K.D. Ranjan, Accountant Member :
The appeal by the Revenue and the cross-objection by the assessee for asst. yr. 2001-02 are directed against the order of the learned CIT(A)-XVI, New Delhi. These appeals were heard together and for the sake of convenience are disposed of by this common order.
2. At the outset, the learned counsel for the assessee submitted that the cross-objection filed by the assessee should be heard first as it relates to assumption of jurisdiction under s. 147 of the Act. The grounds of appeal raised in the cross-objection read as under :
"1. That having regard to the facts and circumstances of the case, learned CIT(A) has erred in not quashing the assessment order framed under s. 147/143(3) as the jurisdictional conditions were not satisfied :
2. In any view of matter and in any case, jurisdiction assumed under s. 147 and consequent framing of impugned reassessment order is bad in law;
3. That having regard to the facts and circumstances of the case, learned CIT(A) has erred in not deleting the disallowance made under s. 80HHC in respect of interest of FDR, more so, when this was not the subject matter of reason recorded."
3. During the course of hearing, ground No. 3 was not pressed and, therefore, the same is dismissed as not pressed.
4. Now, we are left with ground Nos. 1 and 2 of assessee's cross- objection which relate to assumption of jurisdiction under s. 147 of the IT Act. During the course of hearing the learned Authorised Representative of the assessee has fairly conceded that since the assessment has been reopened under s. 147 within the period of four years the proviso to s. 147 of the Act would not be applicable. Referring to the reasons for reopening of the assessment it has been submitted that original assessment was made under s. 143(3) on 28th March, 2003 on a total income of Rs. 4,06,803. The assessee company claimed deduction of Rs. 1,44,69,294 and Rs. 57,18,475 under s. 80HHC and s. 80-IA, respectively which was restricted to the extent of business profit amounting to Rs. 1,90,61,585. It was later on noticed by the AO that deductions under s. 80HHC and s. 80-IA of the Act were claimed on the gross total income without reducing the profits to the extent of deduction claimed and allowed under s. 80-IA. Hence, the excess allowance of deduction under ss. 80HHC and 80-IA of the Act was allowed. The AO on the basis of above reasons has reopened the assessment under s. 147. He has further submitted that the assessee had been allowed deductions under s. 80-IA and s. 80HHC on the basis of the claim made by the assessee and since no fresh material or information was available with AO, the reopening of assessment amounts to change of opinion, which is not permissible in the law. He placed reliance on the decision of Hon'ble Delhi High Court in the case of Commissioner Of Income-Tax v. Eicher Ltd. [2007] 213 CTR (Delhi) 57 : [2007] 294 ITR 310 (Del). He also placed reliance on the decision of Hon'ble Delhi High Court in the case of Jal Hotels Co. Ltd. v. Asstt. Director of IT [2009] 24 DTR (Delhi) 37 for the proposition that where there was no material in the hands of the Revenue leading to the view that there was reason to believe that income had escaped assessment, it was mere change of opinion and hence notice issued under s. 148 of the Act was liable to be quashed. He further submitted that at the time of recording of reasons the decision of the Special Bench in the case of Asstt. CIT v. Hindustan Mint & Agro Products (P.) Ltd. [2009] 123 TTJ (Del)(SB) 577 : [2009] 25 DTR (Del)(SB)(Trib.) 73 : [2009] 315 ITR 401 (Del)(SB)(AT) was not available and therefore Revenue cannot plead that reopening of assessment is based on the decision of Special Bench of the Tribunal. He further placed reliance on the decisions in the cases of (i) Aipita Marketing (P.) Ltd. v. ITO [2008] 21 SOT 302 (Mumbai); ( ii) Commissioner Of Income Tax, Delhi-Xi… v. Batra Bhatta Company…. [2008] 220 CTR (Delhi) 531 : [2008] 13 DTR (Delhi) 115 : [2008] 174 Taxman 444 (Del); and (iii) M/S. Jay Bharat Maruti Ltd.… v. Commissioner Of Income Tax… [2009] 223 CTR (Delhi) 269 : [2009] 22 DTR (Delhi) 85 : [2009] 180 Taxman 192 (Del). Further relying on the decision of Hon'ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 210 CTR (SC) 30 : [2007] 291 ITR 500 (SC), it has been submitted that there should be material on record to form an opinion that income had escaped assessment. He also placed reliance on the decision of Hon'ble Madras High Court in the case of Bapalal & Co. Exports v. Jt. CIT [2007] 208 CTR (Mad.) 330 : [2007] 289 ITR 37 (Mad.). He also placed reliance on the decision of Hon'ble Gujarat High Court in the case of Hynoup Food & Oil Industries Ltd. v. Asstt. CIT [2008] 219 CTR (Guj.) 124 : [2008] 11 DTR (Guj.) 241 : [2008] 307 ITR 115 (Guj.) for the proposition that deductions under s. 80HH and s. 80-IA of the Act having been allowed to the assessee following the order of the CIT(A) in earlier years, the reopening of assessment on the basis of findings of another AO in a later assessment that the assessee was not entitled to said deductions, suffered from change of opinion and hence the assessment framed was invalid. He also submitted that Hon'ble Delhi High Court in the case of Techspan India (P.) Ltd. & Anr. v. ITO [2006] 203 CTR (Delhi) 550 : [2006] 283 ITR 212 (Delhi) has held that the assessment reopened on mere change of opinion was not valid. He also placed reliance on the decision of Hon'ble Delhi High Court in the case of Commissioner Of Income-Tax v. Kelvinator Of India Ltd. [2002] 174 CTR (Del)(FB) 617 : [2002] 256 ITR 1 (Del)(FB) for the proposition that Hon'ble Delhi High Court has discussed the new law w.e.f. 1st April, 1989. Under the new law also, s. 147 does not authorize the AO to reopen assessment on mere change of opinion. The learned Authorised Representative of the assessee after conclusion of hearing also filed the copies of decisions in the following cases for the proposition that even within the period of four years in the cases where there was no fresh material the reopening of the assessment has been held to be based on change of opinion :
(i) Carlton Overseas (P.) Ltd. v. ITO & Ors. dt. 18th Aug., 2009 [reported at [2009] 29 DTR (Delhi) 262— Ed.];
(ii) CIT v. Late Ramakrishna Hegde Through LR, dt. 23rd July, 2009 [reported at [2009] 28 DTR (Kar) 332— Ed.];
(iii) Commissioner Of Income-Tax v. Feather Foam Enterprises P. Ltd. [2008] 296 ITR 342 (Del);
(iv) Commissioner Of Income-Tax v. Chakiat Agencies Pvt. Ltd. [2009] 224 CTR (Mad.) 286 : [2009] 24 DTR (Mad.) 26 : [2009] 314 ITR 200 (Mad.);
(v) M.M.T.C. Ltd. v. Dy. CIT [2009] 119 ITD 175 (Del); and
(vi) Shipra Srivastava & Anr. v. Asstt. CIT in IT Appeal No. 8683 of 2007 [reported at [2009] 30 DTR (Delhi) 25—Ed.].
6.3 On the other hand, the learned senior Departmental Representative submitted that the original assessment order framed by the AO does not speak anything about the simultaneous claim of the assessee. Therefore, the AO has not considered the claim of the assessee on allowance of deduction under s. 80HHC and s. 80-IA of the Act on the same gross profit. The assessment order framed by the AO is silent about the claim allowed and, therefore, the AO had not formed any opinion and, therefore, at the time of reopening of the assessment, no question of change of opinion arose in the case of the assessee. He placed reliance on the decision of Hon'ble Bombay High Court in the case of Yuvraj v. Union of India [2009] 225 CTR (Bom) 283 : [2009] 25 DTR (Bom.) 185 : [2009] 315 ITR 84 (Bom) for the proposition that where the AO did not apply his mind and failed to record good and proper reasons for passing the order under s. 143(3), it was not a mere change of opinion in recording the reasons, for issuance of notice under s. 148 of the Act and hence, reopening of assessment was proper. The learned senior Departmental Representative further submitted that the change of opinion should be linked to the issue considered and adjudicated upon. All the decisions relied upon by the learned Authorised Representative of the assessee relate to the cases where the material was considered and adjudicated upon. Therefore, the decisions relied upon by the learned Authorised Representative of the assessee are not relevant. As regards the contention of the assessee that non-availability of the decision of Special Bench has nothing to do with the allowability of the claim under s. 80HHC and s. 80-IA of the Act, the Special Bench has dealt with the interpretation of the provisions, which were already in existence. The decision may be relevant for action under s. 154, but not for reopening of assessment. As regards the decision in the case of Shipra Srivastava & Anr. v. Asstt. CIT in IT Appeal No. 8683 of 2007 (supra), he has submitted that it is not relevant as the decision has been rendered with reference to tax deducted at source on rent-free accommodation. Relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P.) Ltd. [1992] 107 CTR (SC) 209 : [1992] 198 ITR 297 (SC), it has been submitted that the decision should be read in the context in which it was rendered. Therefore, the decision in the case of Shipra Srivastava ( supra) is not applicable to the facts of the assessee's case.
6.4 In rejoinder, the learned Authorised Representative of the assessee submitted that the context may be different, but there should be some material on record to form an opinion that income has escaped assessment. The AO cannot reopen the assessment on the basis on which he has already allowed the deduction. He supported the arguments relying on the decision of Hon'ble Madhya Pradesh High Court in the case of National Textile Corporation Ltd. (M.P) v. Commissioner Of Income-Tax [2008] 216 CTR (MP) 153 : [2008] 5 DTR (MP) 117 for the proposition that the decision of jurisdictional High Court is binding. He also placed reliance on the decision of Tribunal, Chandigarh Bench "B", in the case of Shiva Exports v. ITO [2009] 28 SOT 512 (Chd.) for the proposition that there should be material on record to form an opinion that income had escaped assessment. The reopening of assessment will fall within the realm of suspicion and, therefore, proceedings initiated will be for the purpose of investigation and not more.
7. We have heard both the parties and gone through material and the relevant case law on the subject. The learned Authorised Representative of the assessee in cross-objection has raised an issue that the reopening of assessment is based on change of opinion and hence assumption of jurisdiction under s. 147 is bad in law. From the material available on records we find that issue relating to issue of notice under s. 147 was not taken by the assessee before CIT(A) and hence he had not adjudicated this issue. Hence, we have to answer to questions, i.e., (i) whether there is any change of opinion while initiating the reassessment proceedings under s. 147 of the Act and (ii) whether such an issue arises from the order of CIT(A) which can be agitated in cross-objections raised by the assessee ?
8. From the original assessment order dt. 20th March, 2003 we find that the AO without any discussion had allowed the deduction under s. 80HHC on the basis of auditors' report at Rs. 1,44,69.294 without reducing the deduction allowed under s. 80-IB at Rs. 57,18,475. The sequence of events from original assessment proceedings to reopening of assessment is discussed as under :
(a)The AO in the course of original assessment proceedings issued questionnaire dt. 27th Nov.. 2002 seeking inter alia the following information relating to deductions under ss. 80HHC and 80-IB :
(ii) "Details of deductions claimed and justification for admissibility"
The assessee in response to above query vide letter dt. 10th Dec, 2002 had replied as under had replied as under :
"2. The company has claimed deduction under s. 80HHC and under s. 80-IA/80-IB. Deduction under s. 80HHC has been claimed because the company is an exporter and all the exports made during the year have been realized before the prescribed time-limit. Being the small scale industrial undertaking the company is also entitled for deduction under s. 80-IA/80-IB for 30 per cent of its profit."
From plain reading of the query raised by AO for justification of deduction under s. 80HHC/80-IB and reply furnished by the assessee it is clear that neither the AO raised any specific query or examined the issue of allowability of deduction under s. 80HHC after reducing the deduction allowed under s. 80-IB nor had the assessee given any justification for claiming deduction under s. 80HHC without reducing the amount of deduction under s. 80-IB claimed and allowed. The AO had raised a general query relating to the claim of deductions under these sections and assessee had also given the reply in a casual manner. Therefore, the allowance of deduction under s. 80HHC on the gross eligible profits without reducing the amount of deduction under s. 80-IB, in our considered opinion, is without proper examination of the claim and application of mind on the part of AO. Our view is supported by the decision of Hon'ble Bombay High Court in the case of Yuvraj v. Union of India & Anr. (supra). In this case the assessee received a consideration of Rs 12 lakhs on the sale of right to purchase an open plot in Pune and disclosed it as income for the asst. yr. 1996-97. The Asstt. CIT assessed the income and passed order under s. 143(3) of the IT Act. 1961. The Dy. CIT issued a notice under s. 154 stating that the long-term gain on sale of right to purchase an open plot was to be treated as casual income and brought to tax at forty per cent. The Dy. CIT passed an order in 2000 stating that he had reason to believe that income of the petitioner had escaped assessment within the meaning of s. 147 and proposed to reassess the income for asst. yr. 1996-97. On a writ petition it has been held that the value of the land had not been determined nor the issue relating to whether the income was to be treated as capital gain or casual income been addressed by the AO. He did not apply his mind and failed to record good and proper reasons for passing the order under s. 143(3). On facts, it was not a mere change of opinion in recording reasons for issuing notice under s. 148 by the AO. Therefore, the AO was justified in issuing the notice under s. 148 of the Act.
(b) Thereafter, the learned CIT initiated proceedings under s. 263 of the Act vide show-cause notice dt. 12th/13th Jan., 2005. wherein it was mentioned that the assessee had claimed deduction under s. 80HHC at Rs. 1,44,69,294 and Rs. 57,18,475 under ss. 80HHC and 80-IA, respectively. The company had claimed both the deductions on the total income of Rs. 1,90,61.585 without reducing the profit to the extent claimed exempt in first deduction which resulted in allowance of double deduction of the same profit, resulting into excess allowance of deduction of Rs. 42,69,077. The assessee vide reply dt. 3rd Feb., 2005 relying on decision of Hon'ble Madhya Pradesh High Court in the case of J.P Tobacco Products Pvt. Ltd. v. Commissioner Of Income-Tax [1997] 140 CTR (MP) 329 : [1998] 229 ITR 123 (MP) and The Commissioner Of Income Tax v. Nima Specific Family Trust [2001] 165 CTR (Bom.) 518 : [2001] 248 ITR 29 (Bom) contended that deduction under s. 80HHC of the Act was available without reducing the deduction under s. 80-IA. This contention of the assessee was rejected by the learned CIT by holding that deduction under s. 80HHC was to be computed after reducing the deduction allowed under s. 80-IA of the Act. On appeal, Tribunal, Delhi Bench "F", in ITA. No. 1917/Del/2005, dt. 20th Oct., 2005 for asst. yr. 2001-02 cancelled the order under s. 263 of the Act by observing as under :
"8. After careful consideration of the rival submissions, in the light of material available on record, we find substance in the argument taken by the learned counsel for the assessee. It is evident from the record that proceedings under s. 263 of the Act were taken as the learned CIT was of the view that deduction under s. 80-IA of the Act was to be allowed after deducting amount of deduction allowed under s. 80HHC of the IT Act. This is clear from the show-cause notice issued by the learned CIT, which we have discussed above in detail. The issue raised in the show-cause notice was quite different from the issue considered and decided by apex-Court in the case of IPCA Laboratories Ltd. (supra), which the learned CIT applied in this case. However, no notice to withdraw deduction under s. 80HHC on account of some negative profit shown by the assessee was issued in this case. It is well accepted that the learned CIT under s. 263 of the IT Act cannot revise an assessment on a ground not taken in the show-cause notice. In the present case, the ground for revising assessment is quite different from the ground given in the show-cause notice and, therefore, the impugned order under s. 263 of the Act is held to be unsustainable. It is cancelled."
From the above facts it is clear that the Tribunal had cancelled the order under s. 263 on the ground that the ground taken in the show-cause notice was different from the ground shown in the order cancelling the assessment under s. 263 of the Act. The Tribunal had not examined the claim of deduction under s. 80HHC on merits.
(c) Subsequent to decision of Tribunal dt. 20th Oct., 2005, the AO initiated reassessment proceedings under s. 147 by issuing the notice under s. 148 on 17th March, 2006. Reasons were recorded for reopening of assessment on 27th Feb., 2006. Thus, the assessment was reopened after the decision of the Tribunal cancelling the order under s. 263 of the Act. As we have discussed earlier that neither the assessee gave justification for claim of deduction under s. 80HHC of the Act on gross profits nor the AO had examined the claim of the assessee that provisions of s. 80-IA(9) were to be taken into account for the purpose of deduction under s. 80HHC according to which deduction allowed under s. 80-IA of the Act will not be eligible for deduction under any other section contained in Chapter VI-A of IT Act, 1961. We have held earlier that AO had allowed deduction under s. 80HHC on gross income without proper examination and application of mind. Without prejudice to this finding, even if it is assumed that AO had allowed deduction keeping in view the relevant provision of law, in that situation also, the proceedings initiated by the learned CIT for cancellation of original assessment by issue of show-cause notice dt. 18th March, 2005 constituted a fresh information in the possession of the AO on the basis of which he had formed an opinion that the excess deduction has been allowed under s. 80HHC to the extent of profits on which deduction under s. 80-IA had been allowed. Hence, there was fresh material available before the AO in the form of notice issued by the learned CIT under s. 263 for forming of an opinion that income had escaped assessment. Hence, the case law relied upon by the learned counsel for the assessee referred to in preceding paras are, therefore, distinguishable on the facts of the case before us and cannot be applied in the present case.
9. Further, it is a case where excess deduction under s. 80HHC has been claimed and allowed within the meaning of sub-cl. (iv) of cl. (c) of Expln. 2 to s. 147 of the Act. Hence, the income to the extent of deduction allowed under s. 80-IB had escaped assessment. In this case reassessment proceedings have been initiated within four years from the end of asst. yr. 2001-02 and hence the case falls under main s. 147 of the Act. We are also aware of the legal position that at the time of reopening of the assessment the AO has to record the reasons for assumption of jurisdiction on the basis of material available on record. Hon'ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra ) has held that the expression "reasons to believe" in s. 147 would mean cause or justification. If the AO has a cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that income had escaped assessment. The expression cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. What is required is "reason to believe" but not the established fact of escapement of income. At the stage of issue of notice the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief. Whether material would conclusively prove escapement of income is not the concern at that stage. This is so because the formation of belief is within the realm of the subjective satisfaction of the AO. From the decision of Hon'ble Supreme Court it is clear that at the time of reopening of assessment there should be some material before the AO on the basis of which he could have formed belief that income has escaped assessment. In the case before us the show-cause notice issued by the learned CIT under s. 263 of the Act and the order passed by him constituted a material on the basis of which the AO formed belief that the excess deduction under s. 80HHC of the Act has been allowed. Therefore, reopening of assessment cannot be treated based on mere change of opinion. Hence, the AO was justified in reopening the assessment under s. 147.
10. Now, we come to the second question whether any such issue arises from the order of CIT(A). Under s. 253(4) of the Act, the assessee is entitled to file cross-objection even if he has not filed any appeal against the order of the learned CIT(A). Sub-s. (4) of s. 253 reads as under :
"(4) The AO or the assessee, as the case may be, on receipt of notice that an appeal against the order of the Dy. CIT(A) or, as the case may be, the CIT(A), has been preferred under sub-s. (1) or sub-s. (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof within thirty days of the receipt of the notice, file a memorandum of cross-objections, verified in the prescribed manner, against any part of the order of the Dy. CIT(A) or, as the case may be, the CIT(A), and such memorandum shall be disposed of by the Tribunal as if it were an appeal presented within the time specified in sub-s. (3)."
11. A bare reading of the provisions contained in sub-s. (4) would show that the right to file a memorandum of cross-objections is an independent right given to the opposite party in an appeal and it is in addition to the independent right of appeal, which may or may not be exercised by the assessee under sub-s. (1) or by the Department under sub-s. (2) of s. 253. In a given case it is quite possible that certain matters may not be agitated either by the learned CIT or by the assessee by way of an appeal, but if any appeal is filed either by the assessee or the AO, then the opposite party may consider it necessary to file a cross- objection in respect of such matters, which were not fit originally to be agitated by way of an independent appeal as has been held by Hon'ble Bombay High Court in the case of CIT v. New India Assurance Co. Ltd. [1982] 28 CTR (Bom) 206 : [1983] 141 ITR 367 (Bom.). Thus, sub-s. (4) of s. 253 of the Act confers a right of cross-objection both on the assessee and the Revenue. The words "the AO or the assessee, as the case may be,………… may, notwithstanding that he may not have appealed against such order or any part thereof………….file a memorandum of cross- objections………against any part of the order" appearing in s. 253(4) postulate that in respect of the same order of the appellate authority there may be an appeal by the assessee as to one part and an appeal by the Revenue as to the other where the assessee or the Revenue has preferred an appeal to the Tribunal against that part of the order of the appellate authority which consists of decisions recorded against him, the other party if he had not already appealed, may file cross-objections against that part of the order of the appellate authority, which consists of the decisions with which he is dissatisfied. The appeal by the assessee or the Revenue may be against any parts of the order of the appellate authority which are against him and by which he is aggrieved. It is, therefore, imperative that there must be a decision of the appellate authority by which the assessee or Revenue is aggrieved before he can prefer an appeal against that part of the order of the appellate authority containing such decision.
12. Further, the existence of expression "against any part of the order" in s. 253(4) of IT Act clearly suggests that the cross-objection can be filed only in cases where the appellate authority has decided against the party. Further, under r. 27 of ITAT Rules, 1963, the respondent can support the order of CIT(A) in cross-objection on the basis of adverse findings of CIT(A) against him. This means that there has to be a decision of the CIT(A) on the issue raised in cross-objection.
13. In the case of ITO v. Fagoomal Lakshmi Chand & Anr. 1978 CTR (Mad.) 350 : [1979] 118 ITR 766 (Mad.) against the order of the AAC, which was prejudicial to the Revenue, the Department took up the matter before the Tribunal. After the filing of the appeal, the assessee taking advantage of the provisions in s. 253(4) filed a memorandum of cross-objection against the entire order of the AAC. Both the appeal and the memorandum of cross-objection came up for hearing before the Tribunal. The assessee was not present. The Tribunal disposed of the Revenue's appeal and in consequence, dismissed the cross-objection. Thereafter, the assessee filed an application before the Tribunal stating that there was sufficient cause for his non-appearance when his cross-objection was called for hearing, and the Tribunal made an order setting aside the dismissal of the cross-objection. Effectually, therefore, they had set aside the order passed by them ex parte in the Revenue's appeal as well.
On writ, the Single Judge dismissed it at the admission stage itself. On writ appeal the Revenue contended that a memorandum of cross-objection could only be against a part of the order of the AAC and that as, in the instant case, the appeal was disposed of ex parte by the Tribunal, the proviso to r. 24, which contemplates only the restoration of an appeal, which was dismissed for default, and that too for sufficient cause, would not apply. Hon'ble Madras High Court has held that the words employed under sub-s. (4) of s. 253 of the IT Act, 1961, would show that such memorandum of cross-objection shall be against any part of the order of the AAC. The use of the expression "any part of the order" is clearly indicia to show that it could be also against the entirety of the order of the AAC insofar as it is prejudicial to the cross-objector. Therefore, the contention that the memorandum of cross-objection filed by the assessee in the instant case was said to be against the whole of the order of the AAC and that by itself was sufficient to reject the same on the threshold, was not sustainable.
14. In the case of Commissioner Of Income Tax…Applicant; v. Purbanchal Paribahan Gosthi…. [1999] 152 CTR (Gau.) 102 : [1998] 234 ITR 663 (Gau.), Hon'ble High Court has held that s. 253(4) of the IT Act, 1961, r/w r. 22 of the ITAT Rules, 1963 provides that any party aggrieved against order of appellate authority can file memorandum of cross-objection against any part of order of appellate authority and cross-objection need not be confined to points taken by opposite party in main appeal.
15. Hon'ble Madras High Court in the case of CIT v. Sundaram Clayton Ltd. [1982] 30 CTR (Mad.) 170 : [1982] 136 ITR 315 (Mad.) has held that where the assessee has wholly succeeded before the appellate authority there is no scope for his filing any appeal or cross-objections before the Tribunal. Again, if a particular matter has not been considered and decided by the appellate authority and the decision on it does not form part of the order of the appellate authority there can be no appeal against it.
16. Hon'ble Bombay High Court in the case of Ugar Sugar Works Ltd. v. Commissioner Of Income-Tax, Poona. [1982] 27 CTR (Bom.) 174 : [1983] 141 ITR 326 (Bom.) has held that the competence of the AAC ranges over the whole assessment proceedings without any restrictions on him. His jurisdiction is, therefore, not confined to the subject-matter of the appeal, but extends to subject- matter of assessment. Sec. 251 has given him wide powers including even a power of enhancing the assessment. However, the Tribunal's jurisdiction under s. 254 in an appeal before it is restricted only to passing of orders on the subject-matter of appeal. However, within the four corners of that jurisdiction the Tribunal has been clothed with almost the same powers as those of the AAC except that of enhancement. The assessee once having accepted the finding of the ITO by not having appealed against the same to the AAC, the assessee's grievance, if any, against the findings of the ITO cannot form the subject-matter of appeal before the Tribunal so as to give it jurisdiction in exercise of his power to pass such order in appeal as it may deem it.
17. From above discussion it is clear that an aggrieved party can file memorandum of cross-objection only when an issue has been decided against the cross-objector. In the case before us, the assessee has not challenged the reopening of assessment before CIT(A). Learned CIT(A) has also not adjudicated upon the issue of assumption of jurisdiction as the issue was not before him. Therefore, the issue relating to assumption of jurisdiction raised in the cross-objection by the assessee is not subject-matter of appeal before this Tribunal and hence assessee can neither file appeal before the Tribunal nor memorandum of cross- objection raising the issue relating to assumption of jurisdiction even when the assessee has right to file cross-objection against the whole order of CIT(A).
18. We are also aware of decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. Commissioner Of Income Tax [1999] 157 CTR (SC) 249 : [1998] 229 ITR 383 (SC) wherein it has been held that if, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. The decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra) can be pressed into operation by the assessee if the assessee is in appeal before the Tribunal and has by any reason omitted to raise a ground before the lower authorities relating to relief or deduction provided that assessee explains the reasons for not raising the ground before the lower authority and entire material relating to such legal ground is available on record. In cross-objection, the assessee can raise a ground if it arises out of order of appellate authority. As discussed above the assessee is neither in appeal before us against the order of CIT(A) nor has explained the reasons for not raising the issue relating to assumption of jurisdiction by the AO before the lower authority. As a matter of fact, the issue does not arise out of order of CIT(A). With effect from 1st April, 1999, under s. 80-IA(9) r/w s. 80-IB(13) the profit in respect of which the deduction under s. 80-IB has been allowed, is to be reduced from eligible business profits for the purposes of deduction under s. 80HHC of the Act. The assessee by way of cross-objection is not seeking relief to which it is entitled to but seeking cancellation of reassessment proceeding so that additional tax relating to escaped income may not be fastened on him and hence the assessee is attempting to avoid payment of due tax to Revenue. Under these circumstances, assessee cannot be permitted to raise a ground not arising from the order of CIT(A) that too by way of cross-objections. Consequently, the decision of NTPC Ltd. ( supra) cannot be pressed into service for getting the assessment annulled in appeal filed by the Revenue. In view of above discussions we are of the considered opinion that the cross-objection filed by the assessee with an objective to get the assessment annulled is not maintainable and deserves to be dismissed.
19. Thus, from above discussion, we hold that the cross-objection by the assessee is to be dismissed on merits as well as on maintainability as the issue raised does not arise from the order of CIT(A).
20. Now, coming to the Revenue's appeal, the first issue for consideration relates to computation of deduction under s. 80HHC of the Act after reducing the amount of deduction allowed under s. 80-IB. The relevant grounds of appeal are reproduced as under :
" 1. The learned CIT(A) has erred in law in negating the action of the AO for reducing the deduction claimed under s. 80-IB from profit of the business to arrive at the balance profit available for deduction under s. 80HHC;
2. The learned CIT(A) has erred in law in attributing such an interpretation to s. 80-IA(9) which renders it completely redundant;
3. The learned CIT(A) has erred in law in negating the first leg of the s. 80-IA(9) which clearly says that amount of deduction allowed under s. 80-IA or 80-IB is not to be allowed under any other provisions of Chapter VI-A of which s. 80HHC happens to be a part."
21. The facts of the case relating to this ground of appeal are that the AO while computing deduction under s. 80HHC of the Act reduced the amount of deduction under s. 80-IB amounting to Rs. 55,96,435 from the profits of business determined at Rs. 1,90,61,585. On the balance amount the AO computed deduction under s. 80HHC as per the provisions of s. 80HHC(3) of the Act. Before the learned CIT(A), the assessee challenged the reduction of deduction under s. 80-IB of the Act for the purpose of computation of deduction under s. 80HHC of the Act. It was argued that part of the s. 80-IA(9) stating that "deduction to the extent of such profits and gains shall not be allowed under any other provisions of this chapter" would not mean that out of total profit of Rs. 100, if Rs. 30 had been allowed under s. 80-IA, then this amount of Rs. 30 would not be allowed under any section. The sub-s. (9) of s. 80-IA does not say that Rs. 30 would be reduced from the business profit for the purpose of computation of deduction under any other section. Therefore, it was pleaded that the amount of deduction claimed under s. 80-IA of the Act will not be reduced from the gross total income for the purpose of computation of deduction under s. 80HHC. The learned CIT(A) after considering the arguments of the assessee came to the conclusion that deductions under ss. 80HHC and 80-IB would be allowable on gross total income and it would not exceed the gross total income of the assessee. He accordingly, allowed the claim of the assessee.
22. We have heard both the parties and gone through the material available on record. We find that this issue is now covered by the decision of Five Member Special Bench in the case of Asstt CIT v. Hindustan Mint & Agro Products (P) Ltd. (supra), wherein it has been held that the restrictions contained in s. 80-IA or 80-IB not to allow repeated deductions are applicable to the same profit. There has to be identity of profits on which deduction under more than one provision under Chapter VI-A have been claimed by the assessee. The provisions are applicable where profits of the undertaking or enterprise deduction are claimed under s. 80-IA or 80-IB of the Act and then on the same profit of undertaking, deduction under other provisions like s. 80HHC of the Act is claimed, in such cases, the restrictions contained in the above provisions would apply. If the profits are derived from a separate undertaking, the restriction contained under s. 80-IA/80-IB of the Act would not be applicable. In the case before us, the income has been derived from the same undertaking and repeated deductions under ss. 80-IB and 80HHC of the Act have been claimed. Therefore, the issue is squarely covered by the decision of the Special Bench in the case of Hindustan Mint & Agro Products ( supra). Respectfully following the decision of the Special Bench of the Tribunal, it is held that the amount of deduction allowed under s. 80-IA/80-IB of the Act shall be reduced from the eligible profits and on the balance amount deduction under s. 80HHC of the Act will be allowable. Therefore, in our considered opinion, the learned CIT(A) was not justified in allowing deduction under ss. 80-IB and 80HHC on the same gross profit. We, therefore, set aside the order of the learned CIT(A) and restore the order of the AO.
23. The next issue in the Revenue's appeal relates to netting of interest received on FDRs against the interest paid to the bank. The assessee debited to P&L a/c the bank interest of Rs. 49,31,123 after reducing the interest earned of Rs. 4,06,803 on fixed deposits and claimed deduction under s. 80HHC of the Act without reducing the 90 per cent of the interest from the profits. The AO following various decisions treated the interest received earned on deposits not derived from export business. He accordingly treated the interest received as income from other sources.
24. On appeal, the learned CIT(A) observed that interest earned on FDRs was to be treated as income from business as FDRs were purchased for giving performance guarantee to Apparel Export Promotion Council (AEPC). Me accordingly directed the AO to treat the interest on FDRs as business income and allow the netting of the interest received against interest paid.
25. We have heard both the parties and gone through the material available on record. We find that this issue is now covered by the decision of Hon'ble Delhi High Court in the case of CIT v. Shri Ram Honda Power Equip & Ors. [2007] 207 CTR (Delhi) 689 : [2007] 289 ITR 475 (Delhi) (headnotes), wherein it has been held as under :
"………….(viii) The word 'interest' in cl. (baa) of the Explanation connotes 'net interest' and not 'gross interest'. Therefore, in deducting such interest, the AO will take into account the net interest, i.e., gross interest as reduced by expenditure incurred for earning such interest, para (ix) Where, as a result of the computation of profits and gains of business and profession, the AO treats the interest receipt as business income, then deduction should be permissible, in terms of Expln. (baa) of the net interest, i.e., the gross interest less the expenditure incurred for the purposes of earning such interest. The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from s. 37, will require to be shown by the assessee for application of the netting principle."
26. Since the AO has not examined the nature of interest as well as the netting of interest, we set aside the issue to the file of the AO with the directions to examine the claim of the assessee in the light of decision of Hon'ble Delhi High Court in the case of Shri Ram Honda Power Equip (supra) after affording the assessee a reasonable opportunity of being heard.
27. In the result, the appeal filed by the Revenue is allowed for statistical purposes.
28. In nutshell, the appeal filed by the Revenue is allowed for statistical purposes and the cross-objection filed by the assessee is dismissed.