if it is an obvious and patent mistake, and not something, which can be established by a long drawn process of reasoning on points, on which there may conceivably be two opinions, vide T.S.Balaram ITO Vs. M/s.Volkart Brothers, 80 ITR 50 (SC). 3 6. Learned counsel appearing for the assessee has also relied on Kvaverner John Brown Engg.(India) (P) Ltd. Vs. Assistant Commissioner of Income Tax, (2008) 170 Taxman 304, in which, in paragraph 6, the Supreme Court held as follows:- “6. We find merit in this civil appeal. As stated above, we are concerned with the asst.yrs. 1996-97 and 1997-98. One of the main conditions stipulated by way of the first proviso to s.143 (1)(a), as it stood during the relevant time, referred to prima facie adjustments. The first proviso permitted the Department to make adjustments in the income or loss declared in the return in cases of arithmetical errors or in cases where any loss carried forward or deduction or disallowance which on the basis of information available in such return was prima facie admissible but which was not claimed in the return or in cases where any loss carried forward, or deduction or allowance claimed in the return which on the basis of information available in such return was prima facie inadmissible. In the present case, therefore, when there were conflicting judgments on interpretation of s.80-O, in our view, prima facie adjustments contemplated under s.143(1)(a) was not applicable and, therefore, consequently appellant was not liable to pay additional tax under s.143(1A) of the 1961 Act.” 7. It is submitted that there were different views expressed by different High Courts, on the admissibility of deductions under Sections 80HH & 80I, and thus, the adjustment could not have been made at the stage of Section 143(1)(a). The question was not so prima facie apparent, from the reading of the Act. It was debatable, on the day when the order under Section 143(1)(a) was passed. 8. Learned counsel appearing for the assessee has also relied on M/s. Vijay Industries Vs. Commissioner of Income Tax (Civil Appeal Nos.1581-1582 of 2005) decided on 05.11.2014, in which a 4 two-Judge Bench of the Supreme Court, in paragraph 8 of the reference relied on by learned counsel appearing for the assessee, held as follows:- “8. In paragraph 5 of the judgment in Motilal Pesticides (Supra), Shri Ramamurthhi, learned senior counsel appearing for the appellant submitted that both Cloth Traders and Distributors (Baroda) were cases which pertained to Section 80-M only and this Court had no occasion to consider the application of Section 80-AB with reference to Section 80-HH of the Act. The Court in repelling this contention referred to another decision in H.H. Sir Rama Varma V. CIT (1994) Supp. (1) SCC 473, which judgment dealt with the then newly enacted Section 80-AA and 80-AB. Both these sections again are relatable to deductions made under Section 80-M; Section 80-T with which that judgment was concerned also uses the expression “any income” as opposed to “profits and gains”. It will be clear, therefore, that prima facie Varma's case again has very little to do with the concept of “profits and gains” with which we are concerned here. For these reasons, the matters be placed before the Hon'ble Chief Justice of India to constitute an appropriate Bench to consider the correctness of the judgment in Motilal Pesticides (supra). ..........J. [RANJAN GOGOI] ...........J. [ROHINTON FALI NARIMAN]” 9. We do not find that the argument raised is tenable, inasmuch as, all the authorities, namely, the Assessing Officer, Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, have consistently held that the deduction claimed under Sections 80HH and 80I was admissible, only after adjustment of current year's depreciation. It was not a debatable issue, at all. The Tribunal in paragraph 7 of the order, recorded its opinion as follows:- 5 “7. We agree with the view of the ld. Commissioner of Income-tax (A) that plain reading of the Act suggests that deduction for depreciation should be allowed before computing the profits and gains of business. This contention also finds support from the decision of the jurisdictional High Court in the case of CIT Vs. Loonkar Tools Pvt. Ltd., (1995), 213 ITR, 721. In this decision, it was held that depreciation and investment allowance are deductible before giving the special deduction under Section 80 HH. We are also of the opinion that the decisions relied upon by the AR are of no help. This is not a case of penalty levied for concealment of income. Therefore, the additional tax was not of penal nature and it was of a compensatory nature. For this proposition, the reliance is placed in the case of Sati Oil Udyog Ltd. Vs. CIT (1998), 232 ITR 502, 507 (Gau.). Therefore, we do not find any infirmity in the order of the ld. CIT(A).” 10. The question No.2 is not on admissibility of the deductions under Sections 80HH & 80I of the Act. The order passed under Section 143 (1)(a), was served upon the assessee with additional tax, for disallowing the deduction, before allowing current year's depreciation. The question is one of computation, namely whether depreciation should be allowed before or after computing the profits and gains of business. The method is clear from a plain reading of the Act. The jurisdictional High Court, with which the Assessing Officer was bound on the relevant date, also held in CIT Vs. Loonkar Tools Pvt. Ltd., (1995) 213 ITR 721, that the depreciation and investment allowances are deductible before allowing deduction under Section 80HH of the Act. Something, which is obvious, and which is clearly spelt out from the plain reading of the statute, does not become arguable, just because the counsel appearing for the assessee states it to be so. 6 11. Before the Commissioner of Income Tax (Appeals), an argument was raised that the return was filed, claiming deductions under Sections 80HH & 80I, computed on the basis of the decisions of various Tribunals and High Courts. Learned counsel appearing for the assessee however, could not cite any decision, and had referred only to some written argument, which he had filed in other case. 12. On the aforesaid discussion, we are of the view that 'prima facie adjustment' under Section 143(1)(a) could be made, in respect of the tax due, under Sections 80HH & 80I, only after allowable depreciations were claimed and computed. There was no other or alternative method of computing the deductions, available on the date when the Assessing Officer had made the orders under Section 143(1)(a) of the Act. 13. The question of law is thus, decided in favour of the Department and against the assessee. 14. This Income Tax Appeal is dismissed. (PRAKASH GUPTA),J. (SUNIL AMBWANI),ACTG.CJ. Skant/-, Proof Reader All the corrections made in the judgment/order have been incorporated in the judgment/order being emailed. Shashi Kant Gaur, Proof Reader "