Tc/89/2003 Of M/S.eastern Produce Cp v. The Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 20.3.2006 THE HON'BLE MR.JUSTICE R.BALASUBRAMANIANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).No.89 of 2003 M/s.Eastern Produce Co.,1127, P.H.Road,Chennai-3...Appellant The Income-Tax Officer,Ward X(1),Chennai-34...Respondent ----- Appeal under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, Madras'C' Bench dated 29.11.2002 in I.T(SS)A.No.60(Mds)/2002 for theblock assessment year 1.4.1987 to 24.1.1998. against the orderof the Commissioner of Income Tax (Apeals) X Chennai I.T.A. NO.171/2001-2002 dated 29.01.2002 against the Income Tax OfficerWard X (1) Chennai 34 Block Assessment 1-4-87 to 24-1-1998 dated27.10.2000 This Tax Case Appeal is filed under Section 260 A ofthe Income Tax Act, 1961, at the instance of the assesseeagainst the order of the Income-Tax Appellate Tribunal dated29.11.2002. The above appeal came up before this Court and this https://hcservices.ecourts.gov.in/hcservices/ Court admitted the appeal on 14.10.2003 and formulated thefollowing substantial questions of law: " 1. Whether on the facts and in the circumstances ofthe case, the Income-tax Appellate Tribunal is rightin law in negativing the claim of the assessee fordeduction under sec.80 HHC ? 2. Whether on the facts and in the circumstances ofthe case, the Income-tax Appellate Tribunal is rightin holding that the benefit of Sect.80 HHC deductionwould not be available to a block assessment for thecomputation of undisclosed income, since it is not thesame as a regular assessment ? 3. Whether on the facts and in the circumstances ofthe case, the Tribunal is right in law in dismissingthe petitioner's appeal without dealing with thecontentions specifically raised by the petitionerdealing with the estimate of income ? 4. Whether on the facts and in the circumstances ofthe case, the Income-tax Appellate Tribunal is rightin law in not setting aside the estimate of incomewhich was solely based on a third party assessmentwhich the department has not established to be on allfours with the appellant ?" 2. The facts relating to the above questions of law are asunder:- The assessee is a partnership firm engaged in the businessof export of musical instruments made of red sanders wood andgranite. A search under Section 132 of the Income-tax Act tookplace on 24.1.98 in the case of Shri.M.Chidambaram, one of thepartners of the above firm. No cash or jewellery was seizedfrom the said Chidambaram. During the course of the search, asworn statement was recorded from the said Chidambaram that hehad exported granite to Italy to the tune of Rs.4,31,309/- on19.7.96 and on 2.4.97, he had exported musical instrument partsto the tune of Rs.16,61,391/-. Further he had also given adetailed statement showing other exports as under:- M/s.Indian MusicalTrading Co.Ltd., InstrumentTokyo, Japan. Parts M/s.Indian Musical101 sets15.2.97 10,63,027Trading Co.Ltd., InstrumentTokyo, Japan. Parts-do- -do-156 sets02.4.97 16,64,099------------------------------------------------------------ M/s.Indian MusicalTrading Co.Ltd., InstrumentTokyo, Japan. Parts M/s.Indian Musical101 sets15.2.97 10,63,027Trading Co.Ltd., InstrumentTokyo, Japan. Parts-do- -do-156 sets02.4.97 16,64,099------------------------------------------------------------ The above transactions reported by Sri Chidambaram in his swornstatements had been examined. It was found that the export ofRs.4,31,309/- on 19.07.1996 was the same transaction noted asinvolving Rs.4,27,469/- in the tabular statement mentionedabove. Similarly, the transaction of Rs.16,61,391/- made on02.04.1997 was the same transaction for the amount ofRs.16,64,099/- mentioned in the tabular statement. Thedifference was on account of bank charges. Hence the overallexport to be considered for assessment were the threetransactions mentioned in the tabular statement. During thecourse of the hearing, Sri Chidambaram furnished copies ofinvoices involving the above three transactions. It was foundthat all these transactions had been made in the case of thefirm M/s.Eastern Produce Company in which he is a partner.Hence, any income arising out of these transactions had to beassessed in the hands of M/s.Eastern Produce Company only. Inconsequent to the search in the case of Sri.Chidambaram, noticeunder Section 158 BD was issued to the firm and served on22.10.98. In response to this notice, the assessee firmfurnished return of income for the block period from 1.4.87 to24.1.98 admitting 'nil' income. The assessing officer completedthe assessment by including the undisclosed income for theassessment year 96-97 at Rs.50,405/- and for the broken periodfrom 1.4.97 to 24.1.98 at Rs.3,41,140/-, totalling toRs.3,91,545/-. While completing the assessment, the assessingofficer disallowed the deduction claimed under Section 80 HHC ofthe Act and also estimated the income on the basis of the otherassessee doing the same business of exporting musicalinstruments. 3. Aggrieved by the order of the Assessing Officer, theassessee filed an appeal before the Commissioner of Income-tax(Appeals), who dismissed the appeal and confirmed the order ofthe Assessing Officer. Aggrieved by the same, the assesseeagain went on appeal to the Income Tax Appellate Tribunal. TheAppellate Tribunal also dismissed the appeal and confirmed theorders of the lower authorities. 4. The learned Senior Counsel appearing for theappellant/assessee submitted that the authorities below were notjustified in rejecting the claim of the appellant under Section80 HHC and further contended that the assessee had raised aspecific contention that the estimated income made in this case at 20.5% was arbitrary and high and the comparitive cases reliedon by the revenue had never been put to the assessee and thesimilarity had not been established. Further it was stated thatthe Tribunal had actually omitted to give any finding on thesaid contention. The learned counsel appearing for the Revenuesubmitted that the orders passed by the authorities below werein confirmity with law. 5. Heard the learned counsel appearing for both sides.After the amendment to Section 158BB with retrospective effectfrom July, 1995, a block assessment made under the provisions ofChapter XIV-B would have the benefit of Chapter VI.A deductions,which includes Section 80 HHC. In the case of ANBU TEXTILES v.ASSISTANT COMMISSIONER OF INCOME-TAX [(2003) 262 ITR 684], thisCourt considered the amended provision and held as follows:- 5. Heard the learned counsel appearing for both sides.After the amendment to Section 158BB with retrospective effectfrom July, 1995, a block assessment made under the provisions ofChapter XIV-B would have the benefit of Chapter VI.A deductions,which includes Section 80 HHC. In the case of ANBU TEXTILES v.ASSISTANT COMMISSIONER OF INCOME-TAX [(2003) 262 ITR 684], thisCourt considered the amended provision and held as follows:- " It is clear that Section 158 BB of the Act wasamended with full retrospective effect, from July 1,1995, and under the amended provision, the undisclosedincome of the block period shall be computed inaccordance with the provisions of the Act, andtherefore, the provisions contained in Chapter VI-A ofthe Act should also be taken into consideration indetermining the undisclosed income of the blockperiod. It is true that the Appellate Tribunaldecided the matter on the basis of law then existing.The amendment came into force only by the Finance Act,2002, with retrospective effect from July 1, 1995.Since the amendment has been given retrospectiveeffect, we are of the view, the provision, as amended,would be proper provision for determining theundisclosed income of the block period. We aretherefore of the view that the Appellate Tribunalshould go into the question whether the assessee isactually eligible to claim deduction under section 80HHC of the Act as the Appellate Tribunal had noopportunity to decide the said question. Accordingly,the appeal is allowed and the order of the AppellateTribunal is set aside and the matter is remitted backto the Appellate Tribunal to decide the questionwhether the assessee is eligible to claim deducationunder section 80 HHC of the Act on the merits of thecase. " 6. In the present case, the Tribunal had not considered theamended provision, eventhough the order is passed after theamendment of the provision. The relevant portion of theTribunal order is as follows: "Explanation to Sec.158BB of the Act indicates thatthe total income and loss of each of the previous yearshall be that total income or loss as computed without giving set off of brought forward loss under ChapterVI or unabsorbed depreciation under sub-sec(2) ofsec.32. There is no mention about deduction undersec.80HHC of the Act. The assessment that is madewith regard to undisclosed income is not the same asregular assessment and therefore the claim of theassessee that sec.80HHC deduction should have beenconsidered is rejected." Hence, it is clear from the above that the Tribunal had notconsidered the amended provision of law. Following the judgmentcited supra, we remit back the Question Nos.1 and 2 to theAppellate Tribunal to decide whether the assessee is eligible toclaim deduction under Section 80HHC of the Act on the merits ofthe case. 8. Now, we take up the Question Nos.3 and 4. Regarding thesame, we find that the Tribunal had omitted to give any finding,eventhough the same was specifically raised in the groundsbefore the Tribunal, and the above fact is not disputed by theRevenue. In respect of Question Nos.3 and 4 also, we remit backto the Tribunal with a direction to rehear the matter afreshafter giving opportunity to the parties. 9.In view of the above reasoning, we set aside the orderand remit the matter back to the Income Tax Appellate Tribunal.With the above direction, the tax case is disposed of. Nocosts. km/sra Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 1.The Assistant Registrar,Income Tax Appellate TribunalMadras Bench "c".Madras Bench "c". 2.The Secretary, Central Board of Direct Taxes, New Delhi. 3.The Commissioner of Income Tax (Appeals) X, Chennai. 4.The Deputy Commissioner of Income Tax, City Circle-VII (Inv.),Chennai.Chennai. 5.The Income Tax Officer, Ward X (1) Chennai - 34 + one cc to Pushya Sitaraman, Advocate sr no. 13745 NA(CO) NM(17.04.2006) T.C.(A)No.89 of 2003