Income Tax Appellate Tribunal - Delhi
Satish Kumar Aggarwal, vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'G' : NEW DELHI)
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
and
SHRI K.D. RANJAN, ACCOUNTANT MEMBER
ITA No.1429/Del./2008
(ASSESSMENT YEAR : 2002-03)
Shri Satish Kumar Aggarwal, vs. DCIT, Central Circle 21,
42, Bagh Dewar, Fateh Puri, New Delhi.
Delhi.
(PAN : AAJPA2835J)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Vinod Bindal & Ms. Sweety Kothari, CAs
REVENUE by : Shri A.K. Sinha, Senior DR
ORDER
PER R.P. TOLANI, JUDICIAL MEMBER :
The assessee has filed this appeal against the order of CIT (Appeals) for the assessment year 2002-03. Following grounds are raised :
"1. The learned CIT(A) erred in law and on facts in confirming the rectification u/s 154 of the Act carried out by the assessing officer on various debatable issues on the basis of some audit queries. Thus the order u/s 154 should be annulled as the same has been passed ignoring the provisions of law that debatable issues can not be rectified u/s 154.
2. The learned CIT(A) erred in law and on facts in not allowing to consider the sum of Rs.30,01,318/- being Foreign Exchange Fluctuation Amount as part of Export turnover ignoring that the said amount represents the excess realisation of export bills due to higher conversion rates. Thus directions should be issued to treat the foreign exchange fluctuation amount 2 ITA No.1429/Del./2008 as a part of export turnover for the purpose of calculating deduction u/s 80HHC in the exercise u/s 154.
3. The learned CIT(A) erred in law and on facts in not allowing to reduce the indirect cost by an amount of Rs.37,03,362/- equivalent of 10% of Export incentives and interest while calculating the indirect costs attributable to Exports ignoring the decision of in the case of Surendra Engg. Corporation Vs. ACIT (2003) 86 ITD 102 (SB) (Mum.) and approved by the Apex Court in Hero Exports Vs CIT (2007) 295 ITR 454 (SC). Thus, the reduction of the said amount from the indirect cost should be allowed.
4. The learned CIT(A) erred in allowing the adjustment of the loss of Rs.68,37,193/- derived from export of trading goods u/s 80HHC(3) against 90% of the Exports incentives under the proviso to Section 80HHC(3) ignoring that it was a debatable issue and cannot be considered u/s 154 of the act. Thus such trading loss should not be adjusted against the export incentives.
5. The learned CIT(A) erred in law and on facts in issuing directions regarding the issue of value of export incentives at Rs.3,56,16,653/- though the same was accepted by the assessing officer and no ground of appeal was raised against the same. Thus the action of the CIT(A) should be reversed, which is beyond the authority.
6. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing."
2. Brief facts are that the assessment u/s 143(3) was framed on the assessee vide order dated 31.3.2004 in which deduction u/s 80HHC was allowed to assessee at Rs.2,24,38,491/-. Later on, Assessing Officer proposed to rectify the amount of deduction allowable u/s 80HHC. A notice u/s 154 was issued pointing out mistake in the notice by following words : 3 ITA No.1429/Del./2008
"Incorrect deduction of Rs.13692769/- u/s 80HHC of I.T. Act."
Assessee objected to such rectification on the following grounds :-
(i) Deduction u/s 80HHC was allowed after considering all the facts and evidences on record;
(ii) The proposed notice was general in nature and learnt to have been issued on the basis of some audit query;
(iii) Power of rectification u/s 154 can be exercised only if there was a mistake apparent from the record. A deduction allowed after long term process of reasoning on points on which there may be conceivably two opinions was a mistake apparent from the record. If the issue is debatable and capable of two interpretations, cannot be carried out u/s 154.
(iv) On merits, further the assessee contended is that the assessee disclosed Rs.3,56,16,653/- as the income accrued to him during the year by virtue of entitlements received which included sales of such licenses as well as licenses in hand which were valued and shown as stock in hand because this income pertained to the year under consideration. However, in your calculation the figure has been taken at the amount of licenses, which were transferred, during the year under consideration and opening and closing balances of import licenses in hand were ignored. The treatment 4 ITA No.1429/Del./2008 adopted by the assessee is correct as he is following mercantile method of accounting, which is duly mentioned in the tax audit report also. On perusal of your proposal, it is seen that profit and gains from business u/s 28 has been computed by considering the value of export incentives at Rs.3,56,16,653/- whereas for the purpose claiming deduction, their value has been taken at Rs.2,17,30,601/-. There can not be different connotation of clauses D (iiia), (iiib) and (iiic) of Section 28 for the purpose of Section 28 and Section 80HHC. Amount referred to in proviso to Section 80HHC(3) is 90% of the amount included under section 28. Thus, if it is decided that the value of import entitlements transferred is to be considered for the purpose, then the difference of Rs.1,38,86,052/- (being closing stock of import entitlements - opening stock of import entitlements i.e. Rs.2,61,39,938/- -1,22,53,886/-) should be excluded from the declared profits from the business as per profit and loss account because the profit for the year stood increased by this figure. As regards the contention that domestic turnover of computer parts at Rs.31,03,750/- should be included in total turnover for the purpose of computation of deduction, it is stated that not only separate books of account are maintained but nature of the two 5 ITA No.1429/Del./2008 businesses is altogether different. The export business consist of Export of Casin Acid whereas the other business consist of dealing in Computer parts and skimmed milk powder. The use of word "the" before business in 80HHC(3) refers to the same business which has qualified for deduction under 80HHC(1).
Moreover, it is also a debatable issue where full facts as declared were considered and accepted, it is beyond the purview of Section 154.
(iv) On merits, assessee also placed reliance on the following decisions :
(a) Lalsons Enterprises vs. DCIT 89 ITD 25 (Delhi)(SB);
(b) Indian Sugar & Gen. Industry Export Import Ltd. vs. DCIT (2002) 121 Taxman (Mag.) 305 (Del.);
(c) ACIT vs. Avon Cycles Ltd. (2003) 86 ITD 156 (Chd.);
(d) Fine Mobile Parts (India) Pvt. Ltd. in appeal
No.3422/Del./98 ITAT Delhi Bench order dated
28.2.2003;
(e) CIT vs. Chloride India Ltd. (2002) 256 ITR 625 (Cal.);
(f) Smt. Sujata Grover vs. Dy.CIT (2002) 74 TTJ (Delhi) 347;
(g) Sharp Credit Ltd. vs. DCIT 83 TTJ 1056 (Del.); and
(h) Surendra Engg. Corporation vs. ACIT (2003) 86 ITD 102.
3. Assessing Officer, however, held that there was a mistake apparent from record and by order dated 1.7.2005, which was rectified by order u/s 154 6 ITA No.1429/Del./2008 by reducing the deduction u/s 80HHC at Rs.50,46,322/- as per working given in the order.
4. Aggrieved, assessee preferred first appeal where CIT (A) upheld the action of A.O. in holding that it is a mistake apparent from record by following observations :
"I have carefully considered the elaborate submissions of the appellant and the contention of the AO. As regards to set off of trading loss derived from the export business against the export incentive is concerned, the law is very clear as how to compute the export benefit u/s 80HHC. A detailed formula has been prescribed in the section 80HHC which is a code by itself. The appellant cannot ignore the loss incurred in the export business and gain the benefit on gross export incentives. As per the formula given in the section, first 90% of the export incentives are deducted from the profits of the business and the same is enhanced by the 90% of the export incentives in the same proportion as the export turnover based to the total turnover of the business carried on by the assessee. No where it, refers to the fact as propounded by the assessee that the loss incurred is to be ignored and export benefit is to be allowed on export incentives without adjusting such loss. It is clearly referred in the Act itself which does not require any reasoning or investigation of facts. The issue has reached finality in view of the Apex Court decision in the case of IPCA Laboratories and A.M. Moosa as well as special Bench of Mumbai in the case of B.Sorabji. Now it has become law of the land even before act was amended w.e.f. 1.4.1998 by virtue of Taxation Law Amendment Act 2005. Hence, there is no merit in the argument of the appellant that the loss cannot be adjusted against the export incentives. The issue is neither contentious nor debatable and clearly falls under the category of mistake apparent from the records. Consequently, the A.O.'s action is confirmed on this ground."7 ITA No.1429/Del./2008
5. On merits, CIT (A) gave certain observations and further directed the A.O. to recompute the deduction u/s 80HHC as under :
" As far as inclusion of domestic turnover as well as exchange fluctuation in the total turnover and export turnover as well as exchange concerned, I am of the opinion that these two items clearly fall under debatable issues which require further investigation of facts and application of law before reaching a conclusion to consider these items as part of the turnover. The domestic turnover cannot automatically becomes part of the total turnover for the purpose of computing the export benefit, unless it is established that it has the nexus with the export activity as well. Hence prima facie it cannot he included in the turnover as such. On this ground, the A.O.'s action is rejected. Accordingly, A.O. to exclude the domestic turnover from the total turnover for computing deduction u/s SOHHC.
Neither in the original return nor in the assessment proceedings has the appellant ever raised the issue of foreign exchange fluctuation to be considered as export turnover. It gives an impression that apparently the assessee itself not convinced about the latest argument advanced in the proceedings u/s 154 of the I.T. Act. The exchange fluctuation has to be examined whether it really relates to export sales, whether the amount has realized within the time allowed under the Act etc. This is a fresh issue raised which cannot be subject matter of rectification by any stretch of argument. Hence unquestionably this item cannot be subject matter of rectification. Hence, the A.O. has rightly rejected the contention of the appellant on this issue.
The next ground raised is against the action of the A.O. in denying the benefit of 10% of export incentive and interest income for the purpose of computing the interest cost, I find this issue requires a detailed examination, reasoning and application of law etc. As contended it is not the mistake apparent from record. While filing the return of income, the assessee has never claimed this item at all despite the fact that the export benefit was duly claimed after obtaining a certificate in form No. 10CCAA from a qualified Accountant. Even in 8 ITA No.1429/Del./2008 the original assessment proceedings, this was never raised. Further the assessee relied on various case laws in support of its contention. The assessee itself contended that rectification proceedings cannot be resorted to in order to make a revision in a matter on which there could be two plausible interpretations. A decision on a debatable point of law is not a mistake apparent from record and the same cannot be rectified u/s 154 of the I.T. Act. This reasoning has equal force on the issue raised by the appellant in this ground. Further as held by the Apex Court in the case of Goetze India Ltd. any fresh claim made subsequent to the filing of return should be in the form of return only. It cannot raise fresh claims in the rectification proceedings initiated by the A.O. Hence the A.O. is justified in rejecting the claim of the assessee on the issue of allowing 10% as indirect cost.
In the impugned order, the A.O. has substituted the amount of Rs.3,56,16,653/- as export incentive as against Rs.2,17,30,601/- originally claimed and allowed in the return of income. On perusal of the trading account in respect of export division it is noticed that the amount shown under the head import licences is Rs.2,17,30,601/-. The trading account also reflecting a sum of Rs.2,61,30,601/- as realizable/sale value of import licenses in hand. It is not clear how the figure of Rs.3,56,16,653/- has been adopted for computing the export benefit. In this regard referring to provisions of section 80HHC as well as section 28 (iiia), (iiih), (iiic), (iiid) & (iiie) is very much relevant to examine whether the A.O's action in adopting a slim of Rs.3,56,16,653/- is correct or not. As per clause (iiid) & (iiie) the export incentives are such receipt which has profit on transfer of those import entitlements. That means the A.O. should adopt only the profit element arising on transfer of such import licences. The value of import licence as such is business income falls under clause (iv) of section 28. However, if assessee derives any profit on transfer of those entitlements the same will he assessable u/s 28 (iiid) & (iiie) of the Income-tax Act as export incentives. Hence, the entire value taken by the A.O. as export incentive for the computation of deduction u/s 80HHC is not correct as per the law. Accordingly, the A.O. is directed to examine the actual import incentives received by the assessee and the same may 9 ITA No.1429/Del./2008 he considered for the purpose of arriving deduction u/s 80HHC.
The A.O. is directed to follow the above directions and recompute the deduction u/s 80HHC afresh."
6. Learned counsel for the assessee vehemently argues that the provisions of section 154 can be invoked by any authority only to rectify any mistake apparent from record, which should be manifest and glaring from the order passed by the A.O. Any issue, which is debatable, carries more than one opinion and has been subject matter of litigation cannot be termed to be a mistake apparent from record. In the instant case, the original assessment was completed u/s 143(3). Assessee had claimed deduction u/s 80HHC on the basis of certificate issued by chartered accountant and the working supplied with the return of income. A.O. allowed the claim after due deliberation and 80HHC working of the assessee was accepted, the same depends upon many factors, which require adjustments, additions and analysis of turnover and profits etc. If there was any possible loss to revenue caused by the working of the assessee the same should not have been accepted by the A.O. in the first place and otherwise revision proceedings u/s 263 and reassessment proceedings u/s 147 could have been undertaken as provided by Act. The A.O. chose it as a mistake apparent u/s 154 from the record which is not the applicable provision of law to facts looking from any angle, the mistake in order to be rectifiable should be a self-evident and mistake which is tried to 10 ITA No.1429/Del./2008 be corrected by a complicated process of investigation, arguments, facts and on judicial pronouncement as in these facts cannot be called a mistake apparent from record. Rectification proceedings cannot be invoked to review his order by the A.O.'s. Reliance was placed on the following decisions for this proposition :
(i) T.S. Balaram, ITO vs. Valkart brothers (1971) 82 ITR 50 (SC);
(ii) Varindra Construction vs. ITO (2004) 1 SOT 152 (Asr);
(iii) CIT vs. Krishak Bharti Co-operative Lotd. (2004) 266 ITR 208 (Del.);
(iv) Relays (P) Ltd. vs. ACIT (2003) SOT 15 (Delhi);
(v) CIT vs. Jayana Cold Storage & Ice Factory (2003) 128 Taxman 51 / 260 ITR 430 (All) It was further pointed out that the notice issued u/s 154 itself was not specific and as mentioned above referred to only incorrect deduction u/s 80HHC. A notice u/s 154 has to be specific pointing out the exact mistake which was apparent from record, this goes to show with the A.O. himself was not clear about what is proposed to be rectified. The order u/s 154 itself would reveal that various figures have been recalculated and rearranged relying on various judgments including Hon'ble Supreme Court in the case of IPCA Laboratory, 266 ITR 521, which was passed on 11.3.2004 whereas the assessment order u/s 143(3) was passed on 31.3.2004. Since A.O. passed the order u/s 143 (3) 11 ITA No.1429/Del./2008 after due consideration of the working any interference in the working can be made under appropriate proceedings under sections 263 or 147. Powers u/s 154 cannot clothe A.O. with powers to review his own order. It was pleaded that the impugned order u/s 154 is untenable, as it has not rectified a mistake but review the order.
7. Learned DR supported the orders of lower authorities.
8. We have heard the rival contentions and perused the material on record. In our view, assessee furnished a detailed working u/s 80HHC along with CA's certificate, which was considered by A.O., and thereafter order u/s 143(3) by way of scrutiny assessment was passed on 31.3.2004. In our view, what is envisaged u/s 154 is a glaring and apparent mistake and it does not clothe A.O. with a power to review his own order. Income-tax Act provides various remedies to Department to safeguard interest of revenue including revision of order as administrative mechanism u/s 263, reopening of assessment u/s 147 for income escaped assessment and for glaring mistake rectification u/s 154. Merely because there is a power to rectify, each and every decided issue resulting in possible loss of revenue of change of opinion of A.O. cannot be rectified u/s 154. The sine qua non of rectification power is existence of a glaring, patent and obvious mistake, which does not cover each and every decided issue which may result in possible loss of revenue. In our view, the rectifications made in the impugned order u/s 154 fall in the 12 ITA No.1429/Del./2008 category of review of the order by A.O. which is not covered u/s 154. Consequently, we hold that the impugned order u/s 154 does not conform to the provisions in this behalf, i.e. rectification of mistake. Under these circumstances, we have no alternate but to set aside the impugned order passed by the A.O. u/s 154 and allow assessee's claim in this behalf. Since we have held the proceedings u/s 154 to be bad in law we do not go into merits.
9. In the result, the assessee's appeal is allowed on the above terms.
Order pronounced in open court on this 28th day of May, 2010.
Sd/- sd/-
(K.D. RANJAN) (R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 28TH day of May, 2010
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A), New Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.