Commissioner of Income Tax vs Madurai Pandian Engineering Corporation Ltd.

N.V. Balasubramanian, J.—In compliance with the directions of this court, the Tribunal has stated a case and referred the following two

common questions of law arising out of the assessment of income of the assessee for the assessment years 1979-80 and 1980-81 for our

consideration :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee is entitled to relief under

Sections 80HH and 80J in respect of bus body building activities as there was no material brought on record to show that the conditions of

Sections 80HH(2)(ii) and Section 80J(4)(ii) were not fulfilled by the assessee?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the ground raised by the Department that the

conditions laid down in Section 80HH(2)(ii) and Section 80J(4)(ii) were not fulfilled by the assessee on the ground that the same did not arise out

of any finding by the Departmental authorities ?

The assessee is a public limited company doing business in tyre retreading, engine reconditioning, and body building for buses. The assessee,

during the course of the assessment proceedings for the assessment years 1979-80 and 1980-81, claimed deduction under Sections 80HH and

80J of the Income Tax Act, 1961 (for short ""the Act""), on the ground that it was an industrial undertaking engaged in manufacturing activities. The

Inspecting Assistant Commissioner (Asst.) rejected the claim of the assessee on the ground that the tyre retreading and engine reconditioning

operations did not involve any manufacturing activity. In so far as the body building activity is concerned, the Inspecting Assistant Commissioner

rejected the assessee''s claim for deduction u/s 80HH on the ground that there were no separate accounts maintained by the assessee for the bus

body building division and the assessee was not entitled to any deduction u/s 80J as well as u/s 80HH of the Act.

The assessee took up the matter in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals)

rejected the claim of the assessee for relief u/s 80J as well as Section 80HH of the Act in so far as the tyre retreading and engine reconditioning

activities were concerned, but he accepted the claim of the assessee for the relief in regard to bus body building activity. The view of the

Commissioner of Income Tax (Appeals) was that even if the assessee did not maintain separate accounts in regard to the particular division for the

bus body building, the assessee would be entitled to relief under Sections 80J and 80HH of the Act on proportionate profits attributable to such

activity, which could be arrived at on an estimate basis.

The Department has challenged the order of the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal. The

grounds raised by the Revenue before the Tribunal was that the assessee did not satisfy the conditions laid down in Section 80HH(2)(iii) and

Section 80J(4)(ii) of the Act and, therefore, the assessee was not eligible for deduction under both the sections. The case of the Revenue was that

the assessee started the unit with old machinery and, therefore, the unit did not satisfy the conditions mentioned in both the sections. The Tribunal

rejected the case of the Revenue holding that the Inspecting Assistant Commissioner rejected the claim of the assessee only on the ground that the

separate accounts were not maintained for bus body building activity. The Commissioner of Income Tax (Appeals) has not considered the question

of fulfilment of the requirements of Sections 80J(4)(ii) and 80HH(2)(iii) of the Act and the Revenue has also not produced any material before the

Tribunal to show that the conditions prescribed in the two Sections were not fulfilled by the assessee and in the absence of any material, the

Tribunal held that the Revenue cannot be said to be aggrieved by the finding of the Commissioner of Income Tax (Appeals) on the points sought to

be agitated. In this view of the matter, the Income Tax Appellate Tribunal dismissed the appeal preferred by the Revenue. The Appellate Tribunal

has stated a case and referred the two questions of law set out above.

Learned counsel for the Revenue submitted that the Income Tax Officer rejected the claim of the assessee on the ground that the assessee was

not maintaining separate books of account for the bus body building activity and there was no occasion for him to consider whether the assessee

had fulfilled the requirements of Sections 80HH(2)(iii) and 80J(4)(ii) of the Act and, hence, a ground was raised before the Appellate Tribunal that

the assessee had not fulfilled the conditions prescribed for the said Sub-sections of Sections 80J and 80HH of the Act, and the Tribunal was not

justified in refusing to entertain the claim of the Revenue.

We have carefully considered the submissions of learned counsel for the Revenue. It is, no doubt, true that the Inspecting Assistant

Commissioner rejected the claim of the assessee by holding that the assessee was not entitled to the deduction both u/s 80H and Section 80HH of

the Act on the ground that the assessee was not maintaining separate books of account in respect of the bus body building activities. The order of

the Inspecting Assistant Commissioner proceeds on the basis that the assessee was not eligible for deduction under Sections 80J and 80HH of the

Act for the lapse on the part of the assessee in maintaining separate books of account in respect of the bus body building activities, and there is no

express finding that the assessee had not satisfied the other conditions of Sections 80J and 80HH of the Act, nor is it possible to imply such a

finding. In the appeal preferred before the Commissioner of Income Tax (Appeals), though none represented the Department, the Commissioner

of Income Tax (Appeals) considered the case and held that the assessee was entitled to deduction under Sections 80J and 80HH of the Act. The

Revenue has raised for the first time before the Tribunal that the assessee had not fulfilled the requirements prescribed under Sections 80HH(2)(iii)

and 80J(4)(ii) of the Act, but the Revenue has not produced any material before the Tribunal to point out that the conditions under sections were

not fulfilled by the assessee. Though, it is true, it can be said that the entire assessment was before the Appellate Tribunal when it hears the appeal

preferred against the order of the assessment yet, still it has the discretion to entertain a new plea raised either by the Revenue or by the assessee.

The Tribunal, if satisfied, may entertain the new plea and remit the matter for consideration. But, the Revenue should establish with records that

either the Assessing Officer had not considered the question or there was a violation of the conditions of Sections 80J and 80HH of the Act before

the Tribunal.

The Tribunal, in the instant case, found that there were no materials produced by the Revenue in respect of its plea that the assessee had not

fulfilled the requirements found in Sections 80HH and 80J of the Act and in the absence of any material before the Tribunal, the Tribunal had

exercised its discretion not to entertain the new plea put forward by the Revenue before the Tribunal. We are of the opinion that it cannot be said

that the Tribunal had exercised the discretion arbitrarily or unreasonably and on finding that there are no materials produced by the Revenue to

support its plea, the Tribunal had exercised its discretion not to entertain the new plea. We are of the view that it is a case of exercise of the

discretion of the Appellate Tribunal to entertain the new plea raised by the Revenue, and this court sitting in reference jurisdiction will not interfere

with such a discretion unless it is established that the discretion was not exercised properly or was exercised capriciously. Since the Tribunal has

exercised the discretion properly, we are not inclined to interfere with he order of the Tribunal rejecting the request of the Revenue to entertain the

new plea raised by it. Therefore, we are of the opinion that the order of the Appellate Tribunal is justifiable in law and, accordingly, we answer

both the questions of law raised before us in the affirmative and against the Revenue. The assessee will be entitled to costs of a sum of Rs. 1,000.