The Commissioner Of Income Tax-I vs M/S.Bhageeratha Engineering Ltd
2021 Latest Caselaw 14019 Ker

            IN THE HIGH COURT OF KERALA AT ERNAKULAM
                              PRESENT
                THE HONOURABLE MR.JUSTICE S.V.BHATTI
                                   &
        THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
     WEDNESDAY, THE 7TH DAY OF JULY 2021 / 16TH ASHADHA, 1943
                         ITA NO. 203 OF 2012
          AGAINST THE ORDER/JUDGMENT IN ITA 1204/2005 OF
               I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM
APPELLANT/S:

          THE COMMISSIONER OF INCOME TAX-I,
          KOCHI.

          BY ADVS.
          SRI.P.K.RAVINDRANATHA MENON (SR)
          SRI.JOSE JOSEPH, SC, FOR INCOME TAX
          SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT



RESPONDENT/S:

          M/S.BHAGEERATHA ENGINEERING LTD.,
          VAZHAKKALA, KAKKANAD P.O., KOCHI-682030.

          BY ADVS.
          SMT.P.ANITHA
          SMT.P.ANITHA
          SMT.R.S.GEETHA
          SRI.T.M.SREEDHARAN SR.
          SRI.V.B.UNNIRAJ




      THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 07.07.2021,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
 I.T.A. No. 203/2012
                                      -2-




                         JUDGMENT

S.V. Bhatti, J.

The Commissioner of Income Tax-I, Cochin, is the

appellant (for short 'the Revenue'). The I.T.A. is directed

against the order of the Income Tax Appellate Tribunal, Cochin

Bench in I.T.A. No.1204/Coch/2005 & C.O. No.11/Coch/2006

dated 27.04.2012. In the subject Tax Appeal the issue relates to

Assessment Year 1996-97. The appeal examines an issue arising

under Section 80HHB of the Income Tax Act (for short 'the Act').

The Assessing Officer and the Commissioner of Income Tax

(Appeals) (for short 'CIT (Appeals) disallowed the claim of

assessee of revaluation of government bonds and the loss in sale

of government bonds. M/s. Bhageeratha Engineering I.T.A. No. 203/2012

Ltd/respondent (for short 'the Assessee') aggrieved thereby

filed I.T.A No. 47/Coch/2000 before the Income Tax Appellate

Tribunal.

2. The Appellate Tribunal through order dated

17.06.2003 allowed the appeal of the assessee, deleted the

addition of revaluation of government bonds and set aside the

dis-allowance made by the Assessing Officer and CIT (Appeals).

The Revenue filed I.T.A. No.301/2009 and this Court by order

dated 05.07.2021 dismissed the appeal filed by the Revenue. The

narrative has bearing on the consideration of the question of

law taken up for consideration by us in the Tax Appeal. The

circumstances are that vide order dated 11.03.1999 made under

Section 143(3) of the Act, the Assessing Officer determined the

total income of assessee at Rs.21,56,52,890/-. The Assessing

Officer for determining income of assessee dis-allowed the

claim of loss on revaluation of bonds amounting to I.T.A. No. 203/2012

Rs.6,04,75,000/-, loss amounting to Rs.43,30,000/- towards sale

of government Bonds and declined deduction claimed under

Section 80HHB amounting to Rs.10,06,26,590/-. While making a

few more additions to the income of the assessee, net income of

the assessee from the business for the Assessment Year 1996-97

was determined at Rs.21,42,08,607/-.

2.1 In the appeal filed by the assessee, the learned CIT

(Appeals) set aside the addition made under Section 80HHB,

remanded the case to Assessing Officer to re-examine the issue

of entitlement of assessee under Section 80HHB, judge the

quantum as well as its admissibility under the Act. The

Assessing Officer determined the claim of assessee under

Section 80HHB and through order dated 15.02.2002 (Annexure-

B) accepted the total claim of assessee under Section 80HHB

amounting to Rs.10,06,26,590/-. For clarity, it is desirable to

furnish the details of determination by the Assessing Officer.

 I.T.A. No. 203/2012



            "Income fixed originally as per
            order dated 7.7.99                  : Rs.21,38,66,220/-
            Less: Deduction u/s 80HHB            : Rs.10,06,26,590/-
                                                   -----------------------
                                                   Rs.11,32,39,830/-
                                                   ----------------------
            Revised total income                : Rs.11,32,39,830/-
                                                   =================


      2.2     Finally, the tax demanded was Rs.4,65,55,414/-. It

noted that the re-computation of income through Annexure B

dated 15.02.2002 was prior to the decision of Income Tax

Appellate Tribunal in I.T.A. No.47/Coch/2000. On 17.06.2003 the

appeal filed by the assessee was allowed, substantial relief

granted and the Tribunal accepted the case of assessee that

receipt of government bond as against deferred payment is a

substitute to receivables, the assessee is entitled to actual loss

on sale of government bond and notional loss on revaluation of

government bonds, treating them as current assets is

permissible. Thus, the addition made by the Assessing Officer I.T.A. No. 203/2012

amounting to Rs.6,04,75,000/- and Rs.43,30,000/- is deleted and

an effect order has to be made. The Assistant Commissioner,

through order in Annexure-C issued the effect order, firstly

recomputed the gross total income of the assessee; on the

recomputed gross total income, 50% was been granted as

eligible deduction under Section 80HHB. Assessed, as noted

herein, the Assessing Officer granted deduction under Section

80HHB amounting to Rs.7,50,85,650/- to the assessee for the

assessment year 1996-97. The assessee filed appeal before the

CIT (Appeals) in I.T.A. No.39/R-I/E/CIT-II/03-04. The operative

portion of the order of CIT (Appeals) reads as follows:

"Computation of profit from foreign project under Section

80HHB is exactly on the same lines as compared to the profit of

a new industrial undertaking under Section 80I i.e., a unit or a

project itself has to be treated as business as a whole and the

profit are to be computed on which the deduction is allowable.

There is no provision in Chapter VIA anywhere to restrict the I.T.A. No. 203/2012

deduction available under Section 80HHB on the grounds that

the assessee's business as a whole comprising of profit from

Indian undertaking and the foreign project is a profit or a loss.

In the assessee's own case while examining the claim in respect

of reduction in value of the bonds to be allowed as a trading

loss, the ITAT has also not set forth any such restriction.

Courts have consistently held their view ig. 161 ITR 320, 201 ITR

968 (Ker), 215 ITR 249 (Cal), 251 ITR 471 (Andh) and 249 ITR 793.

I, therefore, direct the AO to allow the deduction under Section

80HHB in full i.e., as it was allowed by the AO's order dated

15.02.2002 giving effect to the CIT (As)'s order i.e., at

Rs.10,06,26,590/- instead of Rs.7,46,50,647/-."

2.3 The Revenue and the assessee filed appeals before

the Income Tax Appellate Tribunal to the extent of relief

granted under Section 80HHB, which was confirmed by the

Appellate Tribunal as well. Hence, the Tax Appeal under Section

260A of the Income Tax Act at the instance of the Revenue.

3. The appeal was admitted on the following substantial

questions of law:

I.T.A. No. 203/2012

"1. Whether, on the facts and in the circumstances of the case

and also in view of the loss arising out of the reduction in the

value of the bonds allowed by the Tribunal in its earlier order

dated 17.06.2003:

i) is not the Assessing Officer right in law in reducing the

deduction under Section 80HHB in the rectified order?

ii) is not the consequential order and the rectification of

the same valid and in accordance with law?"

3.1 After appreciating the admitted circumstances leading

to the filing of the appeal and the controversy that arises for

decision of this Court, the following substantial questions of law

has been formulated by the Court and the arguments of learned

Counsel have been heard on the substantial question of law

formulated as follows:

(i) Whether the order of the CIT (Appeals) the quantifying deduction under Section 80HHB with reference to the revised order made by the Assessing Officer pursuant to the remand of issue under Section I.T.A. No. 203/2012

80HHB by the C I T (appeal) ?, and

(ii) Whether the deduction accepted in favour of the assessee of bond revaluation and sale loss will have to be taken into account for arriving at the gross income of assessee and allow deduction under Section 80HHB to the extent of 50%?

4. Learned Standing Counsel Mr.Christopher Abraham

prefaces his submissions by arguing that the Revenue is not

questioning the eligibility of assessee for deduction under

Section 80HHB of the Act. The Department questions the

arbitrary quantification of deduction by the CIT (Appeals) in

order dated 01.09.2005. The illegality, according to him, in the

order of CIT (Appeals) in Annexure-I is that the Commissioner

accepted deduction under Section 80HHB arrived at by the

Assessing Officer in the revised Assessment Order dated

15.02.2002. The said order was made prior to the decision of the

Tribunal dated 17.06.2003. In other words, upon the decision I.T.A. No. 203/2012

rendered by the Tribunal, the assessee is entitled to claim loss

on revaluation of current assets and corresponding thereto the

gross total income determined as Rs.21,38,66,220/- stands

reduced by deducting loss on revaluation of assets, loss on sale

of bonds, then the gross total income is not Rs.21,38,66,220/-

but Rs.14,93,01,293/-. Therefore, the eligibility since is not

questioned by the Revenue, the quantum of granting

Rs.10,06,26,590/- is illegal and unavailable in the facts and

circumstances of the case. He argues that the effect order dated

28.07.2003 of the Deputy Commissioner of Income Tax reflects

the adjudication of issues between the Revenue and the

assessee. But the CIT (Appeals) without any basis granted

unavailable additional deduction amounting to Rs.2,59,75,943/-

under section 80HHB to the assessee. The quantification of

deduction under Section 80HHB by the Commissioner, as

confirmed by the Tribunal, is illegal and he prays for setting I.T.A. No. 203/2012

aside the order of the Commissioner in Annexure-I and to the

extent confirmed by the Tribunal and restore the effect order of

Assessing Officer in Annexure-H dated 28.07.2003. According to

him, the error in quantification is not an error relatable to

finding of fact or re-verification of details by this Court. The

CIT (Appeals) exceeded the jurisdiction in incorporating

unavailable details, there is loss of Revenue and the

unsustainable and illegal quantification constitutes a

substantial question of law for the decision of the Court.

5. Senior Advocate Mr. Sreedharan, after taking note of

the chronology of dates, events and effect of the orders made by

the authorities under Act from time to time, stated that the

Revenue, since is not questioning the eligibility of assessee for

deduction under Section 80HHB, the quantification should be

according to the concluded figures determined in the effect

order. To wit, we quote his words: "I find it difficult to justify the I.T.A. No. 203/2012

source and reason for the Commissioner to assume the existence of

Rs.10,06,26,590/- as 50% of gross total income of the assessee". The

assessee since is successful in its claim on loss of sale and

revaluation of bonds, which are one of the items added by the

Assessing Officer in the effect order, this loss will have to be

correspondingly given effect to, thereafter the gross total

income is determined and thereon quantification undertaken.

From the perspective of admitted circumstances, he could not

convince us on the errors in the order of CIT (Appeals) and the

Tribunal.

6. We appreciated the submissions and perused the

record.

7. The CIT (Appeals) in the order dated 27.12.1999 set

aside the addition under Section 80HHB and directed re-

examination of assessee's entitlement to deduction under I.T.A. No. 203/2012

Section 80HHB. The Assessing Officer accepted the eligibility of

assessee for deduction under Section 80HHB vide order dated

15.02.2002, granted 50% on gross total income as quantified

deduction under Section 80HHB. There is no mistake if the

gross total income amounting to Rs.21,38,66,220/- remains

undisturbed in further adjudication. But, in the case on hand,

by virtue of the decision of the Tribunal in I.T.A.

No.47/Coch/2000 dated 17.06.2003, the claim of assessee on loss

of revaluation and sale of government bonds has been accepted.

In account parlance, these items are to be deleted from the

gross total income of the assessee, then the quantification

under Section 80HHB should have been done correspondingly.

We notice from the order of Commissioner dated 01.09.2005

(Annexure-I) that a different reasoning is adopted in analyzing

the controversy and the conclusion reached therefrom could

not be supported from the record. The CIT (Appeals) erred in I.T.A. No. 203/2012

appreciating the effect order and consequential deduction and

quantification under Section 80HHB . The Revenue has made

out a case and we answer the questions of law in favour of the

Revenue and against the assessee. This Court records that the

deduction under Section 80HHB quantifying order dated

28.07.2003 is correct and ought not to have been reversed by the

CIT (Appeals). The questions of law are answered infavour of

the revenue and against the assessee.

The appeal allowed as indicated above.

Sd/-

S.V.BHATTI JUDGE

Sd/-

BECHU KURIAN THOMAS JUDGE

jjj I.T.A. No. 203/2012

APPENDIX OF ITA 203/2012

PETITIONER ANNEXURE

ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED 11/03/1999.

ANNEXURE B TRUE COPY OF THE PROCEEDINGS OF THE ASSESSING OFFICER DATED 15/02/2002.

ANNEXURE C COPY OF THE ORDER U/S. 154 DATED 18/05/2004.

ANNEXURE D TRUE COPY OF THE ORDER OF TWO MEMBERS OF THE TRIBUNAL DATED 31/08/2010.

ANNEXURE E TRUE COPY OF THE ORDER OF THE THIRD NUMBER OF THE TRIBUNAL DATED 23/04/2012.

ANNEXURE F TRUE COPY OF THE ORDER OF THE TRIBUNAL BASED ON THE ORDER OF THE THIRD MEMBER DATED 27/04/2012.

ANNEXURE G PROCEEDINGS OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), ERNAKULAM GIVEN EFFECT TO CIT(A)'S ORDER

ANNEXURE H PROCEEDINGS OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), ERNAKULAM GIVING EFFECT TO ITAT'S ORDER

ANNEXURE I APPELLATE ORDER OF THE CIT(A) IN ITA 39/R-1/E/CIT-

11/03-04