2021 (8) TMI 131 - HC - Income Tax

Tax Court denies assessee's claim for bond loss deduction under Section 80HHB; Revenue appeal upheld

THE COMMISSIONER OF INCOME TAX-I, KOCHI Versus M/s. BHAGEERATHA ENGINEERING LTD.

The case involved a dispute over the disallowance of an assessee's claim for revaluation and loss in the sale of government bonds under Section 80HHB of ... Deduction u/s 80HHB - AO and the CIT(Appeals) disallowed the claim of assessee of revaluation of government bonds and the loss in sale of government bonds - HELD THAT:- AO 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 u/s 80HHB. There is no mistake if the gross total income amounting to ₹ 21,38,66,220/- remains undisturbed in further adjudication. In the case on hand, 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. CIT (Appeals) erred in 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 in favour of the revenue Issues:1. Disallowance of claim of assessee of revaluation of government bonds and loss in sale of government bonds under Section 80HHB of the Income Tax Act.2. Appeal against the order of the Income Tax Appellate Tribunal regarding Assessment Year 1996-97.3. Controversy over the quantification of deduction under Section 80HHB by the CIT (Appeals) and subsequent orders.Issue 1: Disallowance of claim under Section 80HHB:The case involved an appeal against the disallowance of the claim of the assessee regarding revaluation of government bonds and loss in the sale of government bonds under Section 80HHB of the Income Tax Act. The Assessing Officer and the CIT (Appeals) had disallowed these claims, leading to an appeal by the assessee before the Income Tax Appellate Tribunal. The Tribunal allowed the appeal, stating that the assessee was entitled to the actual loss on the sale of government bonds and notional loss on revaluation of government bonds, treating them as current assets. The Tribunal's decision was based on the premise that the receipt of government bonds was a substitute for receivables. The effect order issued by the Assistant Commissioner recomputed the gross total income of the assessee and granted 50% as an eligible deduction under Section 80HHB. The CIT (Appeals) further directed the Assessing Officer to allow the deduction under Section 80HHB in full, which was confirmed by the Tribunal.Issue 2: Appeal against the Tribunal's Order for Assessment Year 1996-97:The Revenue filed an appeal against the Tribunal's decision to allow the claim of the assessee regarding the revaluation and sale of government bonds. The Revenue argued that the quantification of deduction under Section 80HHB by the CIT (Appeals) was arbitrary and illegal. The Revenue contended that the deduction granted by the CIT (Appeals) exceeded the jurisdiction and resulted in a loss of revenue. The Senior Advocate representing the assessee argued that the quantification should be based on the concluded figures determined in the effect order. However, the Revenue maintained that the quantification should be adjusted based on the loss on revaluation and sale of bonds. The Court analyzed the circumstances and concluded that the CIT (Appeals) erred in appreciating the effect order and the consequential deduction under Section 80HHB. The Court ruled in favor of the Revenue, stating that the deduction quantifying order was correct and should not have been reversed by the CIT (Appeals).Issue 3: Controversy over Quantification of Deduction under Section 80HHB:The controversy primarily revolved around the quantification of deduction under Section 80HHB by the CIT (Appeals) and subsequent orders. The Court found that the CIT (Appeals) erred in analyzing the effect order and the consequential deduction under Section 80HHB. The Court ruled in favor of the Revenue, stating that the deduction quantifying order dated 28.07.2003 was correct and should not have been reversed by the CIT (Appeals). The Court answered the questions of law in favor of the Revenue and against the assessee, ultimately allowing the appeal in favor of the Revenue.This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Court's decision on each issue.