NULUX ENGINEERS,MUMBAI vs. DCIT CIR 20(2), MUMBAI

O R D E R

PER RAMIT KOCHAR, Accountant Member:

2. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the tribunal”) read as under:-

I. REJECTION OF RECTIFICATION APPLICATION U/S 154 OF THE INCOME TAX ACT ('THE ACT') 1.1 On the facts and circumstances of the case and in law, the learned Commissioner of Income-Tax (Appeals)- 39, Mumbai (hereinafter referred to as 'CIT(A)') has erred in holding that the DEPB benefit in the case of appellant was 'face value of DEPB' or 'profit on transfer of DEPB' was a debatable issue. 1.2. On the facts and circumstances of the case, the CIT(A} has failed to consider the fact that AO had not rejected the rectification petition on the above ground. Thus, the order passed by CIT(A) is in violation of principle of natural justice and bad in law. 1.3 The learned CIT(A) has further erred in stating that the learned AO would have to travel beyond the records to ascertain appellant's claim. 1.4 On the facts and circumstances of the case, the CIT(A) has failed to apply the decision of the Supreme Court in the case of 'Topman Exports v. CIT' which held that DEPB entitlement is 'cash assistance' covered by section 28(iiib) and only the profit on transfer of DEPB would get covered under section 28(iiid). The appellant respectfully craves leave to add, alter, modify or amplify any of the above stated Grounds of Appeal

3. The assessee had claimed deduction u/s. 80HHC of Rs. 1,68,58,026/- in the return of income originally filed on 25-10-2001 with Revenue, which claim of deduction u/s 80HHC of the 1961 Act was allowed by Revenue in an assessment framed u/s 143(3) of the 1961 Act vide assessment order dated 29-05-2003. Later, the learned Commissioner of Income-tax -20, Mumbai initiated revisionary proceedings u/s 263 of the 1961 Act and vide orders dated 13-03- 2006 , learned CIT-20 , Mumbai set aside the assessment order dated 29-05-2003 framed by the AO u/s 143(3) of the 1961 Act. The fresh assessment was framed by the AO u/s 143(3) r.w.s. 254 of the 1961 Act vide assessment order dated 27.12.2006 wherein the income of the assessee was assessed at Rs. 61,72,060/- against the returned income of Rs. 42,03,010/-. Subsequently , the assessment was reopened by Revenue u/s. 148 of the Act on 28.03.2008 and re- assessment was completed on 26.12.2008 without any additions and the total income re-assessed remained unchanged at Rs.61,72,060/-. The assessee filed rectification application u/s. 154 of the Act on 11.02.2013 with Revenue by relying on decision of Hon‟ble Supreme Court in the case of Topman Exports v. CIT (2012) 342 ITR 49(SC) praying for grant of deduction u/s 80HHC wherein the assessee pointed out that face value of DEPB is in the nature of „cash assistance‟ u/s 28(iiib) of the 1961 Act and accordingly 3rd proviso to Section 80HHC(3) does not apply to the case of the assessee. The said rectification application was rejected by Ld. AO vide orders dated 30.08.2013 passed u/s 154 of the 1961 Act considering this as a debatable issue which cannot be rectified within limited mandate of Section 154 of the 1961 Act and as per AO there is no mistake apparent from record in an assessment order dated 26-12-2008 passed by the AO u/s 143(3) r.w.s. 147 of the 1961 Act which can be corrected within the limited mandate of Section 154 of the Act. It was also observed by the AO that decision referred by the assessee in the case of Topman Exports(supra) has no applicability to factual matrix of the case because in an assessment framed vide assessment order dated 26-12-2008 by the AO u/s 143(3) r.w.s. 147 of the 1961 Act , the income has remained the same as no additions were made by the AO on any ground in the said assessment proceedings. The assessee filed first appeal with Ld. CIT(A) against the order dated 30.08.2013 passed u/s 154 of the 1961 Act which also met with the same fate as the contentions of the assessee stood dismissed by learned CIT(A) vide appellate order dated 02-12-2016 by holding as under :- “5. I have carefully considered the facts and circumstances of the case. This is not a case where the decision of the Hon'ble Supreme Court in the case of Topman Exports v. CIT (supra) could be said to be squarely applicable so as to call for rectification of the assessment order u/s 154 of the Act. In fact as per aforecited decision of the Hon'ble Supreme Court only face value of DEPB will be classified as cash assistance and will fall under clause (iiib) of section 28 of the Act. Whereas in this case, the AO has considered DEPB benefit as profit on transfer of DEPB and hence falling u/s 28 (iiib) read with 3 third proviso to section 80HHC(3). Thus finding that whether the DEPB benefit in the case of assessee has to be taken as profit on transfer of DEPB or face value of DEPB is debatable issue and applicability of provision of Hon'ble Supreme Court in the case of Topman Exports v. CIT (supra) comes in play only after this issue is decided. As pointed out by the Id.AO in the impugned order, the Hon'ble Supreme Court in the case of Saurashtra Kutch Stock Exchange Ltd held that a patent, manifest and self-evident error which does not require elaborate discussion of evidence or argument to establish if can be said to be an error apparent on the face of record and can be corrected u/s 154. An error cannot be said to be apparent on the face of the record if one has to travel beyond the record to see whether the judgment is correct or not. In this case, order is passed u/s 143(3) r.w.s. 147 of the Act. it was adjudicated that the benefit of DEPB in the case of the assessee is in the nature of profit on the transfer of DEPB and hence the contention of the assessee that the order passed u/s 143(3) r.w.s. 147 was required to be rectified u/s 154 in view of the decision of the Hon'ble Supreme Court in the case of Topman Exports v. CIT (supra) is not acceptable and, therefore, I did not find any infirmity in the order of the Id. AO. The ground is dismissed.”

4. Aggrieved by the appellate order dated 02-12-2016 passed by learned CIT(A), the assessee filed an second appeal before the tribunal. The assessee submitted that deduction u/s. 80HHC as allowed by Hon‟ble Supreme Court in the case of Topman Exports(supra) to the extent of face value of DEPB be allowed as the same was held to be in the nature of cash assistance u/s 28(iiib) of the 1961 Act which is income derived from exports read with first proviso to Section 80HHC(3). The ld counsel submitted that profit on sale of DEPB is covered u/s 28(iiid) and deduction u/s 80HHC in accordance with Hon‟ble Supreme Court decision in the case of Topman Exports(supra) can only be allowed to the assessee provided conditions as are stipulated in third proviso to Section 80HHC(3) are met as turnover of the assessee is more than Rs. ten crores . It was submitted that the assessee be allowed deduction u/s 80HHC in line with decision of Hon‟ble Supreme Court in the case of Topman Exports(supra) so far as face value of DEPB is concerned.

“ Section 154- Rectification of Mistakes Mistakes apparent from records - Whether can be treated as such on the basis of subsequent decision of Supreme Court 1. The Board are advised that a mistake arising as a result of a subsequent interpretation of law by the Supreme Court would constitute “a mistake apparent from the records" and rectificatory action under section 35/154 of the 1922 Act/the 1961 Act would be in order. It has. therefore, been decided that where an assessee moves an application under section 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either be pending or received after the issue of this circular.

JUDICIAL ANALYSIS EXPLAINED IN - In ITO v. Smt. Manini Niranjanbhai [1992] 41 ITD 324 (Ahd-Trib.) (SMC) it was observed that as per Circular No. 68, dated 17-11 -1971, it is now a well established position that the Supreme Court does not declare the law with effect from the date of its order and the law declared by the Supreme Court has effect not only from the date of the decision but from the inception of the statutory provision. It has been mentioned therein that the Board have been advised that the mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute a mistake apparent from record and rectificatory action under section 154 would be justified.”

The learned counsel for the assessee also drew our attention to the decision of Hon‟ble Supreme Court in the case of ACIT v. Saurashtra Kutch Stock Exchange Limited reported in (2008) 173 Taxman 322(SC). Our attention was also drawn to decision of the Mumbai- tribunal in assessee‟s own case for AY 2002-03 and 2003-04 in and 2309/Mum/2013 vide common order dated 06-09-2017 7. We have carefully considered rival contentions and perused the material on record including cited case laws. We have observed that The assessee had claimed deduction u/s. 80HHC of Rs. 1,68,58,026/- in the return of income originally filed with Revenue on 25-10-2001, which claim of deduction u/s 80HHC was allowed by Revenue in an assessment framed u/s 143(3) of the 1961 Act vide assessment orders dated 29-05-2003. Later, the learned Commissioner of Income-tax - 20, Mumbai initiated revisionary proceedings u/s 263 of the 1961 Act and vide orders dated 13-03-2006 the learned CIT-20,Mumbai set aside the assessment order dated 29-05-2003 framed by the AO u/s 143(3) . The fresh assessment was framed by the AO u/s 143(3) r.w.s. 254 of the 1961 Act vide assessment order dated 27.12.2006 wherein the income of the assessee was assessee at Rs. 61,72,060/- against the returned income of Rs. 42,03,010/-. Subsequently , the assessment was reopened u/s. 148 of the Act on 28.03.2008 and re- assessment was completed on 26.12.2008 without any additions and the total income remained unchanged at Rs. 61,72,060/-. The assessee filed rectification application u/s. 154 of the Act on 11.02.2013 by relying on decision of Hon‟ble Supreme Court in the case of Topman Exports v. CIT (2012) 342 ITR 49(SC) praying for grant of deduction u/s 80HHC wherein the assessee pointed out that face value of DEPB is in the nature of „cash assistance‟ u/s 28(iiib) as held by Hon‟ble Supreme Court and accordingly 3rd proviso to Section 80HHC(3) has no application. The said rectification application was rejected by Ld. AO considering this as a debatable issue which as per AO cannot be rectified within limited mandate of Section 154 of the 1961 Act and as per AO there is no mistake apparent from record in an assessment order dated 26-12-2008 passed by the AO u/s 143(3) r.w.s. 147 of the 1961 Act which can be corrected within the limited mandate of Section 154 of the Act. The Ld. CIT(A) also dismissed the appeal of the assessee.The order of learned CIT(A) is reproduced in preceding para‟s of this order which is not repeated again. The main contention of Revenue is that the decision of Hon‟ble Supreme Court in the case of Topman Exports(supra) was pronounced on 08-02-2012 while the assessment order was passed by the AO u/s 143(3) r.w.s. 147 of the 1961 Act much earlier on 26-12-2008 and the issue being debatable can not be rectified within limited mandate of Section 154 of the 1961 Act. The contention of Revenue are fallacious as the Hon‟ble Supreme Court interpret provision of law and declares the law within Article 141 of the Constitution of India which then relate backs to the date of enactment of the provision unless otherwise specified by the Hon‟ble Supreme Court in its judgment. The Hon‟ble Supreme Court do not enact law as it is the function of the Parliament to enact law but the function of Courts is only to interpret the law which existed in the statute enacted by Parliament . Once Hon‟ble Supreme Court declares the laws by interpreting the provisions of statute , then the law as interpreted by Hon‟ble Supreme Court is to be read from the date when the provision was brought into statute unless otherwise specified by the Hon‟ble Supreme Court in its judgement. Thus non consideration of the decision of Hon‟ble Supreme Court as well as subsequent interpretation of law by Hon‟ble Supreme Court and its non-consideration by Revenue in its order constitute mistake apparent from record which can be rectified u/s. 154 of the Act. The decision of Hon‟ble Supreme Court in the case ACIT v. Saurashtra Kutch Stock Exchange Ltd. reported in (2008) 173 Taxman 322 (SC) as well as circular of the department vide circular no. 68 dated 17.11.1971 binds the Revenue and supports the contention of the assessee that the assessee will be entitled for deduction u/s. 80HHC with respect to the face value of DEPB as contemplated by Hon‟ble Supreme Court in the case of Topman Exports(supra) as face value of DEPB is covered u/s 28(iiib) of the 1961 Act as „cash assistance‟ and the assessee shall be entitled for deduction u/s 80HHC read with first proviso to Section 80HHC(3).However, the assessee will be entitled for deduction u/s 80HHC on profits on sale of DEPB which is covered u/s 28(iiid) of the 1961 Act provided conditions as stipulated in third proviso to Section 80HHC(3) are met as it is admitted by the assessee that its turnover is more than Rs ten crores . our decision is in line with decision of Hon‟ble Supreme Court in the case of Topman Exports(supra) read in conjunction with provisions of Section 28(iiib), 28(iiid) and Section 80HHC of the 1961 Act . The AO shall allow relief to the assessee strictly in accordance with decision of Hon‟ble Supreme Court in the case of Topman Exports (supra) after considering assessee‟s factual matrix. We order accordingly.

5. The DR Bench, 6. Master File // Tue copy//