The Brief Facts Of The Case Are That The Assessee Filed An Appeal v. Heard The Learned Senior Standing Counsel For The Income Taxdepartment Sri S.r. Ashok, Assisted By Sri S. Seshidhar Reddy, Forthe Income Tax Department And The

HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. No.101 OF 2001 JUDGMENT:- (per Hon’ble Sri Justice Challa Kodanda Ram) At the instance of the Revenue, the Income Tax AppellateTribunal, Hyderabad Bench-‘A’ had referred the following questions oflaw: 1.“Whether, on the facts and circumstances of thecase, the Appellate Tribunal is right in deleting theadjustments made to the quantum allowanceU/s.80HH and 80I of the I.T. Act?”case, the Appellate Tribunal is right in deleting theadjustments made to the quantum allowanceU/s.80HH and 80I of the I.T. Act?” 2.“Whether, on the facts and in the circumstancesof the case, the Appellate Tribunal is justified inholding that the intimation given U/s. 143(i)(a) isbeyond the scope of that Section?”of the case, the Appellate Tribunal is justified inholding that the intimation given U/s. 143(i)(a) isbeyond the scope of that Section?” 3.“Whether, on the facts and in the circumstancesof the case, the Appellate Tribunal is justified indeleting the additional tax levelled U/s.143(1A)?”of the case, the Appellate Tribunal is justified indeleting the additional tax levelled U/s.143(1A)?” 4.“Whether on the facts and in the circumstancesof the case, the Appellate Tribunal is correct inadjudicating the validity of proceedings U/s.143(1)(A) in an appeal arising out of proceedings U/s.143(1)(a) in an appeal arising out of proceedingsU/s.154 of the I.T.Act”?of the case, the Appellate Tribunal is correct inadjudicating the validity of proceedings U/s.143(1)(A) in an appeal arising out of proceedings U/s.143(1)(a) in an appeal arising out of proceedingsU/s.154 of the I.T.Act”? 2) The brief facts of the case are that the assessee filed an appeal before the Income Tax Appellate Tribunal with regard to theenhancement of the income returned from Rs.17,17,757/- toRs.20,18,362/-. The assessee company, in its original return, claimeddeductions under Sections 80HH and 80-I of the Income Tax Act (forshort, “the Act”) on the income without setting off the unabsorbedinvestment allowance amounting to Rs.5,78,605/-. The said return was processed under Section 143(1)(a) of the Act on 01.10.1993 andthe deductions under Sections 80HH and 80-I of the Act had beencomputed after setting off the aforesaid unabsorbed investmentallowance. Being aggrieved, the assessee company filed a petitionunder Section 154 of the Act before the Assessing Officer claiming deductions under Sections 80HH and 80-I of the Act in view of thedecision reported in CIT v. Tarun Udyog[[1]] and the same wasrejected by the Assessing Officer. Aggrieved by the same, theassessee filed the appeal before the Income Tax Appellate Tribunal,Hyderabad Bench-A. The Income Tax Appellate Tribunal by its orderdated 18.10.2000 in I.T.A.No.769/Hyd/1996 for the assessment year1992-93 allowed the appeal deleting the additional tax in relation toadjustment with regard to computation of deductions under Sections80HH and 80-I of the Act and levying additional tax in relation to suchadjustments while setting aside the said order dated 18.10.2000,referring the above said questions for opinion of this Court. Hence,this appeal. 3) Heard the learned Senior Standing Counsel for the Income TaxDepartment Sri S.R. Ashok, assisted by Sri S. Seshidhar Reddy, forthe Income Tax Department and the learned Senior Advocate for theassessee Sri S. Ravi, assisted by Sri P. Kiran. 4) The Tribunal in its order has recorded the following: 3) Heard the learned Senior Standing Counsel for the Income TaxDepartment Sri S.R. Ashok, assisted by Sri S. Seshidhar Reddy, forthe Income Tax Department and the learned Senior Advocate for theassessee Sri S. Ravi, assisted by Sri P. Kiran. 4) The Tribunal in its order has recorded the following: “It is true that the law relating to the manner ofcomputation of deductions available underSections 80HH and 80-I of the Act has beensettled by the successive decisions of the Hon’bleSupreme Court reported in 203 ITR 1027 and 205ITR 433, etc. In the circumstances, thedeductions claimed by the assessee should havebeen computed after giving effect to theunabsorbed balances of investment allowance. As far as the assessment is concerned, the aboveposition is correct. But, we are concerned herewith the issue whether the re-working of deductions under Sections 80HH and 80-I of theAct could be made under the provisions of Section143(1)(a) of the Act through the medium of prima-facie adjustment contemplated there under. Thereturn of income was filed on 31.12.1992. At thattime, the law relating to the deductions asaforesaid was filed. It is apparent from the factthat the decision of the Orissa High Court in Tarun Udyog (1supra) has upheld the view taken by theassessee in this case. At that point of time, thesaid decision alone was available as a direct case-law on the subject. It is not proper to say thatthere was no dispute on this point simply becauseof the wordings in Section 80AB of the Act. It wasmuch disputed at that time. The issue wasdebatable was manifest from the fact that theOrissa High Court decided the matter in favour ofthe assessee, whereas the subsequent decisionsof the Supreme court were in favour of therevenue. Therefore, while the issue was subjectto much discussion and amenable to differentviews, the assessee was justified in relying on theonly decision available at that point of time, whichwas in its favour. The Supreme Court has held in arecent decision in CIT vs. Hindustan [2]Electrographites.That the applicable in a caseis the law obtaining on the date of filing of thereturn. This was the view taken by the High Courtof Calcutta in an earlier occasion in the case of [3]Modern Fibotex vs. DCIT. In that view of thematter, there is no doubt that the assessee wasbound by the law as it stood at the time of filing ofthe return of income. The return was filed on31.12.1992. At that time, the issue was not settledby the decisions of the Apex Court, and the onlydecision of the Orissa High Court in Tarun Udyog(1 supra) was in its favour. Therefore, one has tohold that the point at issue was very much adebatable one at the time when the assessee filedthe return. Therefore, no alteration in the quantumof deductions claimed by the assessee underSections 80HH and 80-I of the Act could be madeby way of prima facie adjustments whileprocessing the return under Section 143(1)(a) ofthe Act. Any such thing can be done only in the course of a regular assessment. This isparticularly so, in view of the Bombay High Courtdecision in the case of Khatau Junker Ltd., and[4]another vs. K.S. Pathania and another.Therefore, we are of the view that the assessingofficer has gone wrong in restricting the quantumof deductions claimed under Sections 80HH and80-I of the Act, while processing the returns underSection 143(1)(a) of the Act. In this view of thematter, we set aside the adjustments made by theassessing officer, and delete the additional taxlevied in relation to those adjustments.” 5) The short questions in this present appeal are that 1) Whether on account of the fact the issue relatingto the allowability of deductions under Section 80HH and 80 I of the Act on the income withoutsetting of the unabsorbed investment allowancebeing debatable?to the allowability of deductions under Section 80HH and 80 I of the Act on the income withoutsetting of the unabsorbed investment allowancebeing debatable? 5) The short questions in this present appeal are that 1) Whether on account of the fact the issue relatingto the allowability of deductions under Section 80HH and 80 I of the Act on the income withoutsetting of the unabsorbed investment allowancebeing debatable?to the allowability of deductions under Section 80HH and 80 I of the Act on the income withoutsetting of the unabsorbed investment allowancebeing debatable? 2) Whether a prima facie adjustment can be madeunder Section 143 (1A) of the Act?under Section 143 (1A) of the Act? 6) The facts on record would reveal that as on the date of theAssessing Officer processing the return under Section 143(1A) of theAct i.e. 01.10.1993, whether deduction under Section 80HH and 80 I ofthe Act should be computed after setting off the unabsorbedinvestment allowance or not was in a fluid stage, on account of the factthat the judgment of the Orissa High Court reported in Tarun Udyogcase (1[st] Supra) was in favour of the assessee and that was only adecision available on the issue. The Orissa High Court judgment wasnot accepted by the department as in the opinion of the AssessingOfficer in terms of Sections 80 AB and 80 B(5) of the Act, thedeductions under Chapter VIA could be allowed only after setting ofunabsorbed balances sought by the assessee under section 154 of theAct. The Crucial aspect that is required to be considered by theAssessing Officer under Section 154 of the Act is whether the primafacie adjustment which has been made as on the date of 01.10.1993 could have been made at all. In the light of the judgment of theSupreme Court reported in Hindustan Electrographites (2[nd] Supra),it isimpermissible to make prima facie adjustments while processingthe return under Section 143 (1)(A) of the Act. 7) Sri S. Seshidhar Reddy, learned Standing Counsel for theDepartment would submit that the view taken by the Assessing Officerwhile passing the order under Section 154 of the Act isunexceptionable and in fact as on that date the law is well settled onaccount of the judgment of the Supreme Court reported in the cases ofH.H. Sir Rama Varma Vs. CIT[[5]]and Sabarkantha Zilla Kharid Vechan Sangh Ltd., Vs. CIT[[6]], holding that the deduction underSection 80 HH and 80 I of the Act can be allowed only after setting offunabsorbed investment allowance. He would also point out that in thatview of the matter, the judgment of the Orissa High Court in Tarun Udyog Ltd., (1[st] Supra) is of no avail to the assessee. He would alsosubmit that once the law is declared by the Supreme Court suchdeclaration is only enunciation of law and the same would be from thetime the statutory provision came into existence. He would furthersubmit that the Assessing Officer while passing common order underSection 154 of the Act could not have taken the opinion contrary to thelaw declared by the Supreme Court. He would place reliance on thejudgment of the Supreme Court reported in Narayana Row (S.A.L.)CIT Vs. Model Mills Nagpur ltd.,[[7]]and also the judgment reported inthe case of Assistant Commissioner, Income Tax, Rajkot Vs.Saurashtra Kutch Stock Exchange Ltd.,[[8]]. 8) In our opinion the judgments in Narayna Row case (7[th] Supra)and Saurashtra Kutch case (8[th] supra) have no application to thefacts of the case as in the first judgment the Supreme Court wasconcerned with refund of excess tax paid. The application seeking refund was treated by the High Court as a request for rectificationwhich was ordered. The Supreme Court confirmed the same noticingeven the Commissioner while dealing with the said application forrefund treated that the application as an application for rectification. 9) As a matter of fact, the judgment of the Calcutta High Court wasapproved by the Supreme Court, which held for the purpose ofattracting Section 143 (1A) of the Act, the law as applicable as on thedate of filing of the return should be the basis for processing the return. refund was treated by the High Court as a request for rectificationwhich was ordered. The Supreme Court confirmed the same noticingeven the Commissioner while dealing with the said application forrefund treated that the application as an application for rectification. 9) As a matter of fact, the judgment of the Calcutta High Court wasapproved by the Supreme Court, which held for the purpose ofattracting Section 143 (1A) of the Act, the law as applicable as on thedate of filing of the return should be the basis for processing the return. 10) Likewise, the issue involved in the Saurashtra Kutch StockExchange Ltd., case (8[th] Supra) is with regard to what could beconsidered as a mistake apparent from the record. This judgment wasrelied on by the learned counsel to support his contention that therectification application filed under Section 154 of the Act itself was notmaintainable as it cannot be said that the Assessing Officer hadcommitted an error which is borne on the face of record. He wouldfurther submit that the original order made by the Assessing Officerwas in the light of Section 80 (AB) of the Act and other statutoryprovisions. In that view of the matter, the original order of theAssessing Officer is valid and the refusal made by the AssessingOfficer in refusing the same under Section 154 of the Act cannot befound fault. 11) On the other hand the learned counsel for therespondent/assessee would submit that the issue is squarely coveredby the judgment of the Supreme Court in Hindustan Electrographites(2[nd] Supra), whichin fact had approved the judgment of the CalcuttaHigh Court reported in Modern Fibotex (3[rd] supra). He would furthersubmit that the provisions of Section 23 (1A) of the Act as applicable atrelevant point of time were penal in nature imposing an additionalburden on the assessee. And invocation of Section 23 (1A) of the Act by the Assessing Officer at the time of passing the original assessmentwas not in order on account of the fact that the return filed by theassessee is based on the law prevailing on the date of filing of thereturn. He would draw the specific attention of the Court to the Para-9in the case of Hindustan Electrographites (2[nd] supra), wherein itwas held that “The High Court was further of the view that there waslimitation on the power under Section 143(1)(a) and that the AssessingOfficer must determine the question of assessment thereunder byapplying the law prevailing when the return was filed”, which wasmade while referring to the judgment of the Calcutta High Court inModern Fibotex India Ltd., case (3[rd] Supra). 12) The learned counsel would also relied on the Judgment of theDelhi High Court reported in Samtel Color Limited Vs. Union of India (UOI) and Ors.,[[9]] wherein it was held as under: 19. The next question raised for consideration is to thelaw prevailing at a particular time - whether the timewhen the return was filed on when the AssessingOfficer makes the adjustments - would be relevant forjudging whether the deduction, allowance or reliefclaimed by the assessed in the return of income wascorrect or not?. Alternatively put, whether the questionof correctness of the return is to be considered in thelight of the law prevailing at the time of filing of the returnor at the time of adjustment by the Assessing Officer. 20. In Modern Fibotex case (3[rd] Supra) the CalcuttaHigh Court, when called upon to consider a similarquestion, held that the power of the Assessing Officerunder Section 143(1)(a)of the Act was to determine thecorrectness of the return in the light of the law prevailingat the time when the return was filed. It was observed: "Without going into the question as to whether theprovisions are penal in nature, but keeping in mind theconsequences of an adjustment made and theinsistence upon the assessed filing a correct return, itwould follow that the date for judging the question ofadjustment must be the actual date of the return in thelight of the law then prevailing. To hold otherwise, 20. In Modern Fibotex case (3[rd] Supra) the CalcuttaHigh Court, when called upon to consider a similarquestion, held that the power of the Assessing Officerunder Section 143(1)(a)of the Act was to determine thecorrectness of the return in the light of the law prevailingat the time when the return was filed. It was observed: "Without going into the question as to whether theprovisions are penal in nature, but keeping in mind theconsequences of an adjustment made and theinsistence upon the assessed filing a correct return, itwould follow that the date for judging the question ofadjustment must be the actual date of the return in thelight of the law then prevailing. To hold otherwise, manifestly shocks one's sense of justice that an act,correct at the time of doing it, should become incorrectby some new enactment" Clarifying further with reference to the amendment inlaw involved in that case the Court said: "Additionally, the change in the law by amendment ofSection 28took place several months after the returnwas filed by the assessed. This Court is not determiningthe validity of the amendment of Section 28, but ismerely determining the scope of the power underSection 143(1)(a). The assessed's return could havebeen taken up by the Assessing Officer under Section143prior to the amendment. In that event, noadjustment would have been made and no intimationwould have been sent. An assessed's liability cannot bemade to depend upon such a fortuitous circumstance." 24. We have, Therefore, no hesitation in holding that thequestion of prima facie adjustment under Section 143(1)(a)of the Act has to be considered with reference to thedate on which the return of income is filed and not withreference to the events subsequent thereto. 33. Testing the rival stands on the touchstone of theinterpretation given by us to the legal provisions,particularly to the first proviso to Section 143(1)(a)of theAct, we are of the opinion that insofar as the claim of theassessed in treating the sales promotion assistance ascapital receipt is concerned, in view of the fact that asimilar claim in respect of earlier year had beenaccepted by the Assessing Officer in a regularassessment, it seems difficult to hold that it was primafacie inadmissible as on the date of filing of return for therelevant assessment year. Merely because later on theclaim was sought to be withdrawn or the issue wasfinally decided by the Apex Court against the assessedafter the filing of the return, it cannot be held that as faras the assessed is concerned, the claim in the returnwas incorrect at the threshold. 13) The judgment of the Supreme Court and the judgment of theDelhi High Court squarely covers the point in issue in favour of theassessee. As a matter of fact, the Tribunal while deciding the issuehad followed the judgment of the Supreme Court reported in Hindustan Electrographites (2[nd] Supra). In the light of thejudgments referred to supra, taking the view, the Assessing Officer hasto take into consideration while processing the return under Section143 (1A) of the Act, the law prevailing as on the date of the filing of thereturn. The order originally passed by the Assessing Officer on01.10.1993 itself not being in conformity with the statutory scheme anorder of the Tribunal in holding that in setting aside the assessmentorder cannot be faulted. However, it may be noticed that the Tribunalhad taken care to apply the law as laid down by the Supreme Court inthe cases of H.H. Sir Rama Varma and Sabarkantha Zilla Kharid Vechan Sangh Ltd., (5[th] and 6[th] supra) by observing that “Therefore,no alteration in the quantum of deductions claimed by the assesseeunder Section 80-HH and 80-I of the Act could be made by way ofprima facie adjustments while processing the return under Section 143(1) (a). Any such thing can be done only in the course of a regularassessment.” Vechan Sangh Ltd., (5[th] and 6[th] supra) by observing that “Therefore,no alteration in the quantum of deductions claimed by the assesseeunder Section 80-HH and 80-I of the Act could be made by way ofprima facie adjustments while processing the return under Section 143(1) (a). Any such thing can be done only in the course of a regularassessment.” 14) In the light of the discussion above, Question Nos.1 to 3 arerequired to be answered in the negative i.e. against the revenue and infavour of the asssessee. So far as Question No.4 is concerned onperusal of the order of the Tribunal we find that there was no questionraised and argument advanced with respect to the said issue and inthat view of the matter, and in view of the judgment of the Supreme Court in CIT Bombay Vs. Scindia Steam Navigation Co. Ltd.,[[10]]the question cannot be said to have arisen from the order of theTribunal. Hence, we decline to answer the same. 15) Accordingly, the appeal is disposed of. No order as to costs.Miscellaneous Petitions, if any, pending in this appeal shall standclosed. ____________________ G. CHANDRAIAH, J ____________________________ CHALLA KODANDA RAM, J Date: 03.12.2013.Ssv HON'BLE SRI JUSTICE G. CHANDRAIAHANDHON’BLE SRI JUSTICE CHALLA KODANDA RAM Ssv [1] 191 ITR 688[2]243 ITR 48 [3]212 ITR 476 [4]196 ITR 55 [5]205 ITR 433 [6]203 ITR 1027 [7]1967 (064 ITR 0067 [8]305 ITR 227 (SC) [9]99 (2002) DLT 764 [10]AIR 1961 SC 1633 I.T.T.A. No.101 OF 2001 Date:03.12.2013.