Income Tax Appellate Tribunal - Kolkata
Income-Tax Officer vs Iran Tea Trading Co. (P.) Ltd. on 5 March, 2001
Equivalent citations: [2002]80ITD537(KOL)
ORDER
R.P. Garg, Vice-President
1. These three appeals are by the Revenue against the three orders of the CIT(A) all for the assessment year 1985-86. For the sake of convenience, they are being disposed of by this common order.
2. The first appeal (ITA No. 2879/Cal/95) arises out of the order of the Assessing Officer under Section 154, dated 17-6-1993. The facts are that in the original assessment order dated 25-1-1988, the deduction claimed by the assessee under Section 80HHC of Rs. 18,66,484 was allowed at Rs. 12,95,588. The Commissioner in exercise of jurisdiction under Section 263 set aside the said order vide his order dated 29-1-1990 by observing that the commission payment was allowed without full investigation. A fresh order of assessment under Section 143(3) pursuant to the directions of the CIT under Section 263 was made and in this order the disallowance of commission was made. Besides, the allowance of deduction under Section 80HHC was reduced to Rs. 2,827 only. The reduction was because the convertible foreign exchange was only Rs. 2,82,716 equivalent to US $ 23,41,443. Accordingly, the deduction was allowed at 1% thereof being Rs. 2,827. The assessee filed an appeal against this order of the assessment under Section 143(3), read with Section 263 which was dismissed by the CIT(A) on 12-8-1991. By the time the appeal against this order of CIT(A) came up for hearing, the order under Section 263 was quashed by the Tribunal in IT Appeal No. 731/Cal./91, order dated 26-6-1992. Consequently, the order dated 12-8-1991 of the CIT(A) and of Assessing Officer were set aside by the Tribunal vide order of even dated 26-6-1992 in ITA No. 3389 (Cal.)/91.
3. While giving effect to the order of the Tribunal dated 26-6-1992, the Assessing Officer vide his order dated 22-3-1993 reduced the deduction under Section 80HHC to Rs. 54,829, this time because as after the adjustment of unabsorbed business loss of the earlier year the gross total income was only of that amount. The assessee made an application on 26-5-1993 for rectification of this order giving effect to the order of the Tribunal. It was rejected by the Assessing Officer vide his order dated 17-6-1993. Against this rejection of application of rectification order, the assessee went in appeal and the CIT vide his order dated 13-9-1995 held that since the order under Section 263 has been set aside by the Tribunal, the original order of assessment revived and, therefore, the deduction under Section 80HHC as allowed in the original order could not be reduced while giving effect to the order of the Tribunal cancelling the order of revision. Revenue's appeal in ITA No. 2879/Cal./95 is against this order of the CIT(A) cancelling the order under Section 154 of the Assessing Officer refusing rectification.
4. Besides making an application for rectification under Section 154 aforesaid, the assessee also filed an appeal on 31-5-1993 against the order of the ITO dated 22-3-1993 giving effect to the Tribunal's order. The CIT(A) allowed the appeal of the assessee vide his order dated 9-11-1995 and directed the ITO to allow relief under Section 80HHC as in the original order under Section 143(3). The appeal by the Revenue in ITA No. 346 (Cal.)/1996 is against this order of the CIT(A).
5. The Assessing Officer gave effect on 6-11-1995 to the order of CIT(A) dated 13-9-1995 and following his directions restored the deduction at Rs. 12,95,588 as was originally allowed in the first order of assessment. The Assessing Officer also then initiated proceeding under Section 154 on 1-11-1996 for rectifying this order dated 6-11-1995 passed giving effect to the CIT(A)'s order dated 13-9-1995. After hearing the assessee and referring to proviso to Section 80B(5), the Assessing Officer rectified the order by setting off the carry forward losses of 1984-85 and reducing the deduction under Section 80HHC to the extent of gross total income of Rs. 54,829 vide his order dated 31-3-1997. On 31-8-1999, the CIT(A) set aside the order of the rectification made by the Assessing Officer on 31-3-1997. The appeal in IT Appeal No. 1717/Cal./99 is against this order of the CIT(A).
6. It may be stated that assessee's claim for deduction under Section 80HHC was for Rs. 18,86,484 which was allowed by the Assessing Officer in the original order under Section 143(3) at Rs. 12,95,588. For this reduction in the claim also, the assessee went in appeal to the CIT who has given no decision thereon, even though ground No. 4 was raised before him against such deduction. The matter came up in the Tribunal and the Tribunal vide order in ITA No. 1179 (Cal.)/91, dated 20-10-1994 set aside the matter to the file of the CIT(A) to consider the said ground and decide the issue in accordance with law after giving adequate opportunity to the assessee of being heard. We are informed that no consequential order has since been passed by the CIT in consequence of the aforesaid directions.
7. Supporting the order of the Assessing Officer, the Ld. Departmental Representative submitted that doctrine of merger is not applicable because there was no decision of the CIT(A) on merits of 80HHC. The issue in earlier proceedings was whether the Assessing Officer had the jurisdiction to reconsider the claim or not. He further submitted that the effective order was dated 6-11-1995 which was the revival of the original order and, therefore, in view of the decision of the Supreme Court in the case of Hind Wire Industries Ltd. v. CIT[1995] 212 ITR 639 : 80 Taxman 79., the rectification was within the time-limit. With regard to the other appeal, he submitted that the total income of this year being Nil, in both the situation the Assessing Officer could rectify the assessment without notice because there was no enhancement in that case. He further submitted that while giving effect, the modification made by the Assessing Officer was, in fact, a way of rectification, though he might not have said it specifically. He, therefore, submitted that the full deduction was not allowable to the assessee and was, therefore, rightly withdrawn by the Assessing Officer. In any case, at least one of the orders of the Assessing Officer deserves to be upheld.
8. The Ld. Counsel of the assessee, on the other hand, referred to the decision of the Supreme Court in the case of Modi Industries Ltd. v. CIT [1995] 216 ITR 759 : 82 Taxman 377., observations at page 792 and submitted that Supreme Court says,-"Any modified or revised assessment after completion of the order under Section 143 or Section 144 will be a fresh order passed to implement the direction of a higher authority. The order will be erroneous and liable to be set aside if the direction of the higher authority is not faithfully carried out. The jurisdiction to pass such an order is conferred by the order of the higher authority. If the first order of assessment is set aside and the Income-tax Officer is directed to pass a fresh order of assessment, the position will be the same. The fresh assessment order will not be an order passed under Section 143 or Section 144 simpliciter. The time-limit laid down under Section 153(1) for passing an order under Section 143 or Section 144 will not apply." It was further submitted by the Ld. counsel of the assessee that when Tribunal set aside or quashed an order, no order to revive the original order set aside by 263 order is required and, therefore, the time-limit is to be counted from the original order and not the alleged revival order. He further submitted that disallowance/reduction of 80HHC deduction would amount to enhancement because of the curtailment of the right, to carry forward of losses and having given no notice of hearing, it would not be permissible for the Assessing Officer to rectify the assessment by withdrawing or reducing the deduction under Section 80HHC of the Act.
9. We have heard the Ld. Departmental Representative, Sri N.C. Mohanty and Ld. counsel of the assessee Sri R.N. Bajoria and considered their rival submissions. It is true that any modified or revised assessment after the completion of the original order will be a fresh order passed to implement the direction of the higher authority and that order will be erroneous and liable to be set aside after the directions of the higher authority are not faithfully carried out. It is also true that the jurisdiction to pass a fresh order is conferred by the order of the higher authority and this is a well settled principal in view of the decision of the Supreme Court in the case of Modi Industries Ltd. (supra) relied upon by the learned counsel of the assessee. However, in this case we are not concerned with any violation of the direction of the higher authorities. What the Assessing Officer has done was to give consequential effect in the allowance under Section 80HHC deduction because of the allowance of carry forward losses of the earlier year. In none of the orders made by the Assessing Officer prior to 22-3-1993, the issue of unabsorbed business loss for assessment year 1984-85 of Rs. 12,40,759 was in issue. For the first time the loss for assessment year 1984-85 was agitated and allowed in this order which reduced the income of the assessee to Rs. 59,329 and after reducing therefrom the deduction under Section 80W, the allowance was only Rs. 54,829. The deduction under Section 80HHC was, therefore, to be restricted to this amount because of the mandatory provisions of Section 80B(5) of the Act. In this connection, the provisions of Sub-section (2) of Section 80A be seen which provide "the aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee." It is, therefore, evident that when the gross total income of the assessee was Rs. 54,829, there was no question of allowing any deduction under Section 80HHC or Section 80VV or any other deduction under Chapter-VIA of more than that amount and that is what has been done by the Assessing Officer. By this order dated 22-3-1993, the Assessing Officer has allowed unabsorbed business losses for assessment year 1984-85 and that has not been challenged. The consequence of the allowance of business loss was the reduction of the gross total income of the assessee to Rs. 59,329 against which the deduction under Sections 80VV and 80HHC was to be allowed. It is true that there is no direction of the higher authority to recompute Section 80HHC deduction. That situation has arisen because of the allowance of carry forward losses of assessment year 1984-85 which has reduced the gross total income of the assessee and beyond which the Chapter VIA deduction, which included the deduction under Section 80HHC as well, cannot exceed. In our opinion, it is not a case of recomputation of deduction under Section 80HHC but restriction of the claim of the assessee to the gross total income as is statutorily required under Section 80A(2) of the Act. If the contention of the assessee is accepted, neither the allowance of unabsorbed business loss for assessment year 1984-85 could have been allowed nor the assessee could be granted a refund of Rs. 1,38,063 which was paid on 15-3-1992, because there were no directions in either of the orders of the higher authorities to make the adjustment of business losses of granting refund to the assessee. These two actions of the Assessing Officer, in our opinion, is only because of consequential effect. The first action because of the provisions of Section 72, read with Section 80B(5) for adjustment of business losses; the second is restricting the deduction under Chapter VIA to the gross total income of Rs. 59,329 because of the provisions of Section 80A(2) and on the third occasion for granting refund because of the assessee's income being reduced to nil All the three actions are consequential. While one or two of them are valid and not disputed, we fail to understand how could the third or the other could be without jurisdiction. In these circumstances, in our opinion, the assessee's application dated 26-5-1993 for rectification of the order dated 22-3-1993 was liable to the rejected and was so rejected rightly by the Assessing Officer by his order dated 17-6-1993. The CIT(A) in his order dated 13-9-1995 in appeal against the order under Section 154 observed that when the Section 263 order of the CIT was quashed by the Tribunal, the fresh assessment made consequent to direction of the CIT under Section 263 stood cancelled and in effect, therefore, the original order made under Section 143(3) on 25-1-1988 as amended by another order of the CIT relating to said original assessment stood restored. To that; extent, we have no quarrel with the observation of the CIT(A). His further direction to the effect, "As such the appellant would be entitled to deduction under Section 80HHC as determined on the basis of the original assessment order which might have merged with any appellate order including those of the Tribunal instituted against the original assessment dated 25-1-1988" are not entirely in accordance with law. Chapter VIA deductions, as we have held above, are to be restricted to the amount of the gross total income of the assessee and, therefore, even if the assessee is entitled to a higher deduction under Section 80HHC or any other section in Chapter VIA, that has to be restricted to this amount. The CIT(A) has failed to take into consideration the fact of allowing carry forward losses of assessment year 1984-85 in this regard, consequent to which the gross total income of the assessee was reduced to a much lower figure than the amount for which the assessee was entitled to deduction under Section 80HHC in terms of the original order of assessment. The order of the CIT(A) to this extent is to be vacated. In these circumstances, we have no hesitation in holding that the order of the Assessing Officer dated 17-6-1993 rejecting the application of the assessee by stating that there was no mistake apparent from record was in accordance with law and is to be restored. The result is that the order of the Assessing Officer dated 22-3-1993 stands as it did not require any rectification as prayed for by the assessee which was rightly rejected by the Assessing Officer.
10. In view of our aforesaid finding, the order of the Assessing Officer dated 22-3-1993 being correct one, we vacate the order of the CIT(A) dated 9-11-1995 and allow the Revenue's appeal in ITA No. 346 (Cal.)/96.
11. In view of our aforesaid finding vacating the order of the CIT(A) dated 13-9-1995, the appeal effect order passed by the ITO on 6-11-1995 would not survive as it was an order to give effect to the order of the CIT(A) dated 13-9-1995 aforesaid. Consequently, the order of the Assessing Officer under Section 154 dated 31-3-1997 rectifying his appellate effect order dated 6-11-1995 would also not survive. However, in order to dispose of the appeal in entirety and proceeding on the assumption that what we have stated aforesaid in respect of the aforesaid two appeals is not in accordance with law, we may observe that here also the order of the Assessing Officer invoking the provisions of Section 154 to withdraw or reduce the deduction under Section 80HHC is in order. In terms of the order of the CIT(A) dated 13-9-1995, the Assessing Officer virtually restored the order of assessment framed under Section 143(3) by his appeal effect order dated 6-11-1995 and that would be the final and effective order available for this assessment year. It was true that the mistake was originally committed by the Assessing Officer in the original order of assessment, but that order has by process of various appeal and revisionary orders culminated into the final and effective order on 6-11-1995 when the Assessing Officer gave effect to the order of the CIT(A) dated 13-9-1995 directing him to restore the original order of assessment. There is no doubt and it is an almost an admitted position that the deduction under Section 80HHC cannot exceed the amount of the gross total income by virtue of the provisions of Section 80A(2) and, therefore, there was a mistake apparent from record. The question that would arise, therefore, be what is the time-limit within which this rectification can be made? This issue, in our opinion, is now fairly concluded by the decision of the Supreme Court in the case of Hind Ware Industries Ltd. (supra) wherein their Lordships of the Supreme Court held that expression "from the date of the order sought to be amended" or computing the period of limitation as mentioned in Section 154(7) should have a wider connotation and it was held that the order sought to be amended does not necessarily mean the original order but it can be an order including an amended or rectified order. The original order of assessment under Section 143(3) wherein the mistake originally was committed came on surface, after various eclipsing of the revisionary and appellate orders only on 6-11-1995 and this is the date from which the four years time-limit is to be counted because that is the order sought to be amended which has embedded in itself the original order of assessment under Section 143(3). The Assessing Officer, therefore, would be in his right to rectify the order limiting the deduction under Section 80HHC to the amount of the gross total income of the assessee and there would be no infirmity in his order as stated by the CIT(A). Though the CIT(A) in his order dated 31-8-1999 admits that the rectification of the original order is possible, but held that he (AO) cannot rectify the 254 order or an order under Section 251 which, in this case, is dated 6-11-1995. In our opinion, the CIT(A) has not properly appreciated the issue. The ITO is not rectifying the order under Section 254 or 251. He is rectifying an order under Section 143(3) which is of course has taken the shape of his order dated 6-11-1995 pursuant to the directions of the CIT(A). It is, in fact, the original order as modified by various orders of the CIT(A) or revisionary order of the CIT, any case, the directions of the CIT(A) that he cannot rectify 254 or 251 order are contrary to the decision of the Supreme Court in the case of Hind Ware Industries Ltd. (supra), wherein, as aforesaid, the Supreme Court held that order sought to be amended does not necessarily mean the original order but can be an order including amended or rectified order. In this view of the matter also, we are of the opinion that the error committed by the Assessing Officer can be rectified and it would be within the time-limit of four years to be counted from 6-11-1995 in terms of the Supreme Court order in the case of Hind Ware Industries Ltd. (supra).
12. In view of the aforesaid discussions, we uphold the action of the ITO restricting the reduction under Section 80HHC to the amount of the gross total income of the assessee.
13. In the result, all the three appeals filed by the Revenue are allowed.