TaxTMI 
TaxTMI 
1989 (1) TMI 150
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.... of the I.T. Act at Rs. 50,04,887 and at Rs. 68,65,216 for the A. Yrs. 1979-80 & 1980-81 respectively for the reasons discussed in the assessment orders for the two years. In brief, it is the case of the I.A.C. (Asstt.) that for obtaining approval under section 80-O of the I.T. Act from the C.B.D.T., the appellant company had not put forward true & correct facts before the C.B.D.T. or in any case had put forward incomplete facts before the C.B.D.T. particularly with reference to sub-contracting of certain jobs abroad. It is the view of the I.A.C. (Asstt.) that if true and correct facts were put forward before the C.B.D.T., either the appellant would not have got approval under section 80-O of the I.T. Act or would have got approval with substantial modifications, under which the appellant company would not have been able to get 80-O relief with reference to sub-contracted jobs abroad, in relation to which the appellant company had made payments of almost 92 to 95% of gross receipt in foreign currency. The view of the I.A.C. (Asstt.) prima facie appears to be correct. However, in terms of the directions of the C.I.T. (Appeals) in the appeal order for the A.Y. 1980-81, the I.A.C. (As....
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....aised on behalf of the assessee can be summarised as under :-- (i) That on the basis of approval granted by the Central Board of Direct Taxes dated 4th April 1978 (assessee's paper book page 27), it cannot be said that either facts have been mis-stated or, else, incomplete facts have been given to the Central Board of Direct Taxes ; (ii) That Central Board of Direct Taxes' letter dated 19th August 1987 (assessee's paper book page 66) corroborates the assessee's stand that the approval of the Central Board of Direct Taxes was granted taking the facts in the correct perspectives and omission, if any, was a bona fide omission ; (iii) That the learned first appellate authority could not have upheld the Assessing Officer's view inasmuch as Central Board of Direct Taxes' letter dated 19th August 1987 (referred to above) proved the bona fides of the assessee and in this view of the matter the issue should have been decided on merits ; (iv) That 80-O deduction has to be in accordance with the law, viz. the provision as contained in the Income-tax Act, 1961 and the Central Board of Direct Taxes could not have excluded amounts paid to sub-contractors, since the C.B.D.T. has not a....
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....t have been disturbed. Clarifying his stand, Shri Mehta relied on order dated 14-2-1983 made by learned CIT (Appeals) whereby the assessment for this year was set aside with certain specific directions but since 80-O relief was not an issue before the learned CIT (Appeals), in the second round the Assessing Officer could not have denied, much less disturbed, the relief granted at the time of original assessment. On his part, Shri C.K. Vohra, learned Senior Departmental Representative, who had also addressed us at length made out the following points in support of revenue's case :-- (i) That the impugned order of learned first appellate authority merits, no interference since 80-O deduction is to be allowed to the assessee in terms of the decision of the Central Board of Direct Taxes and this is what the learned Commissioner of Income-tax (Appeals) has directed the Assessing Officer to do as and when the said decision is available and then to invoke section 154 of the Act for the purpose ; (ii) That the approval of the Central Board of Direct Taxes under section 80-O of the Act cannot be made a subject matter of appeal since no appeal is provided for the purpose ; (iii) Tha....
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....medy lies elsewhere and not before this forum. He also forcefully contended that issue must arise from the order of the learned first appellate authority so that ITAT gets the jurisdiction to decide it. Further that on remand the Assessing Officer's power remains the same as in the original innings and also that the 80-O deduction is a concluded issue in view of the Supreme Court decision. 3. As regards the reasoning of the learned Commissioner of Income-tax (Appeals) that the assessee has not put forward true and correct facts before the Central Board of Direct Taxes or in any case had put forward incomplete facts and in case true and correct facts were put forward, either the assessee would not have got approval under section 80-O of the Act or would have got approval with substantial modifications resulting in no relief with reference to sub-contractors jobs abroad, page 66 of assessee's paper book, which is a letter from the Central Board of Direct Taxes and reads as under is the answer :-- 'F. No. 473/221/85-FTD Government of India Ministry of Finance Department of Revenue Foreign Tax Division Central Board of Direct Taxes, New Delhi, the 19th August, 1987. To The ....
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....ted 14-2-1983 made by learned Commissioner of Income-tax (Appeals)-XVI, Bombay, made for the assessment year 1979-80 on appeal by this very assessee in appeal file No. CIT(A)XVI/CCIII/191/82-83 :-- 'The basic facts have been discussed by me in appeal No. C.I.T. (A) XVI/CCIII/52/80-81 dated the 14-2-1983. (2) Though there are other grounds of appeal involved in this case, the basic dispute is with regard to the weighted deduction under section 35B of the I.T. Act as held by me in my order for assessment year 1977-78. The I.T.O. has allowed the appellant's claim under section 35 without considering the various aspects involved in the claim. (3) The assessment is therefore being set aside with the same directions. At the time of completing the assessment the I.T.O. may examine in detail the various items regarding renovation expenses and the assessee's explanation regarding addition to the value of closing stock. (4) The appeal is treated to be allowed for statistical purpose. Since in the above order, the learned Commissioner of Income-tax (Appeals) had, 'set aside with the same directions', the assessment for this year, it stands to reason to reproduce his order made ....
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.... appellant on various items not covered by the decision of J. Hemchand has been decided by other decisions of the Tribunal in different cases. The appeal is treated to be allowed for statistical purposes.' 5. From the above two orders made by the learned first appellate authority, it follows that what is remanded is a limited issue and it relates to claim of assessee under section 35B of the Act and nothing more. While discussing section 251 of the Income-tax Act, 1961 and the powers of the Assessing Officer to make a fresh assessment on page 1130. The Law and Practice of Income-tax (Kanga and Palkhivala's), it is observed that the AAC while setting aside the assessment may direct the ITO to consider only certain matters when making a fresh assessment and in that event, the ITO cannot go behind that direction and enquire into other matters. The assessment order made in the case of the assessee for the assessment year 1979-80 on 25-9-1982, qua the subject matter 80-O reads as under :-- 'The deduction under section 80-O is allowed equal to gross receipts as per instructions of the I.A.C.' The Andhra Pradesh High Court in the case of Pulipati Subbarao & Co. v. AAC [1959] 35 I....
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....made for the assessment year under appeal in the first round of litigation that he has exercised powers beyond the subject matter of appeal and, in this view of the matter, in the second round of litigation, at the assessment stage, the assessee could not be placed to a worst position than that the assessee was when he had appealed to the learned first appellate authority. 6. Giving due consideration to the facts of the case, the ratio laid down by the various High Courts on the issue, which has been taken into account, we will hold that 80-O issue could not have been decided and relief disturbed by the Assessing Officer in the second round of litigation, since the said was not a subject matter of appeal by the assessee before the learned Commissioner of Income-tax (Appeals) in the first round and the then made order of the learned first appellate authority was restrictive in nature in terms of setting aside the assessment, qua the points and issues raised by the assessee before him at that time. The net result is that for the assessment year 1979-80 the action of the learned Assessing Officer as also adjudication of the same at the first appellate stage is not in accordance wit....
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....r. On page 309 of the said report, the Hon'ble Patna High Court held that the assessee was certainly in default but penalty was not imposable because of the benevolent circular on the issue. Their Lordships relied on the decisions of the Hon'ble Supreme Court in the case of Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 in the case of Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC) and in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 (SC). Their Lordships of the Patna High Court also discussed observations in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102/24 Taxman 337 (SC) to the effect that circulars being executive in character cannot alter the provisions of the Act. The Patna High Court further observed that the decision of the Supreme Court in the case of Navnit Lal C. Javeri was a judgment of five judges, while that of in the case of State Bank of Travancore was of three judges. The Patna High Court followed the judgment of the five judges. We reproduce hereunder for ready reference extracts from the above decision of the Patna High Court from pages 306 to 309 :-- 'I should like to make it absolutely clear that even de hors the Explanation,....
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.... an individual's annual income is above a certain level, he is required to file an estimate of income and to pay advance tax accordingly. The last instalment, according to the assessee's own estimate, had to be paid by the 15th March of the relevant accounting year. The effect of the circular would be that an assessee need not pay advance tax at all. This would be nullifying the entire law contained in sections 207 to 219 of the Act in regard to payment of advance tax. It is well established that rules--statutory or otherwise, are executive in nature and cannot override the provisions of the statute. The rules or circulars may explain or fill up the gap, but surely they cannot run counter to the will of Parliament contained in the statute and put the provisions of the Act on the shelves. Judged by those standards, the circular mentioned above was clearly issued against the provisions of the Income-tax Act in regard to the payment of advance tax. Thus contended senior standing counsel for the Revenue. Learned counsel for the assessee, on the other hand, relied upon the case of Navnit Lal C. Javeri Y. K.K. Sen, AAC [1965] 56 ITR 198 (SC), where Gajendragadkar, CJ., observed as follow....
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.... circulars issued by the Central Board of Direct Taxes under section 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act." The observations in State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC) made by Sabyasachi Mukharji, J. to the effect that the circulars being executive in character cannot alter the provisions of the Act run counter to the observations of Gajendragadkar, CJ. in the case of Navnitlal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC). The latter being judgment of five judges and the former of three judges. I am bound to follow the case of Navnitlal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC). It is thus obvious that in terms of the circular of the Central Board of Direct Taxes quoted above, no penalty could have been levied. The assessee was certainly in default, but the Central Board of Direct Taxes Circular being binding on the Officers employed in execution of the Act under section 5(8), they were bound to give effect to the circular'. The above case law apart, in the case of Rajan Ramkrishna v. CWT [1981] 127 ITR 1 the Gujarat High Court has also held ....
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....vely from the Finance Minister's address to the Parliament at the time of introduction of Finance (No. 2) Bill and concludingly the High Court observed that, 'interpretation of a statutory provision is always a question of law on which reasons stated by the mover of the amendment can only be used as an aid in interpretation if we think, as I do in the instant case, that it helps us considerably in understanding the meaning of the amended law. We find no bar against such a use of the speech.' 10. In view of the above decision also and the distinction being between the operative dates of sections 80AA and 80AB, in relation to assessment years 1979-80 and 1980-81, the assessee is entitled to relief in terms of deduction under section 80-O of the Act on gross. We hold and direct accordingly. 11. The next ground for the assessment year 1979-80 is the claim of the assessee for weighted deduction in terms of export market development allowance under section 35B of the Income-tax, Act, 1961. This has been discussed by the learned first appellate-authority in para 5 and the narration reads as under :-- 'It is seen that the I.A.C. (Asstt.) has followed the ratio of decision of the I....
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....wance of Rs. 1,070 out of site expenses (Rs. 3,894), out of business development expenses and disallowance of Rs. 2,050 by treating the same as entertainment expenses. These are assessee's grounds No. 6 and 7 for the assessment year 1980-81. However, at the time of hearing of these appeals, these were not pressed, hence stand rejected. 16. The appeal for assessment year 1980-81 stands allowed partly as indicated above, since on 80-O ground the assessee succeeds. 17. Before parting with these two assessment years, for completeness and caution, we like to mention that on the point of 80-O the reliance of the revenue stands discussed by the Madras High Court in Madras Motor & General Insurance Co. Ltd. and additionally we have relied upon the circular issued by the Central Board of Direct Taxes, hence we are not discussing whether approval of Central Board of Direct Taxes could be a subject matter of appeal before the ITAT or not. As regards reliance of the revenue on the cases on the issue of powers of the Assessing Officer after the assessments are set aside, we will only say that in this case for the assessment year 1979-80 the set aside was a restricted one being on some spe....