NARAYAN J. PAGARANI,MUMBAI vs. ACIT 21 (1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI PAVAN KUMAR GADALE, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NOs. 658 & 659/MUM/2019 (A.Y: 2003-04 & 2004-05) Shri Narayan J. Pagarani v. ACIT – 21(1) 75, Off Nehru Road Mumbai Near Santacruze Airport Vile Parle, Mumbai - 400099 PAN: AAAPP6459Q (Appellant) (Respondent) Assessee by : Shri Rajesh Sanghvi Department by : Shri S.N. Kabra

Date of Hearing : 03.06.2022 Date of Pronouncement : 29.07.2022

O R D E R PER S. RIFAUR RAHMAN (AM)

2 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani 2. Since the issues raised in both the appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No.658/MUM/2019 for Assessment Year 2003-04 as a lead appeal.

3 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani M/s. Topman Exports. Based on the directions of ITAT notice u/s. 142(1) of the Act was issued and served on the assessee. In response Ld. AR of the assessee attended and filed the information.

4 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani 6. Subsequently, Hon'ble Supreme Court decided the issue of 80HHC in favour of the assessee by reversing the order of Hon'ble Bombay High Court in the case of CIT v. Kalpataru Colours & Chemicals.

5 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani 6) I say that on 14-01-16 an order was passed by Hon'ble ITAT - Mumbai in the appellant own case but for Asst Year: 2001-02 wherein the appeal of my own case on the same issue of 80-HHC was allowed in accordance with the Judgement of Hon'ble Supreme Court in the case of Topman Export. 7) I say that I was again wrongly advised by my tax consultant CA Viral Mehta who continue pressing for rectification of Asst year: 03-04 & 04-05 especially after the ITAT order for Asst Year: 2001- 02 and that my case was now stronger. Thus, I was again advised in May 2016 to file a rectification u/s 154 with the AO and the same was again filed u/s 154 on 07-06-16. The AO rejected this rectification application vide his order dt: 18-07-16. 8) I say that aggrieved by the said order u/s 154 dt: 18-7-16 and under advise of the consultant, I filed 1" appeal before CIT (A) on 17-8-16. The Hon. CIT(A) passed his order on 18-09-18 rejecting the rectification application. 9) I say that on receipt of CIT(A) order dt: 18-9-18, 1 was confused at this state of affairs especially when Apex court judgement favoured the assessee, I sought further opinion and approached other consultants for advise on next course of action. The new consultant opined that I was wrongly advised on not filing an appeal against the CIT(A) order dt: 30-6-2011 and was also wrongly advised in filing a rectification application u/s 154. 10) I say that I was now in Sept 18 advised that I should have filed an appeal before Hon'ble ITAT way back in 2011. The new tax consultant advised, that I should now file appeal before Hon'ble ITAT along with petition of condonation of delay explaining the wrong course of action taken by the appellant from 2011 till now, in innocence and in ignorance of the possible complex legal options and based on advice of my previous CA. 11) I say that this confusion and delay was further aggravated due to the chequered history of litigation on Sec. 80-HHC. First the Special bench of ITAT decided in favour of the tax payers on 11-8- 09; then the Bombay High Court reversed the same on 29-6-2010 and then the Supreme court decided in favour of the tax payers on 8-2-12. 12) I say that I ought to have filed this appeal by 25-9-2011 and the same is being filed now in Feb 2019. The delay is of about 2685 days. All this delay was due to pursuit of the relief u/s 154, but in

6 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani the wrong direction. I followed the opinion given to me esp in complex litigation issues of sec 80HHC. After getting a negative order from the CIT(A) dt: 30-6-2011 for Asst year: 03-04, I got another negative order from the Mumbai ITAT dt: 28-12-11 for Asst Year: 02-03. I was advised to refrain from filing appeals against this ITAT order of AY: 02-03 in High court, as it would mean loss of resources and time. However the turning point turned out to be the Apex court order in Topmans dt: 8-2-12. From April 2012 till 2018 1 vigorously pursued rectification applications u/s 154 for AY: 03-04 & 04-05 thinking that Hon. SC orders being the law of the land, it had to apply to his case also and by default since the SC order pertained to Asst year: 02-03 in the case of Topman Exports. Hence if the SC had decided and interpreted the law for Asst year: 02-03 onwards, the same applied to me from 02-03 onwards. Hence rectification applications were filed as advised. 13) I say that the delayed in filing this appeal is due wrong course of legal option and action, unfortunately advised by my legal consultant. 14) I say that due to wrong advise by Tax consultant, I found that my returned income has been enhanced by Rs. 1,23,98,330/- and a consequential demand has been made against me. 15) I say that, delay in filing the appeal before Hon'ble ITAT, Mumbai was due to sufficient cause and which was unintentional and not in my control. 16) I say that that delay in filing the appeal is because of a genuine belief of the applicability of a particular provision of the Income Tax Act 1962 which was not accepted by the Original Authority. 17) I say that I had no intention to jeopardize the interest of the revenue by delaying the filing of the appeal.”

7 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani 9. On the other hand, Ld. DR opposed the delay condonation. Ld.DR subsisted as under: - “1. In respect of A. Y. 2003-04, appellate order dated 30.06.2011 passed by Id. CIT(A) had been received by the assessee on 26.07.2011. Time limit to file appeal before the Hon'ble Tribunal expired on 25.09.2011. Further, in respect of A.Y. 2004-05, appellate order dated 29.09.2011 passed by Id. CIT(A) had been received by the assessee on 26.10.2011. Time limit to file appeal before the Hon'ble Tribunal expired on 25.12.2011. However, on advice of consultants handling the assessee's matter at that time, namely, CA Viral Mehta, from M/s Viral Mehta & Co., no appeal has been filed. Further, the Hon'ble ITAT decided the Revenue's appeal in the assessee's own case for A.Y. 2002-03 vide order dated 28.12.2011 (ITA No.5603/Mum/2010), wherein the Tribunal allowed the same in favour of the Revenue following the judgment in the case of CIT Vs. Kalpataru Colours and Chemicals 328 1TR 451. 2. Subsequently, on 8th Feb., 2012, the Hon'ble Apex Court passed order in the case of Topman Exports Vs. CIT 342 ITR 49 whereby the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Kalpatru Colours & Chemicals has been reversed. 3. In Feb., 2012, the assessee was advised by his consultants that now as the Hon'ble Apex Court has decided the issue of deduction u/s 80HHC in favour of the assessee, the assessee should file a rectification application before the AO. Accordingly rectification application, was filed on 02.04.2012 followed by 12.06.2012, 23.07.2012, 29.01.2014, 12.05.2014, 29.10.2014, 12.05.2014, 27.08.2014. 4. Thereafter, on 14.01.2016, the Hon'ble Tribunal passed order in the assesse's own case for AY. 2001-02 allowing assessee's appeal in respect of similar issue following judgment of Hon'ble Apex Court in the case of Topman Exports (supra). 5. The assessee was again advised by his tax consultant to pursue rectification as after ITAT order for AY. 2001-02, case of the assessee is stronger. Based on the same, rectification application was again filed on 07.06.2016. The AO rejected this rectification application vide order dated 18.07.2016, Aggrieved by the said order, the assessee filed appeal before CIT(A) on 17.08.2016. The

8 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani CIT(A) dismissed appeal of the assessee vide order dated 18.09.2018. 6. Afterwards, the assessee approached other consultants for advice on next course of action. The new consultant opined that appeal should be filed before the Tribunal along with petition for condonation of delay in fling of appeal. The assessee summed up his petition for condonation of delay stating that the delay is because of wrong legal advice by the then consultants and genuine belief in them and also due to complications on the issue of 80HHC as per the assessee. The delay was not occasional, deliberate or on account of culpable negligence or on account of mala-fides, hence same may be condoned. Case laws relied upon: In order to support his case, the assessee has placed reliance on certain judgments out of which some of the important ones are as under: (1) Hon'ble Supreme Court judgments (a) Collector of Land Acquisition. Anantnag & Anr Vs. Mst Katiji & Ors 167 ITR 471 dated 18.02.1987. (ii) Hon'ble Bombay High Court judgment in the case of Vijay Vishin Meghani Vs. DCIT (ITA No.508 of 2015) dated 19.09.2017. The Hon'ble High Court after referring to the Hon'ble Apex Court's Judgment in the case of Nirmala Devi (Supra) condoned delay of 2984 days Comments: It is seen that the assessee has stated that due to wrong advice' of his consultants coupled with complexity of issue of deduction u/s 80HHC, wrong course of action was taken by the assessee instead of filing of appeal in time. Therefore, delay in filing of appeal is 'not intentional and deliberate. In order to support his contentions, copies of documents filed before the Department to follow up the matter by way of rectification application, copies of communication as received from his consultants giving opinion in respect of course of action, affidavit stating facts of the case, have been filed by the assessee. It is pertinent to mention here that as per provisions of sec. 154 of the Act, an assessment order consequent to appellate order

9 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani upholding the said order gets merged with the appellate order which cannot be rectified by the AO. This is the statutory position of sec. 154, then how come the consultants of the assessee, who is a CA by profession, advised him to go for rectification instead of filing of appeal is beyond comprehension. Further, from the facts as mentioned above, it is seen that the assessee as well aware that the issue of 80HHC deduction is a complex one and the matter has gone to Apex Court. In such circumstances, it is of common practice and a logical recourse to file an appeal in respect of a matter which has not reached finality. By putting onus on consultants, it seems that the assessee is trying to create 'sufficient cause of delay for fling of appeal. It is notable that the 'consultant' or 'advisor is of assessee's own choice hence the ground of ill-advice by the advisors who are chosen and paid by the assessee is prima facie baseless and entirely attributable to assessee. Another important aspect to the assessee's conduct is noticed while going through the facts of the case. In respect of A.Y. 2004-05, the assessee did not press grounds of appeal before the Id. CIT(A) and accordingly, Id. CIT(A) vide order dated 29.09.20111 dismissed the grounds of appeal in respect of deduction claimed u/s 80HHC. From the appellate orders for both A.YS. 2003-04 & 2004-05, it is seen that some other consultant, namely, Shri Gaurang Gandhi, CA, attended the appellate matters. From this, it can be safely assumed that the assessee was already taking actions in consultation with other consultants and decision not to file appeal has been taken after due deliberation and diligence. Moreover, the assessee made a well- informed call (on advice of CA consultant) to not file the appeal within prescribed time limit before Hon'ble ITAT and then later upon seeing favourable decision change his opinion as an afterthought. Now, after almost eight years, the assessee has claimed that due to wrong advice" by his then consultants, he did not file appeal before the Tribunal and such wrong advice tantamount to "sufficient" cause for not filing of appeal. Herein what can be termed as "sufficient" cause is to be looked into. The after due deliberation with his consultants, took decision not to file appeal before the Tribunal. After almost eight years, he changed his mind and decided to file appeal to take benefit of the Apex Court's subsequent decision. For the delay, he has put onus on 'wrong advice given by his then consultants. This is clearly an afterthought which cannot be termed as "sufficient" cause. In the Limitation Act, 1963, it is seen that reasons viz. legal disability, medical disability, death, fraud, mistake

10 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani in computing limitation period or other mistakes, have been mentioned in various sections as "sufficient" cause for extension of time limit to file appeal. One important judgment wherein discussion in respect of limitation Act vis-a-vis "sufficient" cause has been made is delivered by the Hon'ble Madras High Court in the case of S.R.Vediappan vs S.P.Ramalingam on 11 February, 2020, whereby the Hon'ble Court decided in negative a miscellaneous petition filed to condone the delay of 263 days in filing the appeal. The Hon'ble Court observed that Law of limitation being a substantive law, the appeals are to be filed within a time limit. Filing an appeal within a period of limitation is the rule and condonation of delay is an exception. Therefore, the condonation of delay cannot be claimed as a matter of right and only on genuine reasons, the delay is too be condoned and not otherwise. Herein, the assessee being well aware of the fact that the issue of deduction us 80HHC has not reached finality and the same is contested before the Hon'ble Apex Court, did not file appeal against the order of CIT(A). The decision not to file appeal has been taken by the assessee after due deliberation. After almost eight years, he changed his mind and decided to file appeal to take benefit of the Apex Court's subsequent decision. For the delay, he has tried to shift the onus on 'wrong advice given by his then consultants. This certainly cannot be termed as "sufficient" cause. Furthermore, there is no affidavit on record by the consultant to explain or admit that they have rendered wrong advice and under what circumstance. The assessee cannot indemnify the doing or wrong doing of his consultant. The assessee's contention of 'wrong advice' hence obtains the nature of subjective opinion. Further, in various court judgments, there is due deliberation on what constitutes "sufficient" cause. In the case of Nirmala Devi (Supra), the Hon'ble Apex Court referred to its own judgment in AIR 1971 Ker. 211 wherein it has been quoted that "mistake of counsel may in certain circumstances be taken into account for condoning delay although there is no proposition that mistake of a counsel itself is always a sufficient ground. It is always a question whether the mistake was bonafide or was merely a device to cover an ulterior purpose such as laches on the part of the litigant or an attempt to save limitation in an underhandway... The Court must of course, see whether in such cases there is any taint of mala fides or element of recklessness or ruse..."

11 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani The Apex Court has clearly mentioned that mistake of a counsel itself is not always a sufficient ground. In the case of assessee, there is certainly element of ulterior motive involved as almost after eight years, the assessee changed his mind and decided to file appeal though he did not file appeal in prescribed time limit after due deliberation and due diligence, If such unwarranted condonations are allowed, then any one can at any time claiming that there is no fault of his, delay the filing of appeal stating that occurred due to 'fault of consultant/counsel'. There is no mechanism to ascertain as to if what such person is claiming is correct or not. Therefore, there should be reasonableness in deciding as to what constitutes "sufficient" cause. Moreover, the fact that the contention of the assessee regarding condonation of this extraordinary delay arose after a favourable decision delivered by the Hon'ble Apex Court. This clearly, indicates condonation is being used as a device to cover an ulterior motive. In the case of the assessee, claim of the assessee that "wrong advice given by the consultant is 'sufficient' cause does not hold ground in the light of the provisions of the Limitation Act, 1963, observations of the Hon'ble Apex Court as mentioned above. Also, facts of the case suggest that the assessee has taken decision not to file appeal after due deliberation at that time. Now, by putting onus on the consultants for so-called 'wrong advice', the assessee has tried to manufacture 'sufficient' cause, whereas the action of the assessee falls within the frame of 'change of mind' in pretext of favourable Supreme Court decision. This condonation of delay application of appellant is merely a device to cover an ulterior purpose of taking benefit of a later judgement of the honorable Apex Court. The appellant is making an attempt to save limitation in an underhand way. In the humble opinion of the undersigned, it is respectfully submitted that this sets a very wrong precedence of violating limitation and then using condonation as a device to cover an afterthought. In view of the above, it is prayed that the reasons put forward by the assessee for condonation of delay are devoid of merits and the application may kindly be dismissed.”

12 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani However, due to advice of the tax consultant assessee has not filed appeal before ITAT based on the decision of the Hon'ble Bombay High Court in the case of CIT v. Kalpataru Colours & Chemicals. Subsequently, the Hon'ble Supreme Court has passed the order in favour of the assessee relating to Section 80HHC in the case of M/s. Topman Exports. Meantime based on the advice of the Tax Consultant and Chartered Accountant assessee filed rectification application u/s. 154 of the Act before the Assessing Officer and Assessing Officer has dismissed the same and further, assessee preferred appeal before the Ld.CIT(A) and Ld.CIT(A) also dismissed the same.

13 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani and Hon'ble High Court condoned the delay with costs and they observed before condoning the delay as under: - “21. We find from paragraph 13 of the order, but for this relevant factors and tests, everything else has been brought into the adjudication by the Tribunal. The Tribunal though aware of these principles but possibly carried away by the fact that the delay of 2984 days is incapable of condonation. That is not how a matter of this nature should be approached. In the process the Tribunal went about blaming the assessee and the professionals and equally the Department. To our mind, therefore, the Tribunal's order does not meet the requirement set out in law. The Tribunal has completely misdirected itself and has taken into account factors, tests and considerations which have no bearing or nexus with the issue at hand. The Tribunal, therefore, has erred in law and on facts in refusing to condone the delay. The explanation placed on affidavit was not contested nor we find that from such explanation can we arrive at the conclusion that the assessee was at fault, he intentionally and deliberately delayed the matter and has no bona fide or reasonable explanation for the delay in filing the proceedings. The position is quite otherwise. 22. In the light of the above discussion, we allow both the appeals. We condone the delay of 2984 days in filing the appeals but on the condition of payment of costs, quantified totally at Rs.50,000/-. Meaning thereby, Rs.25,000/ plus Rs.25,000/ in both appeals. The costs to be paid in one set to the respondents within a period of eight weeks from today. On proof of payment of costs, the Tribunal shall restore the appeals of the assessee to its file for adjudication and disposal on merits. We clarify that all contentions as far as merits of the claim are kept open. We have not expressed any opinion on the same.”

14 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani condone the delay and admit the same for adjudication on the grounds raised by the assessee.

15 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani the Act. The second proviso to sub-section (3) of Section 80HHC states that in case of an assessee having export turnover not exceeding Rs.10 crores during the previous year, after giving effect to the first proviso, the export profits are to be increased further by the amount which bears to ninety per cent of any sum referred to in clauses (iiid) and (iiie) of Section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. The third proviso to sub-section (3) states that in case of an assessee having export turnover exceeding Rs.10 crores, similar addition of ninety per cent of the sums referred to in clause (iiid) of Section 28 only if the assessee has the necessary and sufficient evidence to prove that (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme. Therefore, if the assessee having export turnover of more than Rs.10 crores does not satisfy these two conditions, he will not be entitled to the addition of profit on transfer of DEPB under the third proviso to sub-section (3) of Section 80HHC. 22. The aforesaid discussion would show that where an assessee has an export turnover exceeding Rs.10 crores and has made profits on transfer of DEPB under clause (d) of Section 28, he would not get the benefit of addition to export profits under third or fourth proviso to sub-section (3) of Section 80HHC, but he would get the benefit of exclusion of a smaller figure from “profits of the business” under explanation (baa) to Section 80HHC of the Act and there is nothing in explanation (baa) to Section 80HHC to show that this benefit of exclusion of a smaller figure from “profits of the business” will not be available to an assessee having an export turnover exceeding Rs.10 crores. In other words, where the export turnover of an assessee exceeds Rs.10 crores, he does not get the benefit of addition of ninety per cent of export incentive under clause (iiid) of Section 28 to his export profits, but he gets a higher figure of profits of the business, which ultimately results in computation of a bigger export profit. The High Court, therefore, was not right in coming to the conclusion that as the assessee did not have the export turnover exceeding Rs.10 crores and as the assessee did not fulfill the conditions set out in the third proviso to Section 80HHC (iii), the assessee was not entitled to a deduction under Section 80HHC on the amount received on transfer of DEPB and with a view to get over this difficulty the assessee was contending that the profits on transfer of DEPB under Section 28 (iiid) would not include the face

16 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani value of the DEPB. It is a well-settled principle of statutory interpretation of a taxing statute that a subject will be liable to tax and will be entitled to exemption from tax according to the strict language of the taxing statute and if as per the words used in explanation (baa) to Section 80HHC read with the words used in clauses (iiid) and (iiie) of Section 28, the assessee was entitled to a deduction under Section 80HHC on export profits, the benefit of such deduction cannot be denied to the assessee.”

Order pronounced in the open court on 29th July, 2022.

Sd/- Sd/- (PAVAN KUMAR GADALE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 29.07.2022 Giridhar, Sr.PS

17 ITA NOs. 658 & 659/MUM/2019 Shri Narayan J. Pagarani Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy// BY ORDER

(Asstt. Registrar) ITAT, Mum