Vijay Solvex Ltd v. Commissioner Of Income Tax, Alwar

IN THE HIGH COURT OF JUDICATURE FOR RAJASHANAT JAIPUR BENCH, JAIPUR :: JUDGMENT :: D.B. INCOME TAX APPEAL NO.141/ 2004 Vijay Solvex Ltd. Vs. Commissioner of Income Tax, Alwar 26.2.2015 HON'BLE THE ACTI NG CHI EF JUSTI CE MR. SUNI L AMBW ANIHON'BLE MR. JUSTI CE PRAKASH GUPTA Mr.Sanjay Jhanwar for the assessee.Ms.Parinitoo Jain with Mr.Mukesh Meena for the Revenue. * * * * * * * * Reportable 1.We have heard learned counsels for the parties. 2.This Income Tax Appeal under Section 260A of the Income TaxAct, 1961 was admitted on the following substantial questions of law: - “1. Whether the “Profits and Gains” of current year of theeligible undertaking would be relevant for computingdeduction u/ s.80HH and 80I of the Act or the incomecomputed after reducing depreciation allowance u/ s.32(1)shall be relevant for these deductions? 2. Whether a “prima facie adjustment” u/ s.143(1)(a) of the Act can be made in respect of the quantum of deductionu/ s.80HH and 80I of the Act. When there are more than onearguable methods of computing these deductions?”u/ s.80HH and 80I of the Act. When there are more than onearguable methods of computing these deductions?” 3.The first question, in respect of the same assessee, was decided in favour of the Department and against the assessee, in D.B.I n com e Tax Appeal No.1 25 / 2 0 04 ( Vij ay Solv ex Lt d. vs.Com m ission er of I n com e Tax , Alw ar) decided on 24.02.2015,following the judgment of Division Bench of this Court in D.B.I n com eTax Appeal No.1 8 5 / 2 0 0 4 ( Vij ay Solvex Lt d. vs. Com m ission erI n com e Tax Appeal No.1 25 / 2 0 04 ( Vij ay Solv ex Lt d. vs.Com m ission er of I n com e Tax , Alw ar) decided on 24.02.2015,following the judgment of Division Bench of this Court in D.B.I n com eTax Appeal No.1 8 5 / 2 0 0 4 ( Vij ay Solvex Lt d. vs. Com m ission er of I n com e Tax , Alw ar )alongwith two connected appeals, decided on06.01.2014. This question is covered in the case of the assessee and isthus, decided in favour of the Department and against the assessee. 4.On question No.2, it is submitted that the adjustment underSection 143(1)(a), cannot be carried out, which is admissible orinadmissible by the Assessing Officer. The word “prima facie” means'on the face of it', and hence, adjustment referred to in clause (ii) tothe proviso of Section 143(1)(a) relates to any error in not claimingany loss carried forward deduction allowance, or relief, which on theface of it, is admissible, and the adjustment referred to in clause (iii) ofthe proviso relates to an error in claiming any loss, carried forwarddeduction, allowance or relief, which on the face of it, is notadmissible. 5.Learned counsel appearing for the assessee has relied onInstruction No.1814 issued by the Central Board of Direct Taxes on04.04.1989, explaining the object of amendment in under Section 143,and its relevance for the assessment year 1989-90, and subsequentyears, to the effect that the error, in either case, should be patent orobvious or apparent. In fact, for determining whether there is a primafacie error for purposes of making an adjustment under the aforesaidproviso, it will be correct and proper to apply the same test, as hasbeen laid down by the Supreme Court, for purposes of rectification ofmistakes under Section 154 of the Act, only if it is an obvious andpatent mistake, and not something, which can be established by a longdrawn process of reasoning on points, on which there may conceivablybe two opinions, vide T.S.Balar am I TO Vs. M/ s.Volk ar t Br ot h er s,8 0 I TR 5 0 ( SC). 6.Learned counsel appearing for the assessee has also relied onKvaver n er Joh n Br ow n En gg.( I n dia) ( P) Lt d. Vs. Assist antCom m ission er of I n com e Tax , ( 2 0 0 8 ) 1 7 0 Tax m an 3 0 4, in which,in paragraph 6, the Supreme Court held as follows: - “6. We find merit in this civil appeal. As stated above, we areconcerned with the asst.yrs. 1996-97 and 1997-98. One of themain conditions stipulated by way of the first proviso to s.143(1)(a), as it stood during the relevant time, referred to primafacie adjustments. The first proviso permitted the Departmentto make adjustments in the income or loss declared in the return in cases of arithmetical errors or in cases where anyloss carried forward or deduction or disallowance which on thebasis of information available in such return was prima facieadmissible but which was not claimed in the return or in caseswhere any loss carried forward, or deduction or allowanceclaimed in the return which on the basis of informationavailable in such return was prima facie inadmissible. In thepresent case, therefore, when there were conflictingjudgments on interpretation of s.80-O, in our view, prima facieadjustments contemplated under s.143(1)(a) was notapplicable and, therefore, consequently appellant was notliable to pay additional tax under s.143(1A) of the 1961 Act.”loss carried forward or deduction or disallowance which on thebasis of information available in such return was prima facieadmissible but which was not claimed in the return or in caseswhere any loss carried forward, or deduction or allowanceclaimed in the return which on the basis of informationavailable in such return was prima facie inadmissible. In thepresent case, therefore, when there were conflictingjudgments on interpretation of s.80-O, in our view, prima facieadjustments contemplated under s.143(1)(a) was notapplicable and, therefore, consequently appellant was notliable to pay additional tax under s.143(1A) of the 1961 Act.” 7.It is submitted that there were different views expressed bydifferent High Courts, on the admissibility of deductions under Sections80HH & 80I, and thus, the adjustment could not have been made atthe stage of Section 143(1)(a). The question was not so prima facieapparent, from the reading of the Act. It was debatable, on the daywhen the order under Section 143(1)(a) was passed. 8.Learned counsel appearing for the assessee has also relied onM/ s. Vij ay I n dust r ies Vs. Com m ission er of I n com e Tax ( Civil-Appeal Nos.1 5 8 1 1 5 8 2 of 2 0 0 5 )decided on 05.11.2014, in which a two-Judge Bench of the Supreme Court, in paragraph 8 of thereference relied on by learned counsel appearing for the assessee, heldas follows: - “8 . In paragraph 5 of the judgment in Motilal Pesticides(Supra), Shri Ramamurthhi, learned senior counsel appearingfor the appellant submitted that both Cloth Traders andDistributors (Baroda) were cases which pertained to Section80-M only and this Court had no occasion to consider theapplication of Section 80-AB with reference to Section 80-HH ofthe Act. The Court in repelling this contention referred toanother decision in H.H. Sir Rama Varma V. CIT (1994) Supp.(1) SCC 473, which judgment dealt with the then newlyenacted Section 80-AA and 80-AB. Both these sections againare relatable to deductions made under Section 80-M; Section80-T with which that judgment was concerned also uses theexpression “any income” as opposed to “profits and gains”. Itwill be clear, therefore, that prima facie Varma's case againhas very little to do with the concept of “profits and gains” withwhich we are concerned here. For these reasons, the mattersbe placed before the Hon'ble Chief Justice of India to constitutean appropriate Bench to consider the correctness of thejudgment in Motilal Pesticides (supra). ..........J.[ RANJAN GOGOI]...........J. [ ROHINTON FALI NARIMAN] ” 9.We do not find that the argument raised is tenable, inasmuch as,all the authorities, namely, the Assessing Officer, Commissioner ofIncome Tax (Appeals) and the Income Tax Appellate Tribunal, haveconsistently held that the deduction claimed under Sections 80HH and80I was admissible, only after adjustment of current year'sdepreciation. It was not a debatable issue, at all. The Tribunal inparagraph 7 of the order, recorded its opinion as follows: - “7 . We agree with the view of the ld. Commissioner ofIncome-tax (A) that plain reading of the Act suggests thatdeduction for depreciation should be allowed beforecomputing the profits and gains of business. This contentionalso finds support from the decision of the jurisdictional HighCourt in the case of CIT Vs. Loonkar Tools Pvt. Ltd., (1995),213 ITR, 721. In this decision, it was held that depreciationand investment allowance are deductible before giving thespecial deduction under Section 80 HH. We are also of theopinion that the decisions relied upon by the AR are of nohelp. This is not a case of penalty levied for concealment ofincome. Therefore, the additional tax was not of penal natureand it was of a compensatory nature. For this proposition, thereliance is placed in the case of Sati Oil Udyog Ltd. Vs. CIT(1998), 232 ITR 502, 507 (Gau.). Therefore, we do not findany infirmity in the order of the ld. CIT(A).” 10.The question No.2 is not on admissibility of the deductions underSections 80HH & 80I of the Act. The order passed under Section 143(1)(a), was served upon the assessee with additional tax, fordisallowing the deduction, before allowing current year's depreciation.The question is one of computation, namely whether depreciationshould be allowed before or after computing the profits and gains ofbusiness. The method is clear from a plain reading of the Act. Thejurisdictional High Court, with which the Assessing Officer was boundon the relevant date, also held in CIT Vs. Loonkar Tools Pvt. Ltd.,(1995) 213 ITR 721, that the depreciation and investment allowancesare deductible before allowing deduction under Section 80HH of theAct. Something, which is obvious, and which is clearly spelt out fromthe plain reading of the statute, does not become arguable, justbecause the counsel appearing for the assessee states it to be so. 11.Before the Commissioner of Income Tax (Appeals), an argumentwas raised that the return was filed, claiming deductions underSections 80HH & 80I, computed on the basis of the decisions ofvarious Tribunals and High Courts. Learned counsel appearing for theassessee however, could not cite any decision, and had referred onlyto some written argument, which he had filed in other case. 12.On the aforesaid discussion, we are of the view that 'prima facieadjustment' under Section 143(1)(a) could be made, in respect of thetax due, under Sections 80HH & 80I, only after allowable depreciationswere claimed and computed. There was no other or alternative methodof computing the deductions, available on the date when the AssessingOfficer had made the orders under Section 143(1)(a) of the Act. 13.The question of law is thus, decided in favour of the Departmentand against the assessee. 14.This Income Tax Appeal is dismissed. ( PRAKASH GUPTA) ,J. ( SUNI L AMBW ANI ) ,ACTG.CJ. Skant/ -, Proof Reader Al l t he cor r ect i ons made i n t he j udgment / or der have been i ncor por at edi n t he j udgment / or der bei ng emai l ed. Shashi Kant Gaur ,Pr oof Reader