The Learned Counsel For The Asseessee Has Placedbefore Us The Decisions Of The Hon'ble Supreme Court Inkedarnath Jute Mfg.co.ltd v. Ita 358/2010

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY,THE 14TH DAY OF NOVEMBER 2018 / 23RD KARTHIKA, 1940 ITA.No. 358 of 2010 AGAINST THE ORDER/JUDGMENT IN ITA 616/2005 of I.T.A.TRIBUNAL,COCHINBENCH DATED 04-06-2010 APPELLANT/S: M/S FCI TECHNOLOGIES SERVICES LIMITEDXXIX/2087,VYTTILA, THYKOODAM, COCHIN-19 BY ADVS.SRI.E.K.NANDAKUMAR (SR.)SRI.K.JOHN MATHAISRI.P.BENNY THOMASSRI.P.GOPINATH RESPONDENT/S: THE ASSISTANT COMMISSIONER OF INCOME TAXCIRCLE 1(2), ERNAKULAM. SRI PKR MENON SR FOR GOI TAXES OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.11.2018, THECOURT ON THE SAME DAY DELIVERED THE FOLLOWING: "C.R." JUDGMENT Vinod Chandran, J. We are again concerned with the question as to whethera claim raised for the first time before the AppellateAuthority, which claim was not available in the returnfiled before the Assessing Officer, nor a revised returnwithin the time stipulated; could be considered in appeal. 2.The learned Counsel for the asseessee has placedbefore us the decisions of the Hon'ble Supreme Court inKedarnath Jute Mfg.Co.Ltd. v. C.I.T., (1971) 82 ITR 363(SC), Addl.C.I.T v. Gurjargravures Private Ltd., [1978] 111ITR 1 (SC), NTPC Ltd. Vs C.I.T, [1998] 229 ITR 383 andGoetze (India) Ltd. v. C.I.T, [2006] 284 ITR 323 (SC).Before we look at the decisions, on facts it has to bestated that the here the assessee, who is the appellant,had filed a return and being a firm engaged in thedevelopment of software, claimed exemption under Section10A of the Income Tax Act, 1961 (for short “the Act”). The exemption was declined and a first appeal was filed asagainst the claim being disallowed. In the first appeal, afurther contention was taken that the lease rent paid bythe assessee with respect to certain equipment was notclaimed as expenditure. A claim for allowance of businessexpenditure to the extent of the lease rent paid was madebefore the First Appellate Authority. The First AppellateAuthority and the Tribunal declined to consider the samerelying on the decision in Goetze (India) Ltd. The learnedCounsel also places reliance on the judgment dated30.05.2018 of this Court in ITA No.96/2010 (C.I.T v. M/s Malayala Manorama Co.Ltd.) 3.Kedarnathis relied on to contend that theassessee's entitlement to a particular deduction willdepend on the provision of law relating thereto and not theassessee's understanding of his rights. We bow to the saidproposition, but the fact remains that the assesee has tomake a claim in its returns or the facts necessary toassert such deduction should be available in the assessmentrecords. Kedarnath is also in the peculiar circumstances of the sales tax dues being determined in the course of theincome tax assessment. The refusal to consider thededuction was also on the ground of the sales tax liabilitybeing challenged in appeal and no provision having beenmade in its books. We do not think the decision would helpthe assessee on the questions arising here. 4.In Gurjargravures Private Ltd., an appeal wasfiled against the assessment order, in which one of thegrounds raised was the denial of benefit under Section 84of the Act. In fact, the assessee had never raised a claimunder Section 84 before the A.O. The Hon'ble Supreme Courtfound that it is not a rule of law that no additionalground could be raised before the Appellate AssistantCommissioner, since there could be circumstances in whichthe ground was raised only due to change of circumstancesor law. It was also held that there could be several otherfactors justifying raising of a new plea in appeal and eachcase has to be considered on its facts. It was stated as asettled position that the various items of income ordeductions, which have been subjected to the process of assessment, constitute the subject matter of assessment,and that if there is any item of income or claim fordeduction, which is not processed by the Income TaxOfficer, it would not be a part of the subject matter ofassessment and the Appellate Assistant Commissioner wouldnot have the power to consider and process it in an appealpreferred by the assessee. The High Courts view on thefacts in the cited case, that though the deduction was notclaimed, the fact remains that the portion of income wasbrought to tax and hence clearly forms the subject matterof assessment, did not find favour with the Hon'ble SupremeCourt. Rejecting the assessee's claim under Section 84 forthe same having not been a subject matter of assessment,the Hon'ble Supreme Court held so: “What “consideration” by the Income TaxOfficer means in this context was also explained:“... ‘consideration’ does not mean incidental orcollateral examination of any matter by the IncomeTax Officer in the process of assessment. Theremust be something in the assessment order to showthat the Income Tax Officer applied his mind tothe particular subject-matter or the particularsource of income with a view to its taxability orto its non-taxability and not to any incidentalconnection”. If, as held in this case, an item of income noticed by the Income Tax Officer but notexamined by him from the point of view of itstaxability or non-taxability cannot be said tohave been considered by him, it is not possible tohold that the Income Tax Officer examining aportion of the profits from the point of view ofits taxability only, should be deemed to have alsoconsidered the question of its non-taxability. Aswe have pointed out earlier, the statement of casedrawn up by the Tribunal does not mention thatthere was any material on record to sustain theclaim for exemption which was made for the firsttime before the Appellate Assistant Commissioner.We are not here called upon to consider a casewhere the assessee failed to make a claim thoughthere was evidence on record to support it, or acase where a claim was made but no evidence orinsufficient evidence was adduced in support. Inthe present case neither any claim was made beforethe Income Tax Officer, nor was there any materialon record supporting such a claim. We thereforehold that on the facts of this case, the questionreferred to the High Court should have beenanswered in the negative.” (underlining by us for emphasis) 5.NTPC Ltd. was a case in which the interest incomeon short term deposit was offered for assessment andassessed. On second appeal before the Tribunal, anadditional ground was raised that the offer made forassessment of the interest income was an erroneousadmission. The Hon'ble Supreme Court found that theTribunal could have answered the issue under Section 254 of (underlining by us for emphasis) 5.NTPC Ltd. was a case in which the interest incomeon short term deposit was offered for assessment andassessed. On second appeal before the Tribunal, anadditional ground was raised that the offer made forassessment of the interest income was an erroneousadmission. The Hon'ble Supreme Court found that theTribunal could have answered the issue under Section 254 of the Act. In Malayala Manorama Co.Ltd. with respect to anascertained amount, deduction was claimed under Section 37,as business expenditure, which was disallowed inassessment. The assessee in appeal claimed, if it cant beallowed under section 37, it could be allowed under Section80G. In both the above cases the claim was the subjectmatter of assessment. In the former, there was anassessment made of an income and in the latter there was analternative claim for deduction made under a differentprovision of the ascertained amount.6.In Goetze (India) Ltd. the issue raised was thatthe A.O. did not consider a letter submitted before himprior to finalisation of the assessment. After the periodfor revised assessment, raised a claim which did not figurein the return. The Hon'ble Supreme Court distinguishedNTPC Ltd. insofar as finding that the A.O. did not have anyauthority to so consider a claim made, which was not raisedin the return. The learned Judges of the Supreme Court inGoetze (India) Ltd. was careful to observe that they haddecided, only on the power of the A.O. and this need not be taken as impinging upon the power of the Appellate Tribunalunder Section 254 of the Act. On the power of theappellate authorities we have to fall back upon Gurjargravures Private Ltd. 7.The learned Senior Counsel, Government of India(Taxes) points out that the First Appellate Authority hadspecifically found that the claim was not decipherable evenfrom the accounts, since the Profit & Loss Account did notshow the expenditure towards the leased equipment. Thelearned Counsel for the appellant would submit that thecash out flow is shown in the balance sheet. For nothaving raised the claim, the explanation is that under theCompanies Act, the depreciation on both owned assets andleased assets could be claimed, while under the Income TaxAct, depreciation claim is permissible only on the ownedassets. However, it is to be noticed that the appellant wasquite conscious of the fact that there could be nodepreciation claimed on leased assets under the Act sinceno such claim was made in the returns filed. Hence, theclaim not having been raised cannot be said to be a bona fide omission. The depreciation of leased assets havingnot been specifically claimed, the assessee was entitled toclaim business expenditure, of the lease rent, which theyhad not claimed in the return. There was no suchexpenditure shown in the Profit & Loss Account. The learnedCounsel specifically refers to the balance sheet asproduced by the assessee, along with the audit report tocontend that the rent outflow is specifically indicatedthere. That would not facilitate a consideration of theissue as a bona fide omission; since the claim was notraised due to sheer negligence and it had not even figuredin the profit and loss account. It was not the subjectmatter of assessment. The Hon'ble Supreme Court hadcategorically declared that the claim could be consideredin the event of the facts being evident from the recordsand the same being subject matter of assessment. In suchcircumstances, this is not a case which comes under thecover of the facts being evident from the records, whichwould enable consideration of the claim at the appellatestage. 8.We are not inclined to consider the claim of theassessee and we affirm the view of the Tribunal. We rejectthe appeal answering the question of law, on the factsavailable here, against the assessee and in favour of theRevenue. No costs. Sd/- 8.We are not inclined to consider the claim of theassessee and we affirm the view of the Tribunal. We rejectthe appeal answering the question of law, on the factsavailable here, against the assessee and in favour of theRevenue. No costs. Sd/- K.VINOD CHANDRANJUDGE dkr Sd/-ASHOK MENONJUDGE APPENDIX APPELLANT'S/(S) ANNEXURES: