C I T JAIPUR-II JAIPUR vs. M/S RAJ FASTNERS PVT LTD

This appeal u/s 260-A of the Income Tax Act, 1961 (for short, “IT Act”) has been preferred by the appellant-revenue against the order of the Income Tax Appellate Tribunal (for short, “ITAT”) dt.01/06/2012 passed in ITA No.941/JP-2011 by which the ITAT has dismissed the appeal filed by the appellant-revenue against the order of the Commissioner of Income Tax (Appeals)-II (for short, the “CIT(A)”. The relevant assessment year is the assessment year 2008-09. 2. The brief facts, as emerging on the fact of record, are that the respondent-assessee is a private limited company engaged in the business of manufacturing and exporting of dowell pin-disc, spring cutter pin and mining of manganese ore. The assessee is basically an exporter. It was the claim of the assessee that it was entitled to deduction under Sec. 10B of the IT Act as it is a 100% export oriented unit and entitled for exemption as it fulfills all the conditions laid down u/s 10-B of the IT Act. It is the claim of the assessee that it had also got prepared an audit report in form 56- G as also tax audit report (Form 3-CD). However, inadvertently and on account of mistake by the operator in the office of the Chartered Accountant, instead of exemption having been claimed under Section 10B in the return, it was wrongly typed as 80IB and this clerical mistake was not attributable on the the part of the assessee but attributable in the office of the Chartered Accountant while e-filing return of income which was submitted on the last day on 30/09/2008. It was further claim of the assessee that all ingredients have been fulfilled of a claim under Section 10B and even in the past years, the claim was being regularly allowed.

A detailed explanation appears to have been filed by the assessee before the assessing officer (for short, “AO”) mentioning about the facts and also requesting the AO to consider the mistake and in the alternative the letter may be treated as a revised return and accordingly the claim, which is otherwise allowable u/s 10B, may be allowed instead of wrong deduction u/s 80IB.

However, the AO was not satisfied with the explanation and according to him, strict compliance of the IT Act is required to be made. According to the AO Sec.80A(5) is very clear that if claim u/s 10B has not been made in the return of income, then deduction cannot be allowed. However, he was of the opinion that if the assessee wanted to claim the deduction, he ought to have filed a regular revised return and the assessee having not done so, the claim was held to be disallowed and accordingly, the AO disallowed the claim to the extent of Rs.46,17,406/-. The AO also relied upon judgment of the Hon'ble Apex Court rendered in the case of Goetze (India) Ltd. Vs. CIT: (2006)284 ITR 323 (SC).

Aggrieved by the disallowance of the claim, an appeal was preferred by the assessee before the CIT(A), who, after elaborate discussion, observed that the assessee is 100% export oriented unit and that it having fulfilled all the conditions laid down u/s 10B, merely because Sec.80IB was wrongly mentioned as against Sec.10-B, the claim could not have been disallowed and accordingly directed to allow the deduction u/s 10-B.

Aggrieved by the said order of the CIT(A), the revenue preferred an appeal before the ITAT who also came to the conclusion that this is only a technical defect and cannot be said to be a defect for denying the deduction which is otherwise allowable/eligible and accordingly dismissed the appeal preferred by the revenue. It is this order which is assailed before us by the appellant-revenue.

Mr.RB Mathur, ld. counsel for the appellant-revenue submitted that one has to be very particular specially while claiming 100% exemption as in the present case as the Act prescribes guidelines in allowing a deduction. He further contended that there is lot of difference in between an exemption i.e. u/s 10B or a deduction u/s 80IB and law envisages that complete particulars are required to be fulfilled and this being a statutory claim, the respondent-assessee ought to have been more vigilant and careful. He further contended that Sec. 80A(5) clearly postulates that claim has to be made in return of income and when in the return of income there was no claim u/s 10B, then the AO was within its juri iction to disallow the entire claim. He further contended that this section also postulates that if claim was not made in the return of income, then the assessee had opportunity to file a revised return. Then certainly, the assessee could have enured for exemption but since no regular revised return having been filed, the AO had correctly come to the conclusion about non grant of deduction u/s 10B. He further contended that question of verification of export realization and other conditions will come only once the question of granting exemption u/s 10B is settled. He further contended that if the assessee had been allowed deduction in the past, it will not make any difference as the exemption is to be allowed on the facts of the particular year and on year to year basis. He strongly relied upon judgment rendered in the case of Goetze (India) Ltd.

We have heard ld. counsel for the revenue and gone through the orders passed by the authorities below.

It would be fruitful to quote Sec.80A(5) of the IT Act, which provides as under:- “80A.(1) '' '' '' '' '' '' '' (2) '' '' '' '' '' '' '' '' (3) '' '' '' '' '' '' '' '' (4) '' '' '' '' '' '' '' '' (5)Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading “C___Deductions in respect of certain incomes,” no deduction shall be allowed to him thereunder.”

In our view, the decision of the Apex Court in the case of Goetze (India) Ltd. *supra), relied upon by ld. counsel for the revenue, rather supports the case of the assessee, than of revenue as the Hon'ble Apex Court has observed as under:- “The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961.”

On perusal of the above, in our view, though the assessing authority had no power but the appellate authorities did have power and therefore, for this reason also, in our view, the judgment (Goetze (India) Ltd. (supra) supports the case of the assessee rather than the revenue.

The Hon'ble Delhi High Court in the case of CIT Vs. Jai Prabolic Springs Ltd.: (2008) 306 ITR 42 (Delhi), held as under:- “12.As clear from the above said facts, there is no dispute that customer introduction charges did not represent revenue expenditure. The principal ground taken by the Revenue in this appeal is that if no claim for deduction of the amount was made in the return of income, then deduction would not be allowed. 13.Section 254 of the Act says that the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. 14.Reference may be made to National Thermal Power Co. Ltd. v. Commissioner of Income Tax, where the Supreme Court observed that: The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessees as well as the Department have a right to file an appeal/cross- objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.”

In the case of Jute Corporation of India Ltd. v. Commissioner of Income Tax: (1991) 187 ITR 688 (SC), while dealing with the powers of the Appellate Assistant Commissioner, the Supreme Court observed that: “An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Brokers & Shareholders Pvt. Ltd.:(2012) 349 ITR 336 (Bom.) has held as under:- “1.It is important to note two things. Firstly, the respondent is entitled to the deduction claimed. Secondly, the respondent made the claim not only before the Assessing Officer, but also independently before the CIT (Appeals) and the Tribunal. The question that arises in this appeal is whether the CIT (Appeals) and/or the ITAT had the juri iction to consider a new/additional claim/deduction subsequently raised before the Assessing Officer which, through inadvertence, was not claimed in the return of income filed by the respondent.

Hon'ble Bombay High Court, in the case of Sanchit Software and Solutions (P) Ltd. Vs. CIT: (2012) 349 ITR (Bom.) has held as under:- Income Tax Deptt. Can't take advantage of assessee's mistakes in not claiming exemption in IT return and not deny him exemption. The entire object of administration of tax is to secure the revenue for the development of the country and not to charge assessee more tax than that which is due and payable by the assessee.”

Admittedly, the respondent-assessee is a 100% export oriented unit and had been claiming exemption right from the assessment year 2004-05 u/s 10B. It may be that the claim is to be allowed on year to year basis but when facts and circumstances reveal that the assessee was eligible even this year for exemption u/s 10B and it has been found to be in order except that instead of mentioning exemption u/s 10B, while e- filing the return of the income tax, it was wrongly, on account of typographical error mentioned Sec.80IB, in our view, it cannot be said to be such a mistake by which the exemption could be disallowed outrightly. It was already stated by the assessee during the course of hearing before the AO himself that it complies with all the requirements for claim of exemption u/s 10B. The assessee company was under the bonafide belief that there was no mistake in the return, hence no revised return was filed but after knowing the clerical/computerized mistake that the claim was wrongly mentioned as u/s 80IB instead of Sec.10B, the assessee company filed a revised computation of income claiming deduction u/s 10B of the IT Act vide letter dt. 13/12/2010 before the AO. Not only this, the assessee also filed copy of ARE-1 duly sealed and signed by the custom authorities in respect of the exports having taken place. For evidencing realization of export bills, the statement of outstanding export bills from Andhra Bank as on 31/08/2008 showing the export bills outstanding for realization as on that date was also submitted. From the statement of outstanding export bills as confirmed by the Andhra Bank, it was clear that no bill prior to the date of March, 2008 had been shown as outstanding for realization. It is an admitted fact that since assessment year 2004-05, the assessee did not have any taxable income after adjusting unabsorbed depreciation and therefore tax was being paid u/s 115J and therefore the deduction u/s 10B was being claimed in computation of income. In our view, the mentioning of Sec.80IB was only clerical mistake and with all fairness as per the facts & circumstances and as per the previous claims in tax calculation u/s 115J, the assessee was legally entitled for this benefit. It was also admitted that the assessee had neither changed/revised the financial statements nor tax audit report (Form 3CD) originally filed by it. The assessee had only submitted audit report in Form 56G which was not enclosed with the return in view of provision of Rule 12 of the IT Rules. The purpose of audit report in Form 56G is totally different than the purpose of audit report in Form 3CA annexed with Form 3CD. It is also an admitted fact that the financial statement also remained the same. In our view, the spirit behind this statement must be that the assessee should have claimed the exemption in his return and filed the same within due date and in the instant case, the assessee on the facts available on record clearly shows that the claim was duly made but section was inadvertently wrongly mentioned and this fact came to the notice of the assessee at a later point of time when pointed out by the AO. In our view, the purpose of assessment proceedings before the taxing authorities was to assess the income correctly and the tax liability of an assessee in accordance with law. If such clerical mistake occurred, then in our view, the AO was duty bound to inform the assessee that this claim is wrongly claimed and that one may claim exemption under the concerned section. It is also an admitted position that substantial manufacturing activities were being carried out by the assessee within the bonded premises in terms of CBEC circular No.65/2002-Cus dated 07/10/2002 and notification No.52/2003- Cus dt.31/03/2003. In our view, the allegation of the AO was totally unfounded as all the documents, which are issued by the Government authorities, could not have been predated or fabricated by the assessee and in our view the allegation of the AO that the claim could be in the nature of an afterthought is not correct.

We may also observe that the CIT(A) had plenary power in disposing of an appeal. The scope of his power was co-terminus with that of the Income Tax Officer. He could do what the Income Tax Officer could do and also direct him to do what he had failed to do. It has been held by authorities of the Hon'ble Apex Court (supra) that above observations are squarely applicable and the interpretation of Section 251(1)(a) of the Act. The declaration of law was clear that the power of the Appellate Assistant Commissioner [CIT (Appeals)] was co-terminus with that of the appellate authority to entertain the claim. The Hon'ble Apex Court assessment were plenary and co-terminus with those of the AO and that he can do what the ITO can do and also direct him to do what he has failed to do and in our view, the CIT(A) indeed has powers to examine the assessee's claim on merits by virtue of Sec.250(5). In that case, the claim was first time made under Sec.80HHC before the CIT(A) and accordingly no infirmity was found by the Hon'ble Apex Court in grant of deduction u/s 80HHC. The Punjab & Haryana High Court in the case of Ramco International, reported in 332 ITR 306, where the assessee claimed deduction u/s 80IB of the IT Act although furnished Form 10CCB, it was held that even where there was a claim by way of an application without filing a revised return and in such a situation, deduction could not be disallowed.

In view of the above, we are of the considered view tha once the assessee was found eligible for an exemption u/s 10B, it having been allowed such exemption in the past, and merely because a typographical error crept in while e-filing the return and it was mentioned as u/s 80IB instead of Sec.10B, this being a technical mistake, should not come in the way by disallowing the otherwise allowable/eligible exemption.

Accordingly, we do not find any infirmity or perversity in the order of the ITAT so as to call for any interference of this Court. In our view, it is essentially a concurrent finding of fact by the two lower appellate authorities and no substantial question arise or is required to be considered.

Accordingly, the appeal, being devoid of merit, is hereby dismissed. No order as to costs. [J.K. RANKA],J. [AJAYRASTOGI],J. Raghu/p.15/ Certificate:All corrections made in the judgment/order have been incorporated in the judgment/order being e-mailed. /Raghu, PA.