2020 (3) TMI 793 - HC - Income Tax

Claim for deduction u/s 10B - 100% EOU - Deduction was neither claimed in the original ITR or revised ITR but claimed first time during the assessment proceedings - earlier assessee was claiming deduction u/s 80HHC for 10 years - Whether the amendment to Section 80A(5) by the Finance (No.2) Act, 2009 with retrospective effect from 1st April 2003 should be interpreted so as prospective? - HELD TAT - Appellate Authorities have the power to consider the claim for deduction in terms of Section 10B is not to be construed as some observations in the context of the provisions of Section 80A(5) - All that we have said is that generally, the Appellate Authorities may not be justified in refusing to even consider the assessee's claim for deduction on the ground that such claim was not made in the original returns or the revised returns filed before the AO. If any contention based upon the provisions of Section 80A(5) of the IT Act is raised by the Revenue, then, obviously, such contention will have to be considered by the Appellate Authority in accordance with law. Appellant-assessee will have the liberty to meet such contentions, including by way of urging the very grounds raised in the present Appeal on the aspect of prospectivity etc. We, therefore, clarify that we leave all such issues open for the decision of the Commissioner of Income Tax (Appeals) and thereafter, if the need be, the ITAT. Accordingly, we answer the first substantial question of law against the appellant and in favour of the respondent-Revenue. We answer the second and the third substantial questions of law in favour of the appellant-assessee and against the respondent- Revenue. However, for reasons indicated earlier, we refrain from answering the fourth substantial question of law, leaving the same open for the present. We set aside the judgments and orders dated 31.03.2010 and 10.03.2011, made by the Commissioner of Income Tax (Appeals) and the ITAT respectively, insofar as they concern the issue of deductions under Section 10B of the IT Act and we restore the appellant-assessee's Appeal bearing ITA No. 158/PNJ/08-09 to the file of the Commissioner of Income Tax (Appeals) for fresh adjudication on the issue of deductions under Section 10B of the IT Act, in accordance with law and on its own merits. We request the Commissioner of Income Tax (Appeals) to dispose off the Appeal, which we have now restored to its file, as expeditiously as possible and in any case, within a period of four months from the date the parties appear and file the authenticated copy of this judgment and order. We direct the parties to appear before the Commissioner of Income Tax (Appeals) on 07.04.2020 at 11 00 a.m. and file authenticated copy of this judgment and order.

Summary

Issues:
1. Whether the Assessing Officer is duty-bound to consider a claim for deduction under Section 10B of the Income Tax Act made during assessment proceedings?
2. Whether the Commissioner of Income Tax (Appeals) should have entertained the claim for deduction under Section 10B even if not supported by revised returns?
3. Whether the Tribunal should have entertained the claim for deduction under Section 10B when all necessary facts were on record?
4. How should sub-Section (5) of Section 80A of the Act, inserted with retrospective effect, be interpreted regarding prospective effect and existing vested rights?

Analysis:

Issue 1:
The appellant inadvertently omitted to claim deduction under Section 10B for two Export Oriented Undertakings during the assessment year 2005-06. The Assessing Officer refused to consider the claim as it was not raised in the revised returns. The Commissioner of Income Tax (Appeals) and the ITAT upheld this decision based on the principle that claims made after filing returns cannot be entertained.

Issue 2:
The High Court found that the Appellate Authorities erred in relying on previous decisions and not considering the appellant's claim for deduction under Section 10B. They cited a previous case, Commissioner of Income Tax Vs. Pruthvi Brokers & Shareholders P. Ltd., to establish that the Appellate Authorities have the power to permit deductions even if not supported by revised returns.

Issue 3:
The High Court ruled in favor of the appellant, stating that the Commissioner of Income Tax (Appeals) and the ITAT should have considered the claim for deduction under Section 10B. They highlighted the wide powers of the Appellate Authorities in tax appeals to ascertain the correct tax liability of the assessee in accordance with the law.

Issue 4:
Regarding the interpretation of sub-Section (5) of Section 80A of the Act, the High Court clarified that this issue was not required to be decided at that stage. They emphasized that the Commissioner of Income Tax (Appeals) has the authority to consider claims for deduction under Section 10B, leaving the interpretation of Section 80A(5) for future consideration. The High Court set aside previous judgments and restored the appeal to the Commissioner of Income Tax (Appeals) for fresh adjudication on the deductions under Section 10B, directing expedited resolution within four months.