Commissioner of Income Tax Cent. III Chennai vs M/s. Fuller KCP Limited Now known as Fuller India Smith Ltd. 2, Dr. P.V. Cherian Cresenty Chennai - 600 105

Chitra Venkataraman, J.—These Tax Case Appeals filed before this Court are at the instance of the Revenue, relating to the assessment

years 1988-89, 1989-90, 1990-91 and 1993-94. T.C. (A) Nos. 396 and 400 of 2005 relate to the assessment year 1988-89; T.C. (A) Nos.

397 and 401 of 2005 relate to the assessment year 1989-90, T.C. (A) Nos. 398, 399 and 402 of 2005 relate to the assessment year 1990-91,

and T.C.(A) No. 403 and 404 of 2005 relate to the assessment year 1993-94.

In respect of all these assessment years, the common substantial question of law relates to the relief u/s 35AB as well as the question of

limitation for reopening the assessment. As a matter of record, in respect of the assessment years 1988-89 and 1989-90 viz., T.C. (A) Nos. 396

and 400 of 2005 and T.C. (A) Nos. 397 and 401 of 2005 respectively, the following are the substantial questions of law:

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the re-assessment was bad in law and beyond the time

for the assessment years 1988-89 to 1990-91?

Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessment was bad in law and beyond time for the

assessment year 1990-91 when it was only a consequential order to the order in revision u/s 263?

Whether in the facts and circumstances of the case, the deduction u/s 35AB is available on accrual basis without actual payment, regardless of

the fact that the words used in the Section is ""paid""?

The above questions of law arise in T.C.(A) Nos. 398, 399 and 402 of 2005. The assessments herein were made pursuant to the orders u/s

263 of the Income Tax Act.

As far as T.C.(A) No. 402 of 2005 relating to the assessment year 1990-91 is concerned, apart from the question relating to Section 35AB,

further substantial questions of law relating to Sections 80HH and 80I are raised in this appeal.

On the question of limitation plea raised by the assessee, particularly with reference to T.C.(A) Nos. 396 and 400 of 2005 and T.C.(A) Nos.

397 and 401 of 2005, the Tribunal pointed out in paragraph 4 that all the materials which were required at the time of making the original

assessment were the very basis for reopening of the assessment; further, the Tribunal pointed out that the Commissioner of Income Tax (Appeals)

considered the very same issue of limitation in the appeals relating to the assessment years 1986-87 and 1987-88 and held that the assessment in

respect of the assessment years 1989-90 and 1990-91 too were barred by limitation. In the appeals preferred by the Revenue before the Income

Tax Appellate Tribunal in respect of assessment years 1986-87 and 1987-88, the Tribunal agreed with the assessee''s claim on the reopening of

the assessment and held the limitation issue in favour of the assessee. As against the order of the Income Tax Appellate Tribunal, the Revenue had

not admittedly filed any appeal before this Court, a fact which is not disputed by the Revenue too. Leaving aside this, a perusal of the order of the

Tribunal shows that the basis for reopening of the assessment was that the assessee had followed a different procedure of adopting the knowhow

fee payable and it had written off the payment to the extent of availability of profits. It is not disputed by the Revenue that the fact situation in

respect of the earlier assessment years are no different from what prevailed in the assessment for the assessment years 1988-89 and 1989-90 for

the purpose of considering the merits of reopening the assessment and thereby the issue of limitation.

It is pointed out by the assessee that the returns filed for the assessment years were in accordance with the provisions of the Act and the

technical knowhow fees were also clearly disclosed while arriving at the net profits under the Companies Act as well as in its computation of

income filed along with the returns of income. In the absence of any material to revise the assessment by taking recourse to Section 147, the

Tribunal held that the reopening of the assessment was bad in law.

As far as the assessment relating to the assessment year 1990-91 is concerned, the same was a subject matter of revision before the

Commissioner of Income Tax (Appeals) u/s 263 of the Act. That order on revision u/s 263 was not further agitated by the assessee. On the

consequential assessment made, on the consideration of the claim u/s 35AB, the assessee went on appeal before the Commissioner of Income Tax

(Appeals). Placing reliance on the definition of ""paid"" as appearing u/s 43(2) as referring to amount actually paid or incurred according to the

method of accounting upon the basis on which the profits and gains are computed under the head of profits and gains in business or profession, the

Commissioner of Income Tax (Appeals) held that the assessee is having the account on mercantile basis and hence, allowed the claim on merits.

The Commissioner of Income Tax (Appeals) granted the relief u/s 35AB. The Commissioner of Income Tax (Appeals) pointed out that the correct

deduction allowable in the year was much lower than what was allowed by the Assessing Officer.

Aggrieved by the order of the Commissioner of Income Tax (Appeals) both on the aspect of jurisdiction as well as on the applicability of

Section 43(2), the Revenue went on appeal before the Tribunal. So too the assessee as against the view of the Commissioner of Income Tax

(Appeals) on the aspect of actual allowability and the statement furnished. The Tribunal agreed with the assessee on the aspect of jurisdiction and

considering the fact that the assessee admittedly maintained its account on mercantile basis, it upheld the contention of the assessee on the

applicability of the definition of ""paid"", as appearing in Section 43(2). As against the dismissal of the appeals preferred by the Revenue, these Tax

Case Appeals are preferred by the Revenue before us.

As far as T.C. (A) Nos. 396 and 400 of 2005, T.C. (A) Nos. 397 and 401 of 2005 and T.C. (A) Nos. 398, 399 and 402 of 2005 relating to

the assessment years 1988-89, 1989-90 and 1990-91 are concerned, we do not find any ground to disturb the order of the Tribunal, since the

reopening in respect of the first two years of assessment were not based in respect of any ground warranting reopening and there are no materials

placed before this Court to disturb the findings of the Tribunal in this regard. Consequently, the plea of the Revenue on the first substantial question

of law as to the jurisdiction of reopening stands dismissed. As regards the relief granted u/s 35AB, agreeing with the Tribunal''s view as regards the

definition of ""paid"" u/s 43(2), which includes ""payable"" too, we do not have any hesitation in confirming the order of the Tribunal. Thus, both on the

issue of reopening as well as as to the deduction available u/s 35AB, the same stands dismissed. As far as T.C.(A) Nos. 403 and 404 of 2005

relating to the assessment year 2003-04, on the first question of Section 35AB and the second issue as regards the deduction under Sections

80HH and 80I are concerned, learned Standing Counsel appearing for the Revenue fairly brought to the attention of this Court the decision in T.C.

Nos. 405 and 406 of 2005 dated 6.2.2012, which followed the decision of the Apex Court reported in Liberty India Vs. Commissioner of

Income Tax, , held in favour of the assessee. Applying the said decision, we have no hesitation in rejection the said question. Hence, the appeals in

T.C. No. 403 and 406 of 2005 filed by the Revenue stand dismissed. No costs. Connected M.P. Nos. 1 to 9 of 2012 stand closed.