Assessment of "Correct Income" at the time of scrutiny assessment

[vikasmanohar]

At the time of the Scrutiny Assessment of one of my client, it was
noticed that due to inadvertent oversight, the Assessee had claimed
less deduction of "Interest Expenses paid" as against as against
"Interest income earned" from the investment made out of the
borrowing. This matter was raised before the A.O. and application for
additional relief was made before the A.O. However, the A.O. did not
allowed the additional interest expenses nor did he made any reference
to the Additional relief sought by the Assessee in his Assessment
Order. I distinctly  remember of having come across on such judgement
wherein the the Hon. High Court has Directed the A.O. to assess the
"Correct Income" of the Assessee even if it amounts to giving
additional relief or refund to the Assessee even though the Assesee
has not claimed the said rebate of relief in his own IT Return. Can
you help me in find above judgement?

In above case, the Assessee is an Individual and he earns from
investments only and does not maintain regular books of accounts and
all interest payments are made by account payee cheques only."

Your early reply will be immensely be beneficial to me.

[pawansingla]

There is direct judgement of Delhi HIgh court.I will  revert back to you in 1 day.

[brett_lee38]

Basic law is that there is no estopel against statute. An income which is not taxable under Income Tax Act can not be taxable if it is offered for taxation under misconception of law you can refer to the decision of Myank Podar 262 ITR 633 and 73 Taman 437 The decision of Delhi High Court in Nalwa Investment 322 ITR 233(Del) and also the case of Bharat Aluminium 212 CTR 296(Del) wherein it has been held that there is no need to file any revised return and the purpose of assessment is to assess the correct income.

[JB]

Learned friends

I do agree with the view of bret lee. It is a very fundamental principle that only true income should be assessed. There is a board circular since 1955 emphasizing this aspect and cautioning the assessing authoirities not to take disadvantage of  assessee's mistakes. However, the fact is that in assessment proceedings, the A.O. is always reluctant to give such deductions in absence of revised return in view of Apex Court judgment in case of Goetz India (284 ITR ). There are decisions saying that the said Apex Court judgment only applies to powers of the A.O. and not of the appellate authorities. Is there any other subsequent judgment on the basis of which the A. O. can allow such relief without assessee revising the return? If there, kindly let us know.

[pawansingla]

SLS EXPORTS (P) LTD V/S ACIT. 47 DTR(COCHIN) 234

[brett_lee38]

Circular of Board is Circular No 14 (XL-35) dated 11.4.1955 referred to in the case of Chicago reported in 15 SOT 252, Recent case of Bomaby ITAT is of Priyanka Chopra reported ITA No 4045/Mum/2009 decided by C bench on 10.12.2010. Available on TIOL

[pawansingla]

Income-tax : Mere fact that all facts were not placed before lower authorities earlier must not denude assessee of his claim for a rightful deduction, if admissible on merits



[2011] 9 taxmann.com 28 (MUM. - ITAT)

ITAT, MUMBAI 'H' BENCH, MUMBAI

E Jewellery

v.

ITO

ITA NO. 3014/MUM/04

OCTOBER 29, 2010



ORDER

Per Pramod Kumar: — These four appeals pertain to the same assessee, involve some common issues and were heard together. As a matter of convenience, therefore, all the four appeals are being disposed of by way of this consolidated order.

2. We will first take up ITA Nos. 3014/Mum/04 and 4172/Mum/04 i.e. cross appeals of the assessee, as also the Assessing Officer, for the assessment year 2001-02.

3. The relevant material facts, so far as these appeals are concerned, are like this. The assessee is engaged in the business as manufacturer and exporter of diamond studded gold jewellery from SEEPZ, Mumbai. The assessee had claimed deduction under section 10A for the assessment year 2001-02 in respect of SEEPZ unit. While scrutinizing this claim, the Assessing Officer notice that assessee's assets of Rs. 1.36 crore included cost of plant and machinery, amounting to Rs. 1,00,37,227, and air-conditioning plant, amounting to Rs. 5,10,310. The Assessing Officer noted that these assets were purchased by the assessee from M/s C I Jewels Limited, which is a partner in the assessee's firm. Out of this, the assets were worth Rs. 81,13,000 were purchased by C I Jewels Ltd. from Addision Jewellery Pvt Ltd. (AJPL). AJPL had, according to the Assessing Officer, purchased these assets between 1992 to 1995, and also claimed depreciation thereon. The Assessing Officer was thus of the view that the assessee had used old plant and machinery and deduction under section 10 A is, therefore, inadmissible. The Assessing Officer noted that the machinery was imported by AJPL and the law does not also permit use of machinery by a person other than the person who has imported the same. It was noted that any new business created by the transfer of plant and machinery previously used for any purpose is not eligible for deduction under section 10 A. It was further held that in any event interest on security deposits, in respect of which also deduction under section 10 A was claimed, cannot be treated as business income, that it has to be taxed as income from other sources, and that, for the said reason, it is not entitled to deduction under section 10 A. The Assessing Officer also made adhoc disallowances of conveyance expenses , other expenses , and staff welfare expenses . Aggrieved, assessee carried the matter in appeal before the CIT(A). The CIT(A) upheld the action of the Assessing Officer, regarding declining deduction under section 10A, in principle but allowed assessee's alternate claim regarding admissibility of deduction under section 80 HHC. The adhoc disallowances were also confirmed but quantum of disallowances was reduced to Rs. 5,000 in respect of conveyance expenses, Rs. 15,000 in respect of other expenses and Rs. 25,000 in respect of staff welfare expenses. None of the parties is satisfied. The assessee is aggrieved that the CIT(A) ought to have allowed the assessee deduction under section 10A, and ought to have further held that interest income, on the facts of this case, was also eligible for deduction under section 10A, the Assessing Officer is aggrieved of the deduction under section 80 HHC being allowed to the assessee even as the assessee did not file requisite auditor certificate before the Assessing officer and did not even make that claim before the Assessing Officer. The assessee is also aggrieved of the adhoc disallowances being partially confirmed by the CIT(A).

4. We have heard the rival submissions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position.

5. We have noted that as far as admissibility of deduction under section 10A is concerned, the assessee has sought a limited relief to the extent that the matter regarding eligibility for deduction under section 10A should be considered afresh in the light of the fact that the deduction is unit specific, that the deduction in respect of the unit originally owned by AJPL was only availed for eight years before the assessee came to own it, and that the unit was purchased by the assessee as an independent unit. Learned counsel has also taken us through the scheme of the section to demonstrate that the deduction is unit specific and not assessee specific, and has also moved an application seeking admission of additional evidence which seeks to establish the factual elements embedded in his submissions regarding availing of deduction under section 10A for eight years and other related aspects. It is also submitted that this aspect of the matter has not been adjudicated in the right perspective by the authorities below, and, therefore, the assessee has no objection to the matter being restored to the file of the Assessing Officer for that purpose. Learned Departmental Representative, on the other hand, vehemently relies upon the orders of the authorities below and submits that when a unit is sold as such, as is now the case of the assessee, entire assets and liabilities of the unit need to be transferred, whereas, on the facts of the present case, there is an uncontroverted finding of the lower authorities that all the assets and liabilities were not transferred. If at all the matter needs to be remitted to the file of one of the lower authorities, according to the learned Departmental Representative, it should be restored to the file of the CIT(A).

6. Having given our careful consideration to the rival contentions, we are of the considered view that the matter should indeed be remitted to the file of the Assessing Officer for fresh examination of the claim of the assessee in the light of the claim that the unit specific deduction was claimed only for eight years by the AJPL, that entire unit was purchased by the assessee, and that the evidences that the assessee may furnish in support of this position. The mere fact that all these facts were not placed before the lowers authorities earlier must not denude assessee of his claim for a rightful deduction, if admissible on merits. In case the unit is actually purchased as an independent set, the question of use of old machinery does become redundant. We may, however, clarify that the matter is remitted only to the extent of claiming deduction under section 10 A in respect of the old unit, and not with respect of entire deduction - including the new unit as well. As regards the question of interest being included in profits eligible for deduction under section 10 A, that aspect of the matter is academic at this stage and we, therefore, decline to address ourselves to the same. With these observations, and in the manner indicated above, the issue regarding admissibility of deduction under section 10A is restored to the file of the Assessing Officer. The adhoc disallowances, having been made without any cogent reasons and purely on surmises and conjectures, are only fit to be deleted. We do so. That leaves us with the question whether CIT(A)'s granting deduction under section 80 HHC was justified, even as this issue was not raised before the Assessing Officer and even as the requisite audit report was filed for the first time before the CIT(A). Reliance has also been placed on Hon'ble Supreme Court's judgment in Goetze India Pvt Ltd. v. CIT (284 ITR 323). We have noted that this case specifically states that it deals only with the powers of the assessing authority and not the appellate authority. In Goetze's case, the Supreme Court held that the assessee can make a claim for deduction, which has not been claimed in the return, only by filing a revised return within the time allowed. In this decision, it is made clear that the power of the Tribunal to admit an additional ground under s. 254 is not affected by its decision. It is also clarified that the case was concerned with only the power of the assessing authority and not the appellate authority. Under s. 250(5), the CIT(A) has the power to allow the appellant to go into any ground of appeal not specified in the grounds of appeal if he satisfied that the omission of the ground from the form of appeal was not wilful and unreasonable. Dealing with such a power, the Bombay High Court in CIT v. Prabhu Steel Industries (P) Ltd. (1988) 171 ITR 530 (Bom.), held that where a claim for special deduction was made by the assessee not in his return but in the course of the assessment proceedings and the ITO failed to consider the same, it was open to the AAC to entertain the claim. In CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC), it was held by the Supreme Court that the powers of the CIT(A) sitting in appeal over an assessment were plenary and conterminous with those of the AO and that he can do what the ITO can do and also direct him to do what he has failed to do. In view of these discussions, the CIT(A) indeed had the powers to examine the assessee's claim on merits by virtue of his co-extensive power over the assessment proceedings and also by virtue of s. 250(5). We thus see no infirmity in the action of the CIT(A) in examining the claim of deduction under section 80 HHC. In any event, since the claim of deduction under section 80 HHC became relevant only upon rejection of deduction under section 10A by the Assessing Officer, there was no way the assessee could have raised this claim before the Assessing Officer and file the requisite certificate. Therefore, as far as grant of deduction under section 80 HHC is concerned, we see no infirmity in the same. To sum up, our conclusions for the assessment year 2001-02 are as follows :

     l   The issue of admissibility of deduction under section 10 A is restored to the file of the Assessing Officer for fresh examination in the light of observations made above.

     l   The adhock disallowances of expenses are deleted.

     l   The action of the CIT(A) is grant of deduction under section 80 HHC, by admitting the claim on merits and the requisite audit at the appellate stage is upheld.

7. In the result, assessee's appeal (ITA No. 3014/Mum/04) and is partly allowed in the terms indicated above, and the appeal of the revenue (ITA No. 4172/Mum/04) is dismissed.

8. In assessee's appeal for the assessment year 2002-03 (i.e. ITA No. 7265/Mum/05), grievances of the assessee are the same as in the assessment year 2001-02 dealt with above. Learned representatives also agree that whatever is decided in assessee's appeal for the assessment year 2001-02 will apply mutatis mutandis here as well. Following our order for the assessment year 2001-02, we hold that (a) issue of admissibility of deduction under section 10 A is restored to the file of the Assessing Officer for fresh examination in the light of observations made above, and that (b) the adhock disallowances of expenses are deleted.

9. In the result, assessee's appeal for the assessment year 2002-03 is partly allowed in the terms indicated above.

10. In assessee's appeal for the assessment year 2003-04 (ITA No. 3079/Mum/06), the only issue pressed before us is against CIT(A)'s confirming the adhoc disallowance of Rs. 50,000 out of staff welfare expenses. Following the view taken by us for the assessment years 2001-02 and 2002-03, we delete the impugned disallowance. The assessee gets relief to that extent.

11. In the result, assessee's appeal for the assessment year 2003-04 (ITA No. 3079/Mum/06) is also partly allowed. To sum up, while all the appeals of the assessee are partly allowed, appeal by the Assessing Officer is dismissed. Pronounced in the open court today on 29th day of October, 2010.

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