MEENA AGENCY LTD.,,JAMNAGAR vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX,, JAMNAGAR-GUJARAT

The only issue raised by the assessee is that the learned principle CIT erred in holding the assessment framed under section 143(3) of the Act as erroneous insofar prejudicial to the interest of revenue.

The facts in brief are that the assessee is a limited company and engaged in the business of manufacturing and marketing of calcined bauxite, Bricks and castables as well as generation of power. The assessee in the year under consideration has received incentive of Rs 73,24,821/- being refund of VAT under the scheme of Government of Gujarat. The assessee treated such receipt as capital receipt not chargeable to tax. However, the principle CIT was of the view that such incentive was disbursed towards meeting the running expenses and the operating the business. Therefore the same has to be treated as revenue in nature. Accordingly the principal CIT held the assessment order as erroneous insofar prejudicial to the interest of revenue and directed the AO to add impugned amount to the total income of the assessee. The relevant extract of the order ld. PCIT stands as under:- “8. I, therefore, hold that the assessment order dated 27.12.2017 finalized by the Assessing Officer u/s 143(3) of the Income-tax Act, 1961 is erroneous and prejudicial to the interests of revenue within the meaning of section 263 of the Income-tax Act, 1961. After careful consideration of written submission of the assessee and the materials on records and taking into consideration the fact of the case, the claim of the assessee in treating central excise and VAT incentive which is being disbursed with a specific purpose, every year, on regular basis towards meeting its running expenses and operation needs, is treated as revenue in nature and an amount of Rs.73,24,821/- is therefore added to the total income of the assessee. Accordingly, the total assessed income of the assessee stands enhanced by Rs.73,24,821/-. The AO is, therefore, directed to give effect of this order within the time limit prescribed under section 153(5) of the Act and re-compute the profit declared by the assessee accordingly.”

Being aggrieved by the order of the learned PCIT the assessee is in appeal before us.

The learned AR before us submitted that this tribunal in the own case of the assessee has treated such receipt as capital receipt not chargeable to tax for the assessment year 2010-11 in vide order dated 10th November 2017. Accordingly, the learned AR claimed that there is no error in the order of the AO as alleged by the learned principle CIT.

On the other hand the learned DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. In the present case the learned principle CIT has held that the order passed by the AO is erroneous insofar prejudicial to the interest of revenue for the reason that the incentive being refund of VAT received by the assessee in a scheme of Government of Gujarat was held to be capital in nature whereas it was given to meet the running cost to the assessee. Therefore the same has to be treated as revenue in nature and chargeable to tax.

From the preceding discussion we note that the ITAT in the own case of the assessee (supra) has decided the identical issue in favour of the assessee. Thus the AO has taken one of the possible view by treating the incentive as capital receipt not chargeable to tax. Therefore, in our considered view the order of the AO cannot be held as erroneous insofar prejudicial to the interest of revenue. In this regard we find support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT vs. Max India Ltd reported in 295 ITR 282 wherein it was held as under: It was not in dispute that when the order of the Commissioner was passed, there were two views on the word 'profit' in section 80HHC. The problem with section 80HHC is that it has been amended eleven times. Different views existed on day when the Commissioner passed his order and moreover mechanics of section have become so complicated over years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective would not attract provision of section 263, particularly when one had to take into account position of law as it stood on date when the Commissioner passed order dated 5-3-1997 in purported exercise of his powers under section 263. [Para 2] We also extend our reliance on the judgment of Hon’ble Supreme Court in the case of Malabar Industries Co Ltd vs. CIT reported in 243 ITR 83 wherein it was held as under:

In view of the above we hold that there is no error in the order of the AO causing prejudice to the interest of revenue as alleged by the learned principle CIT. Accordingly we hold that the order passed by the learned PCIT under section 263 of the Act, is not sustainable. Hence we quash the same. Thus the ground of appeal of the assessee allowed.

In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that Page No 6 Meena Agency Ltd. vs. Pr. CIT directed “while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.

In the result the appeal filed by the assessee is allowed.