IN HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH : NAGPUR. Income Tax Reference No.27/2002 (The Commissioner of Income Tax, Vidarbha, Nagpur .vs. M/s Ballarpur Industries Limited, New Delhi) Office Notes, Office Memoranda of Coram, appearances, Court's orders or directions Court's or Judge's orders. and Registrar's orders Mr. S.N. Bhattad, Advocate for Applicant. Mr. L.S. Dewani & K.P. Dewani, Advocates for Respondent. CORAM : M.S. Sanklecha & Manish Pitale, JJ. DATED : July 31, 2017. P.C. This reference under Section 256(1) of Income Tax Act, 1961 ( "Act") seeks our opinion on following questions of law: (1) Whether on facts & in circumstances of case Tribunal was justified in law in setting aside order of CIT passed under section 263 of I.T.Act, 1961? (2) Whether on facts and in circumstances of case Tribunal was justified in law in holding that assessment order in question did not come within purview of section 263 of Income Tax Act, 1961? 2. assessment year involved in 1990 91. facts in brief as set out in statement of case is as under: ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 2 ITR27 02.odt (a) "In this case, Assessing Officer has completed assessment under section 143(3) on 29.3.93 and allowed deduction U/s. 80 HHC of I.T.Act, 1961 at Rs.92,81,627/ . learned C.I.T. was of opinion that "the applicable provisions of sub section (3) of section 80HHC stipulate that profit derived from export of goods or merchandise shall be as such, profit as computed under head 'profits and gains of business/profession". Section 29 read with section 28 of Incometax Act requires profits and gains of business and profession to be computed in accordance with provisions contained in section 30 to 43 of Act. Due cognizance has, therefore, to be given to section 32(2) and section 32 (3) of Act with reference to unabsorbed depreciation and investment allowance as relatable to particular case. (b) Assessing Officer is seen to have allowed deduction under section 80HHC of Act with reference to profits of business without considering aforementioned position of law. Assessing Officer should have allowed deduction under section 80HHC with reference to profits as determinable under section 29 of Act. Assessing Officer is thus seen to have allowed deduction under section 80HHC without subjecting claim to due verification and/subsequent ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 3 ITR27 02.odt quantification and allowability. (c) profit and loss account of Ballarpur Industries Ltd. and its three amalgamated companies reveal that total turnover for purpose of computation of deduction under section 80HHC relates only to sales credited to four profits and loss accounts. other revenue receipts were not included in total turnover for computing deduction under section 80HHC. includibility of these receipts in total turnover and determination thereon of amount allowable under section 80HHC has not been undertaken by Assessing Officer. Assessing Officer allowed claim under section 80 HHC without applying his mind to "turnover" on which 80 HHC deduction needs to be determined. (d) So also Commissioner of Income Tax noticed that assessee received interest in Malaysia. Assessing Officer included and taxed interest income as declared by assessee as net interest, whereas as per section 5(1)(c) of Act, gross income of interest should have been taken as amount of interest received by assessee. (e) Thus, for reasons mentioned in above ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 4 ITR27 02.odt paragraphs, Commissioner of Income tax opined that order passed by Assessing Officer was prima facie erroneous in so far as it was prejudicial to interests of revenue. In view of above, Commissioner of Income Tax set aside order of Assessing Officer and directed to modify total income of assessee accordingly. (f) Aggrieved with order of CIT passed u/s. 263 assessee preferred appeal to Tribunal, relying on decision of ITAT, Banglore Bench, Banglore in case of DCIT vs. Mysore Exports Ltd., reported in 55 ITD 263 and decision of jurisdictional High Court in case of CIT vs. Gabrial India Ltd., reported in 206 ITR 108 wherein jurisdictional High Court held that C.I.T. cannot revise order merely because he disagrees with conclusion arrived at by ITO with regard to certain expenditure allowed by ITO being revenue in nature and held that CIT was not correct in invoking jurisdiction under section 263. Tribunal further relying on decision of Hon'ble M.P. High Court reported in 218 ITR 699 wherein Hon'ble High Court held that Tribunal was right in law in holding that tax deducted at source outside India from foreign dividends and interest income was not part of total income and thus not assessable in ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 5 ITR27 02.odt hands of assessee under I.T. Act, 1961, and held that n this point also, CIT cannot invoke jurisdiction under section 263. Tribunal following above mentioned decisions allowed assessee's appeal and set aside order of CIT. (g) With regard to deduction under section 80HHC business profit is to be computed in accordance with section 29 read with section 28 of Act. Section 29 categorically mentions that computation of business income should be in accordance with provisions contained in sections 30 to 43C of Act. Therefore, unabsorbed depreciation under section 32(2) and investment allowance under section 32A(3) of Act relating to amalgamated companies and also to assessee's company to be reduced in determining profit for purpose of allowance under section 80HHC in view of clear provisions in Act, i.e., section 263, deduction under section 80HHC was computed by Assessing Officer at Rs.28,06,948/ as against deduction allowed earlier u/s. 80 HHC at Rs.93,75,523/ . Accordingly, according to CIT, deduction u/s. 80HHC allowed by ITO earlier was erroneous in so far as it is prejudicial to interest of revenue. (h) With regard to interest income, clause 1 of ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 6 ITR27 02.odt Article 12 of Double Taxation Avoidance Agreement between India and Malasia reported in 107 ITR 43 (statutes) is reproduced as under : "1. Interest derived by resident of ne of Contracting States from other contracting State may be taxed in that other contracting State." Thus, interest income earned in Malaysia may be taxed there. Clause 2 of Article 22 of same Double Taxation Avoidance Agreement between Government of India and Malaysia which is reported in 107 ITR 49(St.)., then stipulates procedure to be adopted." amount of Malaysian tax payable under laws agreement, whether directly or by deduction, by resident of India, in respect of income from sources within Malaysia which has been subjected to tax both in India and Malaysia, shall be allowed as credit against Indian tax payable in respect of such income but in amount not exceeding that proportion of Indian tax which such income bears to entire income chargeable to Indian Tax." Article 22 (Clause 2) thus stipulates for credit of tax charged by Malaysia Government on income earned in Malaysia which is brought to tax in India on global income concept. According to revenue, since assessee gets credit for tax charged by Malaysia Government, income to be considered for tax in India would be gross ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 7 ITR27 02.odt income." 3. From reading of above, it is evident that applicant Revenue's grievance with order of Tribunal in setting aside order of CIT passed in exercise of Section 263 of Act is on two counts as under: (a) grant of benefit under Section 80 HHC of Act and (b) charging of tax on interest income earned in Malaysia on account of DTAA between India and Malaysia. 4. Mr. Bhattad, learned counsel appearing for applicant Revenue in support of reference on instructions states that Revenue is not pressing issue/question to extent it results to charging of tax on interest income earned in Malaysia on gross basis in context of DTAA between India and Malaysia. Therefore, our opinion has to be rendered on order of Tribunal only in context of it setting aside order of Commissioner of Income Tax passed in exercise of his power under Section 263 of Act in respect of order passed by Assessing Officer while computing deduction under Section 80 HHC of Act. ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 8 ITR27 02.odt 5. Mr. Bhattad, learned counsel appearing for Revenue submits that Tribunal ought not to have set aside order of Commissioner of Income Tax under Section 263 of Act as it was unexceptional for following reasons: (a) Assessing Officer while allowing deduction under Section 80 HHC of Act at Rs.92.81 lakhs in order dated 29.03.1993 passed under Section 143(3) of Act did not consider, much less examine claim of respondent assessee. Thus order was erroneous and prejudicial to interest of revenue warranting exercise of jurisdiction under Section 263 of Act by Commissioner of Income Tax; and (b) Assessing Officer while allowing claim of deduction of Rs.92.81 lakhs under Section 80 HHC of Act had completely ignored fact that profits and gains of business has to be computed in accordance with provisions contained in Section 30 to 43C of Act. Consequently Assessing Officer ought to have examined claim for deduction under Section 80 HHC of Act with reference to unabsorbed depreciation and and investment allowance as referred to in Sections 32 and 32A of Act. 6. Per contra, Mr. Dewani, learned counsel appearing ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 9 ITR27 02.odt for respondent assessee supports order of Tribunal setting aside order of Commissioner of Income Tax under Section 263 of Act as under: (a) There was application of mind and examination of claim for deduction under Section 80 HHC of Act made by respondent assessee. This he submits is evident from fact that claim for deduction made under Section 80 HHC of Act was higher then that granted. In support he invites our attention to order dated 30.06.1997 of Tribunal recording above submission on part of respondent assessee. (b) In present facts, Commissioner of Income Tax could not have exercised his powers under Section 263 of Act as view taken by Assessing Officer in his order dated 29.03.1993 passed under Section 143(3) of Act was possible view as is evident from decision of Tribunal in ACIT .vs. Mysore Exports Ltd. 55 ITD 263. Thus there was no reason to exercise jurisdiction under Section 263 of Act. (c) In any event issue of deduction under Section 80 HHC of Act at relevant time i.e. when Assessing Officer passed order dated 29.03.1993 was debatable issue. Consequently jurisdiction under Section 263 of Act could not have been exercised by Commissioner of Income Tax. ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 10 ITR27 02.odt 7. At very out set it may be pointed out that Mr. Dewani, learned counsel appearing for respondent assessee in support of his contention that Assessing Officer had applied his mind and examined respondent assessee's claim for deduction under Section 80 HHC of Act before granting same. This on basis that claim granted by Assessing Officer on above deduction was lesser then that claimed by it. In support he invites attention to submissions as made on behalf of respondent as recorded in order dated 30.06.1997 of Tribunal that respondent had made claim of Rs.93.75 lakhs before Assessing Officer, but only claim to extent of Rs.92.81 lakhs was granted by Assessing Officer in his order dated 29.03.1993 passed under Section 143 (3) of Act. 8. However, we invited attention to decision of this Court rendered on 10.07.2017 in ITR No. 39 of 1998 (CIT .vs. M/s Ballarpur Industries Ltd.) wherein we accepted respondent assessee's contention that it is not open to Revenue to bring in new facts in absence of same being recored in statement of case set by Tribunal. In our above order dated 10.07.2017 we placed reliance upon decision of ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 11 ITR27 02.odt Apex Court in CIT .vs. Calcutta Agency Ltd., 19 ITR 191. In above case Apex Court held that High Court has to give its opinion on question referred to it in context of facts set out in statement of case. In fact it observed as under: "The jurisdiction of High Court in matter of income tax references is advisory jurisdiction and under Act, decision of tribunal on facts is final....... It is, therefore, duty of High Court to start by looking at facts found by Tribunal and answer questions of law on that footing. Any departure from this rule will convert High Court into fact finding authority, which it is not under Advisory jurisdiction. Statement of case under Rules is prepared with knowledge of parties concerned and they have full opportunity to apply for any addition or deletion from Statement of case.... It is, therefore, clear that it is duty of High Court to start with Statement of case as final statement of facts." 9. In view of above, Mr. Dewani learned counsel appearing for respondent assessee restricted his submission with regard to facts set out in statement of case. These facts are to be taken as final by this Court while answering questions framed for our opinion. 10. law on exercise of jurisdiction under Section 263 of Act is settled by decision of Apex Court in case ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 12 ITR27 02.odt of Malabar Industrial Co. Ltd. .vs. CIT 243 ITR 83 wherein it has recorded that power of revision under Section 263 of Act can be exercised only on satisfaction of twin conditions namely order of Assessing Officer must be erroneous, and also prejudicial to interest of revenue. Court further observed that where claim made by assessee is allowed by Assessing Officer without having made any enquiry , then order of Assessing Officer to extent it allowed such claim is erroneous in law. Apex Court also recorded fact that where two views are possible, and Assessing Officer hs taken one possible view, then even if CIT does not agree with view, it would not give him jurisdiction to exercise jurisdiction under Section 263 of Act. 11. In above view, Mr. Bhattad, learned counsel for applicant Revenue submits that it is very clear that claim of respondent assessee for deduction under Section 80 HHC of Act was allowed without any discussion and/or consideration of eligibility and/or extent of eligibility of claim under Section 80 HHC of Act. Therefore, substantial question of law be answered in favour of Revenue. 12. However, Mr. Dewani, learned counsel for ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 13 ITR27 02.odt respondent assessee while not disputing above position in law with requirement of satisfaction of twin requirements, submits that in this case issue was debatable and two views were inherently possible in view of complexity of Section 80 HHC of Act. In support he placed reliance upon decision of Apex Court in CIT .vs. Max India Ltd. 295 ITR 282 which also reiterates that where two views are possible, exercise of revisional power under Section 263 of Act is not called for. two views he submits by inviting our attention to fact that statement of case refers to decision of Tribunal placing reliance upon its decision in Mysore Exports Ltd. (supra) taking same view. Further in support that there were two views possible at time when Assessing Officer passed order, reliance was placed upon decision of Andhra Pradesh High Court in CIT .vs. Gogineni Tobacco Ltd 238 ITR 970 which relies upon orders passed under Act indicating issue is debatable. Without prejudice to above, it is also submitted that from bare reading of statement of case it is clear that Assessing Officer had allowed deduction under Section 80 HHC of Act only after due application of mind. In support of aforesaid, he relied upon fact of statement of case refers to words "allowed deduction under Section 80 HHC of Act". Further observation ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 14 ITR27 02.odt in statement of case " Assessing Officer is thus seemed to have allowed deduction under Section 80 HHC without subjecting claim to due verification and/ subsequent quantification and allowability". 13. above issue which comes for our consideration is, did Assessing Officer consider and examine claim of respondent before allowing claim for deduction under Section 80 HHC of Act. respondent assessee seeks to draw inference from statement of case that there was inquiry made before allowing claim of deduction under Section 80 HHC of Act at Rs.92.81 lakhs. This inference is not justified. Mere using word "allowed" does not mean examination and enquiry before allowing deduction under Section 90 HHC of Act. words "due verification" would include within its ambit not only inadequate inquiry/verification but also no enquiry/verification. However, in case respondent assessee was of view that claim has been examined by Assessing Officer before allowing it, then respondent assessee ought to have statement of case modified/amended so as to bring aforesaid facts on record, as held by Apex Court in case of Calcutta Agency Ltd. (supra). This not being done and now to draw far fetched inference cannot be accepted. It is ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 15 ITR27 02.odt now settled in view of Malabar Industries (supra) that non enquiry before allowing claim would make order of Assessing Officer amenable to jurisdiction under Section 263 of Act. non enquiry by Assessing Officer gives jurisdiction under Section 263 of Act. Merely because issue is debatable, it does not absolve Assessing Officer from examining issue and taking view on claim after examination. Similarly because two views are possible and or that there are contrary view of higher forums, does not permit non examination of claim and taking one of possible view by giving reasons. In this case no examination of claim under Section 80 HHC of Act has been done by Assessing Officer. Therefore, exercise of jurisdiction by Commissioner of Income Tax under Section 263 of Act was valid. 14. decision of Apex Court in Max India Ltd. (supra) relied upon by respondent assessee to our mind would not come to its rescue for reason that in present facts statement of case does not indicate that view taken to allow claim under Section 80 HHC of Act was after examination/inquiry. Mere taking of view by Assessing Officer without having subjected claim to ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 16 ITR27 02.odt examination would not make it view of Assessing Officer. view has necessarily to be preceded by examination of claim and opting to choose one of possible results. In absence of view being taken, merely because issue itself is debatable, would not absolve Assessing Officer of applying his mind to claim made by assessee and allowing claim only on satisfaction after verification/enquiry on his part. view in absence of examination is no view but only chance result. Therefore, even decision of Andhra Pradesh High Court in Gogineni Tobacco Ltd (supra) will also have no application. 15. It appears from decision of Apex Court in Max India Ltd. (supra) that Assessing Officer had taken one of two views of word "profit" as occurring in Section 80 HHC of Act. Therefore, it was in that context that Apex Court held that Section 263 of Act would not be attracted particularly when view of Assessing Officer was found to be view taken by various authorities under Act. In passing we may point out that as recorded in statement of case, Tribunal held exercise of powers under Section 263 of Act by Commissioner of Income Tax to be bad in law as view of Assessing Officer was in line with decision of ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: 17 ITR27 02.odt Tribunal in Mysore Exports Ltd. (supra). It is relevant to note that on date when Commissioner of Income Tax exercised his powers under Section 263 of Act on 31.03.1995, decision of Tribunal in Mysore Exports Ltd. (supra) was not available before him as it was rendered on 19.05.1995. 16. Therefore, we are of view that Assessing Officer cannot abdicate his responsibility of examining claim for deduction before allowing it. Absence of examination of claim made by assessee while passing assessment order and allowing claim made, would render order of Assessing Officer erroneous and coupled with fact that in this case it is admitting prejudicial to interest of revenue, exercise of revisional jurisdiction under Section 263 of Act by Commissioner of Income Tax proper and valid. 17. In above view, both questions as formulated are answered in negative i.e. in favour of appellant revenue and against respondent assessee. 18. reference is disposed of in above terms. No order as to costs. (Manish Pitale, J.) (M.S. Sanklecha, J.) halwai ::: Uploaded on - 03/08/2017 ::: Downloaded on - 04/08/2017 10:03:56 ::: TheCommissionerofIncome-tax, Nagpur v. BallarpurIndustriesLimited