2009 (11) TMI 606 - AT - Income Tax

Tax Appeal Decision: Deduction under Section 80HHC upheld, disallowance under Section 14A remitted for reconsideration.

Income-Tax Officer And Another. Versus Tamilnadu Minerals Limited.

The order of the CIT(A) directing the AO to consider the deduction under Section 80HHC was upheld, allowing the appeal partly for statistical purposes. ... Deduction u/s 80HHC - Failure to claim relief in the return despite positive income - claim was made during reassessment proceeding - assessee company which is an undertaking of the Government of Tamil Nadu is engaged in manufacture and export of granites - AO submission is that since ssessee has not made any claim in the return of income about deduction under s. 80HHC, despite having positive income - CIT(A) held that assessee would be entitled to deduction under s. 80HHC and directed the AO to ascertain the availability of profits of business eligible for deduction - High Court in the case of CIT vs. Valli Cotton Traders (P) Ltd. (2006 -TMI - 3392 - MADRAS HIGH COURT) - wherein it was held that the spirit behind sub-ss. (5) and (9) of s. 139 r/w s. 80HHC is that the assessee should be given a fair and reasonable opportunity to claim the benefit as available under the statute and any denial on technical ground is not justified - Decided in favor of the assessee by way of direction to AO Issues Involved:1. Claim of relief under Section 80HHC of the IT Act.2. Deduction of local cess and surcharge.3. Disallowance under Section 14A related to dividend income.4. Exclusion of excise duty and sales tax from 'total turnover' for computing relief under Section 80HHC.Detailed Analysis:1. Claim of Relief under Section 80HHC:Issue: The Department challenged the CIT(A)'s direction to allow the assessee's claim for relief under Section 80HHC despite the claim not being made in the return of income.Analysis:- The Department argued that the claim under Section 80HHC was not made in the return of income and was only raised during reassessment proceedings. The AO denied the claim based on the Supreme Court's decision in Goetze (India) Ltd. vs. CIT, which restricted the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return.- The CIT(A) directed the AO to ascertain the availability of profits eligible for deduction and apply the law as laid down in cases like CIT vs. Hemsons Industries and CIT vs. Gupta Fabs.- The Tribunal noted that the assessee did not make any claim under Section 80HHC in the return of income, and the Supreme Court's decision in Goetze (India) Ltd. vs. CIT applied. Therefore, the CIT(A)'s direction was overturned, and the AO's order was restored.- The Third Member upheld the CIT(A)'s direction to the AO, emphasizing that the assessee could claim the deduction under Section 80HHC during reassessment proceedings if the business income turned positive due to disallowance under Section 43B.Conclusion: The order of the CIT(A) directing the AO to consider the deduction under Section 80HHC was upheld by the majority view, allowing the appeal partly for statistical purposes.2. Deduction of Local Cess and Surcharge:Issue: The Department contested the CIT(A)'s decision to allow the deduction of Rs. 9,09,27,000 towards local cess and surcharge for the assessment year 2002-03.Analysis:- The CIT(A) allowed the deduction, stating that the liability crystallized only when the Supreme Court rendered its final order on 31st July 2001, relevant for the assessment year 2002-03.- The Department argued that the Supreme Court had held that local cess and surcharge were not collectible after 4th April 1991, and the liability ceased to exist during the relevant assessment year.- The Tribunal found that the CIT(A) had not properly considered the facts and circumstances and restored the matter to the AO for reconsideration.Conclusion: The matter was set aside and restored to the AO for fresh consideration, allowing the appeal partly for statistical purposes.3. Disallowance under Section 14A:Issue: The assessee contested the disallowance under Section 14A related to dividend income.Analysis:- The CIT(A) enhanced the disallowance to 2% of the dividend receipt.- The Tribunal noted that the Chennai Benches of the Tribunal consistently restored such matters to the AO for reconsideration based on actual expenditure incurred for earning exempt income.Conclusion: The Tribunal set aside the CIT(A)'s order and remitted the matter to the AO for reconsideration, allowing the appeal partly for statistical purposes.4. Exclusion of Excise Duty and Sales Tax from 'Total Turnover':Issue: The Department challenged the CIT(A)'s decision to exclude excise duty and sales tax from 'total turnover' for computing relief under Section 80HHC.Analysis:- The CIT(A) excluded excise duty and sales tax from 'total turnover' based on the Supreme Court's decision in CIT vs. Lakshmi Machine Works, which held that excise duty and sales tax do not form part of 'total turnover' under Section 80HHC.- The Tribunal upheld the CIT(A)'s decision, following the Supreme Court's ruling.Conclusion: The Tribunal upheld the CIT(A)'s order on this point, dismissing the Department's appeal on this ground.Final Outcome:- The appeals in ITA Nos. 827/Mad/2006 and 327/Mad/2006 were partly allowed for statistical purposes.- The appeal in ITA No. 2011/Mad/2006 was partly accepted.