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Commissioner Of Income Tax-Iv (S) v. Symphony Comfort Systems Ltd. Opponent(S)

Gujarat High Court

Nov 29, 2011

Judgment

Subsequent
References

CaseIQ

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Summary of Opinion: ORAL ORDER (Per: Honourable Mr. Justice Akil Kureshi)

Factual and Procedural Background

Revenue filed this appeal against the Appellate Tribunal's judgment dated 21.11.2008 raising two specific questions: (A) whether the Tribunal was right to confirm the CIT(A)'s direction to allow depreciation on moulds at 40% instead of 25%; and (B) whether the Tribunal was right to confirm the CIT(A)'s holding that the assessee was entitled to a claim of Rs. 1,18,53,407/- under Section 43B of the Income Tax Act, 1961 being interest paid to the bank on cash credit.

Relevant procedural and factual sequence for Question (B):

The assessee filed its return of income for Assessment Year 2002-2003.
During assessment proceedings the assessee, by letter dated 7.3.2005, contended that interest payable on its cash credit account with State Bank of India had been wrongly disallowed under Section 43B, asserting that the cash credit account was not covered by Section 43B and claiming deduction of Rs. 1,18,53,407/-.
The Assessing Officer (AO) refused to entertain the contention on the ground that to allow it would amount to revising the return and the time to file a revised return had expired on 31.3.2004.
The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. CIT(A), by order dated 28.11.2005, admitted the additional ground and directed the AO to consider the claim and allow deduction after verification as per the Act.
Revenue appealed to the Tribunal, which upheld the CIT(A)'s order (referring to relevant precedents) and dismissed Revenue's challenge.
Revenue then filed the present tax appeal, challenging the Tribunal's affirmance of the CIT(A)'s admission of the additional ground and the direction to the AO.

Legal Issues Presented

Whether the Appellate Tribunal was right in law and on facts in confirming the CIT(A)'s order directing allowance of depreciation on moulds at the rate of 40% instead of 25% allowed by the Assessing Officer?
Whether the Appellate Tribunal was right in law and on facts in confirming the CIT(A)'s order holding that the assessee is entitled to claim of Rs. 1,18,53,407/- under Section 43B of the Income Tax Act, 1961 being interest paid to bank on cash credit?

Arguments of the Parties

Revenue's Arguments (Senior Counsel Shri Bhatt)

CIT(A) and the Tribunal erred in entertaining an additional ground (the interest claim) which the assessee had not included in the originally filed return.
The Assessing Officer was right in refusing to accept the additional contention without a revised return because accepting it would amount to revising the return after the statutory period for revision had expired.
Reliance was placed on the decision of the Supreme Court in Goetze (India) Ltd. v. Commissioner of Income Tax ((2006) 284 ITR 323 (SC)) to contend that although CIT(A) or the Tribunal may have power to admit additional grounds, such powers do not extend to the Assessing Officer.

Assessee's Arguments (Learned Counsel Shri Soparkar)

The CIT(A) correctly entertained the additional ground and appropriately remanded the matter to the Assessing Officer for verification.
The Delhi High Court in Commissioner of Income-Tax v. Jai Parabolic Springs Ltd. ((2008) 306 ITR 42 (Delhi)) had taken note of Apex Court decisions (including National Thermal Power Co. Ltd. and Goetze) and held that the Tribunal has power to entertain additional grounds that may arise in the matter for a just decision.
Revenue expenditure incurred wholly and exclusively for business must be allowed in the year it is incurred (relying on Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC)).
Counsel further relied on the Supreme Court's decision in Commissioner of Income-tax v. Shelly Products ((2003) 261 ITR 367 (SC)) to argue that an assessee should not be placed in a worse position if the assessing process is not reopened and that the assessee may bring to the notice of the assessing authority facts relevant to relief or refund even after filing a return.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Goetze (India) Ltd. v. Commissioner of Income Tax ((2006) 284 ITR 323 (SC))	The decision was cited for the principle that the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return is limited; the decision was described as "limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal."	The Tribunal and this Court followed the ratio in Goetze to uphold the order of the CIT(A) admitting the additional ground; the opinion records that the Tribunal specifically followed Goetze in upholding CIT(A)'s order.
Commissioner Of Income-Tax v. Jai Parabolic Springs Ltd. ((2008) 306 ITR 42 (Delhi))	Cited as authority which took note of the Supreme Court decisions (including National Thermal Power Co. Ltd. and Goetze) and supported the view that the Tribunal has power to entertain additional grounds necessary for a just decision.	Assessee relied on this Delhi High Court decision; the opinion records the decision as supporting the proposition that the Tribunal may entertain additional grounds and that there is no infirmity in the Tribunal's order.
National Thermal Power Co. Ltd v. Commissioner of Income Tax (reported in 229 ITR 383)	The opinion notes that the Delhi High Court took note of this decision along with Goetze; the text does not elaborate further on the specific rule from this case.	The case was referenced by the Delhi High Court and cited by the assessee's counsel; this Court records that Jai Parabolic Springs Ltd. took note of NTPC alongside Goetze.
Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC)	Expressly cited for the principle that revenue expenditure incurred wholly and exclusively for business must be allowed in the year it is incurred and cannot be spread over a number of years even if written off in books over a period.	The assessee relied on this principle (as noted in the Delhi High Court decision) to support the contention that the expenditure should be allowed in the relevant year; the opinion records this reliance.
Commissioner of Income-tax v. Shelly Products ((2003) 261 ITR 367 (SC))	Cited for the proposition that failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position and that an assessee may bring to the notice of the assessing authority facts that may affect refund or relief.	The assessee's counsel invoked this precedent to argue that the assessee could bring the error to the assessing authority's notice and seek relief; the opinion quotes this decision and records counsel's reliance upon it.
Alembic Ltd. (Tribunal decision, cited as "supra" in the opinion)	The opinion states that in Alembic Ltd. the Tribunal had directed the CIT(A) to admit the ground; the text treats that decision as applicable to the present case with "more strength" because in this case the CIT(A) had admitted the additional grounds.	The Tribunal in the present case considered Alembic Ltd. applicable and used it to reinforce the legitimacy of CIT(A)'s admission of the additional ground; the High Court records the Tribunal's reliance on Alembic.

Court's Reasoning and Analysis

The Court first disposed of Question (A) by noting that the Revenue fairly conceded that the issue had been decided against the Revenue in earlier Tax Appeals (Nos. 852/2005 and 853/2005) by order dated 27.12.2005, and therefore that question did not require further consideration.

Turning to Question (B), the Court set out the factual matrix: the assessee had initially treated the interest as disallowable under Section 43B in its return but, before completion of assessment, wrote (on 7.3.2005) to the AO stating that this was an oversight and that the cash credit account was not covered by Section 43B, seeking allowance of Rs. 1,18,53,407/-. The AO declined to entertain this because, in his view, entertaining it would amount to revising the return after the deadline for revision (31.3.2004).

The CIT(A) admitted the additional ground and remanded the matter for verification by the AO; the Tribunal upheld that approach after considering the parties' submissions and relevant case law (including Goetze and Alembic Ltd.). The Tribunal concluded that the CIT(A), whose powers are co-terminus with the AO, was within jurisdiction to admit the additional ground and remand for verification.

The High Court examined the nature of the contention and concluded that it was a "pure question of law" — whether interest on the cash credit account is covered by Section 43B. The Court observed that, since the assessee had raised the contention before finalization of assessment (by letter stating the earlier entry was an error), the mere fact that the assessee had initially included the amount as disallowable in the return did not preclude the assessee from contending that the initial treatment was erroneous and that the statutory provisions required a different treatment.

On that basis the Court held that both the CIT(A) and the Tribunal were justified in entertaining the additional ground. The Court explicitly avoided deciding questions that were not before it, such as whether, had the issue been highly contested on facts and not made in the original assessment, the AO could have entertained it without a revised return or whether higher authorities could have directed the AO to examine it.

Holding and Implications

Holding: The Court dismissed the Revenue's tax appeal and thereby upheld the order of the CIT(A) and the Tribunal with respect to Question (B). The opinion concludes: Tax appeal is dismissed.

Implications:

Direct effect: The CIT(A)'s admission of the additional ground regarding exclusion from Section 43B and its direction to the Assessing Officer to consider and verify the claim are upheld by the Tribunal and this Court; the Revenue's challenge is rejected.
The Court treated the dispute as a pure question of law and concluded that an assessee who, before finalization of assessment, points out an error in the return may have that issue entertained by appellate authorities; the Court therefore found no infirmity in the CIT(A)'s and Tribunal's actions in the present circumstances.
The opinion does not purport to lay down a broader new principle beyond this case and explicitly refrains from addressing hypotheticals (for example, heavily contested factual claims raised only post-assessment without a revised return). Therefore, no sweeping new precedent is announced beyond the adjudication and upholding of the orders in this appeal.

This summary is prepared solely from the content of the provided opinion and does not add or infer information not present in the text.

Show all summary ...

ORAL ORDER

(Per: HONOURABLE MR. JUSTICE AKIL KURESHI)

1. Revenue has filed this appeal against judgement of the Tribunal dated 21.11.2008 raising following questions for our consideration:

“(A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) in directing to allow depreciation on moulds at the rate of 40% instead of 25% allowed by the Assessing Officer?

(B) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by CIT(A) in holding that the assessee is entitled to allow claim of Rs. 1,18,53,407/- u/s.43b of the Act being interest paid to bank on cash credit?”

2. Insofar as question (A) is concerned, counsel for the Revenue fairly conceded that such an issue was decided against the Revenue in Tax Appeal No. 852/2005 and 853/2005 by order dated 27.12.2005 In that view of the matter, such question is not required to be considered.

3. Insofar as question(B) is concerned, same arises in the following manner. The assessee filed its return of income for the assessment year 2002-2003. During the assessment proceedings, the assessee filed letter dated 7.3.2005 with the Assessing Officer contending that due to oversight interest payable on cash credit account with State Bank of India was disallowed under Section 43B of the Income Tax Act, 1961. However, his cash credit account is not covered under section 43B of the Act. Therefore, it should be allowed deduction of Rs. 1.18,53,407/- which was wrongly disallowed under Section 43B of the Act.

4. Assessing Officer however, did not take this contention into account observing that submission of the assessee is not considered as it would amount to revising the income/loss shown in the return. The limit to file revised return had expired on 31.3.2004 Therefore, it cannot be revised now. This submission of the assessee is therefore, filed.

5. The issue was carried in appeal by the assessee before the CIT (Appeals). CIT (Appeals) by his order dated 28.11.2005 accepted the additional ground and directed the Assessing Officer to consider the appellant's claim and allow deduction after verification as per the provisions of the Act.

6. Revenue carried the issue in appeal before the Tribunal contending that the Commissioner ought not to have entertained the additional claim when the assessee having revised the return. It appears that the assessee also filed cross appeal contending that the Commissioner ought not to have remanded the question for verification of the Assessing Officer and ought to have granted the claim himself. Both theses issues were tackled by the Tribunal by impugned order. Tribunal held as under:

“24. Having considered rival submissions, facts and circumstances of the case and the Supreme Court's decision in the case of Goetze (India) Ltd. (supra) we are of the opinion that revenue having not disputed the finding of the Tribunal contained in para-107 of the order, we following the ratio on this decision, uphold the order of the CIT(A). So far as learned DR's plea that this decision was not applicable, we are of the opinion that so far as the decision in the case of Alembic Ltd. (supra) is concerned, though it was the Tribunal who had directed the CIT(A) to admit the ground, but that decision is applicable to the present case with more strength, because in the present case in the present case it is the CTI(A), who had admitted additional grounds. The powers of the CIT(A) admittedly being co-terminus with that of AO, the CIT(A) was well within his jurisdiction to admit the new claim/ground raised by the assessee. Consequently, we do not find any infirmity in the order of the CIT(A) on this point also, hence dismissed.”

7. Learned senior counsel Shri Bhatt for the Revenue contended that CIT (Appeals) as well as Tribunal erred in entertaining the additional ground of interest which the assessee had not included in the return originally filed. Without revising the return, AO rightly did not accept such an additional contention. He submitted that CIT (Appeals) and Tribunal also could not have required the Assessing Officer to consider the same. Counsel placed heavy reliance on decision of the Apex Court in case of Goetze (India) Ltd. v. Commissioner of Income Tax reported in (2006) 284 ITR 323 (SC) to contend that though CIT (Appeals) or Tribunal may have power to admit additional grounds, such powers are not vested with the Assessing Officer.

8. On the other hand, learned counsel Shri Soparkar for the assessee submitted that question was correctly entertained by the Commissioner and for verification, issue was remanded to the Assessing Officer. Counsel submitted that the Delhi High Court in case of Commissioner Of Income-Tax v. Jai Parabolic Springs Ltd. reported in (2008) 306 ITR 42 (Delhi) taking note of decision of the Apex Court in case of National Thermal Power Co. Ltd v. Commissioner of Income Tax reported in 229 ITR 383 and Goetze (India) Ltd.(supra) observed as under:

“17. In Goetze (India) Ltd. v. CIT (2006) 284 ITR 323 (SC) wherein deduction claimed by way of a letter before the Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal.

18. Further, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. Reliance can be placed on Madras Industrial Investment Corporation Ltd. v. CIT (1997) 225 ITR 802 (SC).

19. In view of the above discussion, it is very clear that there is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case. Therefore, there is no infirmity in the order of the Tribunal.”

8.1 Counsel further submitted that since the claim of the assessee for excluding expenditure from prohibition of Section 43B of the Act was a pure question of law same, ought to have been entertained by the Assessing Officer himself. Counsel also drew our attention to the decision of the Apex Court in case of Commissioner of Income-tax v. Shelly Products reported in (2003) 261 ITR 367 (SC), wherein the Apex Court observed as under:

“We cannot lose sight of the fact that the failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of the return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of the assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exemmpted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such mattes can be brought to the notice of the concerned authority in Civil Application case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief. In cases governed by section 240 of the Act, an obligation is cast upon the Revenue to refund the amount to the assessee without his having to make any claim in that behalf. In appropriate cases therefore, it is open to the assessee to bring facts to the notice of the concerned authority on the basis of the return furnished, which may have a bearing on the quantum of the refund, such as those the assessee could have urged under section 237 of the Act. The concerned authority, for the limited purpose of calculating the amount to be refunded under section 240 of the Act, may take all such facts into consideration and calculate the amount to be refunded. So viewed, an assessee will not be placed in a more disadvantages position than what he would have been, had an assessment been made in accordance with law.”

9. Having heard learned counsel for the parties and having perused the documents on record, we find that though previously assessee had included said amount of Rs. 1.18,53,407/- to be disallowed under Section 43B of the Act, even before the assessment was finalised, the assessee through its letter contended that same was purely an error and that exclusion would not apply to cash credit account since the same is not covered under Section 43B of the Act.

10. To our mind this was a pure question of law. If under Section 43B of the Act such interest was not included, mere fact that assessee initially himself excluded in the return, would not prevent him to contend that same was erroneous and that correct treatment should be as per the statutory provisions. In that context CIT (Appeals) as well as Tribunal both were justified in entertaining such additional grounds. Had the entire issue being highly contested on facts and had such claim not being made in original assessment, could the same have been entertained by the Assessing Officer without revised return and whether consequentially higher authorities could have directed the Assessing Officer to examine the same are questions we are not required to go into.

11. In the result, tax appeal is dismissed.