Income Tax Appellate Tribunal - Rajkot
Assistant Commissioner Of Income Tax vs C.V.M. Exports on 25 November, 2005
Equivalent citations: [2006]103ITD251(RAJKOT), [2007]288ITR190(RAJKOT), (2006)99TTJ(RAJKOT)30
ORDER
R.C. Sharma, A.M.
1. This is an appeal filed by the Revenue against the order of the CIT(A)-IV, Rajkot, dt. 12th Sept., 2003, in the matter of order passed under Section 154/143(1).
2. The following effective grounds have been taken by the Revenue :
(i) The learned CIT(A) has erred in law and on facts in allowing the assessee's claim for exemption under Section 10B of the IT Act of Rs. 86,98,192 by holding that Section 154 of the Act is applicable.
(ii) The learned CIT(A) has further erred in law and on facts in substituting the claim made under Section 10B in the footnote of the computation sheet in place of the deduction claimed under Section 88HHC of the Act @ 70 per cent of such profit.
(iii) The learned CIT(A) further erred in law and on facts in holding that the assessee-firm was a manufacturing concern, although the assessee never had any machinery or plant for manufacturing of gold ornaments and jewellery and even the audit report under Section 44AB mentions in column 28(a) that it is a trading concern and that column 28(b) relating to manufacturing concern is not applicable.
(iv) The learned CIT(A) erred in law and on facts that the outsourcing is a manufacturing activity.
3. Rival contentions have been heard and records perused. The brief facts of the case are that the assessee is a partnership firm that came into existence on 21st June, 1999. The object clause of the firm is described as exports of gems and jewellery. The returns of income for asst. yrs. 2000-01 and 2001-02 were accepted under Section 143(1). In the year under appeal, i.e., asst. yr. 2002-03, the assessee outsourced the manufacturing facility and exported goods thus manufactured. In the return of income the assessee declared the income of Rs. 28,14,930 after claiming the deduction of Rs. 58,83,266 under Section 80HHC. The assessee also added a footnote in which it was claimed that the assessee was eligible for deduction under Section 10B of the IT Act and the required certificate in Form No. 56G for claiming the deduction was also attached with the return of income. There was a further footnote making an alternative claim for deduction under Section 80-TB and stating further that the required certificate in Form No. 10CCB was attached with the return of income. Note also clarified that while the assessee specifically made the claim for deduction under Section 10B of the IT Act which gives the maximum tax benefit to the assessee followed by the alternative claim for reduction under Section 80-IB, the assessee computed the taxable income and made the payment of tax in terms of the income determined after claiming the deduction under Section 80HHC which gives the assessee the least amount of tax benefit. It was also explained in the note that this course of making the claims alternatively after filing the relevant required paper in respect of all the claims, is adopted without holding that the claims are debatable but under the apprehension that serious hardship could be caused to the assessee if the tax is not paid in accordance with the provision of the tax benefit involving the highest payment of tax. This was done to be on safe-side and particularly to avoid interest and penalty liability. The return was processed under Section 143(1) on 25th Feb., 2003 accepting the computation of income as given in the proforma return. The alternative claims in the footnote to the computation of income were ignored. The assessee filed the application under Section 154 even as it paid the additional demand of Rs. 20,586 quantified in the intimation slip. The rectification application dt. 5th May, 2003 was rejected by the AO on 8th May, 2003 on the ground that the income as computed in the return had been accepted under Section 143(1).
3.1 It was submitted that the claims for deduction under Sections 80HHC, 80-I and exemption under Section 10B were simultaneously made and that the purpose of calculating the tax and paying the same on the basis of the deduction resulting in highest tax liability was made only to protect the assessee from the uncertainty about the acceptance of the claim for deduction under Section 10B since the provision is new and the claim is made for the first time. The fact that the computation of income and the calculation of tax has been made on the basis of a claim for deduction under Section 80HHC does not mean that the claim for deduction under Section 10B made in the footnote to the computation of the income is not legally made and it cannot be ignored.
3.2 Before the CIT(A) it was submitted by learned Authorised Representative that the manufacturing of the exported articles is got done from outside sources and that was the circumstance which prompted the assessee to be cautious about computing the income after claiming the deduction under Section 10B. If the manufacturing under Section 10B excludes the outsourcing of manufacturing, the assessee may face the prospect of the rejection of the claim and consequent interest liabilities and proceedings under penal provisions. The question to be considered is as to whether manufacturing would include manufacturing by outsiders under the responsibility and supervision of the assessee in terms of risks and quality control. As per learned Authorised Representative, the issue is no longer a debatable issue and that the undertaking itself need not carry out the actual manufacturing. In CIT v. Rajmohan Cashews (I) Ltd. good portion of processing of cashew was done in outside factories with processing charges being paid by the assessee. Similar view was taken in CIT v. Talwar Khuller (P) Ltd. (1998) 235 ITR 70 (All) and CIT v. Indian Resins & Polymers consensus appears to be that there is no bar to the assessee getting his product manufactured or processed by other provided it is under assessee's control and supervision. Outsourcing of process and activities is a normal feature of business. In case a verification is considered necessary, acceptance of the claim in the return is always subject to scrutiny by appropriate action under Section 143(2). In fact the assessee paid tax according to the alternative of lower deduction only to hedge against the uncertainties attending to the outcome of verification under Section 143(2). Such caution should not be held against the assessee for denying him the more beneficial of the alternative claim of deduction duly supported by statutory report made in the footnote to the computation of income. He further submitted that to be eligible for deduction under Section 10B, the profits and gains must be derived from export by a 100 per cent export-oriented undertaking and such undertaking must begin to manufacture or produce such articles or things. The undertaking must fulfil the conditions that it must manufacture or produce articles or the things that it is not formed by the splitting up or the reconstruction of a business already in existence or by transfer to a new business or machinery or plant previously used for any purpose. The sale proceeds must be received in or brought into India in convertible foreign exchange. Further, the claim should be supported by a certificate from a chartered accountant under Section 10B(5). In the present case the assessee has filed the form of registration-cum-membership certificate from the Director of the Gem and Jewellery Export Council. As per learned Authorised Representative in the case of Jute Corporation of India Ltd. v. CIT and Anr. (1999) 187 ITR 688 (SC) the emphasis is on the proposition that the scope of the power of the first appellate authority is co-terminus with that of the AO and therefore, the omissions and errors of the AO can be corrected by the appellate authority. In the Gujarat High Court judgment in the case of Chokshi Metal Refinery v. CIT , it is observed on the basis of the circular of the Board and the decision of the Supreme Court in Navnit Lal C. Javeri v. K.K. Sen, AAC that although at the time of original assessment, the assessee-firm itself did not claim relief under Section 84/80J and though the responsibility for claiming refund and relief rested with the assessee, ITO should have drawn the attention of the assessee to this relief to which the assessee appeared to be clearly entitled but which the assessee had omitted to claim. The decision went against the assessee only because the relevant material for granting relief could not be said to have been available with the ITO at the time of making assessment. In the present case the claim is made and the relevant material is furnished. The manner of making the claim should not come in the way of taking a decision about its allowability or otherwise. In the case of National Thermal Power Co. Ltd. v. CIT , the Supreme Court observed that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. As a result, if it is found by a Tribunal in the course of deciding a matter 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. Of course this can be done only if the relevant facts are on record. In the present case, it is apparent that a permissible deduction is denied on account of its non-consideration in view of the manner of acceptance of the declared income under Section 143(1). But the claim is made and the relevant statutory (sic) is on record. On the basis of these authorities, learned Authorised Representative submitted that the claim made in the footnote can be considered under Section 154 or in the course of appeal proceedings.
3.3 By the impugned order, the CIT(A) observed that a deduction under Section 10B is available in respect of profits and gains derived by a hundred per cent export-oriented undertaking from the export of articles or things for the period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things. The assessee is a business undertaking and it is engaged in the export of articles or things. It was further observed that the manufacturing or production referred to in Section 10B(1) includes manufacturing got done from third parties and that there is a concensus of judicial opinion given by several High Court judgments on this point. It further observed that the other conditions of Section 10B are also fulfilled. On the question of several alternative claims made by the assessee, the CIT(A) accepted the contention of learned Authorised Representative that even if the deduction is not claimed in the computation of income, it can be claimed in the assessment proceedings. It can also be claimed for the first time either before CIT(A) and for this reliance was placed on Jute Corporation of India Ltd. v. CIT (supra), or before the Tribunal as per verdict in National Thermal Power Co. Ltd. v. CIT (supra).
3.4 Aggrieved by the above order of the CIT(A), the Revenue is in appeal before us.
4. It was submitted by the learned Departmental Representative that the assessee has not made any claim in the return of income under Section 10B/80-IB and that it was only as a footnote that the assessee has made the claim. As per learned Departmental Representative, the AO has accepted the return in which the assessee has made claim under Section 80HHC. Thereafter rectification application filed under Section 154 was dismissed by the AO because the power of AO to make correction in the returned income on the basis of information/facts available in the documents attached with the return is no more in the statute book during the relevant asst. yr. 2002-03 under consideration. As per learned Departmental Representative, since the AO does not have any power at all to make any changes in the returned income submitted by the assessee while issuing the intimation on the basis of return, he cannot assume power under Section 154. He relied on judgment of Patna High Court in the case of Parikh Engineering & Body Building Co. Ltd. and Anr. v. Union of India and Ors. (1999) 238 ITR 554 (Pat) in support of the proposition that what could not have been done directly cannot be done indirectly in the garb of rectification power.
4.1 It was argued by the learned Authorised Representative that by not considering the alternative claims made by the assessee in its return of income, there arose a mistake in the order of the AO passed under Section 143(1). As the mistake was apparent from the record he should have rectified the same on the application made by the assessee under Section 154. Since the AO did not judiciously rectify the mistake, the CIT(A) had correctly exercised his powers under Section 154 and directed the AO for allowing statutory claims of the assessee which were undisputedly put forth by the assessee in the original return of income. As per learned Authorized Representative mere giving footnote of the legitimate claims for which the assessee is legally entitled to, does not empower the AO to disregard or ignore such claims, rather he is dutybound to take cognizance of such legal claims and allow the same while processing the return under Section 143(1) and if he forgets to allow such claim, the order of the AO under Section 143(1) will be subject to rectification under Section 154. Reliance was placed by learned Authorised Representative on the decision of Gujarat High Court in the case of S.R. Koshti v. CIT , wherein it was held that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is overassessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. Held, that even if for the sake of argument, it were accepted that an intimation was also forwarded along with the refund order, it was admittedly issued only on 13th May, 2002. In the circumstances, there being no order of assessment as envisaged under the provisions of the Act, a revised return under Section 139(5) could have been submitted by the petitioner on or before 31st March, 2003, and, in fact, was so submitted by the petitioner on or before 24th Sept., 2002. The revised return was filed within the period of limitation and was hence valid. The AO was not only right in law, but was fully justified in passing the order under Section 154 of the Act after entertaining the revised return which was filed within the time-limit statutorily prescribed. Therefore, also the respondent could not have assumed jurisdiction under Section 263. The CIT had not stated that the petitioner was not entitled to the relief under Section 10(10C). In fact, the said position was undisputed. The AO himself had passed an order under Section 154 of the Act granting such relief. In such circumstances, the order under Section 264 could not be sustained. The orders under Sections 263 and 264 had to be quashed and the order under Section 154 would prevail.
4.2 Learned Authorised Representative further reiterated the contentions made before the CIT(A) and justified his action for directing the AO for allowing assessee's claims.
4.3 To highlight what constitutes record of assessment, the learned Authorised Representative relied on CIT v. K.N. Oil Industries wherein it was held that the record of the assessment is not confined to the return. Section 154 of the Act which confers jurisdiction for rectifying a mistake enables the ITO to assume jurisdiction when he finds "any mistake apparent from the record". The word 'record', as used in Section 154, will include all material which form part of the assessment proceedings and not only the return. If an assessee omits to claim the relief allowable to him under the provisions of the Act, it could not be said that he is not entitled to get that relief. It is the duty of the ITO and other officers administering the Act to inform the assessee that he is entitled to a particular relief if it is apparent that he is so entitled from the material available in the proceedings of assessment. Held, on the facts of the case, that if it is apparent from the record that the assessee was entitled to relief admissible under Section 35B, that relief can be granted to him by an order under Section 154 by rectifying the assessment even though relief under that section had not been claimed by the assessee in the original assessment proceedings.
4.4 Reliance was also placed on Ramco Cement Distribution Co. (P) Ltd. v. CIT 33 STC 180 (Mad) wherein it was held that merely because the claim was not made at the original stage, a universal rule of thumb cannot be made and all applications for rectification of defects which are apparent on the face of the record cannot be refused to be corrected. There may be cases where such a principle might rightly be pressed into service. But, in a matter where the statute itself gave exemption and if that exemption has been inadvertently not claimed by the petitioner, it is certainly a case where the taxing authorities also should equitably view the situation and render justice.
4.5 Learned Authorised Representative also relied on decision of Calcutta High Court in the case of West Bengal State Warehousing Corporation v. CIT wherein it was held that the ITO has no jurisdiction to assess such income which is exempt from taxation. This error of jurisdiction is a "glaring and obvious error which can be rectified under Section 154 of the Act.
4.6 With regard to carrying on manufacturing activity on job-work, reliance was placed on Raymon Gelatine v. Asstt. CIT (2003) 133 Taxman 198 (Ahd)(Mag) wherein it was held that it was immaterial that such processing was done in the factory which had been taken on lease from 'R' as that amounted to goods processed by the assessee. Further, in view of the judgment of the Supreme Court in the case of Chillies Exports House Ltd. v. CIT and in view of the judgment of the Bombay High Court in the case of CIT v. Penwalt India Ltd. , such processing by third party amounted to goods processed by the assessee. Under the circumstances, the orders of the lower authorities were set aside and the claim of the assessee for deduction under Section 80HHC was allowed.
4.7 To persuade the Bench to hold that even job work done outside amounts to manufacture and production, learned Authorised Representative relied on CIT v. Talwar Khuller (P) Ltd. (supra) wherein it was held that the assessee-company got manufactured various articles of brassware from artisans under its supervision and control. The assessee gave the pattern and design of the articles to be manufactured by the artisans and advanced money to them for purchasing the raw material, namely, brass, to manufacture those articles. The artisans made articles in different models. The articles in raw form were examined by the assessee and then directions were given to the artisans to modify and polish the same. The assessee claimed that it was an industrial company as defined in Clause (c) of Section 8 of the Finance Act, 1975, engaged in the manufacture and processing of brassware articles and entitled to the concessional rate of tax. Held, that a processor of goods need not himself carry out all the processes resulting in the end product; he may get some of them done by a third party. The artisans were not free to manufacture any item of their own in any shape or pattern they liked but they were guided by the assessee itself as to which pattern and design they were required to manufacture.
4.8 In the rejoinder, learned Departmental Representative submitted that the judgment of S.R. Koshti v. CIT (supra), as relied on by learned Authorised Representative is not applicable to the assessee's case insofar as facts are different. In the case of S.R. Koshti (supra), the assessee had not claimed exemption out of VRS compensation because the same was not treated as exempt in Form No. 16 also by the employer by mistake. The return for asst. yr. 2001-02 was filed on 31st July, 2001 showing income of Rs. 9,98,182 (including VRS compensation of Rs. 7,50,000). The refund of Rs. 12,219 was claimed. The return was processed under Section 143(1)(a) on 28th March, 2002 and the refund was granted on 13th May, 2002. Later on the assessee came to know of his mistake that sum of Rs. 5,00,000 out of VRS compensation was exempt under Section 10(10C) of the IT Act, which was not claimed in the return. He accordingly filed a revised return on 24th Sept., 2002 in which the said exemption was claimed. The assessee accordingly requested the AO to issue further refund after giving exemption entitled to him. The AO after examination of certain details passed an order under Section 154 on 27th March, 2003 and granted the exemption. The said order under Section 154 was set aside by the CIT under Section 263. The assessee also preferred an application under Section 264 (with request to condone delay in filing) requesting the CIT to revise the intimation issued by the AO and grant relief to him on the basis of revised return filed on 24th Sept., 2002. The CIT rejected the request under Section 264 by order dt. 29th March, 2004 holding it to be beyond period available for filing Section 264 petition. He also held a revised return filed by the assessee on 24th Sept., 2002 as invalid being filed out of time. In the background of above facts, the Hon'ble Gujarat High Court observed that the revised return filed by the assessee on 24th Sept., 2002 was valid. In Section 139(5) two time-limits were given one prior to date of assessment and second within one year from the date of assessment and earlier of the two is to be adhered to. In that case the first one i.e., prior to date of assessment was not applicable because no assessment was made at all. The intimation under Section 143(1)(a) cannot be treated as an assessment order. The assessee accordingly could have filed revised return upto 31st March, 2003, i.e., before the end of one year from end of assessment year. Having held revised return as valid, the Hon'ble High Court upheld the rectification order under Section 154 as correct and justified while quashing the orders under Sections 263 and 264 as invalid. As per learned Departmental Representative in the instant case, the returned income was accepted by AO under Section 143(1), in which the assessee had made a claim under Section 80HHC, therefore, no fault can be traced in his order.
5. We have considered the rival contentions, carefully gone through the orders of authorities below and also deliberated on various judicial pronouncements relied on by the learned Authorised Representative and learned Departmental Representative and cited at Bar, in the factual matrix of the instant case. We have also carefully gone through the detailed paper book filed by the learned Authorised Representative as well as rejoinder filed by the learned Departmental Representative. As per our considered view, the main controversy involved in the instant case relates to the power of the CIT(A) while deciding an appeal filed against the order of AO passed under Section 154 read with Section 143(1). In the instant case, there is no dispute to the fact that in the original return, the assessee has made claim for deduction under Section 80HHC and income was returned accordingly. However, in the other documents accompanying with the return of income as footnote, the assessee has made a claim under Section 10B/80-IB. The AO processed the return under Section 143(1) and accepted the returned income as per the claim made by the assessee under Section 80HHC. However, no discussion was made with reference to the alternate claim filed by the assessee as a footnote. Thereafter, the assessee filed rectification petition under Section 154 for allowing its alternative claim under Section 10B/80-IB, which was put as a footnote but not considered by the AO. The AO declined assessee's petition by observing that same income was assessed as shown by the assessee while processing the return under Section 143(1) and, therefore, there was no mistake apparent from the order passed under Section 143(1) which could be rectified under Section 154. In an appeal filed before the CIT(A), the CIT(A) discussed in detail what amounts to manufacturing when the same is done through outsourcing and not by its own plant and machinery. He further discussed in detail as to whether the manufacturing would include manufacturing by outsider under the responsibility and supervision of the assessee in terms of the risks and quality control. After detailed discussions, the CIT(A) reached the conclusion that there is no bar on the assessee for getting his product manufactured or processed by others provided it is under the assessee's control and supervision. However, the CIT(A) has also stated in his conclusion that in case the verification is considered necessary, it is always subject to scrutiny under Section 143(2). He also observed that the assessee has paid higher taxes only to hedge against the uncertainty pertaining to the outcome after verification under Section 143(2) and that such footnote should not be held against the assessee for taking him the more beneficial alternative claim of deduction made in the footnote of computation of income. It is crystal clear from the observations made by the CIT(A) that even while deciding the assessee's claim under Section 10B/80-IB, a scrutiny under Section 143(2) was required. The detailed discussion made by the CIT(A) in its appellate order for reaching to the conclusion that the assessee was a manufacturer even though same was done through outsourcing, the assessee, therefore, eligible for deduction under Section 10B, itself indicate that allowability of deduction under Section 10B is subject to various conditions and stipulations which are required to be examined. In the instant case, the CIT(A) was undisputedly deciding the appeal filed against dismissal of application under Section 154, which has been filed to rectify the mistake done by the AO while processing the return under Section 143(1). Here we have to see the scope of powers under Section 154 read with Section 143(1) and not Section 143(3). The provisions of Section 143(1) have been amended by the Finance Act, 1999, w.e.f. 1st June, 1999.
In view of the above discussions, following questions fall for consideration :
(i) What are the powers of the AO while processing return under Section 143(1) for the asst. yr. 2002-03, under consideration ?
(ii) If the assessee, in addition to the main claim made in the return, has made some alternative claims in the statement enclosed with the return, whether the AO is required to pass separate orders for different income worked out on the basis of different claims, while processing the return under Section 143(1) ?
(iii) If the AO has accepted the claim made in the original return and processed the return as per the income disclosed in the original return, if it amounts to a mistake much less a mistake apparent from record ?
(iv) What is the scope of powers of the AO under Section 154 read with Section 143(1) ?
(v) What is the scope of powers of the CIT(A) while deciding on a issue under Section 154 read with Section 143(1) ?
(vi) What will be the fate of alternative claim made by the assessee in the statement enclosed with the return, once the AO accepted the returned income as per the main deduction claimed in the return ?
In the instant case, in addition to claim made in the original return under Section 80HHC, the assessee has made two more alternative claims as a footnote in the documents enclosed with the return of income, one pertains to exemption under Section 10B and another with regard to deduction under Section 80-IB. While processing the return under Section 143(1), the AO is supposed to pass order as per the claim made in the return and he cannot be forced for considering the alternative claims made in the computation of income and to pass separate orders for different claims put forth by the assessee. When the AO has accepted the returned income on the basis of claim made in the return under Section 80HHC, no fault can be found on the part of the AO for not considering the alternative claims made by the assessee in the accompanying documents by way of footnote. Nor the AO can be compelled to pass separate orders under Section 143(1) with regard to the other alternative claims made by the assessee. Thus, when the AO has accepted the return of income as it is while passing order under Section 143(1), there cannot be said to be mistake much less a mistake apparent on record in its order passed under Section 143(1) which could be rectified by recourse to Section 154. Furthermore, the power of AO under Section 143(1) has undergone tremendous changes by the Finance Act, 1999, w.e.f. 1st June, 1999 and thereafter the powers of the AO while processing the return under Section 143(1) is limited to ask for any shortfall in the tax amount or interest or to issue refund if the same is due on the basis of returned income.
6. The relevant provisions of law applicable w.e.f. asst. yr. 2000-01 and which are applicable for the asst. yr. 2002-03 under consideration read as under :
143 (1) Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142,-
(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of Sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable and such intimation shall be deemed to be a notice of demand issued under Section 156 and all the provisions of this Act shall apply accordingly; and
(ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee.
6.1 It is crystal clear from the plain reading of above section that the power of AO while processing return under Section 143(1), after its amendment by Finance Act, 1999 w.e.f. 1st June, 1999, is limited to ask for any shortfall in the tax amount or interest or to issue refund if the same is due as per returned income and tax paid thereon. Even the powers of correcting arithmetical error in the computation of income has been taken away by the said amendment. Thus, the power of the AO to make correction in the returned income on the basis of information available in the accompanying documents has been taken away by the legislature w.e.f. 1st June, 1999. Since the AO does not have any power at all to make any changes in the income shown in such return, there cannot be said to be any mistake in the intimation issued on the basis of the return. As the AO, after the amendment of Section 143(1), did not have any power at all to make any changes in the returned income or to allow the different alternative claims made by the assessee, while issuing intimation, he cannot assume any power for the purpose of rectification of the said intimation, in pursuance of any application filed by the assessee under Section 154. There is no dispute to well settled legal proposition that what cannot be done directly, can also be not done indirectly by way of rectification.
7. In the instant case, when the AO has declined assessee's petition under Section 154, the CIT(A) cannot travel beyond the powers given to him under the statute under Section 154 read with Section 143(1). As the AO has done correctly under Section 143(1), by accepting the return of income as it is, the CIT(A) was not justified in holding that there was apparent mistake in the order of the AO and thereby directing the AO to allow assessee's claim for deduction under Section 10B/80-IB, which undisputedly requires long deliberation and verification of record with regard to eligibility of respective claims as per the respective provisions of the Act. We are, therefore, inclined to agree with the learned CIT(A)--Departmental Representative, Shri R.K. Gupta, that CIT(A) was not justified in allowing the assessee's claim for deduction under Section 10B amounting to Rs. 86.98 lakhs, when there was no mistake in the order of AO passed under Section 143(1), while disposing assessee's appeal against order under Section 154/143(1).
8. We are not oblivious of the fact that in the computation of income/statement enclosed with the return, the assessee has made alternative claim for exemption under Section 10B/deduction under Section 80-IB on the basis of audit report and other documents enclosed therewith. Can it be said that all such other alternate claims made by the assessee would go in vain, just by stating that there was no fault in the AO's action under Section 143(1). The clear-cut answer is 'no'. The jurisdictional High Court in the case of S.R. Koshti (supra) had categorically observed that the authorities under the IT Act are under an obligation to act in accordance with the law and tax can be collected only as provided under the Act. It was further observed that if an assessee under a mistake or misconception or of not being properly instructed, is overassessed the authorities under the Act are required to assist him and ensure that only legitimate taxes are collected. Applying the broad proposition laid down by the jurisdictional High Court to the facts of the instant case, the alternate claim put by the assessee is required to be given due weightage by the AO as per the provisions of the Act after calling for required information/documents in this regard and undertaking necessary inquiry with respect to eligibility of alternative claim put by the assessee. Thus, by processing return under Section 143(1) on the basis of claim made under Section 80HHC, the assessee cannot be said good-bye by disregarding the other alternative claims which the learned Authorised Representative has vehemently argued that the assessee was fully eligible and required documents for the same were also enclosed with the return of income. Here we are in full agreement with learned Authorised Representative, Mr. M.K. Patel that the other legitimate claims put forth by the assessee for which he is legally entitled, cannot be ignored by the Departmental authorities only by accepting the returned income as per deductions claimed under Section 80HHC and that Departmental authorities are dutybound to examine such other claims and give cogent reasons if the same are not acceptable to them. As per our considered view, the alternative claims put in the computation of income filed along with return of income, even as a footnote, will definitely safeguard the assessee as and when the return is put under scrutiny by issuing notice under Section 143(2). In the fitness of the things and in the interest of justice, we are restoring the issue to the file of AO for deciding the assessee's eligibility for exemption under Section 10B and/or deduction under Section 80-IB after giving due opportunity of being heard under Section 143(2).
9. The proposition laid down with respect of scope of powers of CIT under Section 263/264 with reference to order passed by the AO under Section 154, in the case laws relied on by the learned Authorised Representative in the case of S.R. Koshti (supra), is not applicable to the facts and circumstances of the present case, because in this case the basis of rectification was the claim made by the assessee in revised return, which was legally valid and the same was held to be valid by the Hon'ble High Court. Whereas in the instant case, in the same return of income the assessee has put forth alternative claims in addition to main claim of deduction under Section 80HHC. The AO had accepted the returned income as it is in which claim under Section 80HHC was put forth. The other case laws relied on by the learned Authorised Representative pertain to entertaining additional claim at the appellate or Tribunal or High Court level, which the assessee failed to raise before the lower authorities, but the relevant materials of which are already on the record. Other case laws referred by the learned Authorised Representative pertain to the power of rectification with reference to scope of Section 143(1) prior to its amendment by the Finance Act, 1999. Thus, these case laws are not pertinent for deciding the scope of power under Section 154/143(1) for the relevant asst. yr. 2002-03, under consideration. Furthermore, in view of the detailed arguments placed by the learned Authorised Representative with regard to eligibility of assessee's claim under Section 10B/80-IB, there remains no doubt that issue was debatable and allowability or denial of such claim requires long process of reasoning which does not come within the purview of Section 154. As per our considered view, mistake apparent from the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. In the instant case, it was not open to the AO to go into the eligibility of assessee's claim under provisions of Section 10B/80-IB, while disposing the petition filed under Section 154/143(1). Thus, the power of rectification can be exercised only when the mistake sought to be rectified is apparent from the record. In the instant case, the power under Section 154 is to be read with power of AO while processing the return under Section 143(1) and what cannot be done under Section 143(1), the same could not be done indirectly by recourse to Section 154.
10. In view of the above, we do not find any merit in the action of the CIT(A). We, therefore, set aside the order of CIT(A) and matter is restored back to the file of AO for deciding the issue afresh after giving due opportunity to the assessee by issuing notice under Section 143(2) and examining the assessee's eligibility of claim under Section 10B/80-IB, which was undisputedly put forth by the assessee by way of footnote.
11. In the result, the appeal of the Revenue is allowed in part, in terms indicated hereinabove.