THE COMMISSIONER OF INCOME TAX-I, vs. M/S.BHAGEERATHA ENGINEERING LTD.,

ITA/203/2012HC KeralaKLHC01024125201207 July 2021Author: HONOURABLE MR.JUSTICE S.V.BHATTI,HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS15 pages
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What were the facts?

The appeal by the Commissioner of Income Tax-I, Kochi (Revenue) challenges an order of the Income Tax Appellate Tribunal (Tribunal) concerning Assessment Year 1996-97. The dispute centers on the deduction under Section 80HHB of the Income Tax Act. Initially, the Assessing Officer disallowed the assessee's (M/s. Bhageeratha Engineering Ltd.) claim for revaluation of government bonds and loss on sale of government bonds, and also declined the Section 80HHB deduction. The Commissioner of Income Tax (Appeals) (CIT(A)) set aside the Section 80HHB addition and remanded the issue. The Assessing Officer subsequently accepted the full Section 80HHB claim of Rs. 10,06,26,590/-. The Tribunal, in an earlier order, allowed the assessee's appeal regarding bond revaluation and sale loss. However, in a subsequent effect order, the Assessing Officer granted a Section 80HHB deduction of Rs. 7,50,85,650/-. The CIT(A) then directed the Assessing Officer to allow the full deduction of Rs. 10,06,26,590/-.

What did the High Court hold?

The High Court held that the CIT(A) erred in appreciating the effect order and the consequential deduction and quantification under Section 80HHB. The Court found that by virtue of the Tribunal's decision accepting the assessee's claim for loss on revaluation and sale of government bonds, these items should have been deleted from the gross total income. Consequently, the quantification under Section 80HHB should have been done correspondingly. The Court noted that the CIT(A)'s reasoning in Annexure-I was not supported by the record. The Court concluded that the deduction under Section 80HHB quantifying order dated 28.07.2003 (the effect order) was correct and should not have been reversed by the CIT(A). Therefore, the questions of law were answered in favour of the Revenue and against the assessee. The appeal was allowed, restoring the Assessing Officer's effect order dated 28.07.2003.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and also in view of the loss arising out of the reduction in the value of the bonds allowed by the Tribunal in its earlier order dated 17.06.2003, is not the Assessing Officer right in law in reducing the deduction under Section 80HHB in the rectified order? 2. Is not the consequential order and the rectification of the same valid and in accordance with law? Additional questions formulated by the Court: (i) Whether the order of the CIT (Appeals) quantifying deduction under Section 80HHB with reference to the revised order made by the Assessing Officer pursuant to the remand of issue under Section 80HHB by the CIT (Appeals)? (ii) Whether the deduction accepted in favour of the assessee of bond revaluation and sale loss will have to be taken into account for arriving at the gross income of assessee and allow deduction under Section 80HHB to the extent of 50%? Revenue's contentions: The Revenue is not questioning the eligibility for deduction under Section 80HHB but disputes the arbitrary quantification by the CIT(A). The CIT(A) accepted the deduction arrived at by the Assessing Officer in a revised order dated 15.02.2002, which was prior to the Tribunal's decision on bond losses. The Revenue argues that the gross total income should be reduced by the accepted bond losses, leading to a lower deduction under Section 80HHB. The CIT(A) allegedly granted an unavailable additional deduction, making the quantification illegal. Assessee's contentions: The assessee argues that since the Revenue is not questioning eligibility, the quantification should be based on concluded figures. The assessee's Senior Advocate found it difficult to justify the Commissioner's assumption of Rs. 10,06,26,590/- as 50% of the gross total income. The assessee contends that losses on sale and revaluation of bonds, which were accepted, should be given effect to, and then the gross total income determined for quantification.

Which sections of the Income-tax Act were involved?

Section 80HHB,Section 260A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS WEDNESDAY, THE 7TH DAY OF JULY 2021 / 16TH ASHADHA, 1943 ITA NO. 203 OF 2012 AGAINST THE ORDER/JUDGMENT IN ITA 1204/2005 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX-I, KOCHI. BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR) SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT RESPONDENT/S: M/S.BHAGEERATHA ENGINEERING LTD., VAZHAKKALA, KAKKANAD P.O., KOCHI-682030. BY ADVS. SMT.P.ANITHA SMT.P.ANITHA SMT.R.S.GEETHA SRI.T.M.SREEDHARAN SR. SRI.V.B.UNNIRAJ THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 07.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No. 203/2012 -2-

J U D G M E N T S.V. Bhatti, J.

The Commissioner of Income Tax-I, Cochin, is the appellant (for short 'the Revenue'). The I.T.A. is directed against the order of the Income Tax Appellate Tribunal, Cochin Bench in I.T.A. No.1204/Coch/2005 & C.O. No.11/Coch/2006 dated 27.04.2012. In the subject Tax Appeal the issue relates to Assessment Year 1996-97. The appeal examines an issue arising under Sect

The order continues below.

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