CIT vs N.C. John and Sons (P) Ltd.

C.N. Ramachandran Nair, J.—Heard senior standing counsel appearing for the Appellant and Shri Arun Raj appearing for the Respondent-Assessee. Orders under challenge are those issued by the Tribunal for the asst. yrs. 1995-96 and 1996-97. Even though Tribunal has issued separate orders for both the years the issues raised are almost the same and therefore, we proceed to dispose of the connected appeals by this common judgment.

The original assessments for both years were subjected to revision by the CIT u/s 263 of the IT Act for the reason that deduction u/s 80HHC of the IT Act was computed without excluding charges which fall within the scope of Expln. (baa) to Section 80HHC of the Act. The Assessee is engaged in manufacture and export of coir products. In the course of business Assessee has earned certain income in respect of various activities, the details of which pertaining to the year 1995-96 are given hereunder:

(1)

Dyeing and bleaching charges

Rs. 14,31,054

(2)

Baling charges

Rs. 65,460

(3)

Garment making charges

Rs. 49,528

(4)

Rent

Rs. 3,261

(5)

Boat hire charges

Rs. 1,61,183

The first three items appear for the next year also. There is no receipt for boat hire charges received by the Assessee for the year viz., 1996-97. For the asst. yr. 1995-96 another issue involved is deduction of bad debts amounting to Rs. 4,59,450 from the total turnover which is a denominator to be applied for working out relief u/s 80HHC. The Tribunal allowed the appeals by cancelling the impugned orders issued by the CIT u/s 263 for the reason that the view taken by the CIT is only a possible view and the view taken by the officer is also a view possible under the relevant provisions of the Act.

After hearing both sides we notice that Tribunal has interpreted the scope of Section 263 as similar to proceedings for rectification u/s 154 of the IT Act. In fact the issue on merit is covered by later decision of the Supreme Court in Commissioner, Income Tax, Thiruvananthapuram Vs. K. Ravindranathan Nair, . Under this decision the Supreme Court held that income received by the Assessee which have no connection to export business should be excluded while computing deduction of export profit u/s 80HHC of the IT Act. Therefore, prima facie the case on merits is against the Assessee. The question to be considered is whether the order for assessment was prejudicial to the interest of the Revenue justifying revision by CIT. In this case the finding of the CIT in the orders issued u/s 263 is that the AO has not considered the scope of Expln. (baa) of Section 80HHC of the Act. In similar cases in IT Appeal No. 21 of 2003 reported in CIT v. Veepees Enterprises (2008) 175 Taxman 11 (Ker) we reversed the order of the Tribunal interfering with sua motu revisional order issued by the CIT.

We therefore find that the Tribunals orders are not sustainable because the CIT had only pointed out the mistake prima facie committed by the officer in making assessment without reference to the relevant statutory provisions and directed him to rework the relief u/s 80HHC. Even though counsel for the Assessee contended that for the year 1993-94 Tribunal allowed these issues on merit, senior counsel appearing for the Appellant submitted that on account of the low stakes involved Revenue has not filed appeal and it is open to the Department to challenge the order for later year, no matter earlier order of Tribunal was not appealed against by the Revenue. Since filing of appeal by the Government is essentially a matter of policy and if there is no substantial benefit of tax the Department is free to accept the order of the Tribunal for that year. We therefore feel that the Department is free to contest the issue for subsequent years. However, on merits of the case that is with regard to the exclusions to be considered from the total income as well as the turnover covered by the CI Ts order, we leave the issues open for the officer to consider based on the decision of the Supreme Court and after giving opportunity to the Assessee.

Counsel for the Assessee submitted that pursuant to orders issued by the CIT assessment was revised making substantial disallowance against which another appeal was filed which the Tribunal closed as infructuous in view of the orders impugned by the Revenue in these appeals. Since we have now reversed the orders of the Tribunal, it is for the Assessee to move the Tribunal to reopen the closed appeals to get decision on merit. If Assessee considers merit in their appeals, they are free to apply for reopening appeals closed as infructuous by the Tribunal.