AGRIMA PROJECT ENGG AND CONSULTANCY SERVICES LTD Vs. INSPECTING ASSISTANT COMMISSIONER
LAWS(IT)-1989-1-17
INCOME TAX APPELLATE TRIBUNAL
Decided on January 27,1989

Appellant
VERSUS
Respondents

JUDGEMENT

S.P. Kapur, Judicial Member - (1.)THE assessment years involved in these appeals, which have been filed by the assessee, a resident company, are 1979-80, 1980-81 and 1982-83 with respective previous years having ended with 31st December 1978, 31st December 1979 and 31st December 1981. One of the common issues involved in all these appeals is the deduction claim of the assessee made under Section 80-O of the Income tax Act, 1961. Since learned first appellate authority has decided this issue by way of a common order made for the assessment years 1979-80 and 1980-81, we will first decide this issue for these two years and for the purpose we reproduce hereunder para 4 of the common impugned order, which reads as under:-
THE next ground of appeal is common for both the years and relates to disallowance of claim of deduction under Section 80-O of the I.T. Act at Rs. 50,04,887 and at Rs. 68,65,216 for the A. Yrs. 1979-80 & 1980-81 respectively for the reasons discussed in the assessment orders for the two years. In brief, it is the case of the I. A.C. (Asstt.) that for obtaining approval under Section 80-O of the I.T. Act from the C.B.D.T., the appellant company had not put forward true & correct facts before the C.B.D.T. or in any case had put forward incomplete facts before the C.B.D.T. particularly with reference to sub-contracting of certain jobs abroad. It is the view of the I. A.C. (Asstt.) that if true and correct facts were put forward before the C.B.D.T., either the appellant would not have got approval under Section 80-O of the I.T. Act or would have got approval with substantial modifications, under which the appellant company would not have been able to get 80-O relief with reference to sub-contracted jobs abroad, in relation to which the appellant company had made payments of almost 92 to 95% of gross receipt in foreign currency THE view of the I.A.C. (Asst.) prima facie appears to be correct. However, in terms of the directions of the C.I.T. (Appeals) in the appeal order for the A.Y. 1980-81, the I.A.C. (Asstt.) has already made a reference to the C.B.D.T. on the point under consideration and needless to say that the I.A.C. (Asstt.) shall be guided by the directions of the C.B.D.T. on the matter, not only for the A. Y. 1980-81, but also for the A.Y. 1979-80, where the facts and circumstances of the case are almost entirely the same as in the A.Y. 1980-81. While the disallowance made by the I. A.C. (Asstt.) on the point under consideration are upheld, the I.A.C. (AsstL) is directed to abide by the decision of the C.B.D.T. on the point under consideration and on receipt of the decision of the C.B.D.T. on the point under consideration, the I.A.C. (AsstL) is directed to take action under Section 154 of the I.T. Act, if need be.

From the above, the following reasoning emerges as that of the learned lower authorities:-

(i) That the assessee-company had not put forward true and correct facts before the Central Board of Direct Taxes or, in any case, had put forward incomplete facts, particularly with reference to sub-contracting of certain jobs abroad;

(ii) If true and correct facts were put forward before the Central Board of Direct Taxes by the assessee, either theassessee would not have got approval under Section 80-O of the Act or would have got approval with substantial modifications;

(iii) That in either case, the assessee-company would not have been able to get 80-O relief with reference to sub-contracted jobs abroad;

(iv) That the view of the I AC (Assessment) appears to be correct, since he had already made a reference to Central Board of Direct Taxes on the point under consideration and is to be guided by the directions of the Central Board of Direct Taxes.

In view of the above reasoning, the learned Commissioner of Income-tax (Appeals) in relation to assessment years 1979-80 and 1980-81 upheld the disallowance made by the IAC (Assessment) but at the same time directed him to abide by the decision of Central Board of Direct Taxes on the point under consideration and further to take recourse to Section 154 of the Act, if need be, and if and when the decision of the Central Board of Direct Taxes on the above point is available.

(2.)The assessee is aggrieved, hence agitates the same and. on behalf of the assessee Shri N.A. Palkhivala, the learned senior Advocate, appeared and addressed us at length on this aspect of the case." Contentions raised on behalf of the assessee can be summarised as under:-
(i) That on the basis of approval granted by the Central Board of Direct Taxes dated 4th April 1978 (assessee's paper book page 27), it cannot be said that either facts have been mis-stated or, else, incomplete facts have been given to the Central Board of Direct Taxes;

(ii) That Central Board of Direct Taxes' letter dated 19th August 1987 (assessee's paper book page 66) corroborates the assessee's stand that the approval of the Central Board of Direct Taxes was granted taking the facts in the correct perspectives and omission, if any, was a bona fide omission;

(iii) That the learned first appellate authority could not have upheld the Assessing Officer's view inasmuch as Central Board of Direct Taxes' letter dated 19th August 1987 (referred to above) proved the bona fides of the assessee and in this view of the matter the issue should have been decided on merits;

(iv) That 80-O deduction has to be in accordance with the law, viz. the provision as contained in the Income-tax Act, 1961 and the Central Board of Direct Taxes could not have excluded amounts paid to sub-contractors, since the C.B.D.T. has not appreciated the legal implications thereof;

(v) That the approval has to be in terms of the guidelines and provisions of the section, viz. 80-O and the assessee is entitled to relief on the gross amount;

(vi) That relief is to be allowed as the law stood, viz. Section 80-O for those assessment years;

(vii) That Sections 80AA and 80AB, though brought on the statute book by insertion by the Finance (No. 2) Act, 1980, Section 80AA was made retrospective in effect as from 1-4-1968 whereas Section 80AB was made to operate prospectively, i.e. from 1-4-1981 and in this view of the matter for deduction under Section 80M, Section 80AA is to be taken note of while for deductions under Section 80 as contained in Chapter VIA, Section 80AB is to be taken note of;

(viii) That the very fact that Finance (No. 2) Act, 1980 brought on the statute book the above two sections, viz. Sections 80AA and 80AB, since one is made retrospective in effect and the other prospective in effect, this shows the intention of the legislature and accordingly for working out the relief-deduction-under Section 80-O of the Act the gross amount has to be taken and not the net as can be the case while working out relief under Section 80M of the Act; and

(ix) That the Hon'ble Madras High Court in the case titled as CIT v. Madras Motor & General Insurance Co. Ltd. [1986] 159 ITR 601/29 Taxman 82 at page 615 has brought out the difference while quoting from the Finance Minister's speech that the law made, viz. Section 80AB was prospective and therein specific reference is made to Section 80-O of the Act

Concludirigly, Shri Palkhivala made the distinction between grant of deduction 80M and other sections under Section 80 series and said that deduction under Section 80M has to be dealt with on entirely different footing than deduction under Section 80-O of the Act

Shri S.P. Mehta, the learned authorised representative of the assessee, at this stage having taken over from Shri Palkhivala, addressed us on other aspects of the same facet of the case and his contentions can be summarised as under:-

(i) That for the assessment year 1979-80, at the assessment stage itself vide assess-mentorderdated 25-9-1982 (assessee's paper book pages 31 & 32) assesseewas allowed deduction under Section 80-O equal to gross receipts as per instructions of the IAC, so in second innings this could not have been disturbed. Clarifying his stand, Shri Mehta relied on order dated 14-2-1983 made by learned CIT (Appeals) whereby the assessment for this year was set aside with certain specific directions but since 80-O relief was not an issue before the learned CIT (Appeals), in the second round the Assessing Officer could not have denied, muchless disturbed, the relief granted at the time of original assessment.

On his part, Shri C.K. Vohra, learned Senior Departmental Representative, who had also addressed us at length made out the following points in support of revenue's case:-

(i) That the impugned order of learned first appellate authority merits no interference since 80-O deduction is to be allowed to the assessee in terms of the decision of the Central Board of Direct Taxes and this is what the learned Commissioner of Income-tax (Appeals) has directed the Assessing Officer to do as and when the said decision is available and then to invoke Section 154 of the Act for the purpose;

(ii) That the approval of the Central Board of Direct Taxes under Section 80-0 of the Act cannot be made a subject matter of appeal since no appeal is provided for the purpose;

(iii) That if the AAC/CIT(A) could not decide 80-O approval and directions of the Central Board of Direct Taxes, ipso facto, this issue cannot be before the IT AT since before the IT AT issues must arise from the orders of the learned lower authorities;

(iv) That 80-O deduction to the assessee has to be on net in view of the decision of the Hon'ble Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120/22 Taxman 49;

(v) That since the above decision of the Hon'ble Supreme Court is the last word on the issue, no further arguments are required to support the revenue's case;

(vi) That the learned first appellate authority having set aside the assessment in the first round of litigation on appeal by the assessee, the total subject matter of assessment is open before the Assessing Officer and the powers of the Assessing Officer on remand are vast enough to embrace in his powers the total subject matter of assessment, hence the Income-tax Officer had done the same and no interference on that issue is warranted either on facts or in law;

(vii) That on remand the powers of the ITO remain the same as are with him at the time of original assessment, viz. under Section 143(3) of the Act. For this proposition, J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. CIT [1963] 47 ITR 906 (All.), Abhai Ram Gopi Nath v. CIT [1971] 79 ITR 339 (All.), CIT v. Seth Manicklal Fomra [1975] 99 ITR 470 (Mad.),122 ITR 502 (Mad.) (sic) and K.P. Moideenkutty v. CIT [1981] 131 ITR 356 (Ker.) were pressed into service;

(viii) That for the proposition that issue must arise from the order of the learned lower authorities, so that the ITAT gets power to adjudicate upon it, viz. 80-O approval, Supreme Court case in Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 is relied upon; and

(ix) For the proposition that 80-O deduction is relatable to net, decision of the Delhi High Court as stands in CIT v. Marketing Research Corpn. is relied upon apart from the decision of the Hyderabad Bench of the ITATas stands in CIT v. Dredging Corpn. of India Ltd. [1987] 27 TTJ (Hyd.) 226.

Concludingly, ShriVohra while supporting the impugned orders, made a forceful plea that the Central Board of Direct Taxes is the final authority to approve 80-O deduction and its action could not be called upon in an appeal by the assessee before the IT AT since remedy lies elsewhere and not before this forum. He also forcefully contended that issue must arise from the order of the learned first appellate authority so that ITAT gets the jurisdiction to decide it Further that on remand the Assessing Officer's power remains the same as in the original innings and also that the 80-O deduction is a concluded issue in view of the Supreme Court decision.

As regards the reasoning of the learned Commissioner of Income-tax (Appeals) that the assessee has not put forward true and correct facts before the Central Board of Direct Taxes or in any case had put forward incomplete facts and in case true and correct facts were put forward, either the assessee would not have got approval under Section 80-O of the Act or would have got approval with substantial modifications resulting in no relief with reference to sub-contractors'jobs abroad, page 66 ofassessee's paper book, which is a letter from the Central Board of Direct Taxes and reads as under is the answer:-

'F. No. 473/221/85-FTD Government of India Ministry of Finance Department of Revenue Foreign Tax Division Central Board of Direct Taxes, New Delhi, the 19th August, 1987.

JUDGEMENT_10929_TLIT0_19890.htm

Sub: M/s. Agrima Project Engineering Consultancy Services, Bombay -Petition dated 24-9-1985 under Section 80-0 of the Income-tax Agreement dated 15-7-76 with South Nyanza Sugar Company Ltd., Kenya.

Kindly refer to your letter No. BCTI/80-O(2)/86 dated 26-5-87 on the above subject.

(2) After due consideration, the Board has taken the view that the non-disclosure of the appointment of the third sub-contractor during the hearing of the case before the Board for grant of approval under Section 80-0, is a case of bona fide ommission. This is so because even if this fact was disclosed, the Board's order of approval dated 4 April 1978 would have been right. Only the directions that a part of the fees for which services were sub-contracted to the two Indian concerns would not be eligible for deduction under Section 80-O, would have been modified to include the fees paid to the third sub-contractor also. It is also on record that other than the services rendered by the sub-contractors the assessee has also rendered qualifying services, payment for which was eligible for deduction under Section 80-O. As already mentioned in the letter of approval dated 4 April 1978, the amount eligible for deduction will be determined by the Income-tax Officer at the time of assessment who would satisfy himself that other conditions laid down in the Act in this behalf are also fully satisfied.

(3) The Board also agrees that your interpretation of the provisions of Section 80-HHB of the Income-tax Act is right as of now, but the agreement in question relates to the period when Section 80-HHB was not in statute.

(4) This issues with the approval of member (R&A).

JUDGEMENT_10929_TLIT0_19891.htm (Emphasis supplied)

The above speaks volume for the assessee and the reasoning of learned first appellate authority becomes misconceived in entirety and we will leave it at that.

(3.)AS regards the other issue, viz. whether once at the original stage deduction under Section 80-O having been allowed to the assessee equal to gross receipts as per instructions of the Inspecting ASsistant Commissioner, the ASsessing Officer could have again adjudicated upon the said issue, we will reproduce hereunder the operative part of order dated 14-2-1983 made by learned Commissioner of Income-tax (Appeals)-XVI, Bombay, made for the assessment year 1979-80 on appeal by this very assessee in appeal file No. CIT(A)XVI/CCIII/191/82-83:-
The basic facts have been discussed by me in appeal No. C.I.T. (A) XVI/CCIII/52/ 80-81 dated the 14-2-1983.

(2) Though there are other grounds of appeal involved in this case, the basic dispute is with regard to the weighted deduction under Section 35B of the I.T. Act as held by me in my order for assessment year 1977-78. The I.T.O. has allowed the appellant's claim under Section 35 without considering the various aspects involved in the claim.

(3) The assessment is therefore being set aside with the same directions. At the time of completing the assessment the I.T.O. may examine in detail the various items regarding renovation expenses and the assessee's explanation regarding addition to the value of closing stock.

(4) The appeal is treated to be allowed for statistical purpose.

Since in the above order, the learned Commissioner of Income-tax (Appeals) has, 'set aside with the same directions', the assessment for this year, it stands to reason to reproduce his order made in the case of the assessee for the assessment year 1977-78 also. This is required to appreciate the terms of remand. The said order is dated 14-2-1983 and has been made by the same learned CIT (Appeals) and is to the following effect:-

The appellant is a domestic company engaged in the business of rendering engineering consultancy services and executing turnkey jobs for customers outside India. It claimed weighted deduction under Section 35B in respect of expenses incurred by it for export of services outside India. The claim of the appellant was that it was a hundred per cent exporting company and that it should be allowed weighted deduction under Section 35B at 33 1/3% of the aggregate expenses i.e. Rs. 2,14,197. The I.T.O. allowed the weighted deduction in accordance with the decision of the I.T.A.T. in the case of J. Hemchand and Co. He did not allow any weighted deduction on rent and Electricity, Postage & Telegram Contribution to P.F. and Superannuation Fund, Advertisements, travelling and conveyance and interest etc. The total claim allowed by him amounted to Rs. 89,779.

(2) The counsel for the appellant submitted that the I.T.O. should have considered the case of the appellant on the basis of the fact that it was a hundred per cent Export Oriented Company. It was also submitted that the I.T.O. failed to see that the case was different from the case of J. Hemchand & Co., and as such the proportion adopted in that case should not have been adopted here.

The I.T.O. has discussed the point regarding the allowance of deduction under Section 35B in Sub-section (v) of Para 2. He has only mentioned that the decision of the Tribunal in the case of J. Hemchand & Co. had adopted different norms for weighted deduction. He has not discussed the facts of the case whatsoever. It is notable that the appellant company is hundred per cent export-oriented company and the claim of the company for weighted deduction should have been taken into consideration only after examining this particular aspect in detail. This has not been done. AS such, in fairness the assessment has to be set aside with the direction to the I.T.O. to pass a fresh assessment order after taking the following facts into consideration.

(1) Whether the claim of the appellant that it is a hundred per cent Export Oriented Company is correct

(2) Whether the weighted deduction claimed by the appellant on various items not covered by the decision of J. Hemchand has been decided by other decisions of the Tribunal in different cases.

The appeal is treated to be allowed for statistical purposes.



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