Income Tax Appellate Tribunal - Indore
Siddhartha Tubes Ltd. vs Commissioner Of Income-Tax on 30 May, 2002
Equivalent citations: [2003]85ITD316(INDORE)
ORDER
Assessing officer computed deduction under sections 80HH and 80-I on refund of excise duty Catch Note:
Invocation of provision of section 263 was not justified as Supreme Court's decision in Sterling Food's case was not applicable because refund of excise duty was derived from manufacture of goods exported and thus entitled to deduction under sections 80HH and 80-I. Ratio:
Invocation of provision of section 263 was not justified as Supreme Court's decision in Sterling Food's case was not applicable because refund of excise duty was derived from manufacture of goods exported and thus entitled to deduction under sections 80HH and 80-I. Held:
As far as refund of excise duty is concerned, Tribunal agrees with assessee that it has been received on goods manufactured by assessee, therefore, the ratio of Sterling Food's case is not applicable, therefore, the order of Commissioner on the point of deduction under sections 80HH and 80-I in respect of refund of excise duty was not valid.
Case Law Analysis:
Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC) relied on CIT v. Sterling Foods (1999) 9 DTC 218 (SC) : (1999) 237 ITR 579 (SC) distinguished.
Application:
Not to current assessment year., Decision:
In favour of assessee.
Income Tax Act 1961 s.263 Income Tax Act 1961 s.80HH Income Tax Act 1961 s.80-I Revision under s. 263--REVISABLE ORDERAssessment order was subject matter of rectification under section 154 Catch Note:
Assessee contended that once an order was rectified under section 154 original assessment order ceased to exist--Same not acceptable--Only effect of rectification is that assessment order has to be read subject to rectification made in that regard and issue(s) not touched in section 154 order could be revised.
Ratio:
Only effect of rectification is that assessment order has to be read subject to rectification made in that regard and issue(s) not touched in section 154 order could be revised.
Held:
There is no force in the contention of assessee that once an order is rectified, it ceases to exist. For example, if additions are made on 10 issues and later on assessment order is rectified in respect of one issue, the other 9 additions would still remain, the only effect of rectification is that assessment order has to be read subject to rectification made in that order.
Original order was very much available for revision in respect of the items which have not been dealt with for Commissioner.
Case Law Analysis:
Karsandas BhagwandasPatel v. G. V Shah, ITO (1975) 98 ITR 255 (Guj) distinguished. CIT v. Sakseria Cotton Mills Ltd. (1980) 124 ITR 570 (Bom), State of Madras v. Madurai Mills Co. Ltd. (1967) 19 STC 144 (SC) and CIT v. Panna Knitting Industries (2002) 26 DTC 1053 (Guj-HC) : (2002) 253 ITR 656 (Guj) applied.
Application:
Also to current assessment year., Decision:
In favour of revenue.
Income Tax Act 1961 s.263 Income Tax Act 1961 s.154 Revision under s. 263--REVISABLE ORDERIssue not covered under Kar Vivad Samadhan Schemes (KVSS) Catch Note:
Issue(s) which have not been covered by KVSS are open for revision or adjudication in departmental appeals as mentioned in clause (iii) of section 90 of Finance (No. 2) Act, 1998.
Ratio:
Issue(s) which have not been covered by KVSS are open for revision or adjudication in departmental appeals as mentioned in clause (iii) of section 90 of Finance (No. 2) Act, 1998.
Held:
Contention of assessee that assessee has filed declaration under KVSS and as such the matter was finally closed and could not be reopened by the Commissioner later has no force.
From plain reading of clause (iii) of section 90 of Finance (No. 2) Act, it becomes clear that matters which have been covered cannot be reopened, it has been consistently, holding that issues which have not been covered by the KVSS are open for revision or adjudication in departmental appeals.
Application:
Also to current assessment year though KVSS is not in operation because revision under section 263 could be made of those orders not touched in KVSS.
Decision:
In favour of revenue.
Income Tax Act 1961 s.263 Revision under s. 263--VALIDITYInclusion of job work receipt while computing deduction under section 80HHC Catch Note:
Commissioner invoked section 263 to exclude job work receipt while computing deduction under section 80HHC--Was justified--Order of asessing officer was rightly revised by Commissioner because job work receipt had to be excluded while calculating deduction under section 80HHC.
Ratio:
Order of asessing officer was rightly revised by Commissioner because job work receipt had to be excluded while calculating deduction under section 80HHC.
Held:
There was nothing wrong with the order of Commissioner. Hon'ble Bombay High Court had also taken the view in CIT v. Sudarshan Chemicals Industries Ltd., (2000) 245 ITR 769 (Bom) that total turn over has to be calculated in terms of definition given under Explanation (ba) to section 80HHC (4B). The High Court has observed that definition given in Explanation (ba) is in negative manner and excluded only freight and insurance and total turnover shall be calculated from all such receipts which have an element of profit in it. In view of this decision, the order of Commissioner is uphold.
Case Law Analysis:
CIT v. Sudarshan Chemicals Industries Ltd. (2001) 19 DTC 82 (Bom-HC) : (2000) 245 ITR 769 (Bom) followed.
Application:
Also to current assessment year.
Decision:
In favour of revenue.
Income Tax Act 1961 s.263 Revision under s. 263--VALIDITYWhile computing deduction under sections 80HH and 80-I assessing officer not excluding export incentive earned from sale of export entitlement Catch Note:
Commissioner was justified in revising order of assessing officer under section 263 because order of assessing officer was erroneous as well as prejudicial as in assessment order export incentive earned from sale of export entitlement was not excluded while computing deduction under sections 80HH and 80-I. Ratio:
Commissioner was justified in revising order of assessing officer under section 263 because order of assessing officer was erroneous as well as prejudicial as in assessment order export incentive earned from sale of export entitlement was not excluded while computing deduction under sections 80HH and 80-I. Application:
Not to current assessment year.
Decision:
In favour of revenue.
Income Tax Act 1961 s.263 Income Tax Act 1961 s.80HH Income Tax Act 1961 s.80-I ORDER T.R. Sood, Accountant Member
1. Through this appeal, assessee has challenged the order passed by CIT, Indore under Section 26.3 of the Act.
2. The brief facts of the case are that upon examination of records, Learned CIT found that deduction under sections 80HH and 80-I has been wrongly calculated in view of the decision of Supreme Court in CIT v. Sterling Foods [1999] 237 ITR 579' and deduction under Section 80HHC was also wrongly calculated. Accordingly, notice was issued and in response, it was submitted that matter regarding allowability of deduction under sections 80HH and 80-I have already been settled under KVSS. It was further contended that refund of excise duty was not covered by the decision of Hon'ble Supreme Court in Sterling Foods' case (supra). Regarding deduction under Section 80HHC, it was contended that Assessing Officer has correctly not included the job work receipt amounting to Rs. 55,37,429 while calculating total turnover. Learned CIT found no force in these contentions because under KVSS the matter covered was dispute regarding exclusion of profit from export of trading goods while calculating deduction under sections 80HH and 80-I and the dispute whether income from sale of export entitlement and refund of excise duty was to be excluded or not was not discussed at all. Similarly, he did not find any force in the contention that definition of total turnover as given in the Companies Act should be adopted because total turnover was defined in Explanation (ha) of Section 80HHC.
3. Before us, Learned Assessing Representative submitted that originally assessment was completed under Section 143(3) on 27-3-1998. Later on assessment was rectified under Section 154 of the I.T. Act on 28-1-1999. According to him, it is a well settled law that once a notice is issued for the purpose of making rectification, proceedings become reopened and the initial order of assessment ceases to be operative. The effect of reopening of assessment is to vacate or set aside the initial order of assessment and to substitute in itself the order made on rectification. Thus, rectified order would come into existence in respect of matters including those matters in respect of which there is no rectification. In this regard, he relied on Kundan Lal Srikishan v. CST AIR 1987 SC 793. He also relied on Chunnilal Onkarmal (P.) Ltd. v. CIT [1997] 224 ITR 2331 and CITV. Vippy Solvex Products (P.) Ltd. [1997] 228 ITR 587 (MP). He further contended that CIT had revised the original assessment order dated 27-3-1998, whereas the same was rectified on 28-1-1999 and as such the original assessment ceased to exist after 28-1-1999 and, therefore, original order passed on 27-3-1998 was not available to CIT on the date of origin on 29-3-2000.
4. It was also submitted that assessee had also filed a declaration under KVSS in respect of this order which stood after rectification and the said declaration was accepted by the Commissioner and accordingly appellant had paid the entire tax as determined by the Commissioner. The Commissioner had issued certificate under Section 90(1) of Finance Act, 1998 and as such the matter was finally closed and cannot be reopened by the Commissioner later. It was also submitted that as far as refund of excise duty is concerned, the decision of Hon'ble Supreme Court in Sterling Food's case (supra) is not applicable because refund of excise duty is received on goods manufactured and exported by the company.
5. On the other hand, Learned DR submitted that facts in case of Chunnilal Onkarmal (P.) Ltd. (supra) were altogether different.
In that case, revisionary order was passed on the points which were already rectified by the Assessing Officer, therefore, Hon'ble High Court had held that order was not erroneous or prejudicial to the interests of revenue. Similarly, facts were different in case of Vippy Solvex Products (P.) Ltd. (supra). In the instant case, the rectification was carried out under Section 154 with regard to excess depreciation allowed which is not the issue raised by the Commissioner in revisionary proceedings.
6. We have considered the rival contentions carefully. We have also gone through the orders of authorities below and documents filed on record. We have also perused the judgments relied on by the parties. We do not find any force in the contention of Learned Assessee's Representative that once an order is rectified, it ceases to exist. For example, If additions are made on 10 issues and later on assessment order is rectified in respect of one issue, the other 9 additions would still remain the only effect of rectification is that assessment order has to be read subject to rectification made in that order. The judgment relied on by the Learned Assessee's Representative are of no help. In this regard, first of all, we would like to observe that Hon'ble Supreme Court in CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 2971 has observed, "it is neither desirable nor permissible to pick out a word or sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treated to be complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment had to be considered in the light of the question which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case Courts must carefully try to ascertain the true principles laid down by the decision." Recently again a Constitution Bench of the Hon'ble Supreme Court in case of Padmasundra Rao v. State of Tamil Nadu [2002] 255 ITR 147 has observed at page 153 :
Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railway Board (1972) 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases.
7. Now we shall analyses the judgments relied on by the Learned assessee's representative in the background of above observations :
In Kundan Lal Srikishan's case (supra), Hon'ble Supreme Court was concerned with limitation for rectification application under Section 22 of U.P. Sales Tax. In this case, it was held that assessing authority gets jurisdiction to make re-assessment by issuing a notice to the dealer as provided under Section 21. Once notice is issued under that section, the original order of assessment gets reopened and thereafter any order made under Section 21 alone would be the order of assessment in respect of the period of question. Now it is well settled law that in case of reassessment the original order of assessment ceases to be operative. The effect of re-opening of an assessment is to vacate or set aside the original order of assessment and to substitute in its place the order made on reassessment. However, this analogy cannot be applied in case of rectification order. In this regard, observation of Hon'ble Bombay High Court in case of Blue Star Engg. Co. (Bombay) (P.) Ltd. v CIT [1969].73 ITR 283 is relevant. Their Lordships at page 299 have observed as under :-
The power intended to be given under Section 154 is to rectify an error apparent on the fact of the record. Amendment of the order is the consequence of the rectification and its purpose is to give effect to the rectification. If the rectification involves an amendment, which will effect the whole of order, it cannot be said that simply because of the use of the word "amend", which normally may not mean the cancellation of the whole order, the Income-Tax Officer should be powerless to rectify the mistake or error which is apparent on the fact of the order. The word "amend" with reference to legal documents means correct an error and the expression "Amend the order" would mean correct the error in the order. Under Section 154, power to rectify the error is to be exercised by correcting the error in the order and the correction must, therefore, extend to the elimination of the error. What the effect of the elimination of the error will be on the original order will depend upon each case. It may be that the elimination of the error may affect only a part of the order.
8. Again Hon'ble Gujarat High Court in Karsandas Bhagwandas Patel v. G.V. Shah, ITO [1975] 98 ITR 255 has observed "The "final order" for the purpose of Section 35(5) of the Act means the order which makes the final assessment of the assessee. It is well established that a proceeding for rectification of an assessment is a proceeding for assessment: it is part of the procedure for ascertainment and imposition of tax liability on the assessee. When an assessment is rectified by an order of rectification, what was wrong quantification of tax liability is rectified and a correct quantification of the liability is substituted for it and the corrected assessment is final assessment the order of rectification thus corrects the assessment unless it is followed by a subsequent order disturbing the corrected assessment.
9. Even doctrine of merger is not applicable because Hon'ble Bombay High Court in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 5701 has reproduced the following observation of Hon'ble Supreme Court in State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 :
But the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by the inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion of merger of two orders irrespective of the subject-matter of the appellate of revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction.
10. Again Patna High Court in Smt. Neeta Tajeja v. Asstt. Controller of Estate Duty held that the entire assessment order passed originally did not merge with the appellate order. It merged to the only extent that it has been challenged in the appeal i.e. with regard to three items. Now coming to the decision of M.P. High Court in Chunnilal Onkarmal (P.) Ltd. 's case (supra), facts were that original assessment was completed which was later on rectified under Section 154 of Commissioner of Income-tax found that original assessment was erroneous and prejudicial to the interest of revenue and thus initiated proceedings under Section 263 of the Act. It 1. [1979] 2 Taxman 152. was contended before Commissioner that original assessment order was already rectified and rectified order of assessment was not erroneous and prejudicial to the interest of revenue. It was further contended that rectification order itself was challenged and was dislodged in appeal by Commissioner of Income-Tax (A). It was in this background that Hon'ble High Court has held that there should be a valid order for exercise of powers under Section 263. The ratio of this decision cannot be applied to the instant case because firstly rectification was in respect of altogether different item i.e., withdrawal of excess depreciation allowed and secondly, rectification has not been challenged in appeal. Again Hon'ble High Court in Vippy Solvex Products (P.) Ltd. 's case (supra) was concerned with altogether different facts. In that case, original assessment was completed on 12-12-1986 and this order was rectified on 28-2-1987. In this case, Commissioner initiated revisionary proceedings under Section 263. In this case also the original order itself was under appeal before Commissioner of Income-Tax (A). It was held in these circumstances that there was no order available for revision under Section 263. So again ratio of this decision cannot be applied to the instant case. Recently Hon'ble Gujarat High Court in CIT v. Panna Knitting Industries [2002] 253 ITR 6561 has held that even if an appeal has been preferred before CIT, order would merge only to the extent (i.e. various items which have been challenged before CIT). After analysing all these judgments, we are of the considered opinion that original order was very much available for revision in respect of the items which have not been dealt with for Learned CIT.
11. Coming to the second contention of Learned Assessing Representative that assessee has filed declaration under KVSS and as such the matter was finally closed and could not be reopened by the Commissioner later. We find no force in this argument. Clause (Hi) of Section 90 reads as under :-
Every order passed under Sub-section (1), determining the sum payable under this scheme, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceedings under the Direct Tax enactment or indirect tax enactment or under any other law for the time being in force.
From plain reading of this clause, it becomes clear that matters which have been covered cannot be reopened, we have been consistently holding that issues which have not been covered by the KVSS are open for revision or adjudication in departmental appeals. Now in the present case, the dispute before Assessing Officer was whether profit from export of trading goods could be deducted while calculating deduction under sections 80HH and 80-I. The assessee had argued that such profit should not be deducted because business of and trading goods was done with the object of getting status of export house which was beneficial to its industrial activity. The Assessing Officer did not accept this argument and deduction under sections 80HH and 80-I was recalculated after excluding profit from export of trading goods. Thus, the issue sought to be revised by Commissioner regarding exclusion of export incentive earned by the assessee while calculating deduction under sections 80HH and 80-I was not discussed by the Assessing Officer. It is a different issue, therefore, Learned CIT has power to revise the same. Learned CIT has held the assessment order to be erroneous inasmuch as it is prejudicial to the interests of revenue because Assessing Officer had not excluded the export incentive earned from sale of export entitlement amounting to Rs. 1,24,25,438 and refund of excise duty amounting to Rs. 1,63,38,856. In view of the judgment of Hon'ble Supreme Court in Sterling Food's case (supra), he has also held the order to be erroneous and prejudicial to the interests of revenue for excluding the sum of Rs. 55,37,429 on account of job work from total turnover while calculating deduction under Section 80HHC. The Learned Assessing Representative has raised some arguments only with respect to refund of excise duty and has not advanced any arguments in respect of wrong calculation of deduction under sections 80HH and 80-I on account of sales of export entitlements and non-inclusion of job receipts in total turnover while calculating deduction under Section 80HHC. Regarding refund of excise duty, it was submitted that ratio of decision in Sterling Food's case (supra) was not applicable because the refund of excise duty is received on the goods manufactured and exported by the company. Thus, it is derived from the manufacture of goods exported and assessee is entitled for deduction under sections 80HH and 80-HH. In this regard, reliance was also placed on Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). As no deduction under sections 80HH and 80-I can be allowed on income from sales of export entitlement in view of the decision of Hon'ble Supreme Court in Sterling Food's case (supra), we uphold the order of Learned CIT in this respect. As far as refund of excise duty is concerned, we agree with Learned Assessee Representative that it has been received on goods manufactured by assessee, therefore, the ratio of Sterling Food's case (supra) is not applicable, therefore, we set aside the order of Learned CIT on the point of deduction under sections 80HH and 80-I in respect of refund of excise duty. As far as issue of inclusion of job work receipts in total turnover while calculating deduction under Section 80HHC is concerned, we find nothing wrong with the order of CIT. Hon'ble Bombay High Court has also taken the view in CIT v. Sudarshan Chemicals Industries Ltd., [2000], 245 ITR 7691 that total turn over has to be calculated in terms of definition given under Explanation (ba) to Section 80HHC (4B). The High Court has observed that definition given in Explanation (ba) is in negative manner and excluded only freight and insurance and total turnover shall be calculated from all such receipts which have an element of profit in it. In view of this decision, also, we uphold the order of CIT.
12. In the result, appeal is partly allowed.