Ita/50/2012 Of M/S.m.abdul Rehuman Kunju v. The Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN FRIDAY, THE 3RD DAY OF AUGUST 2012/12TH SRAVANA 1934 ITA.No. 50 of 2012 () --------------------- ITA.211/COCH/2009 OF INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, COCHINITA.212/COCH/2009 OF INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH, COCHIN ---------- APPELLANT/APPELLANT: -------------------------------------- M/S.M.ABDUL REHUMAN KUNJU CASHEW EXPORTERS, CHANDANATHOPE, KOLLAM. BY ADVS.SRI.ANIL D. NAIR SRI.J.R.PREM NAVAZ SMT.NIVEDITA A.KAMATH RESPONDENT / RESPONDENT : ---------------------------------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-I, KOLLAM. BY ADV. SRI.P.K.R.MENON, SR.COUNSEL, GOI (TAXES) BY ADV. SRI.JOSE JOSEPH, SC, INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 03-08-2012, ALONG WITH ITA. 63/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Mn ...2/- ITA.No. 50 of 2012 () APPENDIX PETITIONER'S EXHIBITS : ANNEXURE A: COPY OF THE ORDER OF ASSESSMENT FOR THE YEAR 2001-02ISSUED TO THE APPELLANT DTD. 22.8.2008 ANNEXURE B: COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX FORTHE YEAR 2001-02 DT. 5.2.2009 ISSUED TO THE APPELLANT. ANNEXURE C: COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL,COCHIN BENCH DT. 2.2.2012. RESPONDENT'S EXHIBITS : NIL //TRUE COPY// P.S. TO JUDGE Mn THOTTATHIL B. RADHAKRISHNAN & K.VINOD CHANDRAN, JJ. --------------------------------------------- I.T.A.Nos.50 & 63 of 2012 --------------------------------------------- Dated this the 3[rd] day of August, 2012 JUDGMENT Vinod Chandran, J. The assessee is in appeal before us against the orders of theTribunal for the assessment years 2001-'02, and 2003-'04. Theappellant/assessee is an exporter of cashew kernels and theassessments for the respective years were completed by acceptingthe returns under Section 143(1) of the Income Tax Act, 1961(hereinafter called the Act). Subsequently noticing that the incomechargeable to tax has escaped assessment within the meaning ofSection 147 of the Act, notice was issued under Section 148. Theissue that arose was regarding the deduction claimed whilecomputing the deduction under Section 80 HHC more specifically thededuction claimed with respect to the profit on sale of DutyEntitlement Pass Book (DEPB) (hereinafter referred to as DEPB). Theassessing authority found that pursuant to the amendment broughtin, in the year 2005, every assessee having turnover exceeding Rs.10crores, for claiming entitlement of profits on sale of DEPB underSection 80 HHC; has to satisfy two conditions regarding availability ofan option to choose either duty drawback or DEPB scheme and alsothat the duty drawback credit was higher than that available under DEPB. Exporters of cashew having no such option and the assesseehaving failed to produce any evidence, the claim made by theassessee was disallowed. DEPB. Exporters of cashew having no such option and the assesseehaving failed to produce any evidence, the claim made by theassessee was disallowed. 2.Before the first appellate authority the assessee raisedthree specific grounds with respect to the disallowance of the claimunder Section 80HHC. The first two grounds were on the reopeningof the assessment under Section 147 alleging there was no materialto invoke the provision and whether an amendment tantamounts tonew material. The next ground was regarding the reopening of theassessment on the ground of retrospective amendment of Section 80HHC, since according to the assessee no retrospective amendmentcould have been made to withdraw the exemption or concessionsalready granted. The first two grounds were rejected by the firstappellate authority holding that the reopening under Section 147 wasdone based on the retrospective amendment, which is new material,and was within the prescribed time limit and hence is valid. The 1[st]appellate authority, in any event could not have considered thevalidity of the retrospective amendment. 3.The assessee was then before the Income Tax AppellateTribunal and the appeal was rejected by a short order produced as Annexure-C. We find from the order that the issue raised by theassessee and considered by the Tribunal was only with respect to thereopening of the assessment under Section 147. Whether theassessing officer was entitled to withdraw the deduction in respect ofDEPB incentive on the basis of the subsequent amendment. TheTribunal held that since in a similar situation the jurisdictional HighCourt has upheld the order of the assessing officer under Section154; there is no infirmity in the action taken under Section 147. Theassessee does not challenge the said finding in the instant appeal. 4.The present appeal has been filed raising the followingquestion of law:- “In the facts and circumstances of the case, ought notthe Tribunal have allowed the Appeal filed by theassessee more showing the view of the judgment of theSupreme Court in Civil Appeal No.1700/2012 dated 8[th]February 2012 ?” We are afraid that this question does not at all arise from the orderof the Tribunal since the Tribunal considered only one issue as statedby us above. 5.The Supreme Court decision referred to by the assessee is reported in M/s. Topman Exports Vs. Commissioner of Income Tax, Mumbai [(342 ITR 49 (SC)]. The issue that arose inthe said case was whether on sale of DEPB the entire sale valuecould be treated as profit arising on transfer of DEPB for the purposeof clause (iiid) of Section 28. The argument before the SupremeCourt was that in such circumstance there will be double taxation onthe assessee since under clause (iiib) of Section 28 the cashassistance, equivalent to the face value of the DEPB would be taxedand the same again subjected to tax for a second time as profit ontransfer of DEPB under clause (iiid) of Section 28. What is to betaken for the purpose of clause (iiid) of Section 28, according to theassessees before the Supreme Court, was the difference between thesale proceeds and the face value of DEPB. The Supreme Court heldthat the cost of acquiring DEPB is not nil because the person acquiresit by paying customs duty on the import content of the exportproduct and the DEPB which accrues to a person against export has acost element attached to it. When DEPB is sold by a person, hence,his profit on transfer of DEPB would be the sale value of the DEPB,less the face value. The issue based on the Supreme Court decisionwould be the bifurcation of the face value of DEPB and profits derivedfrom sale of DEPB under sub section (iiib) & (iiid) of Section 28 of theAct. This issue was not raised before the Tribunal or considered bythe Tribunal in the order which is appealed herein. 6.The learned counsel for the assessee then would contendthat the retrospective amendment made by the Finance Act 2005classifying exporters into those having turnover less than Rs.10crores and above Rs.10 crores and also imposing conditions for claimof deduction under Section 80 HHC on the latter; more specifically onthe profit derived by sale of DEPB; has been struck down by the HighCourt of Gujarat at Ahmedabad. 7.The validity of a provision cannot be considered oradjudicated upon by the Tribunal constituted under the Act. Section260A provides for an appeal from every order passed by theAppellate Tribunal; if it involves a substantial question of law. Suchquestion of law should arise from the order of the Tribunal. If theTribunal cannot consider the validity of a retrospective amendment,no doubt such question does not arise from its order and thejurisdiction conferred on the High Court under Section 260A cannotalso enable the High Court to consider such validity or otherwise. 8.The issue of the scope of Section 67 in the Income TaxAct, 1922 arose in K.S.Venkataraman & Co. Vs. State of Madras(1966) 2 SCR 229. Section 67 was a bar to the maintainability of asuit against assessments made under the Act. Whether the restriction applied in the event of the assessing officer giving effect toan ultra vires provision; was the question dealt with. After noticingthe provisions empowering the Income Tax officers to makeassessments and the two tier appeal respectively before theAssistant Appellate Commissioner & ITAT, the Supreme Court held: “Up to this stage all the three authorities are thecreatures of the Act and they function thereunder.They cannot ignore any sources of income on theground that the relevant provisions offend thefundamental rights or are bad for want of legislativecompetence. The Act does not confer any such right onthem. Their jurisdiction is confined to the assessmentof the income and the tax under the provisions of theAct. Whether the provisions are good or bad is nottheir concern. But, it is said that s.66 of the Act makesall the difference. Section 66 is in two parts. Unders.66(1), within the prescribed time, on an applicationmade by an assessee or the Commissioner, theAppellate Tribunal shall refer to the High Court anyquestion of law arising out of such order; if theAppellate Tribunal refuses to state a case, on anapplication filed by either of them, the High Court mayrequire the Appellate Tribunal to state the case and torefer the same to it accordingly. On a reference madeby the Appellate Tribunal to the High Court, the HighCourt shall decide the questions of law raised therebyand pass its judgment thereon and thereafter the Appellate Tribunal may pass such orders as arenecessary to dispose of the case conformably to suchjudgment. It has been held by this Court that thejurisdiction conferred upon the High Court by s.66 ofthe Income-tax Act is a special advisory jurisdictionand its scope is strictly limited by the sectionconferring the jurisdiction. It can only decide questionsof law that arise out of the order of the Tribunal andthat are referred to it. Can it be said that a questionwhether a provision of the Act is ultra vires of theLegislature arises out of the Tribunal's order? As theTribunal is a creature of the statute, it can only decidethe dispute between the assessee and theCommissioner in terms of the provisions of the Act.The question of ultra vires is foreign to the scope of itsjurisdiction. If an assessee raises such a question, theTribunal can only reject it on the ground that it has nojurisdiction to entertain the said objection or decide onit. As no such question can be raised or can arise onthe Tribunal's order, the High Court cannot possiblygive any decision on the question of the ultra vires of aprovision. At the most the only question that it may becalled upon to decide is whether the Tribunal hasjurisdiction to decide the said question. On the expressprovisions of the Act it can only hold that it has nosuch jurisdiction. The appeal under s.66A(2) to theSupreme Court does not enlarge the scope of the saidjurisdiction. This Court can only do what the HighCourt can.” Though the provisions for reference to the High Court, by theTribunal, of questions of law arising from the order is no longer inexistence; the jurisdiction going by the words employed in Section260A, of the Income Tax Act, 1961, remains the same. 9.By following or dissenting from the judgment of the HighCourt of Gujarat, we would be determining the constitutional validityof the amendment of 2005. We would then be stepping out of andbeyond the scope of the jurisdiction under Section 260A. Theassessee too has not raised such a question in the appeal. For the reasons stated above we reject the appeals filed by theassessee. THOTTATHIL B. RADHAKRISHNAN, JUDGE. K.VINOD CHANDRAN, JUDGE. okb.