Bombay H.C : Whether export incentives received in subsequent assessment year can be allowed under s. 80HHC even though not shown as income for the relevant year in view of the rectification application subsequently filed supported by the auditors report

High Court Of Bombay

Shah Brothers vs. CIT & Ors.

Sections 264

Asst. Year 1995-96

S.H. Kapadia & J.P. Devadhar, JJ.

Writ Petn. No. 1097 of 2002

4th September, 2002

Counsel Appeared

V.J. Pandit with B.P. Pandit & P.R. Prabhu, for the Petitioner : R.V. Desai with V.H. Kantharia i/b T.C. Kaushik, for the Respondents

JUDGMENT

BY THE COURT :

Rule. Returnable forthwith. Respondents waive service. By consent, the petition is taken up for final hearing.

2. By this writ petition, the petitioner/assessee seeks to challenge order dt. 19th Oct., 2000 (Ex-G), as also order dt. 4th March, 2002 (Ex-I), passed by the revisional authority under s. 264 of the IT Act, 1961 (hereinafter referred to, for the sake of brevity, as “the said Act”).

Facts

3. For the asst. yr. 1995-96, the assessee returned its net taxable income, after claiming deduction under s. 80HHC, at Rs. 5,500. However, that was not the full deduction. The chartered accountants of the assessee did not include the receivable export incentives of Rs. 2,45,000 on two export bills, dt. 26th May, 1994, and 7th Jan., 1995, as the assessee failed to receive the export earnings during the asst. yr. 1995-96. The incentives were given to the assessee in the form of REP licenses. These licenses were sold on 18th Jan., 1996, and, therefore, the petitioner received export incentives of Rs. 2,45,000 only during the asst. yr. 1996-97 and not in asst. yr. 1995-96. However, there were no export sales during the asst. yr. 1996-97. The chartered accountants of the petitioner audited their books for the year ending 31st March, 1996, and claimed deduction under s. 80HHC of Rs. 2,04,832. This deduction was claimed under return of income for the asst. yr. 1996-97 declaring the assessee’s income as “Nil”. The said return was processed under s. 143 (1)(a). This was on 17th Nov., 1998. The AO rightly disallowed the petitioner’s claim on the ground that during the asst. yr. 1996-97, there were no export sales and, therefore, the petitioner was not entitled to claim deduction of Rs. 2,04,832. Being aggrieved by the said order, the assessee went in appeal to the first appellate authority, who by its order dt. 2nd Feb., 2000, confirmed the order passed by the AO for the asst. yr. 1996-97. The assessee has accepted the validity of the order. Hence, the petitioner/assessee filed a rectification application under s. 154 of the Act on 7th Dec., 1998 with specific prayer that the incentive pertained to the earlier asst. yr. 1995-96 and the claim under s. 80HHC be granted in the asst. yr. 1995-96. The assessee also got its account audited for asst. yrs. 1995-96 and 1996-97. This was on 4th Sept., 1999. The assessee recomputed the deduction under s. 80HHC for the asst. yr. 1995-96 at Rs. 5,85,113 as against Rs. 3,40,113 claimed in the earlier return. However, in the meantime, on 1st March, 1999, the rectification application filed by the petitioner under s. 154 of the Act came to be rejected. Being aggrieved, the petitioner filed revision application under s. 264 of the IT Act before respondent No. 1. In this rectification (revision) application, the petitioner sought relief under s. 80HHC on the ground that the export incentive of Rs. 2,45,000 had direct nexus with the export income for the asst. yr. 1995-96. The claim was supported by the fresh audited accounts correcting the mistake for the asst. yr. 1995-96. By the impugned order, respondent No. 1 has dismissed the revision application on 19th Oct., 2000. Therefore, this writ petition.

Reasons

The main issue which arose for consideration by the CIT was whether the export incentives received in subsequent assessment years can be allowed under s. 80HHC even though such incentive has not been shown as income for the relevant year. This point arose before respondent No. 1. However, the revision petition filed by the petitioner came to be dismissed by the 1st respondent on the ground that for the asst. yr. 1995-96, the AO had passed an assessment order under s. 143(1)(a) accepting the claim of deduction under s. 80HHC for Rs. 3,40,113 and, therefore, rectification did not arise. He further held that the claim of deduction under s. 80HHC cannot be considered unless the assessee had included the amount in the income for the said year and as the assessee had not taken export incentives in its income for asst. yr. 1995-96, it cannot be allowed by way of rectification. He has further held that the assessee cannot seek relief for the asst. yr. 1995-96 on the basis of application for rectification for the asst. yr. 1996-97. Under s. 264 of the IT Act, the CIT may, on an application by the assessee for revisions, call for the records of any proceedings and may make such enquiries as he thinks fit. This revisional power can be exercised to meet the ends of justice. This position is well settled in law. Now, in the present case, the assessee effected export sales during the asst. yr. 1995-96. The assessee received the incentives during the subsequent asst. yr. 1996-97. However, during the asst. yr. 1996-97, the assessee did not effect any export sales. Therefore, for the asst. yr. 1996-97, the assessee could not have claimed the deduction because, there were no export earnings during that year. The assessee could have claimed deduction under s. 80HHC only during the earlier assessment year i.e., 1995-96. It is submitted by the Department that the revision was not maintainable because, the assessee had opted for appeal before the CIT(A) for the asst. yr. 199697. This submission has no merit. The petitioner did claim relief for the asst. yr. 1996-97 on the ground that the incentives were received during that year. However, during the asst. yr. 1996-97, there were no export sales. Therefore, the petitioner could not have claimed the deduction for the asst. yr. 1996-97. Therefore, the only alternative left for the assessee was to move by way of rectification under s. 154 of the Act for the asst. yr. 1995-96. It is true that for the asst. yr. 199596, the ITO had passed an order under s. 143(1)(a) accepting the returns filed by the assessee but, in those returns the assessee could not have claimed the full deduction because the above incentive was received in subsequent asst. yr. 1996-97 when there were no export sales. The CIT has correctly framed an issue. However, he has rejected the revision application on extraneous grounds. We are of the view that the revision application is maintainable under s. 264 of the Act. We direct the CIT to decide the issue of law which he has framed in para 4 of the impugned order (Ex-G) dt. 19th Oct., 2000 viz., “Whether export incentives received in subsequent assessment year can be allowed under s. 80HHC even though not shown as income for the relevant year in view of the rectification application subsequently filed supported by the auditors report”. This issue needs to be decided by the CIT under s. 264 of the Act.

6. Before concluding, we may mention that the order Exhibit-I is consequential to the impugned order Exhibit-G. Order Accordingly, we set aside the orders of the CIT, dt. 19th Oct., 2000 (Ex-G), and 4th March, 2002 (Ex-I), and we remit the matter back to respondent No. 1 to decide the above issue in accordance with law.

Accordingly, the petition stands allowed. No order as to costs.

[Citation : 259 ITR 741]

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