2009 (9) TMI 614 - AT - Income Tax

Additional Ground - It is well-known that there is no prescribed proforma to raise an additional ground. There is no specific procedure to be followed to raise an additional ground. What all is required is that the appellant needs to take leave of the Tribunal before raising additional ground and the Tribunal needs to give an opportunity of being heard to the affected party. Even oral plea can also be made for raising an additional ground and the Tribunal may, in appropriate cases consider such oral pleas. In the present case, there is a written petition which clearly signifies the cry of the petitioner from the rooftop to admit additional ground. The learned JM has altogether ignored this cry by not referring to p. 1 of the petition in his order and which the learned AM has referred to in his order. Moreover, the ground sought to be raised is not altogether a new ground but it arises from the order of the CIT(A). It also does not require any fresh investigation into the facts of the case. It is clearly a legal ground which the learned AM has rightly admitted. Mentioning of wrong income-tax appeal number on the petition is also not fatal to the admission of the additional ground. Disallowance of gross interest received from banks on deposits for securing export credit facilities - assessee made deposits in compliance of a direction issued by the banker who has extended credit facilities to them and in respect of deposits interest income was earned - appellant challenges the levy of interest under s. 234B in respect of the computation of deduction under s. 80HHC, by setting off the loss against export incentive, as per proviso to s. 80HHC(3) with retrospective effect from 1st April, 1992, since the law fastens an additional tax liability, which was not comprehended at the time of filing of the returns of income. - additional ground raised in view of the decision of the Hon ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT - Bench did hear the parties on the merits of the issue, it was subject to the admission of additional ground - before granting relief, decision on the admission of additional ground was necessary - now restored back to the regular Bench to give effect to the majority opinion - to decide the issue relating to levy of interest under s. 234D on merits

Summary

Issues Involved:
1. Disallowance of gross interest received from banks for computing deduction under Section 80HHC.
2. Levy of interest under Sections 234B and 234C.
3. Admission of additional ground regarding levy of interest under Section 234D.

Issue-wise Detailed Analysis:

1. Disallowance of Gross Interest Received from Banks for Deduction under Section 80HHC:
The assessee contested the disallowance of gross interest received from banks on deposits for securing export credit facilities from the purview of 'profits of business' for computing deduction under Section 80HHC of the IT Act, 1961. The Assessing Officer (AO) treated the entire interest income as "income from other sources" and did not allow the deduction. The CIT(A) upheld this view, citing various case laws, including Tuticorin Alkali Chemicals & Fertilizers Ltd. vs. CIT and CIT vs. Sterling Foods. The ITAT concurred with the CIT(A), finding the reasoning sound and convincing, and dismissed this ground of appeal.

2. Levy of Interest under Sections 234B and 234C:
The assessee argued that interest under Sections 234B and 234C should not be levied as their income, if netting of interest is permitted, is totally exempt under Section 80HHC. Additionally, the assessee claimed that tax had been deducted at source, negating the liability to pay advance tax. The CIT(A) dismissed this plea. The ITAT noted that the assessee cited a Tribunal decision in a similar case (Well Knit Industries Ltd.), but did not provide a copy of the decision. Consequently, the ITAT set aside the order on this point and remanded it back to the AO for fresh consideration, directing the AO to consider any such decision provided by the assessee.

3. Admission of Additional Ground Regarding Levy of Interest under Section 234D:
The assessee filed a petition for admission of an additional ground concerning the levy of interest under Section 234D. However, the petition had a blank space where the additional ground should have been specified, and the appeal number was incorrectly mentioned. The JM initially ignored this petition due to these technical deficiencies. The AM, however, argued that the Tribunal should focus on substantial justice over procedural technicalities, citing the Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT. The AM admitted the additional ground, noting that the issue of interest under Section 234D is a legal issue and supported by the Special Bench decision in ITO vs. Ekta Promoters (P) Ltd.

Reference to Third Member:
Due to differing opinions between the JM and AM, the matter was referred to a Third Member. The Third Member agreed with the AM that the additional ground should be admitted despite the technical deficiencies in the petition. The Third Member emphasized that Tribunal procedures should be simple and not overly legalistic, supporting substantial justice. However, the Third Member concurred with the JM that the issue on merits should be decided by the Bench, not by a single Member.

Final Outcome:
The matter was restored to the regular Bench to give effect to the majority opinion regarding the admission of the additional ground and to decide the issue of levy of interest under Section 234D on merits. The appeal of the assessee was partly accepted for statistical purposes.