2015 (5) TMI 191 - HC - Income Tax

Court grants relief under Section 80HHC(3) amendment, remands matter for re-examination.

The Court concluded that the appellants are entitled to the reliefs claimed under the retrospective amendment to Section 80HHC(3). The rejection made ... Assessment completed invoking 153A - Whether the amendment to Section 80HHC(3) by inserting three provisos with retrospective effect from 01.04.1998 could have been invoked to disallow the amounts in respect of concluded assessments for AY 1999-2000 in the assessee’s case - Held that:- The burden was upon the Revenue to prove that the restrictions imposed by the amending Act are reasonable. We find that the Revenue has failed to discharge that burden by pointing out the reason for making classification based on the two aspects which have no reasonable connection with the object of amendment. The appellants are entitled to the reliefs claimed by them to the extent it is admissible - in line with the final order of the Supreme Court in CIT-5 and Anr. v. M/s. Avani Exports and Anr.[2015 (4) TMI 193 - SUPREME COURT]. Accordingly, the substantial question of law relating to the rejection made is answered in favour of the assessee. The matter shall be re-examined by the AO in the light of the Supreme Court’s final order. Since this Court has already ruled upon the merits of the disallowance made, the question as to whether the assessments could have been made under Section 153A is rendered academic; the same is accordingly kept open Issues Involved:1. Completion of assessment under Section 153A of the Income Tax Act.2. Retrospective application of the amendment to Section 80HHC(3) and its impact on concluded assessments for AY 1999-2000.Issue-wise Detailed Analysis:1. Completion of Assessment under Section 153A:The first issue revolves around whether the assessment could have been completed by invoking Section 153A of the Income Tax Act. The search operations were conducted on the assessee's premises on 18.06.2003, and based on the materials collected, the Assessing Officer (AO) issued a notice under Section 153A on 31.05.2005. The assessee responded by standing by the original returns processed under Section 143(1). However, the AO proceeded to finalize the assessment under Section 153A, disallowing certain amounts and significantly reducing the deductions initially granted under Section 80HHC. The Court noted the contention of the assessee that the disallowance was solely based on the retrospective amendment to Section 80HHC(3). Given the resolution of the second issue, the Court deemed the question of whether the assessments could have been made under Section 153A as academic and kept it open for future consideration.2. Retrospective Application of Amendment to Section 80HHC(3):The second issue concerns the retrospective application of the amendment to Section 80HHC(3) by the Taxation Laws (Amendment) Act, 2005, which was brought into force from 01.04.1998. The assessee argued that this amendment, which was challenged on grounds of unreasonable retrospective operation, was held to be unreasonable by the Gujarat High Court in Avani Exports and Ors. v. CIT. The Gujarat High Court found that the classification based on export turnover was arbitrary and violated Article 14 of the Constitution of India. The Court observed that the retrospective operation of the amendment deprived a class of assessees of benefits based on the pendency of assessment proceedings, which was discriminatory and lacked a rational nexus with the amendment's objective. The Supreme Court upheld this reasoning and clarified that the benefit of Section 80HHC should be available to exporters with turnover both below and above Rs. 10 crores without the conditions imposed by the third and fourth provisos.Court's Conclusion:In light of the Supreme Court's final order, the Court concluded that the appellants are entitled to the reliefs claimed to the extent admissible. The substantial question of law regarding the rejection made under the retrospective amendment to Section 80HHC(3) was answered in favor of the assessee. The matter was remanded to the AO for re-examination in accordance with the Supreme Court's directive. The appeals were allowed in these terms, and the question regarding the assessments under Section 153A was rendered academic and kept open.This comprehensive analysis ensures that all relevant legal terminology and significant phrases from the original judgment are preserved, providing a thorough understanding of the issues and the Court's reasoning.