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Commissioner Of Income-Tax v. Eveline International
Factual and Procedural Background
The assessee filed a return for assessment year 1987-88 declaring income of Rs. 20,79,206. The Assessing Officer framed assessment under section 143(3) on March 31, 1989 at Rs. 21,21,037. The return had claimed a deduction under section 80HHC of Rs. 45,94,000, based on auditors' calculations which the Assessing Officer accepted without examination at assessment.
The Assessing Officer later issued a notice under section 154 alleging that the section 80HHC deduction was wrongly computed because (i) deduction under section 32AB had not been deducted from export profits before computing section 80HHC, and (ii) the deduction under section 80HHC should have been computed on a proportionate basis under clause (b) of sub-section (3) rather than clause (a), given the domestic turnover.
The assessee responded that there was no mistake apparent from the record; the Assessing Officer rejected that and, by order dated January 29, 1990 under section 154, reduced the section 80HHC deduction to Rs. 37,68,101. The assessee appealed to the Commissioner of Income-tax (Appeals) (CIT(A)). Before the CIT(A) the assessee conceded it had no objection to computation of profits after deduction of allowance under section 32AB, but contested the turnover allocation and maintained the matter was not a mistake apparent from the record. The CIT(A) dismissed the appeal on May 21, 1990.
The assessee appealed to the Income-tax Appellate Tribunal (Tribunal). Before the Tribunal, the assessee advanced an additional ground challenging the initiation of proceedings under section 154; the Tribunal admitted this ground, relying in part on precedent (including Jute Corporation of India Ltd.). The assessee also relied on a Tribunal decision in Munjal Steel and on other authorities to contend that the issue whether export profits for section 80HHC were to be computed before or after allowance under section 32AB was contentious and not amenable to rectification under section 154. The Tribunal, by its order dated December 7, 1995, accepted that the issue was contentious and therefore not a mistake apparent from the record, allowed the appeal on that ground only and did not decide the merits.
The Revenue filed a reference application under section 256(1) before the Tribunal seeking reference to the High Court on three specified questions of law. The Tribunal rejected that reference application by its order dated January 31, 1997. The Revenue then filed the present application under section 256(2) of the Income-tax Act before this Court challenging the Tribunal's refusal to refer.
Legal Issues Presented
- Whether the Income-tax Appellate Tribunal was right in law in admitting the additional ground on an issue which was not adjudicated by the first appellate authority and was not even taken originally before the Income-tax Appellate Tribunal?
- Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in admitting the assessee's appeal regarding deduction under section 32AB from the profits, the assessee having already conceded the issue before the Commissioner of Income-tax (Appeals)?
- Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that deduction under section 32AB was not required to be made from the profits while working out deduction under section 80HHC?
Arguments of the Parties
Revenue's Arguments (Standing Counsel Shri R.P. Sawhney)
- The three questions of law arise out of the Tribunal's order and therefore ought to have been referred to the High Court.
- Emphasised that the assessee had conceded before the CIT(A) that it had no objection to the computation of profits after deducting allowance under section 32AB; accordingly, the assessee was debarred from disputing that point before the Tribunal.
Assessee's Arguments (Senior Advocate Shri B.S. Gupta)
- The additional ground admitted by the Tribunal was purely a legal ground not requiring factual inquiry, and therefore could validly be raised before the Tribunal; reliance was placed on the Supreme Court decision in Jute Corporation of India.
- There can be no concession on a pure point of law; therefore although the assessee had given no objection before the CIT(A) to computing profits after deduction under section 32AB, it could still agitate the point before the Tribunal.
- Question No.3 did not arise out of the Tribunal's order because the Tribunal did not record any finding that deduction under section 32AB was not required to be made; it only held the issue was contentious and not a mistake apparent from the record.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jute Corporation of India Ltd. v. CAT, [1991] 187 ITR 688 | Authority on when an additional ground/issue may be admitted before the Tribunal (used by Tribunal and relied on by assessee). | The Court held Question No.1 was "squarely covered" by this Supreme Court decision and therefore no useful purpose would be served by allowing a reference on that question. |
| Ahmedabad Electricity Co. Ltd. v. CIT, [1993] 199 ITR 351 (FB) | Reported High Court authority cited by the Tribunal in admitting the additional ground. | The Court noted the Tribunal had relied on this decision in admitting the additional ground; it formed part of the Tribunal's basis for admission but the Court did not disturb the Tribunal's reliance. |
| Ashok Vardhan Birla v. CWT, [1994] 208 ITR 958 (FB) | Reported High Court authority cited by the Tribunal in admitting the additional ground. | The Court observed the Tribunal relied on this decision among others in admitting the additional ground; the Court found no reason to require a reference on that point. |
| Munjal Steel (Tribunal order dated August 31, 1994) | Tribunal decision where a deduction under section 80-1 was ordered to be allowed on profits before setting off brought forward losses and before allowance under section 32AB. | The assessee relied on this decision before the Tribunal to support its position that section 32AB need not be deducted before computing section 80HHC. The High Court noted the Tribunal had relied on such earlier Tribunal decisions when finding the issue had more than one possible view. |
| CIT v. Tarun Udyog, [1991] 191 ITR 688 (Orissa High Court) | High Court decision relied upon by the Tribunal (via Munjal Steel) supporting the assessee's view. | The Court observed the Tribunal had relied on this decision (through prior Tribunal authority) as part of showing that a view in favour of the assessee was available; this supported the conclusion that the question was debatable. |
| T.S. Balaram ITO v. Volhart (Volkart) Brothers, [1971] 82 ITR 50 | Authority establishing that a matter on which two views are possible is not a 'mistake apparent from the record' and therefore not rectifiable under section 154. | The Court applied the principle: because the Tribunal found there could be more than one view on whether section 32AB should be deducted before computing section 80HHC, rectification under section 154 was impermissible; the Court endorsed the Tribunal's reliance on this authority. |
| Vijay Kumar Jain v. CIT, [1975] 99 ITR 349 | Authority for the proposition that a purely legal issue going to the root of controversy may be raised before the Tribunal even if not pressed before the first appellate authority. | The Court relied on this decision to hold that Question No.2 (relating to a concession before the CIT(A)) required no reference because a concession cannot bind on a pure point of law and such an issue can be agitated before the Tribunal. |
Court's Reasoning and Analysis
The Court reviewed the Tribunal's order and the submissions of the parties. It addressed each of the three questions sought to be referred:
- For Question No.1 (admission of an additional ground by the Tribunal), the Court held that the issue was already covered by the Supreme Court decision in Jute Corporation of India Ltd. As that Supreme Court authority directly governed the point, the Court concluded there was no useful purpose in ordering a reference to the High Court on that question.
- For Question No.2 (whether the assessee was precluded from disputing the computation after conceding before the CIT(A)), the Court agreed with the assessee's submission that "there can be no concession on an issue of law." The Court relied on its earlier decision in Vijay Kumar Jain v. CIT to hold that a pure point of law going to the root of the controversy can be raised before the Tribunal even if not pressed below. Accordingly, Question No.2 did not require a reference.
- For Question No.3 (whether the Tribunal wrongly held that deduction under section 32AB was not required to be made from the profits while working out section 80HHC), the Court found that this question did not, in fact, arise out of the Tribunal's order. The Tribunal had not held that section 32AB was not required to be deducted; it had only held that the issue was contentious and therefore not a mistake apparent from the record. The Court agreed that the Tribunal had relied on earlier Tribunal decisions and a decision of the Orissa High Court that supported the assessee's view, showing the existence of more than one tenable view. Applying the principle in Volhart (Volkart) Brothers, that matters on which more than one view is possible cannot be rectified under section 154, the Court found no fault in the Tribunal's conclusion.
Having addressed the three questions, and finding Questions No.1 and No.2 did not merit a reference (Q1 already covered by Supreme Court authority; Q2 being a pure point of law that could be raised), and Q3 not arising from the Tribunal's order, the Court concluded the application under section 256(2) must be dismissed.
Holding and Implications
DISMISSED
Holding: The application under section 256(2) of the Income-tax Act was dismissed. The Court refused to direct the Tribunal to draw up a statement of case and refer the three posed questions of law to the High Court.
Implications:
- The Tribunal's order (which admitted the additional ground and held that the issue whether section 32AB should be deducted before computing section 80HHC was contentious and not a mistake apparent from record) stands unreferenced and unchanged by this Court's order.
- Question No.1 was found to be governed by existing Supreme Court authority (Jute Corporation), so no reference was necessary.
- Question No.2 was declined reference because a pure question of law may be raised before the Tribunal despite any earlier concession before the first appellate authority.
- Question No.3 was not considered referable because it did not arise from the Tribunal's findings; the Tribunal merely held the matter was debatable and therefore not rectifiable under section 154 (a position the Court endorsed by reference to Volhart/Volkart).
- The Court's decision in this application does not purport to lay down any new legal principle beyond applying and following existing authorities cited in the opinion; the direct effect is limited to the dismissal of the present application and the preservation of the Tribunal's impugned order.
This summary is prepared strictly from the content of the provided opinion and does not add information not present in that opinion.
N.K Sud, J.:— This is an application under section 256(2) of the Income-tax Act, 1961 (for short “the Act”), seeking a direction to the Income-tax Appellate Tribunal, Chandigarh Bench (for short “the Tribunal”), to draw up a statement of the case and refer the following questions of law arising out of its order dated December 7, 1995, to this court:
“1. Whether, the Income-tax Appellate Tribunal was right in law in admitting the additional ground on the issue which was not adjudicated by the first appellate authority and not even taken originally before the Income-tax Appellate Tribunal?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in admitting the assessee's appeal regarding deduction under section 32AB from the profits, the assessee having already conceded the issue before the Commissioner of Income-tax (Appeals)?
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that deduction under section 32AB was not required to be made from the profits while working out deduction under section 80HHC?”
2. The assessee had filed its return of income for the assessment year 1987-88 on June 30, 1987, declaring an income of Rs. 20,79,206. The assessment was, however, framed at an income of Rs. 21,21,037 vide order dated March 31, 1989, passed under section 143(3) of the Act. In the return the assessee had claimed deduction under section 80HHC at Rs. 45,94,000 on the basis of the calculations made by the auditors in their report as prescribed under the Act. This is an admitted fact that while framing the assessment under section 143(3), the Assessing Officer had not examined these calculations and had accepted the same as such. Subsequently, the Assessing Officer issued a notice under section 154 on the ground that the deduction under section 80HHC had been wrongly computed in the following respects:
(i) deduction claimed under section 32AB had not been deducted out of the export profits while calculating the deduction under section 80HHC.
(ii) the total turnover of the assessee was Rs. 2,89,93,277 against which the export turnover was Rs. 2,88,82,353 and as such the deduction under section 80HHC had to be computed on proportionate basis under clause (b) of sub-section (3) of section 80HHC against the computation made under clause (a) of the said provision.
3. In response to the above notice, the assessee furnished a reply justifying the calculation made by the auditor and thereby submitting that there was no mistake apparent from the record which could be rectified under section 154 of the Act. The explanation of the assessee, however, was rejected and the Assessing Officer vide order under section 154 of the Act dated January 29, 1990, reduced the deduction under section 80HHC from Rs. 45,94,000 to Rs. 37,68,101. Aggrieved by the above order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) (for short “the CIT(A)”), Ludhiana. During the course of arguments before the Commissioner of Income-tax (Appeals), the assessee conceded that it had no objection to the computation of profits after deduction of allowance under section 32AB. However, it contested the other issue on the ground that out of the total turnover of Rs. 2,89,93,277 a paltry sale of Rs. 1,10,924 was in India which was mostly of the goods rejected by the foreign buyers and as such the entire turnover should be considered as export turnover for the purposes of section 80HHC. The assessee, therefore, justified the computation under clause (a) of sub-section (3) of section 80HHC. The assessee also contended that the mistake, if any, could not be considered to be a mistake apparent from the record as the matter needed a long drawn discussion and arguments. The contention of the assessee did not find favour with the Commissioner of Income-tax (Appeals) who dismissed its appeal vide order dated My 21, 1990.
4. Not satisfied, the assessee preferred a further appeal before the Tribunal. Before the Tribunal the assessee moved an additional ground of appeal challenging the very initiation of proceeding's under section 154 of the Act. This ground was admitted by the Tribunal as the validity of the action taken by the Assessing Officer under section 154 was already a subject-matter of challenge as per ground No. 2 and also in view of the decision of the apex court in the case of Jute Corporation of India Ltd. v. CAT, [1991] 187 ITR 688 and the decisions of the Bombay High Court in Ahmedabad Electricity Co. Ltd. v. CIT, [1993] 199 ITR 351 [FB] and in Ashok Vardhan Birla v. CWT, [1994] 208 ITR 958 [FB],
5. Before the Tribunal, the assessee did not press the ground relating to the calculation of deduction under section 80HHC by treating the entire turnover as export turnover. However, on the other issue, the assessee referred to the decision of the Tribunal, dated August 31, 1994, in the case of Munjal Steel wherein a deduction under section 80-1 was ordered to be allowed on profits before setting off the brought forward losses as well as allowance under section 32AB. In the aforesaid case, the Tribunal had relied on one of its earlier orders and also on the decision of the Orissa High Court in the case of CIT v. Tarun Udyog, [1991] 191 ITR 688. The assessee, therefore, justified the calculation made by the auditor for claiming the said deduction. It was further argued that at any rate the issue was of a highly debatable nature on which two views were clearly possible and as such it could not be said to be a mistake apparent from the record which could be rectified under section 154 of the Act. Reliance in this behalf was placed on the decision of the Supreme Court in T.S Balaram. ITO v. Volhart Brothers, [1971] 82 ITR 50. The Tribunal, vide order dated December 7, 1995, accepted the contention of the assessee that the issue whether the export profits for the purpose of calculation of deduction under section 80HHC was to be calculated before or after the allowance of deduction under section 32AB was a contentious issue and as such fell beyond the purview of being a mistake apparent from the record. The Tribunal allowed the appeal of the assessee on this ground only and did not go into the merits of the claim.
6. The Revenue thereafter filed a reference application under section 256(1) of the Act before the Tribunal seeking reference on the three questions of law as already detailed above. This application was rejected by the Tribunal vide order dated January 31, 1997, against which the present application under section 256(2) has been filed.
7. Shri R.P Sawhney, standing counsel for the Department, has strenuously argued that the three questions of law did arise out of the order of the Tribunal and ought to have been referred to the High Court. He specifically stressed on the concession before the Commissioner of Income-tax (Appeals) wherein it had given its no objection to the computation of profits after deducting the allowance under section 32AB. According to him, the assessee was debarred from disputing the same before the Tribunal.
8. Shri B.S Gupta, senior advocate, appearing for the assessee, argued that the additional ground was purely a legal ground not requiring any inquiry into the facts of the case and as such could be validly raised before the Tribunal. For this purpose, he relied on the decision of the Supreme Court in the case of Jute Corporation of India, [1991] 187 ITR 688. Thus, according to him, question No. 1 being an issue covered by the decision of the apex court was not a referable question of law. He further pointed out that although the assessee had given no objection before the Commissioner of Income-tax (Appeals) to the computation of export profits after deduction of the allowance under section 32AB, it could validly agitate the same before the Tribunal as there can possibly be no concession on a point of law. It was further argued that question No. 3 did not arise out of the order of the Tribunal at all as the Tribunal had not recorded any finding that deduction under section 32AB was not required to be made from the profits while working out the deduction under section 80HHC.
9. We have heard counsel for the parties and perused the orders. Question No. 1 is squarely covered by the decision of the Supreme Court in the case of Jute Corporation of India, [1991] 187 ITR 688 and as such no useful purpose will be served to allow a reference on this question.
10. We are also in agreement with counsel for the assessee that there can be no concession on an issue of law. Even though the assessee had not objected to the computation of profits under section 80HHC after deduction under section 32AB, yet this being a purely legal issue could be agitated before the Tribunal. A similar issue stands decided by this court in the case of Vijay Kumar Jain v. CIT, [1975] 99 ITR 349. In the said case, the assessee had not pressed the ground about the validity of proceedings under section 147 before the first appellate authority. When the same was raised again in the second appeal before the Tribunal, it was not entertained on the ground that the assessee had not pressed it before the first appellate authority. The High Court reversed the order of the Tribunal and held that the issue being a purely legal issue going to the very root of the controversy could be raised before the Tribunal. Thus, in view of the settled position, question No. 2 also requires no reference a Question No. 3, as has been correctly pointed out by learned counsel for the assessee, does not arise out of the order of the Tribunal at all. The Tribunal has nowhere given a finding that the deduction under section 32AB was not required to be deducted from the profits while working out the, deduction under section 80HHC. All that the Tribunal has held is that this issue was a contentious issue and as such fell beyond the scope of a mistake apparent from the record which could be rectified under section 154. No fault can be found with this finding of the Tribunal also. The Tribunal while deciding this issue has relied on some of its earlier decisions as also on a decision of the Orissa High Court taking a view in favour of the assessee. In such circumstances, it could not possibly be contended that the said view was not a possible view. Once it is found that there could be more than one view on a particular issue, the matter cannot be rectified under section 154 as held by the apex court in the case of Volkart Bros., [1971] 82 ITR 50.
11. Accordingly, the application under section 256(2) is dismissed.
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