Income Tax Appellate Tribunal - Delhi
Ito Co Circle 13 (2), vs Assessee on 18 August, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
[ DELHI BENCH "A" DELHI ]
BEFORE SHRI I. P. BANSAL, JM & SHRI K. D. RANJAN, AM
I. T. Appeal No. 1123 (Del) of 2007.
Assessment year : 2001-02.
The Income-tax Officer, M/s. Neetee Clothing Pvt. Ltd.,
C o y. C i r c l e : 13 (2), Vs. 6 / 28, Shanti Niketan,
N E W D E L H I. N E W D E L H I - 110 021.
PAN / GIR No. AAA CK 0615 L.
AND
C. O. No. 98 (Del) of 2008.
[ in I. T. Appeal No. 1123 (Del) of 2007 ].
Assessment year : 2001-02.
M/s. Neetee Clothing Pvt. Ltd., The Income-tax Officer,
6 / 28, Shanti Niketan, Vs. C o y. C i r c l e : 13 (2),
N E W D E L H I - 110 021. N E W D E L H I.
PAN / GIR No. AAA CK 0615 L.
( Appellants ) ( Respondents )
Assessee by : Shri Ashwani Taneja, C. A.;
Department by : Shri Manish Gupta, Sr. D.R.;
O R D E R.
PER K. D. RANJAN, AM :
The appeal by the Revenue and the cross objection by the assessee for assessment year 2001-02 are directed against the order of the ld. CIT (Appeals)-XVI, New Delhi.
2I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
These appeals were heard together and for the sake of convenience are disposed of by this common order.
2. At the outset, the ld. counsel for the assessee submitted that the cross objection filed by the assessee should be heard first as it relates to assumption of jurisdiction u/s 147 of the Act. The grounds of appeal raised in the cross objection read as under :-
" 1. That having regard to the facts and circumstances of the case ld. CIT (Appeals) has erred in not quashing the assessment order framed under section 147 / 143(3) as the jurisdictional conditions were not satisfied;
2. In any view of matter and in any case, jurisdiction assumed under section 147 and consequent framing of impugned reassessment order is bad in law;
3. That having regard to the facts and circumstances of the case ld. CIT (Appeals) has erred in not deleting the disallowance made under section 80-HHC in respect of interest of FDR, more so when this was not the subject matter of reason recorded. "
3. During the course of hearing, ground No. 3 was not pressed and, therefore, the same is dismissed as not pressed.
4. Now we are left with ground Nos. 1 and 2 of assessee's cross objection which relate to assumption of jurisdiction under section 147 of the I. T. Act. During the course of hearing the ld. AR of the assessee has fairly conceded that since the assessment has been reopened under section 147 within the period of four years the proviso to section 147 of the Act would not be applicable. Referring to the reasons for reopening of the assessment it has been submitted that original assessment was made under section 143(3) on 28th March, 2003 on a total income of Rs.4,06,803/-. The assessee company claimed deduction of Rs.1,44,69,294/-
3I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
and Rs.57,18,475/- under section 80-HHC and 80-IA respectively which was restricted to the extent of business profit amounting to Rs.1,90,61,585/-. It was later on noticed by the AO that deduction under section 80-HHC and 80-IA of the Act were claimed on the gross total income without reducing the profits to the extent of deduction claimed and allowed under section 80-IA. Hence the excess allowance of deduction under section 80-HHC and 80-IA of the Act was allowed. The assessing officer on the basis of above reasons has reopened the assessment under section 147. He has further, submitted that the assessee had been allowed deductions u/s 80IA and 80HHC on the basis of the claim made by the assessee and since no fresh material or information was available with assessing officer, the reopening of assessment amounts to change of opinion, which is not permissible in the law. He placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Eicher Ltd. 294 ITR 310 (Del). He also placed reliance on the decision of Hon'ble Delhi High Court in the case of Jal Hotels Company Ltd. Vs. ADIT, 24 DTR (Del.) 37 for the proposition that where there was no material in the hands of the Revenue leading to the view that there was reason to believe that income had escaped assessment, it was mere change of opinion and hence notice issued under section 148 of the Act was liable to be quashed. He further submitted that at the time of recording of reasons the decision of the Special Bench in the case of Hindustan Mint & Agro Products P.Ltd 315 ITR (AT) 401 was not available and therefore Revenue cannot plead that reopening of assessment is based on the decision of Special Bench of the Tribunal. He further placed reliance on the decisions in the cases of (i) Aipita Marketing P. Ltd. Vs. Income-tax Officer 21 SOT 302 (Mum.); (ii) CIT Vs. Batra Bhatta Co. (2008) 174 Taxman 444 (Del.); and (iii) Jai Bharat Maruti Ltd. Vs. CIT 180 Taxman 192. Further relying on the decision of Hon'ble Supreme Court in the case of ACIT Vs. Rajesh Jhaveri Stock Brokers P. Ltd. Vs. CIT 291 ITR 500 (SC) it has been submitted that there should be material on record to form an opinion that income had escaped assessment. He also placed reliance on the decision of Hon'ble Madras High Court in the case of Bapa Lal & Company Exports Vs. Jt. Commissioner of Income-tax 289 ITR 37 (Mad). He also placed reliance on the decision of Hon'ble Gujarat High Court in the case of Hynoup Food & Oil Industries Ltd. Vs. ACIT 307 ITR 115 for the proposition that deductions under section 80-HH and 80-IA of the Act having been allowed to the assessee following the order of the CIT (Appeals) in earlier years, the reopening of assessment on the basis of findings of another AO in a later assessment that the assessee was not entitled to said deductions, suffered from change of opinion and hence the 4 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
assessment framed was invalid. He also submitted that Hon'ble Delhi High Court in the case of Techson India P. Ltd. and Another Vs. Income-tax Officer 283 ITR 212 (Del.) has held that the assessment reopened on mere change of opinion was not valid. He also placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. 256 ITR 1 (F.B.) (Del.) for the proposition that Hon'ble Delhi High Court has discussed the new law with effect from 1/04/1989. Under the new law also, section 147 does not authorize the AO to reopen assessment on mere change of opinion. The ld. AR of the assessee after conclusion of hearing also filed the copies of decisions in the following cases for the proposition that even within the period of four years in the cases where there was no fresh material the reopening of the assessment has been held to be based on change of opinion:-
(i) Carlton Overseas P. Ltd. Vs. ITO [Delhi High Court] dated 18/08/2009;
(ii) CIT Vs. Late Shri Ramakrishna Hegde (Kar) dated 23/07/2009;
(iii) CIT Vs. Feather Foam 296 ITR 342 (Del.);
(iv) CIT Vs. Chakiat Agencies 314 ITR 200 (Chennai); &
(v) MMTC Ltd. 119 I.T.D. 175 (Del).
(vi) Shipra Srivastava & Another Vs. ACIT in ITA. No. 8683 of 2007
6.3 On the other hand, the ld. Sr. DR submitted that the original assessment order framed
by the AO does not speak anything about the simultaneous claim of the assessee. Therefore, the assessing officer has not considered the claim of the assessee on allowance of deduction under section 80-HHC and 80-IA of the Act on the same gross profit. The assessment order framed by the assessing officer is silent about the claim allowed and, therefore, the AO had not formed any opinion and, therefore, at the time of re-opening of the assessment, no question of change of opinion arose in the case of the assessee. He placed reliance on the decision of Hon'ble Bombay High Court in the case of Yuvraj Vs. Union of India & Another 315 ITR 84 for the proposition that where the AO did not apply his mind and failed to record good and proper reasons for passing the order under section 143(3), it was not a mere change of opinion in recording the reasons for issuance of notice under section 148 of the Act and 5 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
hence, reopening of assessment was proper. The ld. Sr. DR further submitted that the change of opinion should be linked to the issue considered and adjudicated upon. All the decisions relied upon by the ld. AR of the assessee relate to the cases where the material was considered and adjudicated upon. Therefore, the decisions relied upon by the ld. AR of the assessee are not relevant. As regards the contention of the assessee that non-availability of the decision of Special Bench has nothing to do with the allowability of the claim under section 80-HHC and 80-IA of the Act. The Special Bench has dealt with the interpretation of the provisions, which were already in existence. The decision may be relevant for action under section 154, but not for reopening of assessment. As regards the decision in the case of Shipra Srivastava & Another Vs. ACIT in ITA. No. 8683 of 2007 he has submitted that it is not relevant as the decision has been rendered with reference to tax deducted at source on rent-free accommodation. Relying on the decision of Hon'ble Supreme Court in the case of Sun Engineering 198 ITR 297 (SC) it has been submitted that the decision should be read in the context in which it was rendered. Therefore, the decision in the case of Shipra Srivastava (supra) is not applicable to the facts of the assessee's case.
6.4 In rejoinder the ld. AR of the assessee submitted that the context may be different, but there should be some material on record to form an opinion that income has escaped assessment. The AO cannot reopen the assessment on the basis on which he has already allowed the deduction. He supported the arguments relying on the decision of Hon'ble Madhya Pradesh High Court in the case of National Textiles Corpn. Ltd. Vs. CIT 216 CTR 153 (MP) for the proposition that the decision of jurisdictional High Court is binding. He also placed reliance on the decision of ITAT, Chandigarh Bench "B" in the case of Shiva Exports Vs. ITO, Parwanu 28 SOT 512 (Chd.) for the proposition that there should be material on record to form an opinion that income had escaped assessment. The reopening of assessment will fall within the realm of suspicion and, therefore, proceedings initiated will be for the purpose of investigation and not more.
7. We have heard both the parties and gone through material and the relevant case laws on the subject. The ld AR of the assessee in cross objection has raised an issue that the reopening of assessment is based on change of opinion and hence assumption of jurisdiction 6 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
u/s 147 is bad in law. From the material available on records we find that issue relating to issue of notice u/s 147 was not taken by the assessee before CIT(A) and hence he had not adjudicated this issue. Hence we have to answer to questions i.e. (i) whether there is any change of opinion while initiating the reassessment proceedings u/s 147 of the Act; and (ii) whether such an issue arises from the order of CIT(A) which can be agitated in cross objections raised by the assessee?
8. From the original assessment order dated 20th March, 2003 we find that the assessing officer without any discussion had allowed the deduction under section 80-HHC on the basis of auditors' report at Rs.1,44,69,294/- without reducing the deduction allowed under section 80-IB at Rs.57,18,475/-. The sequence of events from original assessment proceedings to reopening of assessment is discussed as under:
(a) The assessing officer in the course of original assessment proceedings issued questionnaire dated 27/11/2002 seeking inter-alia the following information relating to deductions u/s 80HHC and 80IB:
(ii) "Details of deductions claimed and justification for admissibility"
The assessee in response to above query vide letter dated 10th December, 2002 had replied as under had replied as under:-
"2. The company has claimed deduction under section 80-HHC & u/s 80-IA/80-IB. Deduction under section 80-HHC has been claimed because the company is an exporter & all the exports made during the year has been realized before the prescribed time-limit. Being the small scale industrial undertaking the company is also entitled for deduction under section 80-IA/80-IB for 30 per cent of its profit."
From plain reading of the query raised by assessing officer for justification of deduction u/s 80HHC/80IB and reply furnished by the assessee it is clear that neither the assessing officer raised any specific query or examined the issue of allowability of deduction under section 80- HHC after reducing the deduction allowed under section 80-IB nor had the assessee given 7 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
any justification for claiming deduction under section 80-HHC without reducing the amount of deduction 80IB claimed and allowed. The assessing officer had raised a general query relating to the claim of deductions under these sections and assessee had also given the reply in a casual manner. Therefore, the allowance of deduction under section 80-HHC on the gross eligible profits without reducing the amount of deduction 80IB in our considered opinion is without proper examination of the claim and application of mind on the part of assessing officer. Our view is supported by the decision of Hon'ble Bombay High Court in the case of Yuvraj v Union of India and another 315 ITR 84. In this case the assessee received a consideration of Rs 12 lakhs on the sale of right to purchase an open plot in Pune and disclosed it as income for the assessment year 1996-97. The Assistant Commissioner assessed the income and passed order u/s 143(3) of the Income-tax Act, 1961. The Deputy Commissioner issued a notice u/s 154 stating that the long term gain on sale of right to purchase an open plot was to be treated as casual income and brought to tax at forty per cent. The Deputy Commissioner passed an order in 2000 stating that he had reason to believe that income of the petitioner had escaped assessment within the meaning of section 147 and proposed to reassess the income for assessment year 1996-97. On a writ petition it has been held that the value of the land had not been determined nor the issue relating to whether the income was to be treated as capital gain or casual income been addressed by the assessing officer. He did not apply his mind and failed to record good and proper reasons for passing the order u/s 143(3). On facts, it was not a mere change of opinion in recording reasons for issuing notice u/s 148 by the Assessing Officer. Therefore, the assessing officer was justified in issuing the notice u/s 148 of the Act.
(b) Thereafter the ld. CIT initiated proceedings under section 263 of the Act vide show- cause notice dated 12/13-01-2005 wherein it was mentioned that the assessee had claimed deduction under section 80-HHC at Rs.1,44,69,294/- and Rs.57,18,475/- under section 80- HHC and 80-IA respectively. The company had claimed both the deductions on the total income of Rs.1,90,61,585/- without reducing the profit to the extent claimed exempt in first deduction which resulted in allowance of double deduction of the same profit, resulting into excess allowance of deduction of Rs.42,69,077/-. The assessee vide reply dated 3rd February, 2005 relying on decision of Hon'ble Madhya Pradesh High Court in the case of J.P. 8 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
Tobacco Product Vs. CIT 229 ITR 123 (MP); and CIT Vs. Nema Specific Trust 248 ITR 29 (Bom.) contended that deduction under section 80-HHC of the Act was available without reducing the deduction under section 80-IA. This contention of the assessee was rejected by the ld. CIT by holding that deduction under section 80-HHC was to be computed after reducing the deduction allowed under section 80-IA of the Act. On appeal, ITAT, Delhi Bench "F" in ITA. No. 1917 (Del) of 2005 dated 20.10.2005 for Assessment year 2001-02 cancelled the order under section 263 of the Act, by observing as under:-
"8. After careful consideration of the rival submissions, in the light of material available on record, we find substance in the argument taken by the ld. counsel for the assessee. It is evident from the record that proceedings under section 263 of the Act were taken as the ld. CIT was of the view that deduction under section 80-IA of the Act was to be allowed after deducting amount of deduction allowed under section 80-HHC of the Income-tax Act. This is clear from the show-cause notice issued by the ld. CIT, which we have discussed above in detail. The issue raised in the show cause notice was quite different from the issue considered and decided by apex court in the case of IPCA Laboratories Ltd. (supra), which the ld. CIT applied in this case. However, no notice to withdraw deduction under section 80-HHC on account of some negative profit shown by the assessee was issued in this case. It is well accepted that the ld. CIT under section 263 of the Income-tax Act, cannot revise an assessment on a ground not taken in the show cause notice. In the present case, the ground for revising assessment is quite different from the ground given in the show cause notice and, therefore, the impugned order under section 263 of the Act is held to be un- sustainable. It is cancelled. "
From the above facts it is clear that the Tribunal had cancelled the order under section 263 on the ground that the ground taken in the show cause notice was different from the ground shown in the order cancelling the assessment under section 263 of the Act. The Tribunal had not examined the claim of deduction u/s 80HHC on merits.
(c) Subsequent to decision of ITAT dated 20th October, 2005, the assessing officer initiated reassessment proceedings under section 147 by issuing the notice under section 148 9 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
on 17/03/2006. Reasons were recorded for reopening of assessment on 27/02/2006. Thus the assessment was reopened after the decision of the ITAT cancelling the order under section 263 of the Act. As we have discussed earlier that neither the assessee gave justification for claim of deduction under section 80-HHC of the Act on gross profits nor the assessing officer had examined the claim of the assessee that provisions of section 80-IA (9) were to be taken into account for the purpose of deduction under section 80-HHC according to which deduction allowed under section 80-IA of the Act will not be eligible for deduction under any other section contained in Chapter VIA of Income Tax Act, 1961. We have held earlier that assessing officer had allowed deduction u/s 80HHC on gross income without proper examination and application of mind. Without prejudice to this finding, even if it is assumed that Assessing Officer had allowed deduction keeping in view the relevant provision of law, in that situation also the proceedings initiated by the ld. CIT for cancellation of original assessment by issue of show cause notice dated 18.03.2005 constituted a fresh information in the possession of the assessing officer on the basis of which he had formed an opinion that the excess deduction has been allowed under section 80-HHC to the extent of profits on which deduction under section 80-IA had been allowed. Hence there was fresh material available before the assessing officer in the form of notice issued by the ld. CIT under section 263 for forming of an opinion that income had escaped assessment. Hence the case laws relied upon by the ld counsel for the assessee referred to in preceding paragraphs are, therefore, distinguishable on the facts of the case before us and cannot be applied in the present case.
9. Further it is a case where excess deduction under section under section 80-HHC has been claimed and allowed within the meaning of sub-clause (iv) of clause (c) of Explanation 2 to section 147 of the Act. Hence the income to the extent of deduction allowed u/s 80IB had escaped assessment. In this case reassessment proceedings have been initiated within four years from the end of assessment year 2001-02 and hence the case falls under main section 147 of the Act. We are also aware of the legal position that at the time of reopening of the assessment the assessing officer has to record the reasons for assumption of jurisdiction on the basis of material available on record. Hon'ble Supreme Court in the case of ACIT Vs.Rajesh Jhaveri Stock Brokers P. Ltd. has held that the expression "reasons to believe" in 10 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008. section 147 would mean cause or justification. If the assessing officer has a cause or
justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the assessing officer should have finally ascertained the fact by legal evidence or conclusion. What is required is "reason to believe" but not the established fact of escapement of income. At the stage of issue of notice the only question is whether there was relevant material on which a reasonable person could have form the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of belief is within the realm of the subjective satisfaction of the assessing officer. From the decision of Hon'ble Supreme Court it is clear that at the time of reopening of assessment there should be some material before the assessing officer on the basis of which he could have formed belief that income has escaped assessment. In the case before us the show cause notice issued by the ld. CIT under section 263 of the Act and the order passed by him constituted a material on the basis of which the assessing officer formed belief that the excess deduction under section 80-HHC of the Act has been allowed. Therefore, reopening of assessment cannot be treated based on mere change of opinion. Hence the AO was justified in reopening the assessment under section 147.
10. Now we come to the second question whether any such issue arises from the order of CIT(A). Under section 253(4) of the Act the assessee is entitled to file cross objection even if he has not filed any appeal against the order of the ld. CIT (Appeals). Sub section 4 of section 253 reads as under:-
"(4) The Assessing Officer or the assessee, as the case may be, on receipt of notice that an appeal against the order of the Deputy Commissioner (Appeals)or, as the case may be, the Commissioner (Appeals) has been preferred under sub-section (1) or sub-
section (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof; within thirty days of the receipt of the notice, file a memorandum of cross-objections, verified in the prescribed manner, against any part of the order of the Deputy Commissioner (Appeals) or, as the case may be, the Commissioner (Appeals), and such memorandum shall be disposed of by the 11 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
Appellate Tribunal as if it were an appeal presented within the time specified in sub- section (3)."
11. A bare reading of the provisions contained in sub section (4) would show that the right to file a memorandum of cross objections is an independent right given to the opposite party in an appeal and it is in addition to the independent right of appeal, which may or may not be exercised by the assessee under sub section (1) or by the Department under sub section (2) of section 253. In a given case it is quite possible that certain matters may not be agitated either by the ld. Commissioner or by the assessee by way of an appeal, but if any appeal is filed either by the assessee or the assessing officer, then the opposite party may consider it necessary to file a cross objection in respect of such matters, which were not fit originally to be agitated by way of an independent appeal as has been held by Hon'ble Bombay High Court in the case of CIT Vs. New India Assurance Co. Ltd. (1983) 141 ITR 367 (Bom). Thus sub section (4) of section 253 of the Act confers a right of cross objection both on the assessee and the Revenue. The words "the assessing officer or the assessee, as the case may be,......... may, notwithstanding that he may not have appealed against such order or any part thereof; ........... file a memorandum of cross objections ............... against any part of the order" appearing in section 253(4) postulate that in respect of the same order of the appellate authority there may be an appeal by the assessee as to one part and an appeal by the Revenue as to the other where the assessee or the Revenue has preferred an appeal to the Tribunal against that part of the order of the appellate authority which consists of decisions recorded against him, the other party if he had not already appealed, may file cross objections against that part of the order of the appellate authority, which consists of the decisions with which he is dissatisfied. The appeal by the assessee or the Revenue may be against any parts of the order of the appellate authority which are against him and by which he is aggrieved. It is, therefore, imperative that there must be a decision of the appellate authority by which the assessee or Revenue is aggrieved before he can prefer an appeal against that part of the order of the appellate authority containing such decision.
12I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
12. Further the existence of expression "against any part of the order" in section 254(3) of IT Act clearly suggests that the cross objection can be filed only in cases where the appellate authority has decided against the party. Further under rule 27 of ITAT Rules, 1963 the respondent can support the order of CIT(A) in cross objection on the basis of adverse findings of CIT(A) against him. This means that there has to be a decision of the CIT (A) on the issue raised in cross objection.
13. In the case of Income-tax Officer v Fagoomal Lakshmi Chand [1979] 118 ITR 766 (Mad) against the order of the AAC, which was prejudicial to the Revenue, the department took up the matter before the Tribunal. After the filing of the appeal, the assessee taking advantage of the provisions in section 253(4) filed a memorandum of cross-objection against the entire order of the AAC. Both the appeal and the memorandum of cross-objection came up for hearing before the Tribunal. The assessee was not present. The Tribunal disposed of the Revenue's appeal and, in consequence, dismissed the cross-objection. Thereafter, the assessee filed an application before the Tribunal stating that there was sufficient cause for his non-appearance when his cross-objection were called for hearing, and the Tribunal made an order setting aside the dismissal of the cross-objection. Effectually, therefore, they had set aside the order passed by them ex-perte in the Revenue's appeal as well.
On writ, the Single Judge dismissed it at the admission stage itself. On writ appeal the Revenue contended that a memorandum of cross-objection could only be against a part of the order of the AAC and that as, in the instant case, the appeal was disposed of ex parte by the Tribunal, the proviso to rule 24, which contemplates only the restoration of an appeal, which was dismissed for default, and that too for sufficient cause, would not apply. Hon'ble Madras High Court has held that the words employed under sub-s. (4) of sec. 253 of the I.T. Act, 1961, would show that such memorandum of cross- objection shall be against any part of the order of the AAC. The use of the expression "any part of the order" is clearly indicia to show that it could be also against the entirety of the order of the AAC in so far as it is prejudicial to the cross-objector. Therefore, the contention that the memorandum of cross objection filed by the assessee in the instant case was said to be against the whole of the order of the AAC and that by itself was sufficient to reject the same on the threshold, was not sustainable 13 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
14. In the case of CIT v Purbanchal Paribahan Goshti 234 ITR 663 (Gau) Hon'ble High Court has held that section 253 (4) of the Income-tax Act, 1961, read with rule 22 of the Income-tax (Appellate Tribunal) Rules, 1963 provides that any party aggrieved against order of appellate authority can file memorandum of cross objection against any part of order of appellate authority and cross-objection need not be confined to points taken by opposite party in main appeal.
15. Hon'ble Madras High Court in the case of CIT Vs. Sundaram Clayton Ltd. (1982) 136 ITR 315 (Mad) has held that where the assessee has wholly succeeded before the appellate authority there is no scope for his filing any appeal or cross objections before the Tribunal. Again if a particular matter has not been considered and decided by the appellate authority and the decision on it does not form part of the order of the appellate authority there can be no appeal against it.
16. Hon'ble Bombay High Court in the case of Ugar Sugar Works Ltd. Vs. CIT 141 ITR 326 (Bom.) has held that the competence of the AAC ranges over the whole assessment proceedings without any restrictions on him. His jurisdiction is, therefore, not confined to the subject matter of the appeal, but extends to subject matter of assessment. Section 251 has given him wide powers including even a power of enhancing the assessment. However, the Tribunals' jurisdiction under section 254 in an appeal before it is restricted only to passing of orders on the subject matter of appeal. However, within the four corners of that jurisdiction the Tribunal has been clothed with almost the same powers as those of the AAC except that of enhancement. The assessee once having accepted the finding of the Income-tax Officer by not having appealed against the same to the AAC, the assessee's grievance, if any, against the findings of the Income-tax Officer cannot form the subject matter of appeal before the Tribunal so as to give it jurisdiction in exercise of his power to pass such order in appeal as it may deem it.
14I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
17. From above discussion it is clear that an aggrieved party can file memorandum of cross objection only when an issue has been decided against the cross objector. In the case before us the assessee has not challenged the reopening of assessment before CIT(A). Ld CIT(A) has also not adjudicated upon the issue of assumption of jurisdiction as the issue was not before him. Therefore the issue relating to assumption of jurisdiction raised in the cross objection by the assessee is not subject matter of appeal before this Tribunal and hence assessee can neither file appeal before the Tribunal nor memorandum of cross objection raising the issue relating to assumption of jurisdiction even when the assessee has right to file cross objection against the whole order of CIT(A).
18. We are also aware of decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) wherein it has been held that if, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. The decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. can be pressed into operation by the assessee if the assessee is in appeal before the Tribunal and has by any reason omitted to raise a ground before the lower authorities relating to relief or deduction provided that assessee explains the reasons for not raising the ground before the lower authority and entire material relating to such legal ground is available on record. In cross objection the assessee can raise a ground if it arises out of order of appellate authority. As discussed above the assessee is neither in appeal before us against the order of CIT(A) nor has explained the reasons for not raising the issue relating to assumption of jurisdiction by the assessing officer before the lower authority. As a matter of fact the issue does not arise out of order of CIT(A). With effect from 1.4.1999 u/s 80IA(9) read with sec. 80IB(13) the profits in respect of which the deduction u/s 80IB has been allowed, is to be reduced from eligible business profits for the purposes of deduction u/s 80HHC of the Act. The assessee by way of cross objection is not seeking relief to which it is entitled to but seeking cancellation of re- assessment proceeding so that additional tax relating to escaped income may not be fastened on him and hence the assessee attempting to avoid payment of due tax to Revenue. Under 15 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
these circumstances assessee cannot be permitted to raise a ground not arising from the order of CIT(A) that too by way of cross-objections. Consequently the decision of NTPC Ltd (supra) cannot be pressed into service for getting the assessment annulled in appeal filed by the Revenue. In view of above discussions we are of the considered opinion the cross objection filed by the assessee with an objective to get the assessment annulled is not maintainable and deserves to be dismissed.
19. Thus from above discussion we hold that the cross objection by the assessee is to be dismissed on merits as well as on maintainability as the issue raised does not arise from the order of CIT(A).
20. Now coming to the Revenue's appeal, the first issue for consideration relates to computation of deduction under section 80-HHC of the Act after reducing the amount of deduction allowed under section 80-IB. The relevant grounds of appeal are reproduced as under :-
" 1. The ld. CIT (Appeals) has erred in law in negating the action of the assessing officer for reducing the deduction claimed under section 80-IB from profit of the business to arrive at the balance profit available for deduction under section 80-HHC;
2. The ld. CIT (Appeals) has erred in law in attributing such an interpretation to Section 80-IA(9) which renders it completely redundant;
3. The ld. CIT (Appeals) has erred in law in negating the first leg of the section 80-IA(9) which clearly says that amount of deduction allowed under section 80-IA or 80-IB is not to be allowed under any other provisions of Chapter VI-C of which Section 80-HHC happens to be a part. "
21. The facts of the case relating to this ground of appeal are that the AO while computing deduction under section 80-HHC of the Act reduced the amount of deduction under section 80-IB amounting to Rs.55,96,435/- from the profits of business determined at 16 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
Rs.1,90,61,585/-. On the balance amount the assessing officer computed deduction under section 80-HHC as per the provisions of section 80-HHC(3) of the Act. Before the ld. CIT (Appeals) the assessee challenged the reduction of deduction under section 80-IB of the Act for the purpose of computation of deduction under section 80-HHC of the Act. It was argued that part of the section 80IA(9) stating that "deduction to the extent of such profits and gains shall not be allowed under any other provisions of this chapter" would not mean that out of total profit of Rs.100/-, if Rs.30/- had been allowed under section 80-IA then this amount of Rs.30/- would not be allowed under any section. The sub section (9) of section 80IA does not say that Rs.30/- would be reduced from the business profit for the purpose of computation of deduction under any other section. Therefore, it was pleaded that the amount of deduction claimed under section 80-IA of the Act will not be reduced from the gross total income for the purpose of computation of deduction under section 80-HHC. The ld. CIT (Appeals) after considering the arguments of the assessee came to the conclusion that deductions under sections 80-HHC and 80-B would be allowable on gross total income and it would not exceed the gross total income of the assessee. He accordingly, allowed the claim of the assessee.
22. We have heard both the parties and gone through the material available on record. We find that this issue is now covered by the decision of Five Member Special Bench in the case of ACIT Vs. Hindustan Mint & Agro Products (Delhi) [Special Bench] 315 ITR (AT) 401 wherein it has been held that the restrictions contained in sections 80-IA or 80-IB not to allow repeated deductions are applicable to the same profit. There has to be identity of profits on which deduction under more than one provision under Chapter VI-A have been claimed by the assessee. The provisions are applicable where profits of the undertaking or enterprise deduction is claimed under section 80-IA or 80-IB of the Act and then on the same profit of undertaking, deduction under other provisions like 80-HHC of the Act is claimed, in such cases, the restrictions contained in the above provisions would apply. If the profits are derived from a separate undertaking, the restriction contained under section 80-IA / 80-IB of the Act would not be applicable. In the case before us the income has been derived from the same undertaking and repeated deductions under section 80-IB and 80-HHC of the Act have been claimed. Therefore, the issue is squarely covered by the decision of the Special Bench in the case of Hindustan Mint & Agro Products (supra). Respectfully following the decision 17 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
of the Special Bench of the Tribunal, it is held that the amount of deduction allowed under section 80-IA / 80-IB of the Act shall be reduced from the eligible profits and on the balance amount deduction under section 80-HHC of the Act will be allowable. Therefore, in our considered opinion, the ld. CIT (Appeals) was not justified in allowing deduction under sections 80-IB and 80-HHC on the same gross profit. We, therefore, set aside the order of the ld. CIT (Appeals) and restore the order of the assessing officer.
23. The next issue in the Revenue's appeal relates to netting of interest received on FDRs against the interest paid to the bank. The assessee debited to profit and loss account the bank interest of Rs.49,31,123/- after reducing the interest earned of Rs.4,06,803/- on fixed deposits and claimed deduction under section 80-HHC of the Act without reducing the 90 per cent of the interest from the profits. The assessing officer following various decisions treated the interest received earned on deposits not derived from export business. He accordingly treated the interest received as income from other sources.
24. On appeal the ld. CIT (Appeals) observed that interest earned on FDRs. was to be treated as income from business as FDRs. were purchased for giving performance guarantee to Apparel Export Promotion Council [AEPC]. He accordingly directed the assessing officer to treat the interest on FDRs. as business income and allow the netting of the interest received against interest paid.
25. We have heard both the parties and gone through the material available on record. We find that this issue is now covered by the decision of Hon'ble Delhi High Court in the case of CIT v Shri Ram Honda Power Equip. 289 ITR 475 (Del.)(head notes) wherein it has been held as under :-
" .......(viii) The word `interest' in clause (baa) of the Explanation connotes `net interest' and not `gross interest'. Therefore, in deducting such interest, the Assessing Officer will take into account the net interest i.e. gross interest as reduced by expenditure incurred for 18 I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
earning such interest. (ix) Where, as a result of the computation of profits and gains of business and profession, the Assessing Officer treats the interest receipt as business income, then deduction should be permissible, in terms of Explanation (baa) of the net interest i.e. the gross interest less the expenditure incurred for the purposes of earning such interest. The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from Section 37, will require to be shown by the assessee for application of the netting principle."
26. Since the assessing officer has not examined the nature of interest as well as the netting of interest, we set aside the issue to the file of the assessing officer with the directions to examine the claim of the assessee in the light of decision of Hon'ble Delhi High Court in the case of Shri Ram Honda Power Equip (supra) after affording the assessee a reasonable opportunity of being heard.
27. In the result, the appeal filed by the Revenue, is allowed for statistical purposes.
28. In nut shell, the appeal filed by the Revenue is allowed, for statistical purposes and the cross objection filed by the assessee is dismissed.
The order pronounced in the open court on : 01st January, 2010.
Sd/ Sd/-
[ I. P. BANSAL ] [ K. D. RANJAN ]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 01st January, 2010.
*MEHTA*
19
I. T. Appeal No. 1123 (Del) of 2007.
AND C. O. No. 98 (Del) of 2008.
" Copy of the order forwarded to : -
1. Appellants.
2. Respondents.
3. CIT,
4. CIT (Appeals),
5. DR, ITAT, NEW DELHI.
True Copy. By Order.
Assistant Registrar, ITAT. "