COMMISSIONER OF INCOME TAX vs. KAMALJEET SINGH AHLUWALIA

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ITA/62/2000HC RajasthanRJHC02019529200008 September 201612 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal erred in allowing the deduction of Rs. 1,07,33,971 under Section 80HHC. The Court found that while Section 80HHC(4) mandates an audit report for claiming the deduction, the Tribunal's finding was perverse as it allowed the claim solely based on the computation of total income without any supporting audit report for the claimed amount of Rs. 1,07,33,971. The Court noted that the AO and CIT(A) had consistently found that the only available audit report calculated the deduction at Rs. 6,00,410. Furthermore, the assessee's counsel was unable to produce any audit report supporting the higher claim before the High Court. The judgments relied upon by the assessee regarding deficiencies in returns and issuance of notices under Section 139(9) were deemed not applicable as the core issue was the absence of the mandatory audit report for the claimed deduction amount. Consequently, both substantial questions of law were answered against the assessee and in favour of the Revenue.

What were the facts?

The assessee, Shri Kamaljeet Singh Ahluwalia, filed an income tax return for assessment year 1995-96, declaring a total taxable income of Rs. 1,59,029 and claiming a deduction of Rs. 1,07,33,971 under Section 80HHC. During processing under Section 143(1)(a), the claim was rejected as the mandatory Chartered Accountant's certificate was not enclosed with the return. An application for rectification under Section 154 was also rejected by the Assessing Officer (AO) who found no such certificate. The Commissioner of Income Tax (Appeals) [CIT(A)] dismissed the assessee's appeal, noting discrepancies in the return's enclosure list and that the available CA certificate calculated the deduction at Rs. 6,00,410, not the claimed Rs. 1,07,33,971. The Income Tax Appellate Tribunal (Tribunal) allowed the assessee's appeal, holding the claim allowable.

What were the issues?

1. Whether the Tribunal was justified in holding that the assessee is entitled to claim deduction under Section 80HHC? (Question of law) 2. Whether the Tribunal was justified in holding that the assessee complied with the mandatory requirement of Section 80HHC(4) and hence entitled to claim the benefit of the said Section while calculating his income tax liability on his gross turnover? (Question of mixed law and fact) Assessee's contentions: The assessee argued that the requisite Chartered Accountant's report was furnished with the return, and if there was a deficiency, the AO should have issued a notice under Section 139(9). The assessee also contended that an audit report could be filed at a later stage before appellate authorities, citing CBDT Circulars No. 689 and 669, and judgments in Seeyan Plywoods v. ITO, Tanna Exports & Another v. M.G. Kamat & Another, Khatau Junkar Ltd. & Another v. K.S. Pathania & Another, JCT Ltd. & Another v. Hari Kishan & Another, and Mangalore Chemicals & Fertilizers Ltd. v. DCIT. Revenue's contentions: The Revenue contended that the audit report was not annexed with the return, and even the available certificate calculated the deduction at Rs. 6,00,410. The Revenue argued that the Tribunal's order was perverse, as there was no mention of an audit report supporting the claim of Rs. 1,07,33,971 in any of the lower authorities' orders or the Tribunal's own order. The Revenue emphasized that furnishing the audit report with the return is mandatory under Section 80HHC(4).

Which sections of the Income-tax Act were involved?

Section 260-A,Section 80HHC,Section 80HHC(4),Section 143(1)(a),Section 154,Section 139(9),Section 44AB

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR D.B. Income Tax Appeal No.62/2000 COMMISSIONER OF INCOME TAX, BIKANER HEAD QUARTERS AT JAIPUR v. SHRI KAMALJEET SINGH AHLUWALIA, 65, GOPAL BARI, JAIPUR Reserved on : 2nd August, 2016 Pronounced on : 8th September, 2016 Hon'ble Mr. Justice Ajay Rastogi Hon'ble Mr. Justice J.K. Ranka Mr. R.B. MATHUR } Mr. K.D. MATHUR } …counsel for appellant Mr. ANANT KASLIWAL …counsel for respondent By the Court (per Ranka, J.) 1. This appeal under Section 260-A of the Income Tax Act, is directed against the order dated 19.6.2000 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur. It pertains to assessment year 1995-96. 2. The appeal was admitted on the following substantial questions of law :- "(i) Whether Tribunal was justified in holding that assessee (respondent) is entitled to claim deduction under Section 80HHC? (ii) Whether the Tribunal was justified in holding that assessee complied with the mandatory requirement of Section 80HHC(4) and hence entitled to claim benefit of the said Section while calculating his income tax liability on his gross turnover?" 3. The brief facts noticed for disposal of this appeal are that the respondent assessee derives income from share of profit from firm and export business. The export business is conducted in the name and style 2 of Lotus International. The assessee claims to have filed return of income on 31.10.1995 declaring total taxable income of Rs.1,59,029/-, and inter alia also claimed exemption under Section 80HHC of the Income Tax Act at Rs.1,07,33,971/-. It transpired during the course of processing under Section 143(1)(a) that though the assessee has claimed deduction under Section 80HHC but the required certificate of a Chartered Accountant claiming deduction under Section 80HHC was not enclosed along with the return of income and accordingly the claim was rejected vide order dated 24.1.1999. 4. The assessee moved an application for rectification under Section 154 of the Act claiming that the requisite certificate under Section 80HHC was duly attached along with the return of income and thus the claim was rightly made, however, the Assessing Officer passed order under Section 154 rejecting the contention of the assessee by observing that no such certificate was enclosed with the return of income and the fact was also supported on perusal of part-V of the return of income in which the assessee had not mentioned anything about annexing certificate of a Chartered Accountant, and according to the AO it was mandatory and statutory requirement of the Act for claiming deduction under Section 80HHC that the claim is supported by a certificate of a Chartered Accountant and it ought to have been annexed along with the return of income and accordingly rejected the application 3 filed under Section 154 of the Act. 5. The matter was assailed before the Commissioner of Income Tax (Appeals), who also went into the issue elaborately, where it was contended by the assessee that the assessee did comply with the requirement of the provisions of the Act, and requisite report of Chartered Accountant was furnished along with the return of income and that claim of the AO was contrary to the material on record, and further that the audit report furnished even at later point of time is sufficient compliance of the provisions of law. The CIT(A) also called for the records and in particular the return of income and noticed that Part-V of the return is full of cuttings and overwritings and after noticing the cuttings and overwritings, the enclosures stated were computation of income, balance-sheet of Lotus International, audit report under Section 44AB, challan of taxes (4) and note on computation of income regarding surrender, and all these documents are certainly available with the return of income. 6. It was also noticed by the CIT(A) that the enclosures which have been scored off are balance-sheet and profit and loss account of KJS Ahluwalia, K.P. Construction, Kamal Transport, photo copies of LIC premium and all these enclosures are not attached with the return of income, though it was claimed that these documents were enclosed along with the return. Analysing the contents of Part-V the CIT(A) further 4 noticed that handwriting and the ink are the same and there is no separate entry for report under Section 44AB which is otherwise available along with the return of income. The CIT(A) also observed that though the assessee claimed deduction under Section 80HHC of the Act for an amount of Rs.1,07,33,971/- on the other hand the certificate of Anil Nagori and Associates, CA, had worked out allowable deduction under Section 80HHC of the Act at Rs.6,00,410/- only. The CIT(A) also noticed contradictions in the claim of the assessee and also expressed that even otherwise assessee could not have moved an application under Section 154 since the issue was highly debatable and accordingly the application under Section 154 was not maintainable and thus dismissed the appeal. Even before the CIT(A) no audit report u/s 80HHC claiming deduction at Rs.1,07,33,971/- was filed. 7. The assessee further assailed by filing an appeal before the Tribunal, however, the Tribunal vide the order impugned observed that since the assessee is an exporter and as per the computation of income, had claimed deduction under Section 80-HHC to the tune of Rs.1,07,33,971/- and such claim being allowable, thus held the claim to be allowable and accordingly allowed the same. 8. Learned counsel for the Revenue vehemently contended that the audit report was not annexed with the return of income and even as per the certificate of 5 the Chartered Accountant, the allowable deduction was only Rs.6,00,410/- and in none of the three orders namely, order of the AO, CIT(A) or Tribunal there is an averment by the assessee that two audit reports were filed one claiming deduction of Rs.6,00,410/- and another claiming deduction of Rs.1,07,33,971/- and even the Tribunal has gone into in a cursory manner and allowed the claim of the assessee. 9. Learned counsel further contended that there are no two opinions that had there been an audit report, the AO would have certainly allowed the claim but even the CIT(A) called for the record and examined the same personally and after analysing the enclosures, clearly upheld the finding that the return of income was not accompanied by an audit report claiming deduction of Rs.1,07,33,971/-. That apart, the return of income in this case was filed on 31.10.1995 and order under Section 143(1)(a) is dated 24.1.1999 i.e. almost after three years and even by then the assessee was not having the audit report computing deduction at Rs.1,07,33,971/-. To claim deduction under Section 80HHC it is mandatory and the requirement is not only to have an audit report but also to enclose with the return of income. Merely claiming that the assessee is an exporter, is no sufficient compliance of the Act and CA has to certify correctness of claim under Section 80HHC. Learned counsel further contended that the

order

of Tribunal

is wholly

perverse.

6

10.

Per contra, learned counsel for the assessee contended that an audit report was annexed with the return of income and in case it was noticed that said audit report was not part of the return of income, the AO was under legal obligation to have issued a notice under Section 139(9) of the Act, to make good the deficiency and in the instant case no such notice was served, therefore, the disallowance of deduction under Section 80HHC is in violation of principles of natural justice. He further contended that the assessee is an exporter and was entitled to deduction under section 80HHC on such exports having been made and the claim of deduction under Section 80HHC was claimed in accordance with the provisions of the Act.

10.

1 In the alternative, learned counsel further contended that audit report could have been filed at later stage before the Appellate Authorities and it is held by the judicial pronouncements that it is sufficient compliance of the mandate of law. He also drew attention of this Court to a Circular of the Central Board of Direct Taxes bearing no.689 dated 24.8.1994 read with Circular bearing no.669 dated 25.10.1993 to bring home that even the Board has relaxed the rigour of law by giving administrative relief and such Circulars are binding on the Revenue Authorities and in support has relied on judgments rendered in Seeyan Plywoods v. ITO & Another [1999] 238 ITR 295 (Ker), Tanna Exports & Another v. M.G. Kamat & Another [1993] 202 ITR 210 (Bom), Khatau Junkar Ltd. &

7 Another v. K.S. Pathania & Another and JCT Ltd. & Another v. Hari Kishan & Another [1992] 196 ITR 55 (Bom) and of Apex Court in Mangalore Chemicals & Fertilizers Ltd. v. DCIT AIR 1992 SC 152. 11. We have heard the learned counsel for the parties and perused the material placed before us.

12.

It would be appropriate to quote Section 80HHC of the Act and in particular sub-clause (1) and (4) respectively, which reads ad infra:- 80HHC. Deduction in respect of profits retained for export business.-(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the (profits) derived by the assessee from the export of such goods or merchandise : Provided that if the assessee, being a holder of an Export House Certificate or a Trading House Certificate (hereafter in this section referred to as an Export House or a Trading House, as the case may be,) issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export turnover specified therein, the deduction under this sub-section is to be allowed to a supporting manufacturer, then the amount of deduction in the case of the assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export of trading goods, the same proportion as the amount of export turnover specified in the said certificate bears to the total export turnover of the assessee in respect of such trading goods. (1A) xxxx xxxx xxxx xxxx (2)(a) xxxx xxxx xxxx xxxx (b) xxxx xxxx xxxx xxxx Explanation 1.- The sale proceeds referred to in clause (a) shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.

8 Explanation 2.- xxxx xxxx xxxx (3) xxxx xxxx xxxx xxxx (3A) xxxx xxxx xxxx xxxx (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section:”

13.

The provision clearly envisages that an assessee who is engaged in the business of export out of India of any goods or merchandise and the amount is received in convertible foreign exchange in India within the time prescribed, an assessee becomes entitled to a deduction to the extent of profits derived by the assessee from the export of such goods or merchandise. To claim such deduction, sub-clause (4) of Section 80HHC mandates that report of a Chartered Accountant who has audited the accounts, duly signed and verified, is required to be furnished in the prescribed form along with the return of income as defined in the Explanation to sub-section (2) of Section 288 who certifies that deduction has been claimed in accordance with the provisions of law. Therefore, twin conditions are necessary: (i) the assessee should be an exporter and convertible foreign exchange is required to be received in the given time in India, and (ii) to claim such deduction, report of a Chartered Accountant is mandatory.

13.

1 While the foremost requirement is that the assessee has to be an exporter and the return of 9 income is to be supported by an audit report. The latter is the requirement of furnishing substantive foundation for claiming such allowance and it is the requirement of furnishing proof that the foundation for claiming such deduction has been laid. While compliance of audit report under sub-clause (4) to claim deduction is mandatory with the return is concerned, being the requirement in the realm of procedure for furnishing evidence in support of the claim in the given facts and circumstances, if furnished during the assessment proceedings or even at the appellate stage, Courts have held that the claim cannot ordinarily be denied. [Zenith Processing Mills v. Commissioner of Income-Tax [1996] 219 721 (Guj); Commissioner of Income-Tax v. Nagpur Hotel Owners' Association [2001] 247 ITR 201 (S.C.); Commissioner of Income-Tax v. Punjab Financial Corporation [2002] 254 ITR 6 (P&H); Commissioner of Income-Tax v. Berger Paints (India) Ltd. (No.2) [2002] 254 ITR 503 (Cal); Commissioner of Income-Tax v. G. Krishnan Nair [2003] 259 ITR 727 (Ker); Commissioner of Income-Tax v. Magnum Export (P) Ltd. [2003] 262 ITR 10 (Cal); Commissioner of Income-Tax v. Gupta Fabs [2005] 274 ITR 620 (P&H); Income-Tax Officer v. VXL India Ltd. [2009] 312 ITR 187 (Guj)]

14.

We have gone through all the three orders, namely the order passed by AO, learned CIT(A) as well as learned Tribunal. While the AO as also the CIT(A) came to the conclusion that there is an audit report of Chartered

Accountant

claiming

deduction

of 10 Rs.6,00,410/-, and even the Tribunal only mentions about an audit report claiming deduction of Rs.6,00,410/-. Indisputably on analysing the three orders, we do not find any mention of audit report claiming deduction under Section 80HHC in reference to Rs.1,07,33,971/-. The CIT(A) has in extenso even quoted the written-submissions of the respondent assessee placed before it, and we notice that the assessee has failed to bring on record the audit report, if any, being filed claiming deduction of Rs.1,07,33,971/-. The CIT(A), earlier do mention that there is a certificate of one Anil Nagori and Associates, CAs, computing allowable deduction under Section 80HHC of Rs.6,00,410/- only, and is taken note of by the Tribunal. The CIT(A) further observed that there are several cuttings and over-writings and even thereafter he could nowhere find about an enclosure of audit report claiming deduction under Section 80HHC of Rs.1,07,33,971/-. Indisputably no tangible evidence was enclosed either with the return of income or at the later stage claiming deduction of Rs.1,07,33,971/-.

14.

1 Even the learned counsel for the assessee is unable to place such audit report for our perusal claiming deduction under Section 80HHC. We further enquired from the learned counsel for the assessee as to the dates of the two audit reports, but he was unable to provide such dates to infer prima facie

conclusion and the indisputed fact remains that there is an audit report claiming deduction of Rs.6,00,410/-

11 and there is no audit report claiming deduction of Rs.1,07,33,971/-.

15.

The Tribunal, in our view, has also conveniently ignored the factum of making a mention of any audit report having been placed before it claiming deduction under Section 80HHC at Rs.1,07,33,971/-. It would be appropriate to quote few lines of para 11 of the impugned order which reads ad infra :- “The Audit Report specifying the amount of rebate allowable at Rs. 6,00,410/- was on the basis of the amount received in the country in convertible foreign exchange when the Auditor audited the accounts. The Auditor, therefore, justifiably issued the certificate only to this extent but after the order of the CIT Jaipur controversy in regard to the total amount to be considered for purposes of rebate

u/s 80HHC

totalled

to Rs.1,07,33,971/-, which was claimed as per the computation of total income while filing the return of income. Under these circumstances, we have no hesitation in allowing the appeal of the appellant in full and directing the AO to allow the benefit u/s 80HHC to the assessee.” (emphasis supplied)

16.

On perusal of the above, the Tribunal simply observes that an audit report specifies the amount of rebate allowable at Rs.6,00,410/- on the basis of the amount received in the country in convertible foreign exchange, but the Tribunal is also silent about any audit report in reference to Rs.1,07,33,971/- and simply observes that the said claim of Rs.1,07,33,971/- was claimed as per computation of total income while filing the return of income and merely because the claim was made in the computation of total income, in our view such a finding is wholly perverse and not sustainable. We disapprove

12 the manner in which the claim has been allowed by the Tribunal on the basis of computation of total income alone and in not even uttering a word about the audit report to claim deduction for an amount of Rs.1,07,33,971/-. Merely because claim is allowable as per computation of income, is no reason to allow when sub-clause (4) of Section 80HHC mandates filing of an audit report in support for claiming deduction.

17.

The judgments relied upon by the learned counsel for the assessee rendered by Kerala High Court in the case of Seeyan Plywoods v. ITO & Another (supra), and Bombay High Court in the case of Khatau Junkar Ltd. & Another v. K.S. Pathania & Another and JCT Ltd. & Another v. Hari Kishan & Another (supra), are on the proposition of deficiency in the return of income and to issue a notice u/s 139(9) of the Act and for the reasons assigned, issuance of notice u/s 139(9) looses significance.

18.

Accordingly, the Tribunal erred in allowing deduction under Section 80HHC of Rs.1,07,33,971/- and in our view the finding of Tribunal is perverse and we have no hesitation in allowing this appeal, in answering both the substantial questions of law against the assessee and in favour of the Revenue. No costs. (J.K. Ranka) J. (Ajay Rastogi) J. db

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