CIT, Kolkata-XI v. M/s. V.M.T. Fibre Glass & Industries
[Citation -2015-LL-1126-121]

Citation 2015-LL-1126-121
Appellant Name CIT, Kolkata-XI
Respondent Name M/s. V.M.T. Fibre Glass & Industries
Court HIGH COURT OF CALCUTTA
Relevant Act Income-tax
Date of Order 26/11/2015
Assessment Year 1990-91
Judgment View Judgment
Keyword Tags arithmetical error • prima facie adjustment • quantum of deduction
Bot Summary: In the adjustment made under Section 143(1)(a) of the Act, the Assessing Officer deducted the loss of Rs.5,19,294/- in the sheet division from the profit in the pipe division and allowed deduction under Section 143(1)(a) with reference to the net profit only. The application under section 154 in this regard for rectification of the adjustment under Section 143(1)(a) was filed before Assessing Officer which was rejected. Mr. M.P. Agarwal, learned Advocate appearing on behalf of the appellant referring to Section 80HHC and relying on the judgment of the Supreme Court in IPCA Laboratory Limited vs. Deputy Commissioner of Income Tax : 266 ITR 521 and on the judgment of the Bombay High Court in IPCA Laboratories Limited vs. G. Meena, Deputy Commissioner of 3 Income Tax : 251 ITR 418 submits that since the law is well settled and deduction has to be allowed on the net profit after adjusting the loss in different units, the Assessing Officer was justified in passing the assessment order under Section 143(1)(a) and thus the application under Section 154 was not maintainable. In the course of processing the return of income under section 143(3)(1)(a) of the Act, the A.O. reduced the assessee s claim made under section 80HHC. As a result thereof, the assessee filed an application under section 154 of the Act before the A.O. saying that reduction of relief under section 80HHC is not a matter to be covered by the provision of section 143(1)(a) of the Act. The reduction of deduction under section 80HHC, while processing the return of income under section 143(1)(a), was beyond the A.O. s jurisdiction, and as such the same was rectified u/s. The real question is whether the Assessing Officer was justified in passing the order under Section 143(1)(a) with regard to the deduction under Section 80HHC. It is to be noted that Section 143(1)(a) empowers the Assessing Officer to compute the total income or loss after making adjustments, namely, any arithmetical error in the return or an incorrect claim, if such incorrect claim is apparent from any information in the return. If the Assessing Officer was of the view that there was reason to believe that the claim was inadmissible, he should have served notice on the assessee specifying the particulars of such claim or such loss or deduction or relief under Section 143(2) or if he had reason to believe that the income had escaped assessment should have served notice under section 148 of the Act.


ORDER SHEET IN HIGH COURT AT CALCUTTA Special Jurisdiction [Income Tax] ORIGINAL SIDE ITA 304 of 2005 C.I.T. KOLKATA XI Versus M/S. V.M.T. FIBRE GLASS & INDUSTRIES BEFORE: Hon'ble JUSTICE SOUMITRA PAL Hon'ble JUSTICE MIR DARA SHEKO Date : 26th November, 2015. Mr. M. P. Agarwal, Adv. Mr. Arnab Chakraborty, Adv Mr. Kushagra Shah, Adv. Soumitra Pal, J.:- This appeal, relating to assessment year 1990-91, was admitted on following substantial question of law: Whether, on facts and in circumstances of case, Income-tax Appellate Tribunal is correct in holding that Assessing Officer was not justified in rejecting application of assessee under section 154 of Income-tax Act, 1961, for rectification of adjustment made in intimation under section 143(1)(a) of 2 Income-tax Act, 1961, with regard to claim for deduction under section 80HHC of Act. Facts, as evident from record, are as follows: respondent, that is, assessee, had filed its return showing income of Rs.97,310/- after claiming deduction of Rs.36,51,903/- under Section 80HHC of Income Tax Act, 1961. While processing return under Section 143(1)(a) of Act, Assessing Officer computed income at Rs.10,20,000/-. assessee had profit of Rs.42,68,504/- in pipe division and loss of Rs.5,19,294/- in sheet division. assessee had claimed deduction of Rs.8,56,043/- under section 80HHC with reference to profit in pipe division. In adjustment made under Section 143(1)(a) of Act, Assessing Officer deducted loss of Rs.5,19,294/- in sheet division from profit in pipe division and allowed deduction under Section 143(1)(a) with reference to net profit only. According to assessee, Assessing Officer was not entitled to make adjustment and deduction under Section 80HHC was to be allowed with reference to export profits only. application under section 154 in this regard for rectification of adjustment under Section 143(1)(a) was filed before Assessing Officer which was rejected. Aggrieved, assessee preferred appeal before CIT (A) which was allowed holding that Assessing Officer was not entitled to make such adjustment under Section 143(1)(a). Against order of CIT(A), Revenue preferred appeal before Income Tax Appellate Tribunal which was dismissed. Against order of Tribunal, this appeal has been preferred. Mr. M.P. Agarwal, learned Advocate appearing on behalf of appellant referring to Section 80HHC and relying on judgment of Supreme Court in IPCA Laboratory Limited vs. Deputy Commissioner of Income Tax : 266 ITR 521 and on judgment of Bombay High Court in IPCA Laboratories Limited vs. G. Meena, Deputy Commissioner of 3 Income Tax (No. 2) : 251 ITR 418 submits that since law is well settled and deduction has to be allowed on net profit after adjusting loss in different units, Assessing Officer was justified in passing assessment order under Section 143(1)(a) and thus application under Section 154 was not maintainable. Mr. Arnab Chakraborty, learned advocate for respondent relying on order passed by CIT(A) and Tribunal submitted that Assessing Officer was not justified in rejecting application under Section 154. In order to appreciate issue it is appropriate to refer to relevant portion of order under Section 154 passed by Assessing Officer which is as follows :- I am of opinion that Assessing Officer is competent to disturb computation of deduction u/s. 80HHC as claimed by assessee, and recompute proper quantum of deduction as per provisions of Sec. 80HHC of I.T. Act in course of processing of return u/s. 143(1)(a). It is seen that at time of processing for computation of deduction u/s. 80HHC, Assessing Officer considered entire turnover of business (Pipe Division as well as Sheet Division) of assessee firm and similarly combined profit was taken into consideration for purpose of calculation of deduction u/s. 80HHC. I do not find any irregularities which may be rectified in instant case. Therefore, petition u/s. 154 filed by assessee firm has no merit and no rectification lies in instant case. Hence petition u/s. 154 is disposed of by denying any rectification of total income processed u/s. 143(1)(a). said order was challenged by assessee in appeal before CIT(A). relevant portion of order in appeal is as under:- It is also relevant to point out that desired report from Assessing Officer has not yet been received. In this letter dated 22.06.2004 A.O. has written that inspite of his best effort he could not locate relevant asstt. folder. Considering that report is not likely to be received from Assessing Officer and also considering that this is very old appeal it is being decided on basis of facts and materials available on record. In this case A.O. has 4 recomputed deduction claimed u/s. 80HHC and worked out total income at Rs.10,20,000/-. A.O. has taken entire turnover of business and has taken combined profit for calculation of deduction u/s. 80HHC. Identical issue was raised before ITAT, Kolkata in case of Appellant for A. Yr. 1991-92. ITAT observed that since this issue is squarely covered by at least 2 reported decisions of coordinate benches of this Tribunal namely decision reported in 68 ITD 358 (DEL) and 63 ITJ 761 (AHMD). In those decisions coordinate benches of Tribunal have taken view that for purpose of computation of deduction u/s. 80HHC profit to export unit only is to be taken into a/c. . Following above mentioned 2 decisions ITAT, Kolkata Bench upheld contention of Appellant and allowed appeal. It directed A.O. To recomputed admissible deduction u/s. 80HHC. Considering facts that this case is squarely covered by decision of ITAT, appeal is allowed. A.O. is directed to recompute deduction u/s. 80HHC. For statistical purpose appeal may be treated as ALLOWED. As already noted, Revenue being dissatisfied filed appeal before Tribunal. Tribunal while dismissing appeal and upholding order of CIT(A) had passed order, relevant portion of which is extracted hereinbelow:- It is not in dispute that this issue has arisen out of 154 proceedings which were in turn related to processing of return of income under section 143(1)(a) of Act. In course of processing return of income under section 143(3)(1)(a) of Act, A.O. reduced assessee s claim made under section 80HHC. As result thereof, assessee filed application under section 154 of Act before A.O. saying that reduction of relief under section 80HHC is not matter to be covered by provision of section 143(1)(a) of Act. It is also seen that 143(1)(a) order was made on 24.09.92 when situation with regard to deduction u/s. 80HHC was debatable one. Therefore, reduction of deduction under section 80HHC, while processing return of income under section 143(1)(a), was beyond A.O. s jurisdiction, and as such same was rectified u/s. 154 of A.O. Act. Ld. CIT(A) 5 has stated that issue in question is fully covered by at least two reported decision of Tribunal. In this view of matter, we, therefore, find that A.O. was not justified in making prima facie adjustment with regard to deduction claimed under section of Act. If there was any doubt as to claim of assessee under section 80HHC, Income Tax Officer should have proceeded under section 143(2) or 147 of Act and then he should have decided matter on merits in accordance within provisions of law. But it is settled that it is not matter to be covered under section 143(1)(a) of Act, and as such he was required to rectify same under section 154 of Act by withdrawing prima facie adjustment made by him to returned income. order of ld. CIT(A) is modified accordingly. order of ld. CIT(A) is, therefore, upheld for reasons given by us. In result, appeal filed by Revenue is dismissed. real question is whether Assessing Officer was justified in passing order under Section 143(1)(a) with regard to deduction under Section 80HHC. It is to be noted that Section 143(1)(a) empowers Assessing Officer to compute total income or loss after making adjustments, namely, any arithmetical error in return or incorrect claim, if such incorrect claim is apparent from any information in return . It is nobody s case that there was any arithmetical error in return. Moreover, claim, assuming to be incorrect was not apparent from information in return which could have been dealt by Assessing Officer under Section 143(1)(a). Thus, issue was debatable one as correctly held by Tribunal. If Assessing Officer was of view that there was reason to believe that claim was inadmissible, he should have served notice on assessee specifying particulars of such claim or such loss or deduction or relief under Section 143(2) or if he had reason to believe that income had escaped assessment should have served notice under section 148 of Act. Assessing Officer chose neither of two avenues. Thus judgment of Supreme Court in IPCA Laboratory Ltd. (supra), relied on by appellant, wherein question for consideration was whether appellants were entitled to deduction 6 under section 80HHC in respect of sum of Rs.3.78 crores by ignoring loss of Rs.6.86 crores is not applicable as it is not case regarding processing of return under section143. judgment of Bombay High Court in IPCA Laboratories Ltd. (supra) does not support case of Appellant as therein notice was issued under Section 148 of Act, unlike case in hand, where no such notice was issued. Therefore, submission on behalf of appellant cannot be accepted. Hence, question is answered in affirmative, against Appellant and in favour of assessee. appeal is dismissed. (SOUMITRA PAL, J.) I agree. (MIR DARA SHEKO, J.) sm/sg. CIT, Kolkata-XI v. M/s. V.M.T. Fibre Glass & Industrie
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