Ita/203/2012 Of The Commissioner Of Income Tax-I v. M/S.bhageeratha Engineering Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMASWEDNESDAY, THE 7 DAY OF JULY 2021 / 16TH ASHADHA, 1943 ITA NO. 203 OF 2012 AGAINST THE ORDER/JUDGMENT IN ITA 1204/2005 OFI.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX-I,KOCHI. BY ADVS.SRI.P.K.RAVINDRANATHA MENON (SR)SRI.JOSE JOSEPH, SC, FOR INCOME TAXSRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT/S: M/S.BHAGEERATHA ENGINEERING LTD.,VAZHAKKALA, KAKKANAD P.O., KOCHI-682030. BY ADVS.SMT.P.ANITHASMT.P.ANITHASMT.R.S.GEETHASRI.T.M.SREEDHARAN SR.SRI.V.B.UNNIRAJ THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 07.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No. 203/2012 J U D G M E N T S.V. Bhatti, J. The Commissioner of Income Tax-I, Cochin, is the appellant (for short 'the Revenue'). The I.T.A. is directedagainst the order of the Income Tax Appellate Tribunal, CochinBench in I.T.A. No.1204/Coch/2005 & C.O. No.11/Coch/2006dated 27.04.2012. In the subject Tax Appeal the issue relates toAssessment Year 1996-97. The appeal examines an issue arisingunder Section 80HHB of the Income Tax Act (for short ‘the Act’).The Assessing Officer and the Commissioner of Income Tax(Appeals) (for short ‘CIT (Appeals) disallowed the claim ofassessee of revaluation of government bonds and the loss in saleof government bonds. M/s. Bhageeratha Engineering I.T.A. No. 203/2012 Ltd/respondent (for short 'the Assessee') aggrieved therebyfiled I.T.A No. 47/Coch/2000 before the Income Tax AppellateTribunal. 2.The Appellate Tribunal through order dated17.06.2003 allowed the appeal of the assessee, deleted theaddition of revaluation of government bonds and set aside thedis-allowance made by the Assessing Officer and CIT (Appeals).The Revenue filed I.T.A. No.301/2009 and this Court by orderdated 05.07.2021 dismissed the appeal filed by the Revenue. Thenarrative has bearing on the consideration of the question oflaw taken up for consideration by us in the Tax Appeal. Thecircumstances are that vide order dated 11.03.1999 made underSection 143(3) of the Act, the Assessing Officer determined thetotal income of assessee at Rs.21,56,52,890/-. The AssessingOfficer for determining income of assessee dis-allowed theclaim of loss on revaluation of bonds amounting to I.T.A. No. 203/2012 Rs.6,04,75,000/-, loss amounting to Rs.43,30,000/- towards saleof government Bonds and declined deduction claimed underSection 80HHB amounting to Rs.10,06,26,590/-. While making afew more additions to the income of the assessee, net income ofthe assessee from the business for the Assessment Year 1996-97was determined at Rs.21,42,08,607/-. 2.1In the appeal filed by the assessee, the learned CIT(Appeals) set aside the addition made under Section 80HHB,remanded the case to Assessing Officer to re-examine the issueof entitlement of assessee under Section 80HHB, judge thequantum as well as its admissibility under the Act. TheAssessing Officer determined the claim of assessee underSection 80HHB and through order dated 15.02.2002 (Annexure-B) accepted the total claim of assessee under Section 80HHBamounting to Rs.10,06,26,590/-. For clarity, it is desirable tofurnish the details of determination by the Assessing Officer. “Income fixed originally as perorder dated 7.7.99:Rs.21,38,66,220/-Less: Deduction u/s 80HHB:Rs.10,06,26,590/------------------------ Rs.11,32,39,830/- ----------------------Revised total income:Rs.11,32,39,830/- ================= “Income fixed originally as perorder dated 7.7.99:Rs.21,38,66,220/-Less: Deduction u/s 80HHB:Rs.10,06,26,590/------------------------ Rs.11,32,39,830/- ----------------------Revised total income:Rs.11,32,39,830/- ================= 2.2Finally, the tax demanded was Rs.4,65,55,414/-. Itnoted that the re-computation of income through Annexure Bdated 15.02.2002 was prior to the decision of Income TaxAppellate Tribunal in I.T.A. No.47/Coch/2000. On 17.06.2003 theappeal filed by the assessee was allowed, substantial reliefgranted and the Tribunal accepted the case of assessee thatreceipt of government bond as against deferred payment is asubstitute to receivables, the assessee is entitled to actual losson sale of government bond and notional loss on revaluation ofgovernment bonds, treating them as current assets ispermissible. Thus, the addition made by the Assessing Officer I.T.A. No. 203/2012 amounting to Rs.6,04,75,000/- and Rs.43,30,000/- is deleted andan effect order has to be made. The Assistant Commissioner,through order in Annexure-C issued the effect order, firstlyrecomputed the gross total income of the assessee; on therecomputed gross total income, 50% was been granted aseligible deduction under Section 80HHB. Assessed, as notedherein, the Assessing Officer granted deduction under Section80HHB amounting to Rs.7,50,85,650/- to the assessee for theassessment year 1996-97. The assessee filed appeal before theCIT (Appeals) in I.T.A. No.39/R-I/E/CIT-II/03-04. The operativeportion of the order of CIT (Appeals) reads as follows: “Computation of profit from foreign project under Section80HHB is exactly on the same lines as compared to the profit ofa new industrial undertaking under Section 80I i.e., a unit or aproject itself has to be treated as business as a whole and theprofit are to be computed on which the deduction is allowable. There is no provision in Chapter VIA anywhere to restrict the I.T.A. No. 203/2012 deduction available under Section 80HHB on the grounds thatthe assessee's business as a whole comprising of profit fromIndian undertaking and the foreign project is a profit or a loss. In the assessee's own case while examining the claim in respectof reduction in value of the bonds to be allowed as a tradingloss, the ITAT has also not set forth any such restriction. Courts have consistently held their view ig. 161 ITR 320, 201 ITR968 (Ker), 215 ITR 249 (Cal), 251 ITR 471 (Andh) and 249 ITR 793.I, therefore, direct the AO to allow the deduction under Section80HHB in full i.e., as it was allowed by the AO's order dated15.02.2002 giving effect to the CIT (As)'s order i.e., atRs.10,06,26,590/- instead of Rs.7,46,50,647/-.” 2.3The Revenue and the assessee filed appeals before the Income Tax Appellate Tribunal to the extent of reliefgranted under Section 80HHB, which was confirmed by theAppellate Tribunal as well. Hence, the Tax Appeal under Section260A of the Income Tax Act at the instance of the Revenue. 3.The appeal was admitted on the following substantialquestions of law: I.T.A. No. 203/2012 “1.Whether, on the facts and in the circumstances of the caseand also in view of the loss arising out of the reduction in thevalue of the bonds allowed by the Tribunal in its earlier orderdated 17.06.2003: i)is not the Assessing Officer right in law in reducing the deduction under Section 80HHB in the rectified order? ii)is not the consequential order and the rectification ofthe same valid and in accordance with law?” 3.1After appreciating the admitted circumstances leading to the filing of the appeal and the controversy that arises fordecision of this Court, the following substantial questions of lawhas been formulated by the Court and the arguments of learnedCounsel have been heard on the substantial question of lawformulated as follows: I.T.A. No. 203/2012 “1.Whether, on the facts and in the circumstances of the caseand also in view of the loss arising out of the reduction in thevalue of the bonds allowed by the Tribunal in its earlier orderdated 17.06.2003: i)is not the Assessing Officer right in law in reducing the deduction under Section 80HHB in the rectified order? ii)is not the consequential order and the rectification ofthe same valid and in accordance with law?” 3.1After appreciating the admitted circumstances leading to the filing of the appeal and the controversy that arises fordecision of this Court, the following substantial questions of lawhas been formulated by the Court and the arguments of learnedCounsel have been heard on the substantial question of lawformulated as follows: (i)Whether the order of the CIT (Appeals) thequantifying deduction under Section 80HHB withreference to the revised order made by the AssessingOfficer pursuant to the remand of issue under Section I.T.A. No. 203/2012 80HHB by the C I T (appeal) ?, and (ii)Whether the deduction accepted in favour of theassessee of bond revaluation and sale loss will have tobe taken into account for arriving at the gross incomeof assessee and allow deduction under Section 80HHBto the extent of 50%? 4.Learned Standing Counsel Mr.Christopher Abrahamprefaces his submissions by arguing that the Revenue is notquestioning the eligibility of assessee for deduction underSection 80HHB of the Act. The Department questions thearbitrary quantification of deduction by the CIT (Appeals) inorder dated 01.09.2005. The illegality, according to him, in theorder of CIT (Appeals) in Annexure-I is that the Commissioneraccepted deduction under Section 80HHB arrived at by theAssessing Officer in the revised Assessment Order dated15.02.2002. The said order was made prior to the decision of theTribunal dated 17.06.2003. In other words, upon the decision rendered by the Tribunal, the assessee is entitled to claim losson revaluation of current assets and corresponding thereto thegross total income determined as Rs.21,38,66,220/- standsreduced by deducting loss on revaluation of assets, loss on saleof bonds, then the gross total income is not Rs.21,38,66,220/-but Rs.14,93,01,293/-. Therefore, the eligibility since is notquestioned by the Revenue, the quantum of grantingRs.10,06,26,590/- is illegal and unavailable in the facts andcircumstances of the case. He argues that the effect order dated28.07.2003 of the Deputy Commissioner of Income Tax reflectsthe adjudication of issues between the Revenue and theassessee. But the CIT (Appeals) without any basis grantedunavailable additional deduction amounting to Rs.2,59,75,943/-under section 80HHB to the assessee. The quantification ofdeduction under Section 80HHB by the Commissioner, asconfirmed by the Tribunal, is illegal and he prays for setting I.T.A. No. 203/2012 aside the order of the Commissioner in Annexure-I and to theextent confirmed by the Tribunal and restore the effect order ofAssessing Officer in Annexure-H dated 28.07.2003. According tohim, the error in quantification is not an error relatable tofinding of fact or re-verification of details by this Court. TheCIT (Appeals) exceeded the jurisdiction in incorporatingunavailable details, there is loss of Revenue and theunsustainable and illegal quantification constitutes asubstantial question of law for the decision of the Court. 5.Senior Advocate Mr. Sreedharan, after taking note ofthe chronology of dates, events and effect of the orders made bythe authorities under Act from time to time, stated that theRevenue, since is not questioning the eligibility of assessee fordeduction under Section 80HHB, the quantification should beaccording to the concluded figures determined in the effectorder. To wit, we quote his words: “I find it difficult to justify the I.T.A. No. 203/2012 source and reason for the Commissioner to assume the existence of 5.Senior Advocate Mr. Sreedharan, after taking note ofthe chronology of dates, events and effect of the orders made bythe authorities under Act from time to time, stated that theRevenue, since is not questioning the eligibility of assessee fordeduction under Section 80HHB, the quantification should beaccording to the concluded figures determined in the effectorder. To wit, we quote his words: “I find it difficult to justify the I.T.A. No. 203/2012 source and reason for the Commissioner to assume the existence of Rs.10,06,26,590/- as 50% of gross total income of the assessee”. Theassessee since is successful in its claim on loss of sale andrevaluation of bonds, which are one of the items added by theAssessing Officer in the effect order, this loss will have to becorrespondingly given effect to, thereafter the gross totalincome is determined and thereon quantification undertaken. From the perspective of admitted circumstances, he could notconvince us on the errors in the order of CIT (Appeals) and theTribunal. 6.We appreciated the submissions and perused therecord. Question Nos.1 and 2 7.setThe CIT (Appeals) in the order dated 27.12.1999 aside the addition under Section 80HHB and directed re-examination of assessee’s entitlement to deduction under I.T.A. No. 203/2012 Section 80HHB. The Assessing Officer accepted the eligibility ofassessee for deduction under Section 80HHB vide order dated15.02.2002, granted 50% on gross total income as quantifieddeduction under Section 80HHB. There is no mistake if thegross total income amounting to Rs.21,38,66,220/- remainsundisturbed in further adjudication. But, in the case on hand,by virtue of the decision of the Tribunal in I.T.A.No.47/Coch/2000 dated 17.06.2003, the claim of assessee on lossof revaluation and sale of government bonds has been accepted.In account parlance, these items are to be deleted from thegross total income of the assessee, then the quantificationunder Section 80HHB should have been done correspondingly.We notice from the order of Commissioner dated 01.09.2005(Annexure-I) that a different reasoning is adopted in analyzingthe controversy and the conclusion reached therefrom couldnot be supported from the record. The CIT (Appeals) erred in appreciating the effect order and consequential deduction andquantification under Section 80HHB . The Revenue has madeout a case and we answer the questions of law in favour of theRevenue and against the assessee. This Court records that thededuction under Section 80HHB quantifying order dated28.07.2003 is correct and ought not to have been reversed by theCIT (Appeals). The questions of law are answered infavour ofthe revenue and against the assessee. The appeal allowed as indicated above. Sd/-S.V.BHATTIJUDGE Sd/-BECHU KURIAN THOMASJUDGE jjj I.T.A. No. 203/2012 APPENDIX OF ITA 203/2012 PETITIONER ANNEXURE ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER DATED 11/03/1999.11/03/1999. ANNEXURE BTRUE COPY OF THE PROCEEDINGS OF THE ASSESSING OFFICER DATED 15/02/2002.OFFICER DATED 15/02/2002. ANNEXURE CCOPY OF THE ORDER U/S. 154 DATED 18/05/2004. ANNEXURE DTRUE COPY OF THE ORDER OF TWO MEMBERS OF THE TRIBUNAL DATED 31/08/2010.TRIBUNAL DATED 31/08/2010. ANNEXURE ETRUE COPY OF THE ORDER OF THE THIRD NUMBER OF THE TRIBUNAL DATED 23/04/2012.THE TRIBUNAL DATED 23/04/2012. ANNEXURE FTRUE COPY OF THE ORDER OF THE TRIBUNAL BASED ON THE ORDER OF THE THIRD MEMBER DATED 27/04/2012.THE ORDER OF THE THIRD MEMBER DATED 27/04/2012. ANNEXURE GPROCEEDINGS OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), ERNAKULAM GIVEN EFFECT TO CIT(A)'S ORDERINCOME TAX, CIRCLE 1(1), ERNAKULAM GIVEN EFFECT TO CIT(A)'S ORDER ANNEXURE HPROCEEDINGS OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), ERNAKULAM GIVING EFFECT TO ITAT'S ORDERINCOME TAX, CIRCLE 1(1), ERNAKULAM GIVING EFFECT TO ITAT'S ORDER ANNEXURE IAPPELLATE ORDER OF THE CIT(A) IN ITA 39/R-1/E/CIT-11/03-0411/03-04