D.b. Income Tax Appeal v. Shri Kamaljeet Singh Ahluwalia, 65, Gopal Bari, Jaipur

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPURBENCH, JAIPUR D.B. Income Tax Appeal No.62/2000COMMISSIONER OF INCOME TAX, BIKANER HEAD QUARTERS ATJAIPURv. SHRI KAMALJEET SINGH AHLUWALIA, 65, GOPAL BARI, JAIPUR Reserved on : 2[nd] August, 2016Pronounced on : 8[th] September, 2016 Hon'ble Mr. Justice Ajay RastogiHon'ble Mr. Justice J.K. Ranka Mr. R.B. MATHUR}Mr. K.D. MATHUR} …counsel for appellant…counsel for respondent Mr. ANANT KASLIWAL By the Court(per Ranka, J.) 1.This appeal under Section 260-A of the IncomeTax Act, is directed against the order dated 19.6.2000passed by the Income Tax Appellate Tribunal, JaipurBench, Jaipur. It pertains to assessment year 1995-96. 2.The appeal was admitted on the followingsubstantial questions of law :- "(i) Whether Tribunal was justified in holding thatassessee (respondent) is entitled to claim deductionunder Section 80HHC? (ii) Whether the Tribunal was justified in holding thatassessee complied with the mandatory requirement ofSection 80HHC(4) and hence entitled to claim benefit ofthe said Section while calculating his income taxliability on his gross turnover?" 3.The brief facts noticed for disposal of thisappeal are that the respondent assessee derives incomefrom share of profit from firm and export business.The export business is conducted in the name and style of Lotus International. The assessee claims to havefiled return of income on 31.10.1995 declaring totaltaxable income of Rs.1,59,029/-, and inter alia alsoclaimed exemption under Section 80HHC of the Income TaxAct at Rs.1,07,33,971/-. It transpired during thecourse of processing under Section 143(1)(a) thatthough the assessee has claimed deduction under Section80HHC but the required certificate of a CharteredAccountant claiming deduction under Section 80HHC wasnot enclosed along with the return of income andaccordingly the claim was rejected vide order dated24.1.1999. 4.The assessee moved an application forrectification under Section 154 of the Act claimingthat the requisite certificate under Section 80HHC wasduly attached along with the return of income and thusthe claim was rightly made, however, the AssessingOfficer passed order under Section 154 rejecting thecontention of the assessee by observing that no suchcertificate was enclosed with the return of income andthe fact was also supported on perusal of part-V of thereturn of income in which the assessee had notmentioned anything about annexing certificate of aChartered Accountant, and according to the AO it wasmandatory and statutory requirement of the Act forclaiming deduction under Section 80HHC that the claimis supported by a certificate of a Chartered Accountantand it ought to have been annexed along with the returnof income and accordingly rejected the application 3 5. The matter was assailed before the Commissioner of Income Tax (Appeals), who also wentinto the issue elaborately, where it was contended bythe assessee that the assessee did comply with therequirement of the provisions of the Act, and requisitereport of Chartered Accountant was furnished along withthe return of income and that claim of the AO wascontrary to the material on record, and further thatthe audit report furnished even at later point of timeis sufficient compliance of the provisions of law. TheCIT(A) also called for the records and in particularthe return of income and noticed that Part-V of thereturn is full of cuttings and overwritings and afternoticing the cuttings and overwritings, the enclosuresstated were computation of income, balance-sheet ofLotus International, audit report under Section 44AB,challan of taxes (4) and note on computation of incomeregarding surrender, and all these documents arecertainly available with the return of income. 6.It was also noticed by the CIT(A) that theenclosures which have been scored off are balance-sheetand profit and loss account of KJS Ahluwalia, K.P.Construction, Kamal Transport, photo copies of LICpremium and all these enclosures are not attached withthe return of income, though it was claimed that thesedocuments were enclosed along with the return.Analysing the contents of Part-V the CIT(A) further noticed that handwriting and the ink are the same andthere is no separate entry for report under Section44AB which is otherwise available along with the returnof income. The CIT(A) also observed that though theassessee claimed deduction under Section 80HHC of theAct for an amount of Rs.1,07,33,971/- on the other handthe certificate of Anil Nagori and Associates, CA, hadworked out allowable deduction under Section 80HHC ofthe Act at Rs.6,00,410/- only. The CIT(A) also noticedcontradictions in the claim of the assessee and alsoexpressed that even otherwise assessee could not havemoved an application under Section 154 since the issuewas highly debatable and accordingly the applicationunder Section 154 was not maintainable and thusdismissed the appeal. Even before the CIT(A) no auditreport u/s 80HHC claiming deduction at Rs.1,07,33,971/-was filed. 7.The assessee further assailed by filing anappeal before the Tribunal, however, the Tribunal videthe order impugned observed that since the assessee isan exporter and as per the computation of income, hadclaimed deduction under Section 80-HHC to the tune ofRs.1,07,33,971/- and such claim being allowable, thusheld the claim to be allowable and accordingly allowedthe same. 8.Learned counsel for the Revenue vehementlycontended that the audit report was not annexed withthe return of income and even as per the certificate of the Chartered Accountant, the allowable deduction wasonly Rs.6,00,410/- and in none of the three ordersnamely, order of the AO, CIT(A) or Tribunal there is anaverment by the assessee that two audit reports werefiled one claiming deduction of Rs.6,00,410/- andanother claiming deduction of Rs.1,07,33,971/- and eventhe Tribunal has gone into in a cursory manner andallowed the claim of the assessee. 9.Learned counsel further contended that thereare no two opinions that had there been an auditreport, the AO would have certainly allowed the claimbut even the CIT(A) called for the record and examinedthe same personally and after analysing the enclosures,clearly upheld the finding that the return of incomewas not accompanied by an audit report claimingdeduction of Rs.1,07,33,971/-. That apart, the returnof income in this case was filed on 31.10.1995 andorder under Section 143(1)(a) is dated 24.1.1999 i.e.almost after three years and even by then the assesseewas not having the audit report computing deduction atRs.1,07,33,971/-. To claim deduction under Section80HHC it is mandatory and the requirement is not onlyto have an audit report but also to enclose with thereturn of income. Merely claiming that the assessee isan exporter, is no sufficient compliance of the Act andCA has to certify correctness of claim under Section80HHC. Learned counsel further contended that theorderofTribunaliswhollyperverse. 10.Per contra, learned counsel for the assesseecontended that an audit report was annexed with thereturn of income and in case it was noticed that saidaudit report was not part of the return of income, theAO was under legal obligation to have issued a noticeunder Section 139(9) of the Act, to make good thedeficiency and in the instant case no such notice wasserved, therefore, the disallowance of deduction underSection 80HHC is in violation of principles of naturaljustice. He further contended that the assessee is anexporter and was entitled to deduction under section80HHC on such exports having been made and the claim ofdeduction under Section 80HHC was claimed in accordancewith the provisions of the Act. 10.Per contra, learned counsel for the assesseecontended that an audit report was annexed with thereturn of income and in case it was noticed that saidaudit report was not part of the return of income, theAO was under legal obligation to have issued a noticeunder Section 139(9) of the Act, to make good thedeficiency and in the instant case no such notice wasserved, therefore, the disallowance of deduction underSection 80HHC is in violation of principles of naturaljustice. He further contended that the assessee is anexporter and was entitled to deduction under section80HHC on such exports having been made and the claim ofdeduction under Section 80HHC was claimed in accordancewith the provisions of the Act. 10.1In the alternative, learned counselfurther contended that audit report could have beenfiled at later stage before the Appellate Authoritiesand it is held by the judicial pronouncements that itis sufficient compliance of the mandate of law. Healso drew attention of this Court to a Circular of theCentral Board of Direct Taxes bearing no.689 dated24.8.1994 read with Circular bearing no.669 dated25.10.1993 to bring home that even the Board hasrelaxed the rigour of law by giving administrativerelief and such Circulars are binding on the RevenueAuthorities and in support has relied on judgmentsrendered in Seeyan Plywoods v. ITO & Another [1999] 238ITR 295 (Ker), Tanna Exports & Another v. M.G. Kamat &Another [1993] 202 ITR 210 (Bom), Khatau Junkar Ltd. & Another v. K.S. Pathania & Anotherand JCT Ltd. &Another v. Hari Kishan & Another[1992] 196 ITR 55(Bom) and of Apex Court in Mangalore Chemicals &Fertilizers Ltd. v. DCIT AIR 1992 SC 152. 11.We have heard the learned counsel for theparties and perused the material placed before us. 12.It would be appropriate to quote Section 80HHCof the Act and in particular sub-clause (1) and (4)respectively, which reads ad infra:- 80HHC. Deduction in respect of profits retained forexport business.-(1) Where an assessee, being an Indiancompany or a person (other than a company) resident inIndia, is engaged in the business of export out ofIndia of any goods or merchandise to which this sectionapplies, there shall, in accordance with and subject tothe provisions of this section, be allowed, incomputing the total income of the assessee, a deductionof the (profits) derived by the assessee from theexport of such goods or merchandise:Provided that if the assessee, being a holder of anExport House Certificate or a Trading House Certificate(hereafter in this section referred to as an ExportHouse or a Trading House, as the case may be,) issues acertificate referred to in clause (b) of sub-section(4A), that in respect of the amount of the exportturnover specified therein, the deduction under thissub-section is to be allowed to a supportingmanufacturer, then the amount of deduction in the caseof the assessee shall be reduced by such amount whichbears to the total profits derived by the assessee fromthe export of trading goods, the same proportion as theamount of export turnover specified in the saidcertificate bears to the total export turnover of theassessee in respect of such trading goods. (1A) xxxxxxxxxxxxxxxx(2)(a)xxxxxxxxxxxxxxxx(b) xxxxxxxxxxxxxxxx Explanation 1.- The sale proceeds referred to in clause(a) shall be deemed to have been received in Indiawhere such sale proceeds are credited to a separateaccount maintained for the purpose by the assessee withany bank outside India with the approval of the ReserveBank of India. 8 (1A) xxxxxxxxxxxxxxxx(2)(a)xxxxxxxxxxxxxxxx(b) xxxxxxxxxxxxxxxx Explanation 1.- The sale proceeds referred to in clause(a) shall be deemed to have been received in Indiawhere such sale proceeds are credited to a separateaccount maintained for the purpose by the assessee withany bank outside India with the approval of the ReserveBank of India. 8 Explanation 2.- xxxxxxxxxxxx(3) xxxxxxxxxxxxxxxx(3A) xxxxxxxxxxxxxxxx(4) The deduction under sub-section (1) shall not beadmissible unless the assessee furnishes in theprescribed form, along with the return of income, thereport of an accountant, as defined in the Explanation-below subsection (2) of section 288, certifying thatthe deduction has been correctly claimed in accordance”with the provisions of this section: 13.The provision clearly envisages that anassessee who is engaged in the business of export outof India of any goods or merchandise and the amount isreceived in convertible foreign exchange in Indiawithin the time prescribed, an assessee becomesentitled to a deduction to the extent of profitsderived by the assessee from the export of such goodsor merchandise. To claim such deduction, sub-clause(4) of Section 80HHC mandates that report of aChartered Accountant who has audited the accounts, dulysigned and verified, is required to be furnished in theprescribed form along with the return of income asdefined in the Explanation to sub-section (2) ofSection 288 who certifies that deduction has beenclaimed in accordance with the provisions of law.Therefore, twin conditions are necessary: (i) theassessee should be an exporter and convertible foreignexchange is required to be received in the given timein India, and (ii) to claim such deduction, report of aChartered Accountant is mandatory. 13.1While the foremost requirement is thatthe assessee has to be an exporter and the return of income is to be supported by an audit report. Thelatter is the requirement of furnishing substantivefoundation for claiming such allowance and it is therequirement of furnishing proof that the foundation forclaiming such deduction has been laid. While complianceof audit report under sub-clause (4) to claim deductionis mandatory with the return is concerned, being therequirement in the realm of procedure for furnishingevidence in support of the claim in the given facts andcircumstances, if furnished during the assessmentproceedings or even at the appellate stage, Courts haveheld that the claim cannot ordinarily be denied.[Zenith Processing Mills v. Commissioner of Income-Tax[1996] 219 721 (Guj); Commissioner of Income-Tax v.Nagpur Hotel Owners' Association [2001] 247 ITR 201(S.C.); Commissioner of Income-Tax v. Punjab FinancialCorporation [2002] 254 ITR 6 (P&H); Commissioner ofIncome-Tax v. Berger Paints (India) Ltd. (No.2) [2002]254 ITR 503 (Cal); Commissioner of Income-Tax v. G.Krishnan Nair [2003] 259 ITR 727 (Ker); Commissioner ofIncome-Tax v. Magnum Export (P) Ltd. [2003] 262 ITR 10(Cal); Commissioner of Income-Tax v. Gupta Fabs [2005]274 ITR 620 (P&H); Income-Tax Officer v. VXL India Ltd.[2009] 312 ITR 187 (Guj)] 14.We have gone through all the three orders,namely the order passed by AO, learned CIT(A) as wellas learned Tribunal. While the AO as also the CIT(A)came to the conclusion that there is an audit report ofCharteredAccountantclaimingdeductionof 14.We have gone through all the three orders,namely the order passed by AO, learned CIT(A) as wellas learned Tribunal. While the AO as also the CIT(A)came to the conclusion that there is an audit report ofCharteredAccountantclaimingdeductionof Rs.6,00,410/-, and even the Tribunal only mentionsabout an audit report claiming deduction ofRs.6,00,410/-. Indisputably on analysing the threeorders, we do not find any mention of audit reportclaiming deduction under Section 80HHC in reference toRs.1,07,33,971/-. The CIT(A) has in extenso evenquoted the written-submissions of the respondentassessee placed before it, and we notice that theassessee has failed to bring on record the auditreport, if any, being filed claiming deduction ofRs.1,07,33,971/-. The CIT(A), earlier do mention thatthere is a certificate of one Anil Nagori andAssociates, CAs, computing allowable deduction underSection 80HHC of Rs.6,00,410/- only, and is taken noteof by the Tribunal. The CIT(A) further observed thatthere are several cuttings and over-writings and eventhereafter he could nowhere find about an enclosure ofaudit report claiming deduction under Section 80HHC ofRs.1,07,33,971/-. Indisputably no tangible evidencewas enclosed either with the return of income or at thelater stage claiming deduction of Rs.1,07,33,971/-. 14.1Even the learned counsel for the assessee isunable to place such audit report for our perusalclaiming deduction under Section 80HHC. We furtherenquired from the learned counsel for the assessee asto the dates of the two audit reports, but he wasunable to provide such dates to infer prima facieconclusion and the indisputed fact remains that thereis an audit report claiming deduction of Rs.6,00,410/- 11 and there is no audit report claiming deduction ofRs.1,07,33,971/-. 15.The Tribunal, in our view, has alsoconveniently ignored the factum of making a mention ofany audit report having been placed before it claimingdeduction under Section 80HHC at Rs.1,07,33,971/-. Itwould be appropriate to quote few lines of para 11 ofthe impugned order which reads ad infra :- “The Audit Report specifying the amount ofrebate allowable at Rs. 6,00,410/- was on thebasis of the amount received in the countryin convertible foreign exchange when theAuditor audited the accounts. The Auditor,therefore, justifiably issued the certificateonly to this extent but after the order ofthe CIT Jaipur controversy in regard to thetotal amount to be considered for purposes ofrebateu/s80HHCtotalledto-Rs.1,07,33,971/, which was claimed as perthe computation of total income while filingthe return of income. Under thesecircumstances, we have no hesitation inallowing the appeal of the appellant in fulland directing the AO to allow the benefit u/s80HHC to the assessee.” (emphasis supplied) 16. On perusal of the above, the Tribunal simply observes that an audit report specifies theamount of rebate allowable at Rs.6,00,410/- on thebasis of the amount received in the country inconvertible foreign exchange, but the Tribunal is alsosilent about any audit report in reference toRs.1,07,33,971/- and simply observes that the saidclaim of Rs.1,07,33,971/- was claimed as percomputation of total income while filing the return ofincome and merely because the claim was made in thecomputation of total income, in our view such a findingis wholly perverse and not sustainable. We disapprove the manner in which the claim has been allowed by theTribunal on the basis of computation of total incomealone and in not even uttering a word about the auditreport to claim deduction for an amount ofRs.1,07,33,971/-. Merely because claim is allowable asper computation of income, is no reason to allow whensub-clause (4) of Section 80HHC mandates filing of anaudit report in support for claiming deduction. the manner in which the claim has been allowed by theTribunal on the basis of computation of total incomealone and in not even uttering a word about the auditreport to claim deduction for an amount ofRs.1,07,33,971/-. Merely because claim is allowable asper computation of income, is no reason to allow whensub-clause (4) of Section 80HHC mandates filing of anaudit report in support for claiming deduction. 17.The judgments relied upon by the learnedcounsel for the assessee rendered by Kerala High Courtin the case of Seeyan Plywoods v. ITO & Another(supra), and Bombay High Court in the case of KhatauJunkar Ltd. & Another v. K.S. Pathania & AnotherandJCT Ltd. & Another v. Hari Kishan & Another(supra),are on the proposition of deficiency in the return ofincome and to issue a notice u/s 139(9) of the Act andfor the reasons assigned, issuance of notice u/s 139(9)looses significance. 18.Accordingly, the Tribunal erred in allowingdeduction under Section 80HHC of Rs.1,07,33,971/- andin our view the finding of Tribunal is perverse and wehave no hesitation in allowing this appeal, inanswering both the substantial questions of law againstthe assessee and in favour of the Revenue. No costs. (J.K. Ranka) J. (Ajay Rastogi) J.