Topics - pawansingla

Show posts

This section allows you to view all posts made by this member. Note that you can only see posts made in areas you currently have access to.

Show posts Menu

Topics - pawansingla

Pages 1 2 3

#41

Discussion / Activity of frequent buying and selling of shares over a short span of period ha

September 23, 2010, 05:46:54 PM

Activity of frequent buying and selling of shares over a short span of period has to be treated as business being adventure in nature of trade and income therefrom has to be treated as business income and not as capital gain

•   Whether a particular holding is by way of investment or of stock in trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares held as investments and those held as stock in trade

•   The treatment in the books of an assessee is not conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive, then it becomes business profit and not capital gain.

[2010] 7 taxmann.com 40 (Mum. - ITAT)
ITAT, MUMBAI BENCH 'D', MUMBAI
Rakesh J.Sanghvi
v.
DCIT
ITA No. 4607/MUM/2008
August 31, 2010

RELEVANT EXTRACTS:
**   **   **   **   **   **   **   **   **   **   **   **
We find from the assessment order that the Assessing Officer in the instant case considered the income from purchase and sale of shares as business income. The CIT(A) upheld the action of the Assessing Officer by relying on the CBDT circular No. 4 of 2007 dated 15th June, 2007. We find the CBDT vide Circular No. 4/2007 dt. 15.6.2007 has accepted the principles laid down by the Hon'ble Supreme Court in the cases of CIT (Central), Calcutta v/s. Associated Industrial Development Co. (P.) Ltd., 82 ITR 586 as well as in CIT v/s. H Holsck Larzen, 160 ITR 67 (SC). In the above referred circular, the Board has issued certain guidelines to the A.O. The Board has accepted that the assessee can have two portfolios simultaneously- (1) an Investment Portfolio comprising of securities which are to be treated as a capital asset and (2) Trading portfolio comprising of stock and trade which are to be treated as trading asset.
We find, the legal principles as laid down by courts on account of treatment of an income as 'business income' or 'capital gain' can be summarised as under:
a. It is possible for an assessee to be both an investor as well as dealer in shares.
b. Whether a transaction of sale and purchase of shares is a trading or investment transaction is a mixed question of law and fact.
c. Whether a particular holding is by way of investment or of stock in trade is a matter within the knowledge of the assessee and it is for the assessee to produce evidence from the records as to whether he maintained any distinction between shares held as investments and those held as stock in trade.
d. The treatment in the books of an assessee is not conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive, then it becomes business profit and not capital gain.
e. Purchase with intention to resell can constitute capital gain or business profit depending on circumstances like quantity of purchase and nature of activity.
f. No single fact has any decisive significance and the question must be answered depending upon selective effect of all relevant materials brought on record.

From the chart filed by the learned counsel for the assessee giving the details of shares transacted during the year, it is seen that the shares are held for a few day only and in very few cases for a few months but in no case it is exceeding 200 days. Purchase of shares during the year and selling them frequently in short period, in our opinion, do indicate that the assessee has purchased the shares with a motive to earn profit in a short period. Therefore, the facts of the instant case do not persuade us to hold that the shares were held as investment since these are not held for such a long period so as to treat the same as investment. The frequency and volume of the transactions in the instant case give an impression that the assessee did not intend to acquire the shares with business motive. In the case of an investment a person usually watches the market over a longer period of time before selling of the shares. The earning of dividend and the appreciation of the shares is the primary consideration. It is only a trader who would look for short term gains from purchase and sale of shares. Therefore, the treatment given by the assessee to the said transactions in the books of account, in our opinion, is not the only determinative factor about the nature of the transactions. The submission of the learned counsel for the assessee that the shares were disclosed as investment in the Balance Sheet, in our opinion, is certainly a factor to be reckoned with but when there are other factors or circumstances which throw some doubt on the motive of the assessee in acquiring the shares, as in the instant case, the entries in the books of account or Balance Sheet cannot override them and be taken as decisive of the assessee's intention. The submission of the learned counsel for the assessee that in the preceding year the Assessing Officer has accepted the long term capital loss on sale of shares and, therefore, the same should be followed this year is also without much force since principle of res judicata does not apply to income-tax proceedings and every assessment is independent. When there are changes in the facts and circumstances, the rule of consistency need not be applied. In this view of the matter, we are of the considered opinion that the activity of frequent buying and selling of shares over a short span of period during the impugned year has to be treated as business being adventure in the nature of trade and the income has to be treated as business income and not as capital gain as claimed by the learned counsel for the assessee. Accordingly, we uphold the order of the CIT(A) and the ground raised by the assessee is dismissed.

**   **   **   **   **   **   **   **   **   **   **   **

#42

Discussion / No liability to pay interest u/s 234B in view of retrospective amendment

September 23, 2010, 05:42:03 PM

2010-TIOL-521-ITAT-MUM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C' MUMBAI
ITA No.155/Mum/2008
Assessment Year: 2005-06
M/s PATEL KNR JV
PATEL ESTATE ROAD
JOGESHWARI (WEST)
MUMBAI-400102
PAN NO:AAAAP1496N
Vs
ASST COMMISSIONER OF INCOME TAX
CIRCLE-24(1), PRATYAKSHAKAR BHAVAN
BANDRA KURLA COMPLEX, BANDA
(EAST), MUMBAI-400051
ITA No.7156/Mum/2008
Assessment Year: 2005-06
M/s KNR PATEL JV
PATEL ESTATE ROAD
JOGESHWARI (WEST)
MUMBAI-400102
PAN NO:AAAAK1639A
Vs
ASST COMMISSIONER OF INCOME TAX
CIRCLE-24(1), PRATYAKSHAKAR BHAVAN
BANDRA KURLA COMPLEX, BANDA
(EAST), MUMBAI-400051
R K Gupta, JM and B Ramakotaiah, AM
Dated : January 18, 2010
Appellant Rep by: Shri Vijay Mehta
Respondent Rep by: Shri Ajay Srivastava
Income Tax – Section 80-IA - Whether the execution of civil contracts for construction of roads, highways etc. cannot be said to be the business of developing any infrastructure facility - Whether the assessees are not entitled to Sec 80IA(4) benefits - Whether interest u/s 234B is chargeable on the ground that the claim of the assessee was at that point of time admissible and no advance tax was payable.

These assessees were engaged in the business of civil contracts for construction of roads, highways etc. It was seen by the AO that they were not engaged in the business of developing any infrastructure facility since these assessees were executing works contract taken from NHAI. The AO found that the assessees were to participate in the bidding process for executing contracts if awarded by NHAI. The AO found that the bidding process of NHAI for developers was entirely different from that of contractors. These assessees have the contract works as per technical specifications and descriptions provided by the NHAI. Accordingly, the AO held that deduction u/s 80IA(4) is not allowable to these assessees as these assessees are not carrying on the business of developing or developing and maintaining any infrastructure facility as per the conditions of section 80IA(4), therefore, the AO disallowed the claim of both the assessee. The CIT (A) was in agreement with the finding of AO. The AO also levied interest u/s 234B.

On appeal, the ITAT held that,

++ in view of the decision of larger Bench in the case of B.T. Patil & Sons Belgaum Construction Private Limited vs ACIT in ITA Nos 1408 & 1409/PN/2003 vide order dated 26th October 2009, it was held that the conditions for claiming deduction u/s 80IA(4) have not been satisfied in these cases. Accordingly, the order of the CIT(A) in case of both these assessees was confirmed;

++ in the present cases the levy of interest u/s 234B was not justified as on the date when the installments of advance tax was due, the decisions were in favour of assessee by which it was held that deduction u/s 80IA(4) is allowable. The assessees acted bona fide in conformity with the earlier decisions of the Tribunal. Just for the reason that now larger Bench has decided the issue in favour of department, liability to pay advance tax could not be fastened on these assessees. At the point of time of making of payment of advance tax it was impossible on part of these assessees that the favourable decision of the Tribunal will be reversed by the larger Bench of the Tribunal. Therefore, it was held that at that point of time, these assessees were not liable to pay advance tax on the amount of profit claimed as deduction u/s 80IA(4). In view of these facts and circumstances, the ITAT cancelled the levy of interest u/s 234B in both the cases.
Assessee's appeal partly allowed.
ORDER
Per: R K Gupta:
These are two appeals by two different assessees against order of CIT (A) relating to assessment year 2005-06. Identical issues are involved in both of the appeals therefore, they are disposed off together.
2. First issue in both these appeals is against denying deduction of Rs 6,86,01,506/- and Rs 4,37,85,291/- respectively claimed u/s 80IA(4) in respect of income derived from the activity of development of eligible infrastructure facilities.
3. The Learned Counsel fairly stated that in view of the decision of the larger Bench in case of B.T. Patil & Sons Belgaum Construction Private Limited vs ACIT in ITA Nos 1408 & 1409/PN/2003 vide order dated 26th October 2009, the issue is liable to be decided against the assessee.
4. Briefly stated the facts of the case are that the Assessing Officer noticed that these assessees were engaged in the business of civil contracts for construction of roads, highways etc. It was seen by him that they are not engaged in the business of developing any infrastructure facility. Since these assessees were executing works contract taken from National Highways Authority of India (NHAI). The Assessing Officer found that these assessee were to participate in the bidding process for executing contracts if awarded by NHAI. The Assessing Officer found that the bidding process of NHAI for developers was entirely different from that of contractors. These assessees have the contract works as per technical specifications and descriptions provided by the NHAI. Accordingly, the Assessing Officer held that deduction u/s 80IA(4) is not allowable to these assessees as these assessees are not carrying on the business of developing or developing and maintaining any infrastructure facility as per the conditions of section 80IA(4), therefore, the Assessing Officer disallowed the claim of both the assessee. The CIT (A) was in agreement with the finding of Assessing Officer. Accordingly, he also confirmed the action of the Assessing Officer. Though various benches have decided earlier the issue in favour of the assessee also, however, now, larger Bench have decided the issue against the assessee and Learned AR fairly stated that in view of the decision of larger Bench in case of B.T. Patil & Sons Belgaum Construction Private Limited (supra) the issue can be decided against these assessees. Therefore, in view of the decision of larger Bench, we hold that the conditions for claiming deduction u/s 80IA(4) have not been satisfied in these cases. Accordingly, we confirm the order of the CIT (A) in case of both these assessees.
5. Second issue in both of these appeals is against levy of interest of Rs 54,72,771/- and Rs 35,39,991/- respectively u/s 234B.
6. The Assessing Officer charged interest u/s 234B on the basis of assessed income. The CIT (A) also confirmed the levy of interest by observing that this is consequential in nature.
7. The Learned Counsel for the assessee who appeared before the Tribunal stated that these assessees claimed deduction in view of the decision of the Tribunal in case of M/s Patel Engineering Ltd (94 ITD 411). It was submitted by Learned AR that this decision was rendered on 22.06.2004, these assessees have filed their returns on 30.10.2005. Thereafter, the decision of the M/s Patel Engineering Ltd was followed by various Benches of the Tribunal for allowing the claim of deduction u/s 80IA(4). The decision of the larger Bench came only on 26.10.2009. It was explained that before this date the issue either was decided in favour of the assessee or was debatable one, therefore, bonafidely both the assessees have not paid the advance tax on the amount of profit claimed as deduction u/s 80IA(4). The first installment was payable on 15.9.2004 and as explained earlier the decision of the Tribunal in case of M/s Patel Engineering Ltd dated 22.6.2004 was available and accordingly the assessee has not paid advance tax on the amount of profit claimed as deduction u/s 80IA(4), therefore, the chargeability of interest u/s 234B is not justified. Reliance was placed on decision of Tribunal in case of M/s Harayana Warehousing Corporation reported in 252 ITR 34 (AT portion), in case of Express Newspaper Ltd (103 TTJ 122), in case of M/s Revathi Equipment Ltd (108 TTJ 429) & on the decision of the Hon'ble Karnataka High Court in case of Kwality Biscuits Ltd (243 ITR 519) which have been affirmed by the Hon'ble Supreme Court. Reliance was also placed in the case of M/s Ultratech Cement Ltd decided in ITA Nos 7646 & 7647/Mum/2007, copies of these decisions are placed on record. On the other hand, Learned Departmental Representative placed reliance on the orders of the Assessing Officer and CIT (A). It was further submitted that the charging of interest u/s 234B is compensatory and mandatory in nature, therefore, the charging of interest u/s 234B is justified. Reliance was placed on the decision of P&H High Court in the case of Upper India Steel Manufacturing Engineering Co 279 ITR 123. Further reliance was placed on the decision of Special Bench in the case of Glaxo reported in 18 ITD 226 (SB). It was submitted that under the provision of law the word is 'impossibility' is not added. In the present case, there was no impossibility in paying the advance tax on the amount of deduction claimed. In reply, the Learned Counsel for the assessee stated that the issue before the Hon'ble P&H High Court was for the purpose of limitation of jurisdiction u/s 143(1) and not on the issue of impossibility of payment of advance tax and the aforesaid reasons explained. Attention of the Bench was drawn to the relevant finding of the Tribunal, which has been reversed by the P&H High Court on page 126 of its order. Regarding the decision of the Special Bench in the 18 ITD, it was submitted that the issue before the Special Bench was not in respect of charging of interest u/s 234A, B & C, therefore, placing reliance on these decisions is misconceived. It was further submitted that the very issue that the provisions of section 234B are mandatory in nature have been considered by the Tribunal in case of Express Newspaper Ltd 103 TTJ 122 relied upon.
8. We have heard rival submissions and considered them carefully. We have also perused the material along with various case laws relied upon by Learned AR, copies of which are placed on record.
9. After considering the submissions and various case laws we are of the view that the chargeability of interest on the facts of the present case is not justified. Before the decision of the larger Bench in case of B.T. Patil & Sons Belgaum Construction Private Limited (supra) which is of dated 26.10.2009 the issue was decided in favour of the assessee. First decision is reported in case of M/s Patel Engineering Ltd (94 ITD 411). This decision was pronounced on 22.6.2004. Due date for paying Ist installment of advance tax was 15.9.2004. These assessee were aware of the decision of M/s Patel Engineering Ltd by which the deduction u/s 80IA(4) on similar facts was held allowable, therefore, these assessees have not paid first installment of advance tax. The decision of M/s Patel Engineering Ltd were followed by various Benches of the Tribunal and allowed the claim u/s 80IA(4) and thereafter there was a divergent view among the Benches of the Tribunal. Accordingly, the Hon'ble President constituted larger Bench to decide the issue. The larger Bench decided the issue against assessee vide order dated 26.10.2009. In view of these facts & circumstances, it is seen that the assessees were under bona fide belief that there was no need to pay advance tax as the deduction u/s 80IA(4) is allowable.
10. In case of Express Newspaper Ltd (103 TTJ 122) by which the Chennai Bench of the Tribunal has held that :
"assessee having received intimation regarding the adjustment of income-tax refund only after the last installment of advance tax was paid which it could not anticipate, interest u/s 234C was not chargeable for the shortfall of payment of advance tax."
While holding so the Bench has taken into consideration the decision of Smt Premlata Jalani 264 ITR 744(Raj). In another case, i.e. in case of M/s Harayana Warehousing Corporation (252 ITR 34)(AT) the third member has concurred with the decision of Accountant Member on holding that though the provision of section 234B as it stood, at that point of time, the assessee was not liable to pay the advance tax. The finding of the third Member concurring with the Accountant Member is given at page 35 of the order by which it was held that :
"...section 234B is mandatory in nature. But before invoking section 234B it is also essential to see whether the assessee comes within the sweep of this section. The condition precedent for invoking the provisions of section 234B is that the assessee must be fastened with the liability to pay advance tax under section 208. Admittedly, up to the assessment year 1991-92, the assessee did get the benefit of section 10(29) of the Act. It was assessed on nil income. The exemption was granted on the basis of Allahabad High Court decision in CIT vs U P State Warehousing Corporation [1992] 195 ITR 273 (All). Till March 31, 1992, this was the only decision available on the point. As no other decision was available, the Department also accepted this decision. The assessee acted bona fide in conformity with the decision of the High Court. Just because the decision was reversed by the Supreme Court liability to pay advance tax could not be fastened on the assessee. At the relevant point of time it was impossible on the part of the assessee to foresee the decision of the Supreme Court on the point. The assessee was not liable to make the payment of advance tax. The case of the assessee fell beyond the ken of section 208 of the Act. As such, it was not within the ambit of section 234B. Interest could not be levied under section 234B."
11. Similarly, the Hon'ble Karnataka High Court in case of Kwality Biscuits Ltd 243 ITR 519 has held that levy of interest u/s 234B and C is not justified as determination of tax u/s 115J is only after end of the relevant year. Accordingly, interest cannot be levied in such a case u/s 234B and C. This decision of the Hon'ble Karnataka High Court is affirmed by the apex court now. Similar view has been taken by the Tribunal in case of M/s Ultratech Cement Ltd (supra).
12. After taking into consideration various aspect of the case and the above decisions of the Tribunal as well decision of the Hon'ble Karnataka High Court we are of the considered view that in the present cases the levy of interest u/s 234B was not justified as on the date when the installments of advance tax was due, the decisions were in favour of assessee by which it was held that deduction u/s 80IA(4) is allowable. The assessees acted bona fide in conformity with the earlier decisions of the Tribunal. Just for the reason that now larger Bench has decided the issue in favour of department, liability to pay advance tax could not be fastened on these assessees. At the point of time of making of payment of advance tax it was impossible on part of these assessees that the favourable decision of the Tribunal will be reversed by the larger Bench of the Tribunal. Therefore, we hold that at that point of time, these assessees were not liable to pay advance tax on the amount of profit claimed as deduction u/s 80IA(4).
13. We have also taken into consideration the decisions relied upon by Learned Departmental Representative in the case of Upper India Engineering Co and Glaxo and found that both the decisions are distinguishable on facts. The facts before P&H High Court were that while making prima facie adjustment u/s 143(1)(a) interest u/s 234B/C can be charged or not. The CIT (A) and the Tribunal has held that while completing the assessment u/s 143(1)(a) interest u/s 234B/C cannot be charged. However, on second appeal by the Department, Hon'ble P&H High Court has said since the charging of interest is mandatory, therefore, while completing the assessment u/s 143(1), interest u/s 234B/C can be charged. Here before us, the facts are totally different. In the present case, the assessee did not pay advance tax on the amount of deduction claimed because of the decision of the Tribunal in the case of Patel Engineering by which deduction u/s 80IA(4) was held allowable. This decision was rendered in the year 2004 and first instalment payable by the assessee was paid on 15.9.2004. Thereafter, in the year of 2009, the larger Bench overruled the decision of Patel Engineering and in view of these facts, the deduction claimed u/s 80IA was held not allowable. However, as stated above, the assessee acted bonafidely because at the time of paying instalment of advance tax in view of the provision of section 208 of the Act, the assessee was entitled for deduction u/s 80IA(4) on the basis of the past history on the basis of decision of Patel Engineering. It was also stated by Learned Authorized Representative of the assessee that deduction u/s 80IA was allowed immediately earlier year claimed on the basis of the decision of the Tribunal in the case of Patel Engineering (supra). Copies of the order are placed on record.
14. In view of these facts and circumstances, we cancel the levy of interest u/s 234B in both the cases.
15. There is one more ground in case of M/s Patel KNR JV i.e. against not granting deduction of tax deducted at source of Rs 34,95,337/-.
16. It was submitted by Learned AR that this ground was taken before Learned CIT (A), however, no findings have been given. Accordingly, it was requested that matter can be sent back to the file of the CIT (A) for deducting the same. The Learned Departmental Representative did not object.
17. Since, this issue was raised before Learned CIT (A), however, Learned CIT (A) has not adjudicated upon this issue therefore, we, restore this issue to the file of the Learned CIT (A) to decide the same after affording opportunity of being heard to the assessee.
18. Both the appeals are allowed in part as mentioned hereinabove.
(Order pronounced on 18.1.2010.)

#43

Discussion / Once the validity of the return has not been questioned by the revenue, the reje

September 20, 2010, 10:56:30 AM

Delay in filing of return should not be a reason to deny assessee's claim of exemption under section 10B(1) of Income-tax Act

Once the validity of the return has not been questioned by the revenue, the rejection of the assessee's claim under section 10B(1) at the threshold by the Assessing Officer is not justified on the ground of delay in filing of return

[2010] 7 taxmann.com 36 (New Delhi - ITAT)

ITAT, DELHI BENCH 'B', NEW DELHI

ACIT

v.

Dhir Global Industria Pvt. Ltd.

ITA No. 2317/Del/2010

July 30, 2010

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

We have heard both the counsel and perused the records. We find that it is undisputed that a provision has been inserted during the current year in section 10(B)(1) which provides that no deduction under this section shall be allowed to an assessee if the return of income is not furnished on or before the due date specified under section (1) of section 139. Now this section was introduced w.e.f. 1.4.2006 by Finance Act, 2006. This is the first assessment year from which the said proviso has been introduced. Now section 139(1) provides as under:-

"139(1). Every person -

(a) being a company (or a firm) or

(b) being a person other than a company (for a firm), if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall on or before the due date, furnish a return of his income or the income of such other person during the previous year, in the prescribed year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed."

Now in the present case, we find that there was only a marginal delay of 1½ month in filing the return of income. The return filed was valid one. The same has also been accepted as a valid return by the Assessing Officer. The reasonable cause attributed by the assessee for the delay is that new provision of E-filing the return was introduced from the current assessment year. There was some problem under the new provisions due to which the date of filing the return had extended by the CBDT from time to time and from 31.10.2006, the same was extended to 30.11.2006. The new provision regarding E-filing of return was introduced & in this first year the software did not accept the return, if self-assessment tax was not paid. Assessee's case is that due to some financial problems it could not pay the self-assessment tax on time, as a result of which there was a delay in the payment of tax and consequent filing of return by about 18½ month. It was further claimed that subsequently the software has been modified and now returns are being accepted, even when self assessment tax is not paid. These factual aspects have not been disputed by the revenue. In these circumstances, in our considered opinion, there was genuine and valid reason for the delay in filing of return and moreover as we have already found above these provisions are directory and not mandatory. Once the validity of the return has not been questioned by the revenue, in our considered opinion, the rejection of the asseessee's claim u/s 10(B(1) at the threshold by the Assessing Officer was not justified. In this regard, the case laws relied by the assessee at germane. In this connection, we refer to the following case laws:-

- "Continental Construction Pvt. Ltd. vs. UOI 185 ITR 230 (Del)

(ii) That, however, in view of the bona fide belief entertained by the petitioner, the department ought not to stand on mer technicalities but ought to give the petitioner an opportunity to fulfill the requirements of section 80HHB(3) and, on such compliance within a reasonable time, ought to grant the benefit of that section to the petitioner."

- Bajaj Tempo Ltd. vs. C.I.T. 196 ITR 189 (SC)

"A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it too has to be construed so as to advance the objective of the provision and not to frustrate."

However, we find that Ld. Commissioner of Income Tax (Appeals) has accepted the assessee's submission, that the delay in filing of return should not be a reason to deny the assessee's claim of exemption u/s 10B(1). However, the Ld. Commissioner of Income Tax (Appeals) has not considered the factual aspects of the merits of the case. Assessing Officer also disallowed the assessee's claim by stating that the return was filed on time. He also had not gone into the other aspects of the merits of the case. In this regard, we refer the decision of the Hon'ble Apex Court decision in the case of Kapurchand Shrimal Vs. CIT, 131 ITR 451 wherein it was held that the appellate authority has jurisdiction as well as the duty to correct the errors in the proceedings under appeal and to issue of necessary, appropriate directions to the authority against whose decision appeal is preferred to dispose of the whole or any part of the mater afresh, unless forbidden from doing so by statute.

#44

Discussion / In view of Liberty India , Department MA allowed by Mumbai ITAT

September 15, 2010, 12:20:21 PM

2010-TIOL-497-ITAT-MUM

(Also see analysis of the Order )

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'F', MUMBAI

M.A. No. 657/Mum/2009 In
ITA No. 3793/Mum/2005
Assessment Year : 2001-02

Dy COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE - 42, MUMBAI

Vs

M/s UNIVERSAL CAPSULE P LTD
1001, DALAMAL HOUSE,
NIRMAL POINT, MUMBAI - 400021
PAN: AAACU0615L

D K Agarwal, JM and J Sudhakar Reddy, AM

Dated: January 28, 2010

Appellant Rep by: S M Keshkamath
Respondent Rep by: M D inamdar

Income Tax - Sections 80IA, 254(2) - Whether Tribunal can rectify a mistake apparent on the basis of a subsequent decision of the Apex Court.

This is a case where Revenue filed a miscellaneous application on the basis of Supreme Court decision in the case of Liberty India and argued that in view of this decisions the amount of duty drawback is not an income derived by the industrial undertaking for the purpose of 80-IA.

After hearing the parties the ITAT held that,

++ the Supreme Court in the case of Honda Siel Power Products Ltd. vs. CIT (2007-TIOL-211-SC-IT) considered a case where the Tribunal failed to consider a decision of the coordinate bench cited by the assessee. In such circumstances, the Supreme Court held that by oversight the Tribunal missed the judgment, while dismissing the appeal filed by the assessee and that the rule of precedent as an important aspect of certainty in the rule of law and prejudice has been caused to the assessee since the precedent had not been considered by the Tribunal. The Tribunal was justified in rectifying the mistake;

++ the Apex Court analysed the scope of power of rectification u/s 254(2) and held that one of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice should cause to either of the parties appearing before it by its decision based on mistake apparent on record. In the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd. (2008-TIOL-170-SC-IT) the Supreme Court held that rectification of an order steams from the fundamental principle that justice is above all. The Court further held that there was a mistake apparent on record, if a decision of the jurisdictional High Court was not brought to the notice of the Tribunal and in such circumstances the Tribunal had taken a view contrary to the view expressed by the jurisdictional High Court;

++ the Supreme Court in the case of Mepco Industries Ltd. vs. CIT (2009-TIOL-121-SC-IT-LB) was considering the scope of section 154 which is identical to the scope u/s 254. The Supreme Court after analysing the various case laws held that in income-tax matters, one has to examine the nature of the items in question, which would depend on the facts of each case. In that case, they are concerned with power subsidy. They found that in the case of CIT vs. Ponni Sugars and Chemicals Ltd. (2008-TIOL-174-SC-IT), the subsidy given by the Government was for repaying loans. Therefore, it was held that in each case one has to examine the nature of subsidy and that this exercise cannot be undertaken u/s 154 of the Act;

++ the ratio laid down is that when the High Court lays down a principle of law which can be applied without the necessity of undertaking the exercise of verifying whether the principles of law laid down are applicable to the facts of the case or not, then the rectification u/s 154 is possible. In case when the facts have to be examined to come to a conclusion as to whether the principle of law laid down by the High Court is applicable or not, then rectification u/s 154 is not possible;

++ in the case on hand, the Supreme Court has laid down the principle of law which is applicable across the Board Application of these principles of law needs no factual verification as there is no dispute on facts. Thus, even going by the decision of the Apex Court in the case of Mepco Industries Ltd., the Miscellaneous Application of the Revenue has to be allowed.

Revenue's miscellaneous application allowed.

ORDER

Per: J Sudhakar Reddy:

By this Miscellaneous Petition the Revenue seeks rectification of the order of this Bench of the Tribunal in ITA No. 3793/Mum/2005 dated 14-11-2006 on the issue whether duty draw back can be considered as income derived from the industrial undertaking itself for the purpose of computing relief u/s 80I.

2. The learned DR Mr. S.M. Keshkamath submitted that the Tribunal in para 23 and 24 of its order held that duty draw back is inextricably linked with production cost of goods manufactured and, therefore, it is a trading receipt of the industrial undertaking and hence eligible for deduction u/s 80I. He relied on the recent decision of the Hon'ble Supreme Court in the case of Liberty India vs. CIT 317 ITR 218 = (2009-TIOL-100-SC-IT) and submitted that the Hon'ble Supreme Court has held that duty draw back and DEPB benefits are not derived from industrial undertaking. He submitted that the order should be rectified by following the decision of the Hon'ble Supreme Court.

3. The learned counsel for the assessee Mr. M.D. Inamdar submitted that the decision of the Supreme Court was rendered subsequently and this cannot be taken as a ground for rectifying the order of the Tribunal u/s 254(2). He submits that the issue is very much debatable and out of jurisdiction of section 254(2). He relied on the decision of Hon'ble Madras High Court in the case of Shree Pillaniappa Transports vs. CIT 238 ITR 492.

4. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and the case law cited, we find that the Tribunal at par 23 held that duty draw back is inextricably linked with production cost and hence is a trading receipt having direct nexus with the activity of the undertaking and hence eligible for deduction u/s 80I. The Hon'ble Supreme Court in the case of Liberty India (supra) held that duty draw back and DEPB cannot be considered as income derived from industrial undertaking for the purpose of computing relief u/s 80I.

5. Now the short point that arises for our consideration is whether a subsequent decision of the Hon'ble Supreme Court can be the basis of rectification as contemplated u/s 254(2). We first take up the case laws relied upon by the learned counsel for the assessee.

6. In the case of Sree Palaniappa Transports (supra), the Hon'ble Madras High Court has held as follows :

" Held, that a Tribunal deciding a case on certain debatable issues, wherein there is no decision of the jurisdictional High court, could not be deemed to have made a mistake because subsequent to the decision of the Tribunal, a judgment has been rendered by the jurisdictional High Court. In respect of the orders passed by the Tribunal subsequent to the decision of the jurisdictional High Court, if it does not follow the ratio of the judgment of the jurisdictional High Court, then it can be said that it has committed an error apparent on the face of the record. Therefore there was no mistake apparent from the record in the order of the Tribunal, within the meaning of section 254(2) of the Act, requiring rectification in view of the subsequent decision of the Madras High Court in CIT v. Nagapatinam Import and Export Corporation [1979] 119 ITR 444. Kuppuraj (M.K.) v. ITO [1995] 211 ITR 853 (Mad) – overruled."

This case law is on the decision of jurisdictional High Court and not the decision of the Hon'ble Supreme Court as in the case on hand.

7. In the case of CIT vs. Vardhman Spinning 226 ITR 296, the Hon'ble Punjab & Haryana High Court held as follows :

" Held, that on the interpretation of section 84 of the Act read with rule 19A of the Rules, there could reasonably be two views out of which the Tribunal took one view. No doubt, at the relevant time, only the Calcutta High Court had expressed its views in Centuary Enka Ltd.'s case [1977] 107 ITR 909 (which was later on overrules by the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 208) which ran counter to the view taken by the Tribunal, but this did not mean that two views were not possible. The judgment of the Calcutta High Court in Century Enka Ltd.'s case [1977] 107 ITR 909 was not either by the apex court or by the jurisdictional High Court and, therefore, was not binding on the Tribunal. The Tribunal could take a different view and arrive at a different confusion. Hence, the Tribunal was not right in law in rectifying its appellate order under section 254(2) of the Act."
8. This decision relied upon by the assessee, is of no help because the Hon'ble Court was considering the decision of a non jurisdictional High Court.

9. We now examine the case laws in favour of the Revenue.

10. The Hon'ble Supreme Court in the case of Honda Siel Power Products Ltd. vs. CIT 295 ITR 466 (SC) = (2007-TIOL-211-SC-IT) were considering a case where the Tribunal failed to consider a decision of the coordinate bench cited by the assessee. In such circumstances, the Hon'ble Supreme Court held that by oversight the Tribunal missed the judgment, while dismissing the appeal filed by the assessee and that the rule of precedent as an important aspect of certainty in the rule of law and prejudice has resulted to the assessee since the precedent had not been considered by the Tribunal. The Tribunal was justified in rectifying the mistake. The Hon'ble Court analysed the scope of power of rectification u/s 254(2) and held that one of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice should cause to either of the parties appearing before it by its decision based on mistake apparent on record. In the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd. 305 ITR 227 = (2008-TIOL-170-SC-IT) the Hon'ble Supreme Court held that rectification of an order steams from the fundamental principle that justice is above all. The Court further held that there was a mistake apparent on record, if a decision of the jurisdictional High Court was not brought to the notice of the Tribunal and in such circumstances the Tribunal had taken a view contrary to the view expressed by the jurisdictional High Court. At pagination 41, 42 and 43 at page 240 of the reported decision it was held as follows :

41 A similar question came up for consideration before the High Court of Gujarat in Suhrid Geigy Ltd. v. Commissioner of Surtax [1999] 237 ITR 834. It was held by the Division Bench of the High court that if the point is covered by a decision of the jurisdictional court rendered prior or even subsequent to the order of rectification, it could be said to be a "mistake apparent from record" under section 254(2) of the Act and could be corrected by the Tribunal. (emphasis ours).
42 In our judgment, it is also well-settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the court to pronounce a "new rule" but to maintain and expound the "old one". In other words, judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.

43 Salmond in his well-known work states;

".... The theory of case law is that a judge does not make law; he merely declares it; and the overruling of a previous decision is a declaration that the supposed rule never was law. Hence any intermediate transactions made on the strength of the supposed rule are governed by the law established in the overruling decision. The overruling is retrospective, except as regards matters that are res judicatae or accounts that have been settled in the meantime"

11. In any event, the Court observed that the jurisdictional High Court decision in this case was rendered prior to the order of the Tribunal.

12. The Hon'ble Supreme Court in the case of Mepco Industries Ltd. vs. CIT, Civil Appeal Nos. 7622-7633 of 2009, order dated 19th Nov., 2009 = (2009-TIOL-121-SC-IT-LB) was considering the scope of section 154 which is identical to the scope u/s 254. The Hon'ble Supreme Court after analysing the various case laws held that in income-tax matters, one has to examine the nature of the items in question, which would depend on the facts of each case. In that case, they are concerned with power subsidy. They found that in the case of CIT vs. Ponni Sugars and Chemicals Ltd. reported in (2008) 306 ITR 392 = (2008-TIOL-174-SC-IT), the subsidy given by the Government was for repaying loans. Therefore, it was held that in each case one has to examine the nature of subsidy and that this exercise cannot be undertaken u/s 154 of the Act. While saying so, the Hon'ble Supreme Court also considered the decision in the case Kil Katogiri Tea and Coffee Estates Company Limited vs. Income Tax Appellate Tribunal & Ors. reported in 174 ITR 579 and also considered the judgment of the Calcutta High Court in the case of Jiyajeerao Cotton Mills Ltd. vs. ITO 130 ITR 710 and concluded that "The High Court laid down a principle of law, which was applicable across the board, namely, payment of advance tax made within the financial year, though not within the specified dates, should be treated as advance tax and, therefore, the assessee was entitled to interest on excess tax paid" and held that such a general interpretation of law, empower the Assessing Officer to rectify his order u/s 154.

13. In other words, the ratio laid down is that when the High Court lays down a principle of law which can be applied without the necessity of undertaking the exercise of verifying whether the principles of law laid down are applicable to the facts of the case or not, then the rectification u/s 154 is possible. In case when the facts have to be examined to come to a conclusion as to whether the principle of law laid down by the High Court is applicable or not, then rectification u/s 154 is not possible.

14. In this case on hand, the Hon'ble Supreme Court has laid down the principle of law which is applicable across the Board Application of these principles of law needs no factual verification as there is no dispute on facts. Thus, even going by the decision of the Apex Court in the case of Mepco Industries Ltd., the Miscellaneous Application of the Revenue has to be allowed.

15. In the result, we rectify our order by modifying para 24 and allowing the ground of the Revenue by following the decision of the Hon'ble Supreme Court in the case of Liberty India Ltd. (supra).

16. In the result, the Miscellaneous Application is allowed.

( Order pronounced on this 28.01.2010.)

#45

Discussion / NO 12A FOR DEVELOPMENT AUTHORITIES

September 06, 2010, 02:47:42 PM

Activities of Indore Development Authority cannot fall within purview of section 2(15) of Income-tax Act, 1961

Since the main predominant object of the Indore Development Authority is profit making, therefore, there is no infirmity in the order of CIT in denying registration u.s 12A.12AA to the Indore Development Authority

[2010] 6 taxmann.com 132 (Indore - ITAT)
ITAT INDORE BENCH, INDORE
Indore Development Authority

v.

CIT

ITA No. 366.Ind.2008

July 6, 2010

#46

Discussion / NOTICE U/S 148 BEYOND FOUR YEARS QUASHED BY GUJARAT HIGH COURT IN 80IA(IV) CASE

August 01, 2010, 05:42:02 PM

SCA/5846/2010 7/7 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION No. 5846 of 2010
and
SPECIAL CIVIL APPLICATION No.5847 of 2010
=========================================
SADBHAV ENGINEERING LTD - Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-8 & 1 - Respondent(s)
=========================================
Appearance :
MR RK PATEL with MR BD KARIA with MS PAURAMI SHETH for Petitioner
MR MR BHATT, SR. ADVOCATE with MRS MAUNA M BHATT for Respondents
=========================================
Date : 20/07/2010
ORAL ORDER
(Per : HONOURABLE MS.JUSTICE H.N.DEVANI)
1. These two petitions have been filed with the following prayers :
[A] Issue a writ of certiorari and/or a writ of mandamus and/or any other
writ, direction or order to quash and set aside the impugned notice dated
29.03.2010 under section 148 of the Income-tax Act, 1961 annexed hereto
at Annexure D along with preliminary order dated 4.5.2010 annexed
hereto at Annexure H for proceeding and completing reassessment
proceedings.
Pending admission, hearing and disposal of this petition, ad-interim
relief be granted and the respondent be ordered to restrain from enforcing
CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA
and
HONOURABLE MS.JUSTICE H.N.DEVANI
compliance of the impugned notice dated 29.03.2010 at Annexure D
and/or taking any other steps in this regard including ex-parte order or
implementation of preliminary order dated 4.5.2010 at Annexure H.
[C] Pending admission, hearing and disposal of this petition, stay the
implementation/operation of the notice and orders to restrain the
respondent from taking any further proceedings pursuant to the impugned
notice dated 29.03.2010 at Annexure D including stay of operation of
preliminary order dated 4.5.2010 at Annexure H.
[D] Award the cost of this petition.
[E] Grant such other and further reliefs as this Hon'ble Court deems fit.
2. Since common questions of fact and law are involved in both these
petitions, the same were taken up for hearing together and are disposed of
by this common judgment.
3. For the sake of convenience, reference is made to the facts as appearing
in Special Civil Application No.5846 of 2010.The petitioner Company had
filed return of income for assessment year 2004-05. Scrutiny assessment
was framed under section 143(3) of the Income Tax Act, 1961 (the Act),
wherein there was partial disallowance under section 80IA (4) of the Act.
The petitioner carried the matter in appeal before Commissioner (Appeals),
who dismissed the appeal insofar as ground relating to section 80IA (4) of
the Act is concerned. Against the said order the petitioner has preferred
second appeal before the Income Tax Appellate Tribunal, which is still
pending.
4. In the meanwhile, vide the impugned notice dated 29.3.2010, issued under
section 148 of the Act, respondent No.1 has sought to reopen the
assessment for assessment year 2003-04. In response to the said notice,
the petitioner submitted its reply dated 01.04.2010 requesting that the
return of income filed originally be treated as a return filed in response to
the notice under section 148. The petitioner also requested for a copy of
the reasons recorded for reopening the assessment under section 148.
Upon being furnished with a copy of the reasons recorded for reopening
the assessment, the petitioner submitted objections to the reassessment
proceedings under section 147 of the Act. The respondent No.1 vide order
dated 4.5.2010, rejected the objections raised by the assessee to
reassessment proceedings for assessment year 2003-04. The facts of
Special Civil Application No.5847 of 2010 are also similar, wherein notice
under section 148 for reopening assessment under section 147 has been
issued in relation to assessment year 2004-05. Being aggrieved, the
petitioner has moved the present petitions, seeking the reliefs noted
hereinabove.
5. Mr. R. K. Patel, learned advocate for the petitioner has vehemently
assailed the impugned notices on various grounds. However, considering
the view that the court is inclined to take in the matter, it is not necessary
to refer to all the contentions raised by the learned advocate for the
petitioner. In the present petitions, the main ground for assailing the
impugned notice is that in absence of any allegation that the petitioner has
failed to furnish fully and truly all material facts necessary for its
assessment for the relevant assessment years, the impugned notices
which are issued beyond a period of four years from the end of the
relevant assessment years are invalid in the light of the first proviso to
section 147 of the Act and as such the very initiation of proceedings under
section 147 of the Act is bad.
6. On the other hand, Mr. M. R. Bhatt, learned Senior Advocate appearing for
the respondents has opposed the petition and reiterated what is stated in
the affidavit in reply filed on behalf of the respondents. Dealing with the
contention that there was no failure on the part of the petitioner in
disclosing fully and truly all material facts relevant for its assessment,
attention was invited to the reasons recorded for reopening the
assessments under section 147, to submit that in the light of the
amendment of section 80IA vide Finance (No.2) Act, 2009 with
retrospective effect from 01.04.2000, it is deemed that the assessee had
submitted untrue facts at the relevant point of time and as such the
provisions of section 147 are clearly attracted.
7. As can be seen from the averments made in the petition, more particularly
paragraphs 4, 6, 7, and 10 thereof it has been specifically contended
therein that the notices under section 147 of the Act are invalid in view of
the fact that the same have been issued beyond the period of four years
from the end of the relevant assessment years. However, though affidavit
in reply has been filed on behalf of the respondents, the said contention
has not been dealt with and remains uncontroverted.
8. In the facts of the present case, relevant assessment years are 2003-04
and 2004-05. The notice under section 148 of the Act relating to
assessment year 2003-04 has been issued on 29.03.2010, whereas the
notice under section 148 of the Act relating to assessment year 2004-05
has been issued on 29.4.2010. Computing the period between the end of
the relevant assessment years and the date of issuance of the notices
under section 148, it is evident that both the notices have been issued
beyond a period of four years from the end of the relevant assessment
years. The first proviso to section 147 of the Act, lays down that where an
assessment under sub-section (3) of section 143 or the said section has
been made for the relevant assessment year, no action shall be taken
under the section after expiry of four years from the end of the relevant
assessment year, unless any income chargeable to tax has escaped
assessment by reason of the failure on the part of the assessee to make a
return under section 139 or in response to a notice issued under subsection
(1) of section 142 or section 148 or to disclose fully and truly all
material facts necessary for his assessment. Thus, for the purpose of
invoking section 147 after the expiry of four years from the end of the
relevant assessment year, the income chargeable to tax should have
escaped assessment by reason of failure on the part of the assessee
either (i) to make a return under section 139 or in response to a notice
issued under sub-section (1) of section 142 or section 148, or (ii) to
disclose fully and truly all material facts necessary for his assessment. In
the facts of the present case, it is an undisputed position that there is no
failure on the part of the assessee insofar as the first condition is
concerned. Insofar as the second condition, viz. failure on the part of the
assessee to disclose fully and truly all material facts necessary for his
assessment is concerned, on a plain reading of the reasons recorded, it is
apparent that the same are totally silent as regards any failure on the part
of the petitioner to disclose fully and truly all material facts necessary for its
assessment for the relevant assessment years. From the reasons
recorded it is apparent the assessments are sought to be reopened on the
ground that as per the explanation given below sub-section (13) of section
80IA of the Act, which has been substituted by the Finance Act No.2 of
2009 with retrospective effect from 1.4.2000, deduction under section 80IA
would not be admissible to an assessee who carries on business which is
in the nature of works contract. That the petitioner assessee being a civil
contractor working for the Government is not eligible for deduction under
section 80IA as claimed by the assessee, hence there was reason to
believe that income chargeable to tax has escaped assessment for the
assessment years under consideration. The record of the case does not in
any manner indicate that proceedings under section 147 are sought to be
reopened by reason of failure on the part of the petitioner to disclose fully
and truly all material facts necessary for its assessment for assessment
years under consideration. The respondent in its affidavit in reply also has
not disputed the fact that there is no failure on the part of the petitioner to
disclose fully and truly all material facts. Only by way of submission
advanced before the Court it is contended that in the light of the
amendment of section 80IB, it is deemed that the petitioner has failed to
disclose the correct facts. As to whether or not there is any failure on the
part of the assessee in disclosing fully and truly all material facts
necessary for his assessment, is a matter of fact and there can be no
deemed failure as is sought to be contended on behalf of the respondents.
In the circumstances, in absence of any failure on the part of the petitioner
to disclose fully and truly all material facts necessary for its assessment for
the assessment years under consideration, the notices under section 148
of the Act having been issued after the expiry of a period of four years from
the end of the relevant assessment years, the very initiation of
proceedings under section 147 of the Act stand vitiated and as such
cannot be sustained.
9. For the foregoing reasons, the petitions succeed and are, accordingly,
allowed. The impugned notices dated 29.3.2010 and 29.4.2010
respectively, issued under section 148 of the Income Tax Act, 1961, are
hereby quashed and set aside. Rule is made absolute accordingly in each
of the petitions.
10. Registry is directed to keep a copy of this order in each of the petitions.
[D.A.MEHTA, J.]
[HARSHA DEVANI, J.]
parmar*
Top

#47

Discussion / A dress designer is an artist for purposes of section 80RR

July 26, 2010, 11:56:08 AM

• • There is nothing in the statutory provision of section 80RR which would confine the meaning of the expression "artist" to a person engaged in the fine arts.

[2010] 5 taxmann.com 109 (Bom.)
HIGH COURT OF BOMBAY
CIT
v.
Tarun R. Tahiliani
ITA (L) Nos. 922 and 1275 of 2009
June 14, 2010

In Bharat Bhawan Trust vs. Bharat Bhawan Artists Association,2 (2001) 7 SCC 630, the Supreme Court considered whether an artist engaged in the production of a drama or in theatre management would be a workman within the meaning of Section 2(s) of the Industrial Disputes Act, 1947. Answering the question in the negative, the Supreme Court observed as follows:
"The work that the respondents perform is in the nature of a creative art and their work is neither subject to an order required from the Art Director nor from any of the artists. In performing their work, they have to bring to their work, their artistic ability, talent and a sense of perception for the purpose of production of drama involving in the course of such work, the application of the correct technique and the selection of the cast, the play, the manner of presentation, the light and effects and so on. In effect, the work they do is creative art which only a person with an artistic talent and requisite technique can manage. To call such a person, a skilled or a manual worker is altogether inappropriate." (emphasis supplied).
For the purpose of this case, the significance of the judgment lies in its emphasis on the element of creativity, talent and a sense of perception as being the hall mark of a person who is an artist.

12. The Tribunal in the present case, was not in error in holding that the assessee is an artist for the purposes of Section 80RR. The question of law is answered in the affirmative, in favour of the assessee and against the Revenue. It is an admitted position before the Court that the deduction was sought by the assessee only in respect of design fees that were received by him in convertible foreign exchange. The appeals shall accordingly stand dismissed. No order as to costs.

#48

Discussion / SPECIAL BENCH ON DEPRECIATION ON GOODWILL

July 22, 2010, 09:47:01 AM

2010-TIOL-318-ITAT-DEL-SB
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'H' NEW DELHI
ITA No.1976/Del/2006
Assessment year: 2001-02
M/s CLC & SONS PVT LTD
A-60, OKHLA INDUSTRIAL AREA,
PHASE-II, NEW DELHI
Vs
ASSTT COMMISSIONER OF INCOME TAX
CIRCLE 3 (1), NEW DELHI
Vimal Gandhi, President, R P Tolani, JM and Deepak R Shah, AM
Dated: March 19, 2010
Income Tax – Section 253 – Held that once the issue on which special bench is constituted is pending adjudication before High Court any finding of the Special Bench on the said issue might cause prejudice to either party and therefore in the interest of justice the Special Bench matter should be heard after decision of High Court is available – Held further that once one of the Members had already expressed an opinion in some other case on the issue under consideration judicial discipline demands that he should be rescued from the Special Bench hearing.
ORDER
The learned Senior Advocate Shri C.S. Aggarwal appeared for the appellant and raised following preliminary objections to hearing of this appeal by the Special Bench:-
1. The question as framed does not raise the actual controversy in appeal, therefore, requires modification.
2. In subsequent year i.e. A.Y. 2003-04 similar issue i.e. allowability of depreciation-on-goodwill came up for consideration of ITAT in the case of associated concern namely, CLC Global Pvt. Ltd., at the instance of the revenue. ITAT has taken a view in favour of the assessee and revenue has filed an appeal before the Hon'ble Delhi High Court, the same is fixed for admission on 15th July, 2010. A prayer is made by ld. Counsel that the present hearing may be kept in abeyance, as the findings which may be given by Special Bench may impinge upon the facts of findings given by ITAT in the sister concern's case which is pending before Hon'ble High Court and may prejudice the interest of either party.
3. Hon'ble Judicial Member on this Special Bench has already taken a view about allowability of depreciation on goodwill in the case of Bharat Bhai J Vyas, 97 ITD 248 (Ahmd.) = (2005-TIOL-218-ITAT-AHM). In this eventuality the judicial discipline requires that this Special Bench should consist of persons who have not already taken a view.
The learned DR in reply contends as under:-
(i) There is no objection to modify the question.
(ii) The facts in the case of CLC Global Pvt. Ltd. are different and distinct. Therefore, the hearing of present appeal by Special Bench may not be kept in abeyance.
(iii) For re constitution of the Bench the issue is left to the Hon'ble President, ITAT.
After hearing both the parties, we are inclined to take following view on the issues:-
1. The question proposed by Ld. Sr. Advocate is as under:-
"1. Whether on a true and correct interpretation of the expression "any other business or commercial rights of similar nature", occurring in section 32(i)(ii) of the I.T. Act the appellant is entitled to claim of depreciation on the intangible asset acquired by it in the shape of business or commercial rights?
2. In the alternative and without prejudice in the event it is held that the appellant is not eligible to the claim of depreciation on the amount of expenditure incurred on which depreciation had been claimed, would not the expenditure incurred is an allowable-deduction u/s 37(1) of the Income Tax Act?"
The question proposed by the Ld, DR is as under:-
"Whether on the facts and in the circumstances of the case, the assessee is entitled to claim depreciation under section 32 of the Income Tax Act on the intangible assets' termed 'Goodwill' acquired by the assessee for Rs.10 crore."
Or
"Whether on the facts and in the circumstances of the case, the assessee is entitled to claim depreciation under section 32 of the Income Tax act on the intangible assets acquired by the assessee."
In our opinion the controversy in the present appeal will be answered if the appeal answers the following question:-
"Whether on the facts and in the circumstances of the case, the assessee is entitled to claim depreciation under section 32 of the Income Tax Act on the intangible assets termed 'Goodwill' acquired by the assessee for Rs. 10 crore."
For this purpose the matter be placed before Hon'ble the President, ITAT to re frame the question.
2. The issue in the case of associate concern CLC Global Pvt. Ltd. is pending adjudication before Hon'ble High Court and in our view any finding of Special Bench on the issue before it can call for analysis of earlier ITAT findings and may cause prejudice to the interest of either party. In our view the interest of justice would be better served if the matter is considered after the decision of the High Court is available. The matter should therefore, be kept in abeyance.
3. Shri R.P. Tolani, J.M. has expressed his opinion that having already taken a view on the issue of allowability of depreciation on goodwill, it will be in the interest of judicial discipline to recuse himself from the hearing of this appeal. The Hon'ble President ITAT will take an appropriate decision on the constitution of the Special Bench. The hearing of the matter is accordingly adjourned. The file be placed before the President for an appropriate action as stated above. Pronounced.

#49

Discussion / NO 263 /148 ON 80IA(9) ISSUE

July 20, 2010, 07:59:07 PM

Where two views are possible and AO has taken one view, CIT cannot exercise his powers under section 263 to differ with view of AO even if there has been a loss of revenue
•   The expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression "erroneous" and every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue
[2010] 6 taxmann.com 15 (Delhi)
HIGH COURT OF DELHI
CIT
v.
Honda Siel Power Products Ltd.
ITA 1376/2009 and 1382/2009
July 5, 2010
FACTS
In this case, the assessment under Section 143(3) of the said Act was completed on 18.03.2004 on an income of Rs 18,74,31,920/-. The Assessing Officer had arrived at the said figure of total income after allowing deductions under Section 80HHC to the extent of Rs 2,70,48,517/- and under Section 80IB to the extent of Rs 3,04,15,236/-.

The Commissioner of Income-tax called for the records in respect of the assessment year 2001-02 and was, prima facie, of the view that the assessment was erroneous insofar as it was prejudicial to the interests of the revenue since the deduction under Section 80HHC was allowed on the whole profit of the business, including the profits derived from the Pondicherry unit and the deduction already allowed under Section 80IB to the extent of Rs 3,04,15,236/- was not reduced in terms of Section 80IB(13) read with Section 80IA(9) of the said Act. Consequently, the Commissioner of Income-tax issued a notice under Section 263 on 15.02.2006 and after receiving the written submissions from the respondent / assessee and hearing the representatives of the respondent / assessee, the Commissioner of Income-tax, by virtue of his order dated 07.03.2006, held that the assessment order passed by the Assessing Officer under Section 143(3) on 18.03.2004 was erroneous insofar as it was prejudicial to the interests of the revenue inasmuch as the Assessing Officer had not applied the provisions of Section 80IB(13) / 80IA(9) of the said Act and had wrongly calculated the deduction under Section 80HHC without reducing from the profits and gains computed for allowing such deduction, the claim already allowed as deduction to the extent of such profits and gains under Section 80IB of the said Act. The Commissioner of Income-tax directed the Assessing Officer to re-calculate the allowable deduction under Section 80HHC after reducing from the profits and gains calculated for the purposes of allowance under Section 80HHC, such profits and gains to the extent of Rs 3,04,15,236/-, which had been claimed and allowed as deduction under Section 80IB of the said Act.

In the order dated 07.03.2006 passed by the Commissioner of Income-tax under Section 263 of the said Act, it was mentioned that there was no question of there being any two views since the Assessing Officer had not, at all, considered the embargo placed by Section 80IA(9) / 80IB(13). According to the Commissioner of Income-tax, it was not a case where two views of a situation were reflected, but a case where the Assessing Officer did not, at all, apply his mind to the applicability of Section 80IA(9)/80IB(13) of the said Act.

HELD

The expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression "erroneous" and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two views are possible and the Income-tax Officer has taken one view, the Commissioner of Income-tax cannot exercise his powers under Section 263 to differ with the view of the Assessing Officer even if there has been a loss of revenue. Of course, if the Assessing Officer takes a view which is patently unsustainable in law, the Commissioner of Income-tax can exercise his powers under Section 263 where a loss of revenue results as a consequence of the view adopted by the Assessing Officer. It is also clear that while passing an order under Section 263, the Commissioner of Income-tax has to examine not only the assessment order, but the entire record of the profits. Since the assessee has no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only those points are taken note of on which the assessee's explanations are rejected and additions / disallowances are made, the mere absence of the discussion of the provisions of Section 80IB(13) read with Section 80IA(9) would not mean that the Assessing Officer had not applied his mind to the said provisions. As pointed out in CIT v. Kelvinator of India Ltd. 256 ITR 1 (FB)(Delhi), when a regular assessment is made under Section 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind.
In the facts of the present case, we find that there is no material to indicate that the Assessing Officer had not applied his mind to the provisions of Section 80IB(13) read with Section 80IA(9). The presumption that the assessment orders passed under Section 143(3) passed by the Assessing Officer had been passed upon an application of mind, has not been rebutted by the revenue. No additional facts were necessary before the Assessing Officer for the purpose of construing the provisions of Section 80IB(13) read with Section 80IA(9). It was only a legal consideration as to whether the deduction under Section 80HHC was to be computed after reducing the amount of deduction under Section 80IB from the profits and gains. There is no doubt that the Assessing Officer had allowed the deduction under Section 80HHC without reducing the amount of deduction allowed under Section 80IB from the profits and gains. He did not say so in so many words, but that was the end result of his assessment order.
"20. The next contention of the Revenue is that in the regular assessment, the Assessing Officer has not discussed the provisions of section 80-IB(13) read with section 80-IA(9) of the Act and if those provisions were taken into consideration, there would be negative profit and consequently deduction under Section 80HHC could not be granted. This argument is also without any merit because, in the affidavit in reply filed on behalf of the Revenue it is admitted that the assessee had not made exports of the goods manufactured in the industrial units eligible for deduction under section 80-IB. If the goods manufactured in the units availing of deduction under section 80-IB were not exported, then obviously the goods manufactured in those units would not be taken into account for computation of deduction under section 80HHC. In that event, the question of applying the principles laid down in section 80-IA(9) while computing the deduction under section 80HHC does not arise at all."

18. From the aforesaid discussion, it is apparent that the expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression "erroneous" and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two views are possible and the Income-tax Officer has taken one view, the Commissioner of Income-tax cannot exercise his powers under Section 263 to differ with the view of the Assessing Officer even if there has been a loss of revenue. Of course, if the Assessing Officer takes a view which is patently unsustainable in law, the Commissioner of Income-tax can exercise his powers under Section 263 where a loss of revenue results as a consequence of the view adopted by the Assessing Officer. It is also clear that while passing an order under Section 263, the Commissioner of Income-tax has to examine not only the assessment order, but the entire record of the profits. Since the assessee has no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only those points are taken note of on which the assessee‟s explanations are rejected and additions / disallowances are made, the mere absence of the discussion of the provisions of Section 80IB(13) read with Section 80IA(9) would not mean that the Assessing Officer had not applied his mind to the said provisions. As pointed out in Kelvinator of India (supra), when a regular assessment is made under Section 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind.

[2010] 5 taxmann.com 14 (Mum. - ITAT)

Assessing Officer cannot take any action under section 147 merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on same set of facts

•   Where it was clear from the original assessment orders as well as order made by the appellate authority that the Assessing Officer was well aware about the primary facts, viz., the claim made by the assessee, the circumstances under which the claim was made, and the provisions of law which could be applied while granting the benefits, and the Assessing Officer consciously considered the facts and arrived at a decision, the assessment cannot be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view.

ITAT, MUMBAI BENCH 'K', MUMBAI
Audco India Ltd.
v.
ITO
ITA No. 6305/M/2007
April 22, 2010

ORDER
PER A.L. GEHLOT, A.M.:

This appeal filed by the assessee is directed against the order of CIT(A)-II, Mumbai, passed on 06.08.2007 for the assessment year 2001-02.

2. Ground No. 1 is in respect of challenging reopening of assessment u/s 147 of the Act. Grounds No 2 and 3 are on merit related to reduction of profit under section 80IB while computing deduction under section 80HHC of the Act and calculation of deduction under section 80HHC in respect of DEPB respectively.

3. First we take up the legal ground challenging reopening of assessment u/s 147 of the Act. The CIT(A) rejected this legal ground of the assessee on the ground that the reopening is within four years. He further observed that after the amended provisions of section 147 substituted with effect from 01.04.1989 the power to reopen the assessment is much wider and the same can be exercised even after the assessee has disclosed fully and truly all the material facts.

4. The learned AR pointed out the reasons recorded by the AO for of which copy has been placed at page 68 of paper book filed by the assessee.

5. The learned AR submitted that in the light of the law laid down by the Hon'ble Supreme Court in the case of CIT Vs. M/s Kelvinator of India Ltd. vide Civil Appeal Nos. 2009-2001 of 2003 and 2520 of 2008, judgment dated 18th January, 2010, reopening is bad in law because there was no reason to believe that the income had escaped assessment as evident from the reasons recorded.

6. The learned DR, on the other hand submitted that reopening is within four years and the CIT(A) has rejected this ground of the assessee after a detailed discussion in his order. He relied upon the order of CIT(A) in support of revenue's case.

7. We have heard the learned representatives of the parties and perused the record. The issue to be examined under consideration is whether the AO was correct in reopen the completed assessment with the reasons recorded. To examine the issue we would like to refer section 147 which reads as under:-

" [Income escaping assessment.
147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts59 necessary for his assessment, for that assessment year:

[7.2 The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the Assessing Officer and the material and information referred to by him in the reasons for initiating such action. It is settled law that Assessing Officer cannot initiate the reassessment proceedings merely on the basis of suspicion or for the purpose of making roving and fishy inquires. The Assessing Officer cannot support the reopening of the assessment by collecting the material or by making inquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the Assessing Officer initiated action u/s 147 of the Act.

7.3 We are also of the opinion that, howsoever widen the scope of taking action under section 148 of the Act, it does not confer jurisdiction on change of opinion on the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been underassessment or assessment at a lower rate or for applying other provisions of Explanation 2, it must be material and it should have nexus for holding such opinion contrary to what has been expressed earlier. The scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier .The Assessing Officer cannot take any action under this section merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. From the earlier assessment which clearly assumes that the Assessing Officer applied his mind to the computation of income and, therefore, in a case like this it would not be open to the Assessing Officer to issue notice under section 148 of the Act. - When the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled on change of opinion to commence proceedings for reassessment. Similarly, if he has raised a wrong legal inference from the facts disclosed, he will not, on that account, be competent to commence reassessment proceedings .Having second thoughts on the same material, and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceeding under section 147. Where it was clear from the original assessment orders as well as order made by the appellate authority that the Assessing Officer was well aware about the primary facts, viz., the claim made by the assessee, the circumstances under which the claim was made, and the provisions of law which could be applied while granting the benefits, and the Assessing Officer consciously considered the facts and arrived at a decision, the assessment cannot be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view. A decision is right or wrong is none of the concern of the subsequent officer. If the primary facts were not available or there was concealment or there was no application of mind at all, then a case for reopening the assessment could be made out .

7.4 If we consider the facts of the case under consideration we find the following reasons were recorded by the AO which are reproduced from page 68 of paper book filed by the assessee:-
"It is seen that you have claimed deduction u/s 80IB amounting to Rs. 58,13,490/-. However, this sum of Rs. 58,13,490/- has not been reduced from the eligible prof its for deduction u/s 80 HHC. As per clause 9 of section 80IA, any amount which has been claimed and allowed as deduction u/s 80IA cannot be considered eligible for any other deduction. Hence, it is proposed to reduce this sum of Rs. 58,13,490/- from the eligible prof its for the purposes of deduction u/s 80 HHC."

7.5 From the reasons recorded we find that the AO formed belief on the issue which is a controversial issue, whether while computing deduction u/s 80 HHC eligible profits for u/s 80IB of is to be reduced or not. We find that this controversial issue has traveled up to ITAT and the ITAT special bench Delhi has decided the issue in ACIT V Hindustan Mint and Agro products P. Ltd. (2009) 315 ITR (AT) 401 (Delhi) (SB). Thus it is evident that the reasons for which the AO want to reopen the completed assessment were a controversial issue. As discussed above that the scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier .The Assessing Officer cannot take any action under this section merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. ."

7.5    In the light of above desiccation and under the facts and circumstances of the case, we are of the considered view that there is no belief of the AO which can be said to be in accordance with section 147, therefore, the order of the AO is liable to be quashed on this legal issue itself. We do so and allow the ground of appeal of the assessee. Since we have decided the appeal on legal issue, therefore we do not feel necessary to decide the other grounds on merit.

8. In the result, the appeal of the assessee is allowed.

#50

Discussion / Amendment related to sell of another unit to relative in sec. 80IB(10) is retros

July 03, 2010, 11:59:02 AM

One of my friend is builder. Last year he sold one unit measyring 700sq feet to husband and another unit to the wife in the smae project. The total area of unit sold to wife is also 700 sq feet. If both are considered together then also it is less than 1500 sqfeet(condition to claim 80IB(10). Now before filing filing his return he wants to seek the opinion on adnissiblity of 80IB(10).
(1) Whether amendment will have no effect has he has sold these units before amendment came in to force?
(2). Whether entire deduction will be disallowed or he will be entitled for proporinate deduction?
(3) Though flat was sold in year before the amendment came into force , the income is offered in this year because of completeion of the papers?
I request all the esteem members to advise?

#51

Discussion / Some suugestions for Department officers to increase their tax collection

June 22, 2010, 11:26:05 AM

(1) In case of ACIT vs. Saurashtra Kutch Stock Exchange of India 305 ITR 227 (SC) conclude the issue? It was observed there:
The core issue, therefore, is whether non-consideration of a decision of Jurisdictional Court (in this case a decision of the High Court of Gujarat) or of the Supreme Court can be said to be a "mistake apparent from the record"? In our opinion, both - the Tribunal and the High Court - were right in holding that such a mistake can be said to be a "mistake apparent from the record" which could be rectified under Section 254(2). The SC has held that a judgment of the jurisdictional High Court and that of the SC, even if rendered subsequently, will constitute a mistake apparent from the record.
The full text is available here:
http://www.caclubindia.com/judiciary/acit-vs-saurashtra-kutch-stock-e...
(2) A similar question came up for consideration before the High Court of Gujarat in Suhrid Geigy Limited v. Commissioner of Surtax, Gujarat, (1999) 237 ITR 834 (Guj).
It was held by the Division Bench of the High Court that if the point is covered by a decision of the Jurisdictional Court rendered prior or even subsequent to the order of rectification, it could be said to be "mistake apparent from the record" under Section 254 (2) of the Act and could be corrected by the Tribunal.

(3) The MUMBAI TRIBUNAL in case of KAILASHNATH MALHOTRA v/s JT.CIT(TM) 34 SOT 541 has held that
A judgment of the jurisdictional High Court and that of the SC, even if rendered subsequently, will constitute a mistake apparent from the record under Section 254 (2) of the Act and could be corrected by the Tribunal.

Recently the Apex Court in case of M/s LIBERTY INDIA v/s CIT (2009) 183 TAXMANN 349 has held that
There must be, for the application of the words "derived from", a direct nexus between the profits and gains and the industrial undertaking. In other words, by using the expression "derived from" Parliament intend to cover sources not beyond the first degree. The deduction is available on operational income and not on incentives which flow from the schemes framed by central government or state governments".
Now before this decision there were difference of opinion between various ITAT's and High Courts. While Gujarat High Court in case of CIT v/s INDIA GELATINE & CHEMICALS LTD ,145 TAXMAN 303(2005). & Delhi High Court in case of ELTEK SGS (P) LTD v/s CIT, 169 TAXMAN 283(2008) HELD duty drawback is profit or gain derived from business of an industrial undertaking and, therefore, assessee is entitled to deduction under section 80-IB on custom duty drawback - Held, yes,

Rajasthan High court in case of SARAF SEASONING UDYOG v/s ITO 174 TAXMAN 594(2008) had held that income derived by assessee from sale of DEPB licence is profit and gain from industrial undertaking and, thus, is eligible for deduction under section 80-IB - Held, yes .
Relying on these decisions many addition made by Assessing Officers in assessment orders were deleted by CIT (A) or ITAT's or Hon,ble High Courts.
Though in most of cases department may have filed appeal against the order of CIT (A) or ITAT to the ITAT's or to the High Court u/s 260A .But now in view of recent Supreme Court judgment, following action can be taken
(i) The Assessing Officer may be directed to file MA u/s 254(2) in ITAT if ITAT has deleted the addition and 154 to CIT (A) if he has deleted the addition. Department will be able to recover thousands of crores of tax amount which is pending in litigation at various levels.
(ii) The Assessing Officer may be directed to review all cases in which deduction under section 80IA/80IB or 10A/10B has been claimed from A.Y. 2004-05 onwards and to take necessary remedial action under section 147/263 of the act as applicable

(4) The MUMBAI TRIBUNAL in case of KAILASHNATH MALHOTRA v/s JT.CIT(TM) 34 SOT 541 has held that
Section 254 of the Income Tax Act
" It will be an error apparent from records , if the order is not in conformity with the retrospective amendment carried out to the statutory provision covering the period and point in dispute , subject to the fulfillment of other conditions prescribed in the Act such as limitation period etc "

115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, [2007]], is less than [ten per cent]] of its book profit, [such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of [ten per cent]]].

1.   Finance Act, 2008, w.r.e.f 01/04/2001 has inserted clause (h) below explanation-1 that book profit shall be increased by :
(h) "the amount of deferred tax and the provision therefore"
                  If debited to Profit & Loss Account.

         The above said amendment was brought to nullify the judgments which have held that deferred tax if debited to P & L A/c cannot be added back to Book Profit as per sec. 115JB.
1.   Maharaja Shree Umaid Mills Ltd v/s ACIT.(2007) 17 SOT 72 (JAIPUR)
2.   ACIT .C.C XIX Kolkata v/s Balrampur Chini Mills Ltd(2007) 14 SOT 372(KOL)
Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax - Assessment year 2004-05 - Assessing Officer made an addition of amount of deferred tax under Explanation (c) to section 115JB(2) for purposes of computing book profit - Whether since deferred tax charge is not covered by any of clauses of Explanation to section 115JB(2), such deferred tax charge is not required to be added back in computation of book profit for purpose of section 115JB and, therefore, addition made by Assessing Officer was to be deleted - Held, yes

2.   Finance Act, 2008 w.r.e.f 01/04/2001 has inserted explanation-2 to widen the scope of the term Income Tax.
      Explanation 2.— For the purposes of clause (a) of Explanation 1, the amount of income-tax shall include—
   (i)   any tax on distributed profits under section 115-O or on distributed income under section 115R;
   (ii)   any interest charged under this Act;
   (iii)   surcharge, if any, as levied by the Central Acts from time to time;
   (iv)   Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and
(v)   Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time.]
Suggestion;
3.   Finance Act, 2009 w.r.e.f. 01/04/2001 has inserted clause (g) below explanation-1 that book profit shall be increased by :
(i)   the amount or amounts set aside as provision for diminution in the value of any asset,
Thus now
(a)   provision for bad & doubtful debts
(b)   provision for diminution in value of investment
(c)   provision for obsolete inventory
(d)   provision for impairment of assets
has to be added back to book profit u/s 115JB in view of this amendment which has been given retrospective effect.

(i) The Assessing Officer may be directed to file MA u/s 254(2) in ITAT if ITAT has deleted the addition or 154 to CIT (A) if he has deleted the addition. Department will be able to recover thousands of crores of tax amount which is pending in litigation at various levels.
(ii) The Assessing Officer may be directed to review all cases in which assessee has not added back deferred tax/interest on income tax/provision for diminution in the value of assets for the purpose of sec. 115JB from A.Y. 2004-05 onwards and to take necessary remedial action under section 147/263 of the act as applicable
(4)    Sec. 80A(4) inserted by Finance Act , 2009 w.e.f 01/04/2003
Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C—Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.

This section is overlapping with the section 80IA (9) which read as under:
80IA(9) Where any amount of profits and gains of an 76[undertaking] or of an enterprise in the case of an assessee is claimed and allowed under this section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.—Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of 76[undertaking] or enterprise, as the case may be.

There was dispute regarding interpretation of the section between assessee and the revenue. While revenue was of the view that deduction granted u/s 80IA/80IB has to be reduced from profits of business before allowing deduction u/s 80HHC. However assessee was of the view that the both the deductions has to be allowed on gross total income subject to the condition that deduction will not exceed gross total income. During earlier stage the issue was decided in favour of the Assessee by the Hon,ble ITAT'S in following cases
(i)   Toshica creation v/s ITO (2006) 150 TAXMAN 48(MAG)(JP)
(ii)   Mittal clothing co v/s DCIT.(2005) 4 SOT 626 (DELHI)
(iii)   DCIT v/s Eltek Sgs (p) ltd (2006) 10 SOT 178 (DELHI)
and addition made by Assessing Officer was deleted either at the level of CIT(A) or the level of ITAT following these judgments.
But then a reference was made by revenue for constitution of special Bench and Chennai Special Bench in case of
ACIT v/s ROGINI GARMENTS (2007) 108 ITD 49 (CHENNAI)(SB)

Decided the issue in favour of the department and it was held that deduction granted u/s 80IA/80IB has to be reduced from profits of business for calculating quantum of deduction u/s 80HHC.
But again one more controversy arose. One of the assessee who was an intervener before special bench filed appeal against the order of ITAT. The Hon,ble Madras HIGH court in case of
SCM creations v/s ACIT.(2008) 304 ITR 379

While not noticing that section 80IA(9) was inserted by Finance Act , w.e.f 01/04/99 i.e A.Y. 1999-2000 allowed the appeal of the assessee company based on judgments which were delivered on the basis of old section which was applicable till A.Y. 1998-99.
After this decision, there were different views regarding the ratio of this judgment. While some ITAT held it being a decision of superior authority it has to be followed in precedence over Special Bench judgment. While other group of ITAT was of the view that it is per incurian because it did not consider correct position of law.
To resolve this conflict, a five member special bench was constituted to decide the issue. The five member special Bench in case of
ACIT v/s HINDUSTAN MINT & AGRO PRODUCTS (P) LTD 119 ITD 107 (DELHI)(SB)

Decided the issue in favour of the department and held that deduction granted u/s 80IA/80IB has to be reduced from the gross total income income before calculating quantum of deduction u/s 80HHC.
The ratio of this judgment has been inserted in sec. 80A(5) inserted by Finance Act , 2009 w.e.f from 01/04/2003 which reads as under
Notwithstanding anything to the contrary contained in section 10A or section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading "C—Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an undertaking or unit or enterprise or eligible business is claimed and allowed as a deduction under any of those provisions for any assessment year, deduction in respect of, and to the extent of, such profits and gains shall not be allowed under any other provisions of this Act for such assessment year and shall in no case exceed the profits and gains of such undertaking or unit or enterprise or eligible business, as the case may be.
The MUMBAI TRIBUNAL in case of KAILASHNATH MALHOTRA v/s JT.CIT(TM) 34 SOT 541 has held that
Section 254 of the Income Tax Act
" It will be an error apparent from records , if the order is not in conformity with the retrospective amendment carried out to the statutory provision covering the period and point in dispute , subject to the fulfillment of other conditions prescribed in the Act such as limitation period etc.
(i) The Assessing Officer may be directed to file MA u/s 254(2) in ITAT if ITAT has deleted the addition or 154 to CIT (A) if he has deleted the addition To file 154 to CIT(A) if he has deleted the addition or M.A u/s 254(2) to ITAT if it has deleted the addition made by Assessing Officer for A.Y. 2003-05 & 2004-05 .Department will be able to recover thousands of crores of tax amount which is pending in litigation at various levels.
(ii) The Assessing Officer may be directed to review all cases in which assessee has not reduced deduction claimed u/s 80IA/80IB for calculation of deduction u/s 80HHC or 10A/10B as per section 80IA(9)/80A(5) from A.Y. 2004-05 onwards and to take necessary remedial action under section 147/263 of the act as applicable

THIS IS APPLICABLE ONLY FOR MAHARASHTRA

CIT vs. Shah Originals (Bombay High Court)
(255.1 KiB, 161 DLs)

EEFC A/c foreign exchange fluctuation and interest not eligible u/s 80HHC

The assessee, an exporter, claimed deduction u/s 80HHC on account of foreign exchange fluctuation and interest in the EEFC account on the ground that it was part of business income and arose from exports. The AO & CIT (A) rejected the claim though the Tribunal allowed it. On appeal by the Revenue, HELD reversing the Tribunal:

(i) S. 80HHC allows a deduction in respect of the profits "derived" from exports. The term 'derived' is of a narrower connotation than the term 'attributable to' and postulates the existence of a direct and proximate nexus with the export activity. Pandian Chemicals 262 ITR 278 (SC) and Ravindranathan Nair 295 ITR 228 (SC) followed;

(ii) An exporter is not obliged to maintain the export proceeds in the EEFC Account but, this is a facility made available by the RBI. The transaction of export is complete in all respects upon repatriation of the proceeds. It lies within the discretion of the exporter as to whether the export proceeds should be received in a rupee equivalent in the entirety or whether a portion should be maintained in convertible foreign exchange in the EEFC Account. The exchange fluctuation arises after the export transaction is complete and payment has been received by the exporter. It does not bear a proximate and direct nexus with the export transaction so as to be "derived" from exports for s. 80HHC. Interest on EEFC deposits is not "business income" but is "income from other sources" and not eligible for deduction u/s 80HHC

CIT vs. Asian Star Co (Bombay High Court)


For Expl (baa) to s. 80HHC, netting of income from expenditure is not allowed

The assessee claimed deduction u/s 80HHC on profits which included interest income of Rs. 3.25 crores. Under Explanation (baa) to s. 80HHC, 90% of the said interest income has to be reduced from the profits. The assessee claimed that the interest expenditure incurred by it having a nexus with the said interest income had to be netted off and only the balance, if any, could be subjected to the 90% reduction. The assessee proved that there was a nexus between the income and the expenditure. The claim was rejected by the AO though it was accepted by the CIT (A) and the Tribunal relying on Lalsons Enterprises 89 ITD 25 (Del) (SB). On appeal by the Revenue, HELD reversing the Tribunal:

(i) Explanation (baa) to s. 80HHC requires that ninety per cent of receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature have to be reduced from the profits. The reason why items like brokerage etc have to be excluded is because they do not possess any nexus with export turnover and their inclusion in profits would result in a distortion of the figure of export profits. However, as some expenditure might have been incurred in earning these incomes, an adhoc deduction of ten per cent from such income is allowed;
(ii) Once Parliament has legislated both in regard to the nature of the exclusion and the extent of the exclusion, it would not be open to the Court to order otherwise by rewriting the legislative provision. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be allowed. In Shri Ram Honda Power Equip 289 ITR 475 the Delhi High Court has not adequately emphasized the entire rationale for confining the deduction only to the extent of ninety per cent of the excludible receipts and it cannot be followed;
(iii) As regards the judgement of the Special Bench in Lalsons Enterprises "We are affirmatively of the view that ... the Tribunal ... has transgressed the limitations on the exercise of judicial power and has in effect legislated by providing a deduction on the ground of expenses other than in the terms which have been allowed by Parliament. That is impermissible".

(i) The Assessing Officer may be directed to file MA u/s 254(2) in ITAT if ITAT has deleted the addition or 154 to CIT (A) if he has deleted the addition made by Assessing Officer on above issues.
(ii) The Assessing Officer may be directed to review all cases in which assessee has claimed deduction on u/s 80HHC by applying net interest and claimed deduction on other income which is not eligible as per Judgment of Bomaby High court above u/s 80HHC or 10A/10B from A.Y. 2004-05 onwards and to take necessary remedial action under section 147/263 of the act as applicable

#52

Discussion / whether on retrosoective amendment MA u/s 254(2) can be filed?

June 22, 2010, 11:22:35 AM

ACIT vs. GTL Ltd (ITAT Mumbai)
(64.1 KiB, 282 DLs)

Retrospective amendment after passing order does not lead to "apparent mistake"

Following HCL Comnet 305 ITR 409 (SC), the Tribunal took the view vide order dated 17.3.2009 that provision for bad debts debited to the P&L A/c could not be added to the "book profits" u/s 115JA. To supercede HCL Comnet, clause (g) was inserted in the Explanation to s. 115JA by the F. A. 2009 w.r.e.f 1.4.1998. The amendment received the assent of the President on 19.8.2009, after the order of the Tribunal was passed. The department filed a MA contending that in view of the said retrospective amendment, there was a "mistake apparent from the record". HELD dismissing the application:

As per the law laid down in Sudhir Mehta 265 ITR 548 (Bom), where an order is passed as per the prevailing law, a retrospective amendment which comes into force after the date of the passing of the order does not show any mistake in the order.

The Hon,ble Mumbai Tribunal has dismissed the MA of the department. But , i feel the below mentioned judgment of
The MUMBAI TRIBUNAL in case of KAILASHNATH MALHOTRA v/s JT.CIT(TM) 34 SOT 541 has held that
Section 254 of the Income Tax Act
Para-11" It will be an error apparent from records , if the order is not in conformity with the retrospective amendment carried out to the statutory provision covering the period and point in dispute , subject to the fulfillment of other conditions prescribed in the Act such as limitation period etc "

was not brought to the notice of Hon/ble as seen from the orders. The judgement being of third member was binding on the co-ordinate bench. Department may try again and in other cases.

#53

Discussion / Special Bench decision on 32(2)

May 05, 2010, 10:24:52 PM

INCOME-TAX TRIBUNAL DECISIONS
VOLUME 117
[ORDERS]
[2009] 117 ITD 1 (DELHI)
IN THE ITAT DELHI BENCH 'F'
Jai Ushin Ltd.
v.
Deputy Commissioner of Income-tax*, Central Circle-14, New Delhi
R.V. EASWAR, VICE PRESIDENT AND P.M. JAGTAP, ACCOUNTANT MEMBER
IT APPEAL NO. 3412 (DELHI) OF 2006
[ASSESSMENT YEAR 2003-04]
JANUARY 25, 2008

Section 32 of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation - Assessment year 2003-04 - Assessing Officer, while framing assessment of assessee-company, had set off unabsorbed depreciation relating to assessment year 1999-2000 against its income from house property for assessment year 2003-04 applying provisions of section 32(2) as applicable with effect from 1-4-2002 - Assessee contended that since unabsorbed depreciation was relating to assessment year 1999-2000, same could be set off only against business income as per provisions of section 32(2) as applicable to assessment year 1999-2000 and, therefore, Assessing Officer was not justified in setting off same against its income from house property as per provisions of section 32(2) as applicable with effect from 1-4-2002 - Whether since assessment year involved in instant case was 2003-04, provisions of section 32(2), as existed in statute as on 1-4-2003, would be applicable and, therefore, Assessing Officer was justified in his action - Held, yes

In above judgment department/Assessing Officer has taken a stand that amended provisions of sec. 32(2) will be applicable. Whereas department has taken a contrary view in front of special bench.

#54

Discussion / Deduction under Sec 10A to be allowed only after setting off brought forward los

April 07, 2010, 05:41:21 AM

BANGALORE, APR 06, 2010: SECTION 10A is indeed one of the most disputed Sections in the I-T Act. When the Chennai Special Bench had given its decision in favour of the assessee in the case of Scientific Atlanta, it was thought that the issue has been settled. But that is not correct. In an interesting and bold decision, the Bangalore Bench of the Tribunal has differed with the Special Bench by observing that the perpetuating a mistake is not heroism and has finally gone by the decision of the Jurisdictional HC which has ruled in favour of the Revenue. Let's take a look at the intricacies of the facts.

Matrix of facts

Assessee claims Sec 10A benefits without setting off the brought forward loss - AO allows the claim after making certain adjustments in the export turnover - CIT takes the view the AO has allowed the deduction without application of mind and invokes powers u/s 263 to set aside the AO's order - Assessee contends that the CIT is wrong in setting aside the AO's order as the AO has taken one of the possible views available at the time of passing the assessment order - further argues that the view taken by the AO has also been reaffirmed by the Special Bench decision in the case of Scientific Atlanta India Technology (2010-TIOL-69-ITAT-MAD-SB) which has gone in favour of the assessee

The CIT (DR) argued that the total income of a particular assessment year has to be computed after aggregation of the profits/losses of the concerned assessment year under different heads of income and after the set off of brought forward business losses/unabsorbed depreciation relating to assessment years and the deduction u/s.10A has to be worked out after setting off of brought forward losses/unabsorbed depreciation. He relied on the Delhi Bench's decision in the case of Global Vantedge Pvt. Ltd., vs. DCIT 2010-TIOL-24-ITAT-DEL where the Tribunal has held that unabsorbed depreciation or unabsorbed business losses in respect of eligible 10A unit has to be set off against the profits for determining the amount of deduction available u/s.10A. He stated that Delhi Bench has considered the binding decision of the Karnataka High Court in the case of Commissioner of Income-tax vs. Himatasingike Seide Ltd. (2006-TIOL-448-HC-KAR-IT) and also earlier decisions of the Tribunal to come to the above conclusion and has observed that the earlier decisions of the Tribunal, were rendered in favour of the assessee, without the benefit of applying the decision of the Karnataka High Court and, therefore, not applicable to the issue any more.

Having heard the parties the Tribunal has held that,

++ it is true that the Bangalore Bench of the Tribunal has passed a series of orders accepting the arguments of the assessee holding that it is not necessary to set off the brought forward losses and unabsorbed depreciation of the earlier assessment years in working out the deduction available u/s.10A. As rightly pointed out by the counsel for the assessee, ITAT, Madras Special Bench has also taken the very same view;

++ but dehors all these Tribunal orders, there is a binding judgement of the Hon'ble jurisdictional High Court available before us which has been rendered by their Lordships in the case of Commissioner of Income-tax vs. Himatasingike Seide Ltd., (2006-TIOL-448-HC-KAR-IT). The HC examined the contention whether the deduction available to an assessee u/s.10B has to be allowed before setting off of unabsorbed depreciation and unabsorbed investment allowance. After examining the framework of law dealing with exemption u/s.10B, their lordships held that Section 10B cannot be read in isolation of other provisions. This is only an exemption provision.

++ The court went on to explain that after taking into consideration the unabsorbed depreciation, an assessee may get exemption but to a lesser extent and nonetheless it could not take only a portion of the depreciation just to suit its income for the purpose of nil liability and adjust the balance of unabsorbed depreciation against other business income. The ratio laid down by the Hon'ble High Court of Karnataka is equally applicable to the provisions of law contained in Section 10A as well;

++ The intent and purpose of the scheme of exemption provided in Sections 10A and 10B are analogous and obviously the judgement of the Hon'ble Karnataka High Court rendered in the context of Section 10B is equally applicable to Section 10A.

++ the ITAT, Delhi 'C' Bench has followed the said judgement of the Karnataka High Court in deciding the matter against the assessee, in the case of Global Vantedge Pvt. Ltd., Vs. DCIT 2010-TIOL-24-ITAT-DEL. While dealing the said appeal, the Tribunal has considered all the earlier orders of the Bangalore Bench and other decisions in favour of the assessee and has held that the relevance of those decisions do not have any binging effect when the judgement of a High Court is available on the issue;

++ it is a settled law that when the Hon'ble Supreme Court or a High Court declares the law on a subject, the declaration goes back to the date of enactment of that particular law so as to state that the law, from the date of its enactment itself was in the manner decided by the Court subsequently. When that universal rule of interpretation is accepted, we have to hold that unabsorbed depreciation and brought forward losses have to be set off against the profits while computing the deduction u/s.10A and this position of law has to be reckoned from the date of the enactment of the law itself.

++ Therefore, the necessary finding is that even when the Assessing Officer was passing the assessment order, the law on the subject of exemption available u/s.10A was always the law as explained by the Hon'ble High Court in the case of Commissioner of Income-tax vs. Himatasingike Seide Ltd. (2006-TIOL-448-HC-KAR-IT). Once the law on the subject has been declared by the High Court, the pronounced judgement dates back to the date of enactment and, therefore, by superimposition made by the judicial pronouncement, the assessment order has become erroneous. It is not only erroneous, but also prejudicial to the interests of Revenue inasmuch as the error has contributed in granting excessive relief to the assessee.

++ it is not out of context here, to refer to the decision of ITAT, Bangalore Bench rendered in the case of KPIT Cummins Infosystems (Bangalore) (P) Ltd., Vs. ACIT. In the said decision, the Tribunal has held in favour of the assessee, accepting the argument that brought forward loss/unabsorbed depreciation need not be set off against profits eligible for deduction u/s.10A. In fact, one of the Members from this bench was a party to that order. But, in the course of arguments, it was found that the said order might not be reflecting the correct position of law. The bench has no hesitation to state that perpetuating a mistake is not heroism.

Assessee's appeal dismissed and the CIT order u/s 263 upheld

#55

Discussion / BLENDING OF TEA IS MANUFACTURE FOR 10A

December 25, 2009, 06:43:39 PM

Blending of tea for export by an industrial unit in SEZ area is a manufacturing activity which qualifies for exemption u/s 10A/10AA

HIGH COURT OF KERALA

Girnar Industries

v.

CIT

ITA No. 100 of 2009

August 17, 2009

RELEVANT EXTRACTS:

** ** ** ** ** ** ** ** ** ** ** **

2. The short question that arises for consideration is whether blending and packing of tea for export in the industrial unit in the Special Economic Zone amount to manufacture or production of an article qualifying for exemption under Section 10A of the Act, that is, during the period prior to introduction of "blending" as "manufacture" with effect from 10.2.2006. There is no dispute on facts in as much as assessee is admittedly engaged in purchase of tea produced in various estates from various auction centres and in me industrial unit they blend the tea so procured into various grades of blended tea, repack in their name and export it to various countries. The Development Commissioner, Special Economic Zone has issued permanent registration certificate to the assessee declaring mat the assessee is engaged in manufacture and export of blended tea (in balk, in consumer packs and tea bags). The case of the department is mat unless the item exported is treated as a product manufactured in the industrial unit of the assessee, the assessee is not entitled to exemption. On the other hand, the assessee's case is that every unit in the Special Economic zone enjoys income tax exemption on the profit derived on the export of their products. Prior to the passing of the Special Economic Zone Act, 2005, the assessee's industry was located in the Zone previously known as the Cochin Export Proressing Zone which is a Free Trade Zone covered by Section 10A of the Act Since assessee's eligibility for exemption has to be considered under Section 10A, the relevant portion of the said Section is extracted hereunder for easy reference:

"S.10A Special provision in respect of newly established undertakings in free trade zone, etc.-(l) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period often consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee.

Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years:

Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to mthisstib-section shall be reckoned from me assessment year relevant to the previous year in which the undertaking began to manufacture or produce such articles or things or computer software in such free trade zone or export processing zone:

Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent, of the profits and gains derived by an undertaking from the export of such articles or things or computer software:

Provided also that no deduction under fins section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years.

(1A) Notwithstanding anything contained in subsection (1), uie deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year beginning on or after the 1st day of April, 2003, in any special economic zone, shall be hundred per cent, of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with me assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and (hereafter fifty per cent, of such profits and gains fir former two assessment years.

(2) This section applies to any undertaking which fulfils all the following conditions, namely

(i) it has begun or begins to manufacture or produce articles or tilings or computer software during the previous year relevant to me assessment year-

(a) commencing on or after the 1st day of April, 1981, many free trade zone; or

(b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park;

(c) commencing on or after the 1st day of April, 2001, in any special economic zone;

ft is clear from the above provision that deduction is of the profits and gains derived by the industrial undertaking from the export of articles or things or computer software rnanufactured or produced by it The contention of the assessee is that since there is no definition of the word "manufacture" or "processing" in the Income Tax Act, the definition of "manufacture" contained m the Export Import Policy 2002-2007 under which Free Trade Zone is established, applies. According to the counsel, even though blending as such is not specified in the definition clause contained in the policy, it Bills within the definition clause of "manufacture" obtained m the Policy by necessary implication. The definition contained in Chapter IX of file EXIM Policy under clause 9.30 is as follows:-

"Manufacture" means to make, produce, fabricate, assemble, process or bring into existence, by hand or by machine, a new product having a distinctive name, character or use and shall include processes such as refrigeration, repacking, polishing, labeling, re-conditioning repair, remaking, refurbishing, testing calibration, re-engineering. Manufacture, for the purpose of this Policy, shall also include agriculture, aquaculture, animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining."

It is worthwhile to refer to the definition of "manufacture" contained in section 2(r_ of the Special Economic Zones Act, 2005, which is incorporated later under section 10AA of the Income-tax Act with effect from 1-2-2006. it reads as follows:

S2(t) "Manufacture" means to make, produce, fabricate, assemble, process or bring h*o existence, by band or by machine, a new product having adistinctive name, character or use and shall include processes such as refrigeration, anting, polishing, blending, re-engineering and includes agriculture, agricultural animal husbandry, floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining."

We notice from the above two definition clauses that though both the definition clauses are very similar, blending is not specifically stated in the definition clause of "manufacture" contained m the EXIM Policy, whereas blending is specifically covered by Section 2(r) of the Special Economic Zones Ad Counsel for the assessee contended feat both fee definition clauses are very similar and fought processes referred to therein such as refrigeration, repacking, positing, labelling, reconditioning repair etc., are not real manufacturing activities involving production of a new article having distinctive name, character or use as required under thefts part of the are also treated as manufacture both fee Special Economic Zones Act

3. Even though there is no court decision direction the question raised, Senior counsel appearing for feethe appellant-assessee has relied on various decisions of the Supreme Court on fee general principles of construction on exemption clause and also on CBDT Circular No.794 dated 9.8.2002 explaining the scope of Section 10A of the Income Tax Act We do not think there is any need to refer to afl the decisions cited before us because the position canvassed is one and the same ie. adoption of a liberal construction pertaining to exemption clause. However, it is worthwhile to refer to atleast one of the decisions of the Supreme Court in COMMISSIONER OF INCOME-TAX V. GWAUOR RAYON SILK MFG. CO. LTD. (1952) 196 ITR 149, wherein the Supreme Court has stated the law as follows:

It is settled law that the expressions used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative intention, ft is equally settled law mat, if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with jnsrice adopting a purposive approach. The contextual meaning has to be ascertained and given effect to. A provision for deduction, exemption or relief should be construed reasonably and in favour of the

We have already noticed mat in substance the provisions of Section 10A and Section 10AA later introduced serve me very same purpose of granting exemption on the profits earned by industrial vnte in fbe Free Trade Zone/Special Economic Zone. These provisions introduced m the Income Tax Act are essentially implementation of EXIM Policy periodically announced by me Government providing incentives to export oriented units located in Free Trade Zones/Special Economic Zones mainly to augment Foreign Exchange Funwnga In met, it is pertinent to note that though Section 10A did not contain a definition for "manufacture", definition of the said term contained in Section 2(r) of the Special Economic Zones Act, 2005 is incorporated in Section 10AA with effect from 10.2.2006. Admittedly the said definition covers blending also. Therefore, blending and packing of tea done by the appellant-assessee qualifies for exemption under Section 10AA from 10.22006 onwards. The question to be considered h whether the benefit is available to the appellant-assessee for the year 2004-2005 for the reason mat the men existing provision Section 10A did net cartam a definition clause. Admittedly Section 10A also provides for exemption in respect of goods manufactured or produced and sold by units in the Free Trade Zone. Going by the decision of the Supreme Court above referred, the exemption clause has to be considered with reference to the object with which it is enacted. Nobody can have doubt that exemption to industries in the Free Trade Zone is granted based on the EXIM Policy framed by the Government periodically. In this context it is pertinent to refer to the definition of "manufacture " contained in Chapter IX of the EXIM Policy extracted above. We notice that "manufacture" is given a very wide definition to take in even processing involving conversion of something to another with distinct name, character and use. Further, even refrigeration of an item which involves only freezing, repacking, labelling etc. are also covered by the definition of "manufacture". Blending of tea is mixing of different varieties of teas produced in estates located in different regions having different altitudes, climate conditions etc. It is common knowledge that new flavours c€ tea are generated by blending different varieties. In our view, it would be incorrect to say that in the course of blending the product obtained namely, the blended tea, certainly has different characteristics inasmuch as flavor, taste etc.of the blended tea is different from that of the various varieties of tea used in blending. We are of the view that since the purpose of exemption under Section 10A is to give effect to the EXIM Policy of the Government, the definition of "manufacture" contained in the EXIM Policy is applicable for the purpose of the said provision. We have already noticed that "manufacture" as defined under the EXIM Policy has a wide and liberal meaning covering tea blending as well and so much so, blending and packing of tea qualifies for exemption under Section 10A. Besides this, appellant-industry presently in the Special Economic Zone engaged in the same process of blending and packing of tea is specifically brought under the exemption clause through incorporation of Section 2(r) of the Special Economic Zones Act, 2005Jmtheprovisic^ofSectiailOAA of the InconieTax Act We are, therefore, of the view that the later amendment is only clarificatory and the definition of "manufacture" contained in Section 2(r) of me Special Economic Zones Act, 2005, incorporated in Section 10AA of the Income Tax Act with effect from 10.2.2006, which is essentially the same as the definition contained in the EXIM Policy, applies to Section 10A also. We, therefore, hold that blending of tea is a manufacturing activity which entities the appellant-assessee for exemption under Section 10A of the Income Tax Act for the assessment year 2004-2005. Accordingly the appeal is allowed by vacating the order of the Tribunal and by restoring the order of the first appellate authority.

** ** ** ** ** ** ** ** ** ** ** **
NO NEED OF SPECIAL BENCH TO DELIVER ITS JUDGEMENT IN VIEW OF DIRECT JUDGEMENT OF KERALA HIGH COURT ON THE ISSUE.

#56

Discussion / STAY OF RECOVERY GRANTED BY GUJARAT HIGH COURT ON 80IA(IV) , INFRASTRUCTURE UNDE

December 24, 2009, 08:13:06 PM

2009-TIOL-719–HC–AHM-IT

IN THE HIGH COURT OF GUJARAT

CIVIL APPLICATION - FOR INTERIM RELIEF No. 12397 of 2009
SPECIAL CIVIL APPLICATION No. 10835 of 2009
CIVIL APPLICATION No. 12400 of 2009
SPECIAL CIVIL APPLICATION No. 10831 of 2009
CIVIL APPLICATION No. 12401 of 2009
SPECIAL CIVIL APPLICATION No. 10830 of 2009
CIVIL APPLICATION No. 12403 of 2009
SPECIAL CIVIL APPLICATION No. 10828 of 2009
CIVIL APPLICATION No. 12404 of 2009
SPECIAL CIVIL APPLICATION No. 10864 of 2009

KETAN CONSTRUCTION LTD

Vs

UNION OF INDIA, THROUGH SECRETARY & 2

K A Puj And Rajesh H Shukla, JJ

Dated : December 1, 2009

Appellant Rep. by : Mr S N Soparkar Sr Counsel with Mrs Swati Soparkar
Respondent Rep. by : Mr P S Champaneri, Mr M R Bhatt, Sr Counsel with Mrs Mauna M Bhatt

Income tax - Sec 80IA(4) - Revenue issues show cause notice to disallow deduction - Assessee challenges the vires of insertion of Explanation to Sec 80IA(4) vide Finance No 2 Act, 2009 retrospectively from the year 2000 - seeks stay - held, Revenue can proceed with assessment or re-assessment but not to enforce any demand till dispoal of this appeal - stay not granted - case disposed off

JUDGEMENT

Per : K A Puj :

Rule. Mr. P.S. Champaneri, learned Asstt. Solicitor General and Mr. M.R.Bhatt, learned Senior Counsel waive service of rule.

The applicants - ori. petitioners in their respective petition have filed these Civil Applications praying for stay against the implementation, operation and execution of the Explanation inserted by Finance No.2 Act, 2009 to Section 80-IA(4) of the Income-Tax Act, 1961. The applicants have also prayed for stay against the respondents from giving effect to the provisions of Explanation to Section 80-IA(4) of the Income-Tax Act.

One copy being served to the respondents an affidavit-in-reply is filed in each of these applications on behalf of the respondent No.3.

Heard Mr. S. N. Soparkar, learned Senior Counsel appearing for the applicants - ori. petitioners and Mr.P.S.Champaneri, learned Asstt. Solicitor General for the respondent No.1 and Mr. M. R. Bhatt, learned Senior Counsel for respondent Nos.2 and 3 in all these applications.

The applicants initially filed petition before this Court challenging the vires of the provisions contained in Section 80-IA(4) read with Explanation thereto. This Court has issued the rule and with regard to the interim relief it was observed that at present no cause of action for interim relief is made out and hence, it was not granted. However, liberty was reserved for the petitioner to apply for interim relief in case cause of action arises.

Subsequent to the said order, so far as Civil Application No.12397 of 2009 is concerned, the applicant has received notice from the Assessing Officer with regard to the assessment year 2007-08. One of the issues raised in the said application is that as per the amendment of the Finance No.2 Act, 2009 with effect from 1.4.2009 as per Explanation to Section 80IA(4), the assessee Company does not fulfill the condition as laid down under Section 80IA(4) of the Act. Hence, as per the stand of the department, the applicant is not entitled for claim of deduction under Section 80IA(4) of the Act. The applicant was, therefore, directed to show cause as to why the entire claim of deduction under Section 80IA(4) made by the applicant should not be disallowed and the same may be treated as taxable income. The applicant was directed to furnish justification of claim of Section 80IA(4) for the projects which were carried out through joint venture.

On receipt of the above notice and on initiation of similar such action in other matters the present Civil Applications are filed by the petitioners.

Mr. Soparkar has taken us through the provisions contained in Section 80IA (4) of the Income-Tax Act and changes made therein from time to time. He has specifically invited our attention to the Explanation inserted by Finance No.2 Act, 2009 to Section 80IA (4) of the Act. The said Explanation is made applicable retrospectively with effect from 1.4.2000. He has further submitted that under Section 80IA (4) (earlier Section 80IA (4)A ) has been on the Statute Book since 1996 and, with effect from assessment year 1996-97 has conferred on assessee, being an undertaking engaged in the business of developing, maintaining and operating any infrastructure facilities, a deduction equal to 100% of the profits of such an undertaking for initial 5 years and thereafter a deduction equal to 30% of the profits of such an undertaking. However, there was no distinction between the undertakings developing, maintaining and operating any infrastructure facilities on their own accord or on behalf of someone and this has been the consistent understanding of the Income-Tax Authorities themselves right from 1996-97 onwards. The Finance (No.2) Act, 2009 has sought to insert an Explanation to provisions of Section 80IA (4) of the Act which has resulted into denial of deduction under Section 80IA (4) of the Act, to the applicant retrospectively. He has, therefore, submitted that by virtue of the Explanation, the scope of the main substantive Section has been restricted which is not permissible under the law.

In support of this submission he relied on the decision of Apex Court in the case of S. Sundaram Pillai Vs. V. R. Pattabiraman, reported in AIR 1985 SC 582, wherein while considering the impact of the Explanation on the proviso the Court held that it is now well settled that an Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. The Court thereafter referred to various standard books on Interpretation of statute and laid down the legal propositions that the object of an Explanation to statutory provision is :-

(a) to explain the meaning and intendment of the Act itself.

(b) where there is any obscurity or vagueness in the main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve.

(c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful.

(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and right with which any person under a statue has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same.

Mr. Soparkar further submitted that the Explanation to Section 80IA (4) is brought on the statute book with retrospective effect from 1.4.2000 which is not permissible. In support of this submission he relied on the decision of the Apex Court in the case of Tata Motors Ltd., Vs. State of Maharashtra and others, reported in AIR 2004 SC 3618, wherein it is held that the Legislature has the powers to make laws retrospectively including tax laws, Levies can be imposed or withdrawn but if a particular levy is sought to be imposed only for a particular period and not prior or subsequently it is open to debate whether the statute passes the test of reasonableness at all. The Court further observed that although the State has enormous powers in the matter of legislation both prospectively and retrospectively and can evolve its own policy, it cannot be said that in the present cases any material has been placed before the Court as to why the amendments were confined only to a period of eight years and not either before or subsequently and, therefore, the impugned provision, namely, Section-26 deserves to be quashed by striking down the words 'not being waste goods or scrap goods or by-products' occurring in the said Section-26 of the Maharashtra Act 9 of 1989 and the authorities concerned shall rework assessments as if that law had not been passed and give appropriate benefits according to law to the parties concerned.

Mr. Soparkar further relied on the decision of the Apex Court in the case of National Agricultural Cooperative Marketing Federation of India Ltd., and Anr Vs. Union of India and others, reported in (2003) 5 SCC 23, wherein it is held that the legislative power either to introduce enactments for the first time or to amend the enacted law with retrospective effect, is not only subject to the question of competence but is also subject to several judicially recognized limitation. The first is the requirement that the words used must expressly provide or clearly imply retrospective operation. The second is that the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional. The third is apposite where the legislation is introduced to overcome a judicial decision. The power cannot be used to subvert the decision without removing the statutory basis of the decision.

In Municipal Committee, Patiala Vs. Model Town Residents Association & Ors., reported in AIR 2007 SC 2844, it is held that it is not open to the High Court under Article-226 of the Constitution, particularly in the matter of taxation directing it not to amend the law retrospectively. Such a direction is unsustainable, particularly in a taxing statute. It is always open to the State Legislature, particularly in tax matters, to enact validation laws which apply retrospectively.

In Bhavesh D. Parish and others Vs. Union of India, reported in AIR 2000 SC 2047, when considering an application for staying the operation of a piece of legislation, and that too pertaining to economic reform or change then the Courts must bear in mind that unless the provision is manifestly unjust or glaringly unconstitutional, the Courts must show judicial restrain in staying the applicability of the same. Merely because a statute comes up for examination and some arguable point is raised, which persuades the Courts to consider the controversy, the legislative will should not normally be put under suspension pending such consideration, it is now well settled that there is always a presumption in favour of the constitutional validity of any legislation, unless the same is set aside after final hearing and, therefore, the tendency to grant stay of legislation relating to economic reform, at the interim stage, cannot be understood.

Mr. Soparkar, therefore, submitted that implementation and operation of the Explanation should be stayed by this Court and the petitioner's interest should be protected by restraining the department from taking any further action pursuant to the said Explanation.

Mr. M. R. Bhatt, learned Senior Counsel appearing for the revenue, on the other hand, has submitted that so far as taxing statute is concerned, the Court should not grant any stay. He has further submitted that any provision in taxing statute till it is declared as ultra vires it should be deemed to be intra vires and presumption is always in favour of the legislation being constitutionally valid. He has further submitted that the amendment to Section 80IA (4) made by virtue of the Finance (No.2) Act, 2009, is only clarificatory in nature and it clarifies the position, existence and prior to the date of insertion. He has further submitted that merely because the assessing Officer, after taking recourse to the said Explanation, finalizes the proceedings under the Act, it itself is no ground on the part of the applicants to contend that irreparable loss is caused to them. He has further submitted that there is settled position in law simply because there is some inconvenience to the assessee and certain hardships are likely to be faced by virtue of the particular amount the same may not be ground to grant stay against the implementation of the statute. In support of this submission, Mr. Bhatt relied on the following decisions of the Apex Court :-

(I) In Municipal Committee, Patiala Vs. Model Town Residents Association & Ors., reported in AIR 2007 SC 2844, it is held that it is not open to the High Court under Article-226 of the Constitution, particularly in the matter of taxation directing it not to amend the law retrospectively. Such a direction is unsustainable, particularly in a taxing statute. It is always open to the State Legislature, particularly in tax matters, to enact validation laws which apply retrospectively.

(II) In Bhavesh D. Parish and others Vs. Union of India, reported in AIR 2000 SC 2047, when considering an application for staying the operation of a piece of legislation, and that too pertaining to economic reform or change then the Courts must bear in mind that unless the provision is manifestly unjust or glaringly unconstitutional, the Courts must show judicial restrain in staying the applicability of the same. Merely because a statute comes up for examination and some arguable point is raised, which persuades the Courts to consider the controversy, the legislative will should not normally be put under suspension pending such consideration, it is now well settled that there is always a presumption in favour of the constitutional validity of any legislation, unless the same is set aside after final hearing and, therefore, the tendency to grant stay of legislation relating to economic reform, at the interim stage, cannot be understood.

Based on these submissions, case law on the subject, he submitted that no interim relief should be granted and all the applications should be rejected.

Having heard learned counsels appearing for the parties and having gone through the memo of Civil applications, reply-affidavit as well as submissions made by the parties, we are of the prima facie view that the challenge to the Explanation to Section 80IA (4) of the Act is the subject matter of the respective petitions and those petitions have already been admitted by this Court and the issue regarding the constitutional validity of the provisions will be considered at the time of final disposal of the petitions. Hence, in the present Civil Applications, the prayer for stay against the implementation of the said provision or the suspension thereof cannot be granted. However, if, on the the basis of amended provision, the Income Tax Department proceeds to raise any demand, at least to that extent the interest of the petitioners is required to be protected. While keeping the issue regarding constitutional validity of these provisions open, we restrain the department from enforcing any demand that may be raised pursuant to any order that may be passed by them after invoking the Explanation to Section 80-IA (4) of the Act. We, however, make it clear that we are not granting any stay against the further proceedings initiated for assessment and/or reassessment but, if any demand is raised as a result of such action, and if such demand has any nexus with the applicability of Explanation to Section 80IA (4) of the Act, such should be put in abeyance till final disposal of all these petitions.

Subject to the aforesaid observations all these Civil Applications are disposed off.

Office is directed to notify all these petitions for final hearing on 29.12.2009.

#57

Discussion / Tribunal fees for challenging penalty order

June 17, 2009, 11:37:48 AM

Appeal -
Appellate
Tribunal -
Penalty – Fees –
S. 253(6),
271(1)(c)
253(6),
271(1)(c)
Imposition of penalty having no nexus with total income of
assessee. Fee payable would be only Rs. 500/- and not on
assessed income. Hon'ble High Court considered the special
bench judgment in Bidyut Kumar Sett vs. ITO (2005) 272 ITR
(AT) 75 (Kol.)
Dr. Ajith Kumar Pandey vs. ITAT (2009) 310 ITR 195 (Patna)
Editorial Note:- All pending appeals before the Tribunal in
respect of penalty if the assessee has paid the fees on assessed
income can make the claim for refund at the time of hearing of
appeal.
The matter should be taken up with the President of the ITAT for suitable instruction in this regards.Every one will benfit from from it.

#58

Discussion / Deduction of 80HHC u/s 115JB

May 02, 2009, 11:35:39 PM

Kindly find judgment of Madras High Court which supports the view taken by the Mumbai Special Bench in case of Syncome formulation.

2009-TIOL-199-HC-MAD-IT

IN THE HIGH COURT OF MADRAS

Tax Case (Appeal)Nos.216 to 219 of 2009
And M.P.Nos.1 of 2009 in T.C.A.Nos.217 to 219 of 2009

THE COMMISSIONER OF INCOME TAX, CHENNAI

Vs

M/s FUTURA POLYESTER LIMITED
(Formerly known as M/s Futura Polymers)
1A, Kamarajar Salai,
Manali, Chennai 68

K Raviraja Pandian And M M Sundresh JJ.,

Dated: April 16, 2009

Appellant rep by: Mr.Arun Kurian Joseph

Income tax - Sec 80HHC benefits - Assessee is a manufacturer-exporter of polymer products - while computing the profit u/s 115JA the assessee claims deduction u/s 80HHC - AO disallows - CIT(A) allows Assessee's appeal and Tribunal upholds the same - held, AO is not entitled to touch the P&L account prepared as per provisions of Companies Act while arriving at profit u/s 115J and the book profit thus calculated should be the basis for taxation - deduction u/s 80HHC to be limited only to profits of eligible category only - no infirmity in the Tribunal's order - Revenue's appeal dismissed

JUDGEMENT

Per: K Raviraja Pandian J.:

The revenue on appeal against the order of the Income Tax Appellate Tribunal, dated 31.07.2008 passed in ITA Nos.357 to 360/Mds/2008 n respect of the assessment years 1998-99 to 2001-02.

2. The assessee is a domestic company engaged in the business of manufacture and export of polymers, plastic and polymerised products. For the assessment years 1998-99 to 2001-02, the assessee company filed return showing a loss under the head "business". The Assessee company offered to tax certain income computed under section 115HA and claimed a deduction u/s 80HHC while computing the profit u/s 115JB. The Assessing Officer held that the assessee is not entitled to any deduction under section 80HHC while determining the taxable income on the basis of the book profit under Section 115JA since the computation of business income under the regular provisions resulted in nil figure for each of the assessment years. The Assessing Officer found that since there was no eligible provisions governing "profits and gains of business or profession", the assessee company is not entitled for any deduction under section 80HHC from its book profits as per clauses (viii)(iv) of the Explanation appended to section 115JA and completed the assessment.

3. This finding of the assessing officer has been reversed by the Commissioner of Income Tax (Appeals) on appeal being filed by the assessee by holding that for the purpose of computing book profit under Section 115JA, relief u/s 80 HHC has to be worked out on the basis of the book profits as against the normal computation of income.

4. This was confirmed by the Tribunal on the appeal taken out by the revenue. The correctness of the same is now canvassed before this Court by the revenue by formulating the following question of law:-

"Whether in the facts and circumstances of the case, the Tribunal was right in allowing deduction u/s 80HHC on the basis of book profits u/s 115JB and not on the basis of eligible profits u/s 80HHC as per normal computation".

5. We have heard the argument of the learned counsel for the revenue and perused the materials available on record.

6. The issue involved in the present appeals is squarely covered by the decision of a Division Bench of this Court in which one of us (K.Raviraja Pandian,J) was a party in the case of Commissioner of Income Tax vs. Rajanikant Schnelder and Associates P. Ltd., reported in 302 ITR 22), wherein it has been observed as follows:-

"4. We are not able to subscribe our view to the grounds taken in the appeal that the deduction under Section 80 HHC is allowable only on the profits and gains arrived at under Sections 28 to 44B of the Income Tax Act. In the case on hand, it is the stand of the assessee that the relief under section 80HHC should be based on the profit ascertained under Section 115JA only but not on income computed under Sections 28 to 44 of the Act. The Tribunal after considering the Judgments of the Supreme Court in the case of Surana Steels P. Ltd., vs. Deputy CIT (1999) 237 ITR 777 and in the case of Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273 (SC) and analyzing the order impugned found that the provisions of Section 115J are similar to the provisions of Section 115JA of the Act. In order to come to the conclusion the Tribunal has also taken note of sub-section (4) of section 115JA and referred to the dictum laid down by the Supreme Court in the case of Apollo Tyres Ltd., vs. CIT (2002) 255 ITR 273 wherein it was held that the Assessing Officer while computing the book profits of a company under Section 115J of the Income Tax Act, 1961, has only the power to examine whether such books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer thereafter has the limited power of making increases and reductions as provided for in the Explanation Section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words "in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act" in Section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by the statutory auditors and approved by the company in the general meeting and thereafter to be filed before the Registrar of Companies, who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115H does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company.

5. The Assessing Officer is not entitled to touch the profit and loss account prepared by the assessee as per the provisions contained in the Companies Act, while arriving at the book profit under Section 115J and the book profit so arrived at should be the basis for taxation and therefore, the computation under Section 80HHC should be limited to the case of profits of eligible category only. The Tribunal has also come to the conclusion that in view of the non obstante clause available in Section 115JA it was clear that the provisions is a self-contained one and no other provision would have effect on it and thereby it was to be implemented as contained in the said provision. The Tribunal has also further given a reason to the effect that section 80HHC is clear about this aspect that profit only is to be taken into account but not income and sub-section (3) of Section 115JA itself took care of the provisions relating to the adjustment of loss or depreciation and carry forward of the income. The finding arrived at by the Tribunal is correct and followed the decision of the Supreme Court. We are of the view that the conclusion arrived at by the Tribunal cannot be complained of".

7. Hence, following the same, the question of law is answered against the revenue and the appeals are dismissed. Consequently, connected miscellaneous petitions are also dismissed.

Pages 1 2 3

itatonline.org Forum

News:

Show posts

Topics - pawansingla

Discussion / Activity of frequent buying and selling of shares over a short span of period ha

Discussion / No liability to pay interest u/s 234B in view of retrospective amendment

Discussion / Once the validity of the return has not been questioned by the revenue, the reje

Discussion / In view of Liberty India , Department MA allowed by Mumbai ITAT

Discussion / NO 12A FOR DEVELOPMENT AUTHORITIES

Discussion / NOTICE U/S 148 BEYOND FOUR YEARS QUASHED BY GUJARAT HIGH COURT IN 80IA(IV) CASE

Discussion / A dress designer is an artist for purposes of section 80RR

Discussion / SPECIAL BENCH ON DEPRECIATION ON GOODWILL

Discussion / NO 263 /148 ON 80IA(9) ISSUE

Discussion / Amendment related to sell of another unit to relative in sec. 80IB(10) is retros

Discussion / Some suugestions for Department officers to increase their tax collection

Discussion / whether on retrosoective amendment MA u/s 254(2) can be filed?

Discussion / Special Bench decision on 32(2)

Discussion / Deduction under Sec 10A to be allowed only after setting off brought forward los

Discussion / BLENDING OF TEA IS MANUFACTURE FOR 10A

Discussion / STAY OF RECOVERY GRANTED BY GUJARAT HIGH COURT ON 80IA(IV) , INFRASTRUCTURE UNDE

Discussion / Tribunal fees for challenging penalty order

Discussion / Deduction of 80HHC u/s 115JB