Income Tax Appellate Tribunal - Delhi
Hindustan Tin Works Ltd. vs Deputy Cit on 19 July, 2004
Equivalent citations: [2005]274ITR157(DELHI)
ORDER
N.V. Vasudevan, J.M This is an appeal by the assessee against the order dated 30-8-2000 of the Commissioner passed under section 263 of the Act, for the assessment year 1996-97, whereby he directed the assessing officer to withdraw the relief of Rs. 16,41,544 allowed under section 80HHC of the Act and recompute the income of the assessee.
2. The facts and circumstances under which the order under section 263 came to be passed are that the assessee which is a company engaged in the business of manufacture and sale of tin containers, printed lacquered sheets and trading in tin plates filed it's return of income for the assessment year 1996-97 and the assessment was completed determining total income at Rs. 4,81,33,959. There were brought forward loss to the tune of Rs. 5,56,75,547. The assessee was entitled to claim deduction under section 80HHC in respect of profits derived from the business of export. Since there was negative income after setting off the brought forward loss no deduction under section 80HHC was claimed by the assessee. The assessee to the statement of total of income appended a Note to this effect. In the course of assessment proceedings the assessee however claimed that it was entitled to claim a deduction under section 80HHC of the Act on the profits derived from the business of export without setting off the brought forward loss. The assessee claimed that deduction under section 80HHC has to be allowed without taking recourse to Chapter VI of the Income Tax Act as the export profits are independent of any adjustment for such losses and depreciation. The assessee enclosed a computation of deduction under section 80HHC of the Act along with the note appended to the statement of income claimed relief /deduction of Rs. 16,32,220. The assessee placed reliance on the decision of the Honourable Andhra Pradesh High Court in the case of CIT v. Gogineni Tobacco Ltd. (1999) 238 ITR 970 (AP). The assessing officer accepted the case pleaded by the assessee. There is no discussion in the order of assessment on this aspect but the fact remains that the assessing officer allowed the claim for deduction under section 80HHC of the Act. Another important aspect which requires to be clarified is that the assessee had moved the Additional Commissioner under section 144A of the Act for seeking directions to complete the assessment in respect of claim under section 80HHC and the Additional Commissioner, had issued directions on the basis of which the assessment was completed. The taxable income was determined at Nil by the assessing officer after allowing deduction under section 80HHC. The Company was however assessed on an income determined under the provisions of section 115JA of the Act.
3. This order of the assessing officer was sought to be revised by the Commissioner in exercise of his powers under section 263 of the Act. A show-cause notice dated 7-7-2000, under section 263 was issued in which the CIT expressed the view that the order of the assessing officer allowing deduction under section 80HHC was erroneous and prejudicial to the interest of the revenue. The basis on which the CIT so expressed his opinion was that under the provisions of section 80A(2) the aggregate amount of deduction under Chapter VI-A of the Act must not, in any case, exceed the gross total income of the assessee. Under section 80B(5) of the Act gross total income for the purpose of Chapter VI-A means total income computed in accordance with the provisions of the Act before making any deduction under that Chapter. Under section 72 of the Act, the brought forward business loss has to be first set off against the business profits and after such set off the gross total income is to be determined. The CIT relied on the decision of the Honble Supreme Court in the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 224 ITR 604 (SC) in this regard. He then referred to the fact that the profit worked out by the assessing officer was at a sum of Rs. 4,81,33,959 and the unabsorbed business loss stood at Rs. 5,56,75,547. If the unabsorbed business loss is set off against the business profits, then there would be no gross total income against which deduction under section 80HHC is to be allowed. Since the assessing officer had allowed deduction under section 80HHC of the Act at Rs. 16,41,544, the order of the assessing officer was erroneous notwithstanding the fact that such order was passed after directions of the Addl. CIT. We should intention here that if deduction under section 80HHC were not be allowed for the reason that gross total income was nil after allowing set off unabsorbed business loss then the unabsorbed business loss to be carried forward to the next year would stand reduced to the extent of Rs. 16,41,541. There would be no change in the tax determined or payable by the assessee this year since the income and tax payable were determined under the provisions of section 115JAof the Act. Nevertheless there is prejudice to the interest of the revenue inasmuch as the unabsorbed business loss to be carried forward to next year for being set off should be less than what was determined by the assessing officer. To this extent there is prejudice to the interest of the revenue and there is no dispute on this aspect before us.
4. The reply of the assessee to the show-cause notice was almost identical to the note that the assessee appended to the statement of income during the course of assessment proceedings. The assessee distinguished the decision of the Hon'ble Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) relied upon by the learned Commissioner. By taking a stand that the said decision was in the context of section 80P and that the provisions of section 80HHC was a code by itself and provisions of section 80A(2) or 80B(5) were not applicable to it. In addition the assessee relied on the decision of the Honourable Madras High Court in the case of CIT v. M.K. Raju Consultants (P) Ltd. 239 ITR 232 (Mad).
5. The CIT however rejected the plea put forth by the assessee by observing as follows:
"I have carefully considered the above submissions made on behalf of the assessee. As has been pointed out at the very outset section 80A(2) governs all the deductions available under Chapter VI-A and does not make any exception with regard to the deduction available under section 80HHC. It categorically provides that the deductions available under the Chapter shall not exceed the gross total income of the assessee. The legislature cannot be taken to have laid down this restriction as an idle formality to be ignored at will. In order to give effect to the mandate of the section it is necessary in all cases where Chapter VI-A deduction is claimed to first work out the gross total income for the assessee and then allow deduction under various sections of Chapter VI-A, to the extent positive income is available to accommodate the same. Now for working out of the gross total income, one has only to refer to the definition of the term given in section 80H(5) which says gross total income is the total income computed in accordance with the provisions of this Act before making any deduction under this Chapter. It is not necessary to refer to individual sections included in the Chapter to see if the same includes the words, "gross total income" or not. Section 80HHC may or may not be a code in itself for the purpose of quantification of the relief allowable under that section but because of section 80A(2) such relief can be actually allowed only if the gross total income computed in accordance with the provisions of section 80B(5) is a positive figure. If the gross total income is a negative figure no deduction under Chapter VIA can be allowed. In this context, the decision of the Apex Court in Kotagiri Industrial Cooperative Tea Factory Ltd.'s case is relevant as it clearly lays down that for the purposes of clause (5) of section 80B, the gross total income is to be determined after allowing set off for carried forward losses. The learned counsel's argument that the above decision is not relevant to the facts of this case is patently misconceived.
So far as the decision of the Andhra Pradesh High Court relied upon by the assessing officer as well as by the assessee is concerned, the said decision does not refer to the restrictive provision of section 80A(2) of the Act, which applied with equal force to all the deductions specified under Chapter VI-A including the one under section 80HHC. The wordings of section 80A(2) leave no scope for any dispute in the matter. The same is the case with other decisions cited by the learned counsel. It may be mentioned here that there is one decision of Kerala High Court at 225 ITR 731 which supports the case of the department in the matter, although even in that case the scope of section 80A(2) or for that matter of section 80B(5) has not been referred to or dealt with."
6. The order of assessment was thus revised by CIT by withdrawing the relief allowed under section 80HHC.
7. Aggrieved by the order of the CIT, the assessee is in appeal before us. The grounds of appeal of the assessee reads as follows:
"1. That on the facts and in the circumstances of the case, the action of learned CIT (A) in withdrawing relief under section 80HHC for a sum of Rs. 16,45,544 which was duly claimed in the statement of total income and on reference to the learned Addl. CIT (A) under section 144A and duly approved by him and thereby holding the assessment as erroneous and prejudicial to the interest of the revenue is purely on hypothesis, legally misconceived and therefore unjust, uncalled for and legally untenable.
2. That the learned CIT (A) has failed to appreciate the factual position placed before him as also the legal position in this behalf including the decision of various High Courts most particularly the decisions of the Hon'ble High Court in the case of CIT v. Gogineni Tobacco Ltd. 232 ITR 38 (AP) and in the case of CIT v. M.K. Raju Consultants (P) Ltd. (1999) 239 ITR 232 (Mad.) and besides the other decision on this issue and therefore by simply stating that the Hon'ble High Court did not properly take into consideration the alleged restrictive provision of section 80A(2) is beyond the competence and jurisdiction of the learned CIT (A) when the said decision is completely on the same facts as in the present case and there being no contrary decision, the action of the learned CIT (A) withdrawing the relief is legally misconceived and factually incorrect and therefore his order deserves to be cancelled.
3. That without prejudice to the above and the legal position on this behalf it has to be positively proved that there is an error in the assessment order which has caused prejudice to the revenue has to be positively proved in respect of each ring of the section which has not been done and accordingly the impugned order deserves to be quashed."
8. We have heard the submissions of the learned counsel for the assessee as well as the learned Departmental Representative The learned counsel for the assessee at the outset submitted that the assessing officer has considered all the aspects of the issue that was raised by the CIT in exercise of his powers under section 263 and in consultation with the Addlitional CIT had come to a conclusion that deduction under section 80HHC was to be allowed without setting off the unabsorbed loss of earlier years. The decision of the assessing officer was supported by a decision of the Hon'ble Andhra Pradesh High Court in the case of Gogineni Tobacco Ltd. (supra) and the view taken by the assessing officer was in conformity with such decision. He then drew our attention to the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) and submitted that the Hon'ble Supreme Court has laid down in the said decision that where two views are possible on an issue and the assessing officer has adopted one view with which the Commissioner does not agree, it cannot be treated as an erroneous order, prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law. It was submitted by him that the assessing officer's view was in conformity with the decision of the A.P. High Court and therefore, cannot be said to be erroneous.
9. The learned Departmental Representative placed reliance on the order of the CIT. It was submitted by her that the decision of the Hon'ble Supreme Court in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) was binding on the assessing officer and the decision of the Hon'ble A.P. High Court ought not to have been taken cognizance by the assessing officer. It was further pointed out that in the case of IPCA Laboratory Ltd. v. Dy. CIT (2004) 266 ITR 521 (SC), the Supreme Court again reaffirmed its view in the Kotagiri Industrial Co-operative Tea Factory Ltd.'s case (supra) in the context of section 80HHC. It was also submitted that a contrary view expressed by the Hon'ble High Courts which were later in point of time to the date of passing of the order by the assessing officer is also no longer good law as these decisions stand overruled by the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. (supra). It was also pointed out by her that the decision of the Hon'ble A.P. High Court has since been reversed by the Hon'ble Supreme Court in CIT v. Gogineni Tobacco Ltd. (2002) 253 ITR 800 (SC).
10. In reply it was argued by the learned counsel for the assessee that as on the date when the assessing officer passed his orders the decision of the Supreme Court was not available on the subject and the CIT in exercise of his powers under section 263 cannot ignore the decision of the High Court. He relied on the decision of the Hon'ble Supreme Court in the case of CIT v. G.M. Mittal Stainless Steel (P) Ltd. (2003) 263 ITR 255 (SC).
11. We have considered the rival submissions. In the present case the assessing officer passed the order of assessment on 29-2-2000. The Hon'ble Supreme Court in the context of section 80P had held in the case of Kotagiri Industrial Co-operative Tea Factory Ltd. (supra) as follows:
"For the purpose of Chapter VI-A the expression "gross total income" is defined in clause (5) of section 80B in the following terms : "Gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter."
If section 80P(1) is read with definition of the expression "gross total income" contained in section 80B(5), it has to be held that for the purpose of making deduction under section 80P it is necessary to first determine the gross total income in accordance with the other provisions of the Act. This means that for the purposes of the present case the gross total income must be determined by setting off against the income the business losses of the earlier years as required under section 72 of the Act.
12. The decision of the Hon'ble Supreme Court was rendered even before the order of assessment came to be passed by the assessing officer in the present case. We now have to examine as to what is the effect of the decision of the Honble A.P. High Court in the case of Gogineni Tobacco Ltd. (supra). The facts of the case before the Hon'ble A.P. High Court were as follows. The assessee derived income from tobacco trade. For the assessment year 1992-93 the assessee had filed return of income on 30-12-1992, admitting a loss of Rs. 8,55,137 after deducting the carry forward loss of Rs. 42,59,952 from the income of Rs. 34,27,372. While filing the return, the assessee has not quantified the deductions under section 80HHC of the Income Tax Act, because of the loss admitted by the company. Subsequently, it has filed a revised return claiming deduction of Rs. 34,14,814 under section 80HHC of the Income Tax Act from the current year's income and requested that the unabsorbed business loss of Rs. 20,45,751 and the unabsorbed depreciation of Rs. 21,16,890 be carried forward to the subsequent years. While processing the return of income, no deduction under section 80HHC was allowed as after the setting off of the unabsorbed business loss of Rs. 20,45,751 and the unabsorbed depreciation of Rs. 13,81,611 from the total income of Rs. 34,27,372, the gross total income was nil as can be seen from the facts as narrated above, the assessing officer had made prima facie adjustment under section 143(1)(a) of the Act. While making prima facie adjustment the assessing officer was not to make any disallowance on issues which are controversial or debatable since the assessing officer does not call the assessee for an enquiry and decides issues which are prima facie not controversial on the basis of the particulars and documents accompanying the return. The CIT (A) and the ITAT held that the issue whether deduction could be allowed under section 80HHC after setting off unabsorbed business loss of earlier years or without such a set off was a debatable issue and no prima facie adjustment could have been made by the assessing officer while making an intimation under section 143(1)(a) of the Act. The revenue filed an application for referring a question of law to the Hon'ble High Court under section 256(1) and the Tribunal dismissed the same on the ground no question of law arose for consideration. On an application under section 256(2) by the revenue for a direction to the Tribunal to state a case, the Hon'ble High Court held that no question of law arose out of the order of the Tribunal. The Hon'ble High Court observed that in their opinion deduction under section 80HHC was to be allowed without setting off the unabsorbed business loss since section 80HHC did not use the expression' profits computed in accordance with the provisions of this Act' but used the expression' profits computed in accordance with and subject to the provisions of this section' (i.e. Section 80HHC). The High Court held that no question of law arose for consideration.
13. The decision of the A.P. High Court was carried in appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court directed the Tribunal to state the case and refer the question of law as proposed by the revenue. It is to be remembered that the decision of the Hon'ble A.P. High Court was not the decision of the jurisdictional High Court. The Honble Supreme Court in the case of G.M. Mittal Stainless Steel (P) Ltd. (supra) has held that when the decision of the jurisdictional High Court is not in appeal to the Supreme Court and if the assessing officer follows the decision of the Jurisdictional High Court, then the order of the assessing officer cannot be said to be erroneous. Even subsequently, if the order of the jurisdictional High Court is reversed by the Supreme Court, the same will not make the order of the assessing officer erroneous. In the present case, however, two factors have to be taken note of. Firstly, the decision of the Hon'ble A.P. High Court was not the decision of the Jurisdictional High Court. Secondly, the said judgment of the A.P. High Court was subject matter of an appeal which was pending before the Honble Supreme Court. It is no doubt true that the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) has held that if two views are possible in a given situation and the assessing officer adopts one view merely because the CIT does not accept that view the order cannot be said to be erroneous unless the view taken by the assessing officer is unsustainable in law. In the case of G.M. Miltal Stainless Steel (P) Ltd. (supra), the Hon'ble Supreme Court has approved the decision of the Hon'ble Madras High Court in the case of CIT v. Seshasayee Paper Boards Ltd. (1996) 217 ITR 358 (Mad). In the said Madras High Court decision, the assessing officer followed the decision of the jurisdictional High Court which was subject-matter of an appeal before the Supreme Court. Even before the Supreme Court could pronounce its verdict on the appeal by the revenue, the CIT in exercise o its powers under section 263 revised the order of the assessing officer which was in conformity with the decision of the jurisdictional High Court. Later on, the decision of the jurisdictional High Court was reversed by the Honble Supreme Court. The Hon'ble Madras High Court held that the CIT was justified in exercising his jurisdiction under section 263. The law laid down by the Madras High Court is thus to the effect that the decision of Supreme Court should be taken to be declaratory and should be taken to be the law on the date when the notice to revise the assessment was issued by the Commissioner. The decision of the Honble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) should be read as subject to the aforesaid principle as laid down in the case of G.M Mittal Stainless Steel (P) Ltd. (supra). The power to be exercised under section 263 is of a supervisory nature. To protect the interest of the revenue the Commissioner has to exercise his powers under section 263. Even though the view of the assessing officer is in conformity with the decision of the jurisdictional High Court or any other High Court, the Commissioner, to protect the interest of the revenue is entitled to invoke jurisdiction under section 263. This of course is subject to the condition that the view of the jurisdictional High Court is subject-matter of an appeal before the Supreme Court. In view of the above legal position, we are of the view that the Commissioner was justified in exercising his jurisdiction under section 263.
14. With the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. (supra) it has to be held that the deduction under section 80HHC was to be given after giving due consideration to the provisions of section 80A(2) and section 80B(5) of the Act. This position is deemed to have existed even as on the date when the CIT sought to invoke his powers under section 263 of the Act. We, therefore, do not find any grounds to interfere with the order of the CIT (A). The same is confirmed and this appeal by the assessee is dismissed.
OPEN