HINDUSTAN AERONAUTICS vs. ASSISTANT COMMISSIONER

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8TH DAY OF DECEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.479 OF 2016 BETWEEN: HINDUSTAN AERONAUTICS LIMITED NO.15/1, CUBBON ROAD BANGALORE-560001 REP. HEREIN BY ITS DIRECTOR FINANCE Mr. C.V. RAMANA RAO. .... APPELLANT (BY SRI. T. SURYANARAYANA., ADVOCATE) AND: 1. ASSISTANT COMMISSIONER

OF INCOME TAX

CIRCLE-3(1)(2) (ERSTWHILE DEPUTY

COMMISSIONER OF INCOME TAX-11(4)

ROOM NO.228, 2ND FLOOR, BMTC

BUILDING, KORAMANGALA 6TH BLOCK

BANGALORE-560095. 2. PRINCIPAL COMMISSIONER OF INCOME TAX-3

ROOM NO.518, 5TH FLOOR

BMTC BUILDING, KORAMANGALA 6TH BLOCK

BANGALORE-560095. ... RESPONDENTS (BY SRI. K.V. ARAVIND, ADVOCATE)

2 THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31.05.2016 PASSED IN ITA NO.561/BANG/2014 (ANNEXURE-C) FOR THE ASSESSMENT YEAR 2005-06, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (ii) ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE TRIBUNAL DATED 31-05-2016 PASSED IN ITA NO.561/BANG/2014 (ANNEXURE-C), TO THE EXTENT QUESTIONED HREIN AND (iii) PASS SUCH OTHER OR SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO PASS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN THE INTERESTS OF JUSTICE AND EQUITY. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the assessee. The subject matter of the appeal pertains to the Assessment Year 2005-06. The appeal was admitted by a Bench of this Court vide order dated 06.12.2017 on the following substantial questions of law: "Whether on the facts, in the circumstances and on the grounds and contentions urged:

3 1. The Tribunal, having set aside the reassessment order itself as being without jurisdiction, was justified in adjudicating on the merits and remanding the matter to the Assessing officer for computation of deduction under section 35(1)(iv) of the Act? 2. The Tribunal was right in holding that expenses to the extent of Rs.269,18,47,858/- incurred towards research and development is capital in nature? 3. The Tribunal was justified in not adjudicating on the correctness or otherwise of the disallowance made under Section 14A of the Act while computing the income under the normal provisions of the Act? 4. The Tribunal was correct in upholding the add back of the disallowance made under Section 14A of the Act, in computing the book profits under Section 115JB of the Act?"

4 2. Facts leading to filing of this appeal briefly stated are that the assessee is a public sector undertaking of the Government of India. The assessee filed its return of income for the Assessment Year 2005- 06. An original order of assessment was passed under Section 143(3) of the Act on 28.12.2007. Thereafter, the Assessing Officer passed an order of re-assessment under Section 148 of the Act on 29.01.2013 and reduced an amount of Rs.2,69,18,47,858/- from the deductible expenditure on the ground that the same was capital in nature. The disallowance under Section 14A of the Act of an amount of Rs.20,00,000/- also was made and the aforesaid amounts were added back in computing the book profits under Section 115JB of the Act. 3. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 10.01.2014, partly upheld the order of assessment. The assessee as well as the revenue preferred appeals before the Income Tax Appellate

5 Tribunal (hereinafter referred to as 'the Tribunal' for short). The Tribunal, by an order dated 31.05.2016, inter alia held that the order of re-assessment was bad in law. However, the Tribunal examined the issue on merits and gave the findings on merits. In the aforesaid factual background, the assessee has approached this Court. 4. Learned counsel for the assessee, while inviting the attention of this Court to the findings recorded by the Tribunal in paragraph 9 of its order, submitted that once the order of re-assessment was set aside, the Tribunal ought not have adjudicated the issues involved in the appeal on merits. It is further submitted that there was no need for remanding the matter to the Assessing Authority. It is also pointed out that the revenue has not challenged the findings recorded by the Tribunal in paragraph 9 of its order dated 31.05.2016 which has attained finality.

6 5. On the other hand, learned counsel for the revenue submitted that in view of the findings recorded in paragraph 9 of the order of the Tribunal, the findings recorded in subsequent paragraphs have been rendered academic and the order of remand passed by the Tribunal cannot be acted upon. 6. In view of the aforesaid submission, the first substantial question of law is answered in favour of the assessee and against the revenue. In view of our answer to the first substantial question of law, it is not necessary for us to answer the remaining substantial questions of law. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE RV