High Court Of Calcutta
CIT vs. General Magnets Ltd.
Sections 35CCA, 263
Asst. Year 1983-84
Y.R. Meena & Arun Kumar Mitra, JJ.
IT Ref. No. 134 of 1993
3rd July, 2001
Prodosh Mallick with Ram Chandra Prasad, for the Applicant : J.P. Khaitan & Dilip Roy Chaudhury, for the Respondent
BY THE COURT :
On an application under s. 256(2) of the IT Act, this Court has directed the Tribunal to refer the following questions for the opinion of this Court :
1. “Whether, on the facts and in the circumstances of the case and in view of the Expln. (b) below s. 263(1) of the IT Act, 1961, the Tribunal was justified in law in holding that under no circumstances the assessment order can be said to be erroneous in law?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the approval given under s. 35CCA of the IT Act, 1961, to the society for Integral Development could not be withdrawn retrospectively by the Competent Authority?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the order under s. 263 of the IT Act, 1961, passed by the CIT”. In compliance of our direction the aforesaid questions are referred for our opinion.
2. During the course of original assessment, assessee claimed deduction of Rs.80,000 under s. 35CCA of the IT Act, 1961. That was allowed by the AO. Thereafter on scrutiny of the assessment records, the CIT noticed that the deduction of Rs. 80,000 under s. 35CCA had wrongly been allowed by the AO. As the society which was approved by Department for integral development to which the payment was made by the assessee, that approval has been withdrawn in March, 1987, w.e.f. 13th Dec., 1982, that is with retrospective effect. The assessment year is 1983-84. Year ending is 31st March, 1983.
3. The facts are not in dispute that when the assessment order was passed in March, 1986, the approval to the concerned society was valid and in existence, but when the order under s. 263 was passed, at that relevant time, the exemption to the concerned society under s. 35CCA has been withdrawn. Therefore, CIT was of the view that assessment order passed by the AO is erroneous and prejudicial to the interest of Revenue. He set aside that assessment order. Against that order, appeal is preferred before the Tribunal. The Tribunal has considered various judgments including the judgment of Bombay High Court in case of Seksaria Biswan Sugar Factory Ltd. & Anr. vs. IAC & Ors. (1990) 86 CTR (Bom) 35 : (1990) 184 ITR 123 (Bom) : TC 51R.1601, wherein the Bombay High Court has taken the view that rule can be amended retrospectively but not to the prejudice of the assessee and in that case, the Court further observed that apart that was in connection with the power to make rules as distinct from the power to issue notifications and that too, not by the Board but by the prescribed authority other than the Board. The Tribunal was justified in allowing the claim of the assessee restoring the order of the AO.
4. Learned counsel for the Revenue, Mr. Mallick submits that on the date of the order under s. 263, the approval granted to the concerned society was withdrawn and once that approval has been withdrawn on the date of the order of the CIT, there is nothing wrong in the order of the CIT, he placed reliance on the decision of this Court in the case of CIT vs. Bankam Investment Ltd. (1994) 121 CTR (Cal) 122 : (1994) 208 ITR 208 (Cal) : TC 15R.603.
5. On the other hand, the learned counsel for the assessee, Mr. Khaitan submits that the subsequent decision of this Court is in favour of the assessee i.e., in case of CIT vs. Ethelbari Tea Co. Ltd. under ITR No. 130/2000, order dt. 21st June, 2000 [reported at (2001) 171 CTR (Cal) 617], wherein the similar issue was considered that if the approval under s. 35CCA of the Act is withdrawn retrospectively, but when on the date of the relevant assessment year and even on the date of the assessment order, this Court has taken the view that the deduction allowed on the basis that payment has been made to the society which is approved under s. 35CCA, the assessee is entitled for deduction under s. 35CCA.
6. In the case of Bankam Investment Ltd. (supra), this Court has taken the view that on the date of the assessment, if the approval to the society under s. 35CCA is withdrawn, doctrine of promissory estoppel is not applicable.
7. In the case of B.P. Agarwalla & Sons Ltd. vs. CIT & Ors. (1994) 208 ITR 863 (Cal) : TC 56R.1124 in a writ jurisdiction, the similar issue has been considered that if the approval is withdrawn subsequently withretrospective effect whether the deduction can be withdrawn on the basis of notice of CIT under s. 263 of the Act? This Court has taken the view that CIT was not justified when the assessee-company had made a donation of Rs. 3 lakhs during the relevant financial year to a scientific research center and got the benefit of s. 35(1)(ii) for theassessment years in question, the subsequent withdrawal of the approval to the society by the Government with retrospective effect, that does not mean that the order of the AO was erroneous and prejudicial to the interest of the Revenue. The notice issued by the CIT under s. 263 was quashed.
8. In K.M. Scientific Research Centre vs. Lakshman Prasad & Ors. (1998) 229 ITR 23 (All) : TC S56.4394, the issue before the Allahabad High Court was that once the approval was granted whether that can be revoked with retrospective effect. The Allahabad High Court has taken the view that the exemption which has been granted under s. 10(21), 35, that cannot be withdrawn with retrospective effect.
9. In Seksaria Biswan Sugar Factory Ltd. & Anr. vs. IAC & Ors. (supra), the Bombay High Court held that the retrospective cancellation of the approval by the authority is invalid. Therefore, the assessment passed on the basis of retrospective cancellation of the approval after the donation is made by the assessee, the assessment is liable to be quashed. The notice for reassessment passed on that notification was also invalid and liable to be quashed.
10. In the case of CIT vs. Bhartia Cutler Hammer Co. (1999) 152 CTR (Cal) 512 : (1998) 232 ITR 785 (Cal) : TC S15.1552, this Court has taken the view that once the expenditure by way of payment to an institution for carrying out rural development programme and assessee furnished certificate issued under s. 35CCA, the deduction of payment made to such institution should not be denied.
11. The Chotatingrai Tea Estate (P) Ltd. & Ors. vs. CIT (1999) 156 CTR (Gau) 405 : (1999) 236 ITR 644 (Gau), the issue before the Gauhati High Court was that when the donation was not utilized actually for the purpose it was donated and a benefit of deduction under s. 35CCA can be denied to the assessee? The Gauhati High Court has taken the view that the donation is entitled to deduction under s. 35CCA and assessee need not ensure actual utilization of the amount for approved programme.
12. The admitted facts in this case are that the assessment year is 1983-84. The approval under s. 35CCA has been given to the society. The amount of Rs.80,000 has been donated by the assessee. The assessment was made in March, 1986. This approval was not withdrawn not only during the accounting year but even when the assessment was made, as the approval to society has been withdrawn to the society under s. 35CCA with retrospective effect i.e. w.e.f. 13th Dec., 1982, by an order dt. March, 1987.
13. For our consideration in this case the issue is when the approval exemption to the society has been withdrawn with retrospective effect, can the order of the AO be said to be erroneous or prejudicial to the interest of Revenue, our answer will be in negative. When the assessee has paid donation to the society which held valid approval under s. 35CCA of the Act and that has not been withdrawn not only in the accounting year but till the assessment was made. That approval to society withdrawn in March, 1987, though with respective effects, the benefit under s. 35CCA cannot be denied. At no fault of the assessee, he should not suffer and once the approval is given to the society under s. 35CCA and assessee has paid the amount/donation to that society. He cannot be denied the deduction for which he was entitled under the valid certificate issued by society which is approved by Department on the date of payment to that society.
14. Assuming by mistake the approval has been given to the wrong society. But for mistake of Department, why assessee should suffer? That withdrawal of approval to society with retrospective effect is itself bad. No assessee should suffer for mistake of Department. Department has the power of withdrawal but in such cases withdrawal can be only with prospective effect. If the donation to the approved society is genuine in that case withdrawal with retrospective effect does not affect the right of assessee for deduction of amount which has accrued to assessee on the basis of payment to an approved society under s. 35CCA of the Act. In view of these facts, we find no reason to interfere with the order of the Tribunal. In the result, we answer all these three questions in affirmative and that is in favour of the assessee and against the Revenue.
[Citation : 256 ITR 471]