Subsequent judgement of S.C amounts to mistake apparent from record for 154

[pawansingla]

2010-TIOL-664-HC-KERALA-IT

IN THE HIGH COURT OF KERALA

ITA.No. 367 of 2009

THE COMMISSIONER OF INCOME TAX, COCHIN

Vs

M/s PLANT LIPIDS LTD

C N Ramachandran Nair and K Surendra Mohan, JJ

Dated : August 30, 2010

Appellant Rep. by : Sri P K R Menon, Sr Counsel
Respondent Rep. by : Sri Bechu Kurian Thomas

Income Tax - Sections 80HHC, 154 - Whether rectification made by AO, later declared as law by the apex court, is valid involving distillation charges earned from contract work by spices exporter, which were initially taken as business profits and allowed as an 80HHC exemption but later rectified and subjected to explanation (baa) to section 80HHC, that excluded from deduction, 90 per cent of income without nexus to export profits?

Assessee, a company in the business of production, marketing and export of spices and spices extracts, also undertook distillation work on contract for others. While claiming exemption on export profit under section 80HHC, assessee included the entire income from this contract work received as 'distillation charges'. The claim was allowed even though the assessee did not exclude 90 per cent of the distillation charges as provided by explanation (baa) to section 80HHC. Later, the assessing authority rectified the assessment under Section 154 of the Act thereby excluding 90 per cent of the distillation charges and allowed the eligible deduction on export profit.

The CIT(A) allowed the assessee's appeal.  On an appeal by the department, the Tribunal confirmed the CIT(A) order in favour of the assessee holding that rectification under section 154 was illegal and on merits too. The Tribunal further held that distillation charges received by the assessee formed part of business profits on which assessee was entitled to deduction under section 80HHC.

In its appeal to the High Court, the department contended that the issue was squarely covered against the assessee in a decision by the apex court. The Supreme Court had held in this case that the income from processing charges received by a cashew exporter, which had no nexus to the export profits should not be included in the total income, for the purpose of deduction under Section 80HHC.

Having heard both the parties and considered the SC decision, the High Court held that,

++ 'Distillation charges' received by the assessee were similar to 'processing charges' received by cashew exporter. The Supreme Court decision squarely applied to the assessee's case. Therefore exclusion of 90 per cent of these charges made by the assessing officer in rectification proceedings was in conformity with the apex court decision on the scope of explanation (baa) to section 80HHC. The Tribunal's order is on merits contrary to this decision of the Supreme Court;

++ following the SC decision, distillation charges received by the assessee for contract work done for other parties was in the nature of charges or any other receipt of a similar nature, thus responding to assessee's contention that by applying ejusdum generis distillation charges, which was income received on manufacture, could not be treated as charges of "any other receipt of a similar nature" referred to in explanation (baa)(i) to Section 80HHC;

++ the view taken by the assessing officer in rectification was later declared as law by the Supreme Court. Therefore, in view of the categoric pronouncement of law by the Supreme Court, the question raised by the assessee that an error established by a long drawn process of reasoning was not a mistake apparent from the record, which can be rectified under Section 154, was not capable of two opinions because "distillation charges" were received by the assessee on work done for others that had nothing to do with export or production of goods for export. The relief under section 80HHC had to be worked out by applying the explanation thereto on that part of the income unconnected with the export business.

++ the assessment, completed without reckoning explanation (baa) to Section 80HHC, was a mistaken order that could be corrected under Section 154 of the Act. The finding of the Tribunal and that of the first appellate authority on this issue was reversed.

++ in an appeal filed under Section 260A, the court could not consider any question which was neither raised before the Tribunal nor decided by it. Therefore it did not go into the question as to whether limitation was to be reckoned from the date of proceedings or from the date of service of order.

++ Orders of the Tribunal and the first appellate authority were reversed and the rectified assessment was restored.