Commissioner Of Income Taxchennai v. M/S. Asma Exports

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 20.06.2007 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).Nos.721 and 722 of 2007 Commissioner of Income TaxChennai. .. Appellant in both the appeals Vs. M/s. Asma Exports,25, Moore Street,Chennai – 1. .. Respondent in both the appeals Appeals under Section 260A of the Income Tax Act, 1961 against thecommon order of the Income Tax Appellate Tribunal, Madras 'A' Bench, dated11.2.2005 in ITA Nos.346 and 347/Mds/1999 for the assessment years 1995-96and 1996-97 respectively, against the order of the Commissioner of Incometax (Appeals) IX Chennai dated 24.11.98 in ITA Nos.39 & 568/97-98 for theassessment year 1995-96 and 1996-97 against the order of Income taxofficer, Assessment III Ward-I Madras dated 30/10/96 GI.No./PA.No.8386-A,8351-A for Assessment year 95-96, 96-97. For Appellant:Mrs. Pushya SitaramanSr. Standing Counsel The above tax case appeals are directed against the common order ofthe Income-tax Appellate Tribunal dated 11.2.2005 made in ITA Nos.346 and347/Mds/1999 for the assessment years 1995-96 and 1996-97 respectively. https://hcservices.ecourts.gov.in/hcservices/ 2. The Revenue is the appellant. The relevant assessment years are1995-96 and 1996-97. The assessee is an exporter of readymade garments.The assessee claimed deduction under Section 80HHC for both the assessmentyears 1995-96 and 1996-97. The Assessing Officer while making the primafacie adjustment under Section 143(1)(a) of the Act, set off the businessloss arrived under Section 80HHC(3) and accordingly by assessment ordersdated 30.10.1996 restricted the deductions to Rs.11,29,091/- andRs.5,03,209/- for the assessment years 1995-96 and 1996-97 respectively.Against the said assessment orders dated 30.10.1996, the assesseepreferred appeals before the Commissioner of Income-Tax (Appeals), who bycommon order dated 24.11.1998, allowed the appeals accepting thecontention of the assessee that the Assessing Officer while exercising thepower under Section 143(1)(a) ought not to have set off the business lossarrived under Section 80HHC(3) and restricted the deduction toRs.11,29,091/- and Rs.5,03,209/- for the assessment years 1995-96 and1996-97 respectively even without giving an opportunity to the assesseeand calling for the evidence and objections from the assessee ascontemplated under Section 143(2)(i) and (ii) and that the AssessingOfficer ought not to have deducted the notional loss from the exportprofit and accordingly the Commissioner held that the prima facieadjustment is not warranted for both the assessment years and directed theAssessing Officer to allow the deduction under Section 80HHC as claimed bythe assessee. Against the said order dated 24.11.1998, the Revenuepreferred further appeals before the Income-tax Appellate Tribunal. TheAppellate Tribunal by common order dated 11.2.2005 confirmed the view ofthe Commissioner of Income-tax (Appeals) and dismissed the appeals. 3. Aggrieved by the same, the Revenue has preferred the above appealsraising the following substantial questions of law:"1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding thatcalculation of deduction u/s 80HHC cannot be done byway of prima facie adjustment u/s 143(1)(a)? 2. Whether in the facts and circumstances of the case,the Tribunal was right in holding that the losssustained by the assessee from its export businessshould be ignored and he should get the benefit ofSection 80HHC? 3. Aggrieved by the same, the Revenue has preferred the above appealsraising the following substantial questions of law:"1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding thatcalculation of deduction u/s 80HHC cannot be done byway of prima facie adjustment u/s 143(1)(a)? 2. Whether in the facts and circumstances of the case,the Tribunal was right in holding that the losssustained by the assessee from its export businessshould be ignored and he should get the benefit ofSection 80HHC? 4. In this connection, it is apt to refer Section 143(2)(i) and (ii)of the Act, which provides for notice on the assessee calling for hisevidence or objections.Section 143(2):Where a return has been furnished undersection 139, or in response to a notice under sub-section(1) of section 142, the Assessing Officer shall,(i) where he has reason to believe that any claim ofloss, exemption, deduction, allowance or relief made in the https://hcservices.ecourts.gov.in/hcservices/ return is inadmissible, serve on the assessee a noticespecifying particulars of such claim of loss, exemption,deduction, allowance or relief and require him, on a date tobe specified therein to produce, or cause to be produced,any evidence or particulars specified therein or on whichthe assessee may rely, in support of such claim: Provided that no notice under this clause shall beserved on the assessee on or after the 1[st] day of June,2003. (ii) notwithstanding anything contained in clause (i),if he considers it necessary or expedient to ensure that theassessee has not understated the income or has not computedexcessive loss or has not under-paid the tax in any manner,serve on the assessee a notice requiring him, on a date tobe specified therein, either to attend his office or toproduce, or cause to be produced, any evidence on which theassessee may rely in support of the return: Provided that notice under [clause(ii)] shall be servedon the assessee after the expiry of twelve months from theend of the month in which the return is furnished. 5. It is settled law that even though losses should be deducted fromthe profit available for the purpose of computation of relief underSection 80HHC, since the question of relief under Section 80HHC is adebatable issue, which does not fall within the purview of prima facieadjustment under Section 143(1)(a) and the same could be taken up only inregular assessment under Section 143(3) of the Act, the action of theRevenue invoking Section 154 of the Act to rectify the intimation underSection 143(1)(a) of the Act was not valid, vide Commissioner of Income-tax v. Nameel Leathers and Uppers 273 ITR 350. 6. In the instant case, the Assessing Officer while making primafacie adjustment as to the deduction under Section 80HHC for the abovementioned assessment years, had not even provided an opportunity to theassessee nor called on the assessee for his evidence or objections ascontemplated under Section 143(2)(i) and (ii) of the Act, as referred toabove, which is mandatory. The non compliance of such procedurecontemplated under Section 143(2)(i) and (ii) of the Act, is a grossviolation to the very spirit and scope of the prima facie adjustmentprovided under Section 143(1)(a) of the Act. Consequently, the refusal ofdeduction under Section 80HHC(3) for both the relevant assessment years isalso illegal., because again it is trite law that the question of reliefunder Section 80HHC of the Act is a debatable issue and the same does notfall within the purview of prima facie adjustment under Section 143(1)(a)and that could be taken up only in regular assessment under Section 143(3)of the Act and Section 154 of the Act has no application. 7. In view of the above settled proposition, first question of law isanswered in favour of the assessee. Since we have already upheld that thededuction under Section 80HHC is a debatable issue and the same cannot bedecided in a prima facie adjustment under Section 143(1)(a) of the Act, but could be done only on regular assessment under Section 143(3), thesecond question of law does not arise for consideration. Finding, therefore, no substantial question of law that arises forour consideration, these appeals are dismissed. No costs. M.P.No.1 of2007 is also dismissed. ATR Sd/-Asst.Registrar/true copy/ Sub Asst.Registrar To 1.The Assistant Registrar,Income Tax Appellate TribunalMadras "A" Bench, Rajaji Bhavan, Besant Nagar,Chennai. (5 copies) 2.The Commissioner of IncomeTax (Appeals) IX, 121,Mahatma Gandhi Salai,Chennai. 3.The Assistant Commissioner of Income-taxCity Circle I, Chennai-34. 4. The Deputy Commissioner of Income Tax (Range-II) Chennai. 5. The Income Tax Officer, City Circle I (3) Chennai. +1 cc to M/s.Pushya Sitaraman, Advocate Sr.No.36717.GG(CO)dcp/6.7.07T.C.(A) Nos.721 & 722 of 2007