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Torsion Products Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1983)6ITD494(Hyd.)
AppellantTorsion Products Ltd.
Respondentincome-tax Officer
Excerpt:
.....year 1973-74. he elaborated his arguments by saying that the assessment year 1973-74 is a loss year. 80j relief relating to the previous years cannot be adjusted in that year and so the quantification of unadjusted 80j relief for 1968-69 to 1972-73 cannot be of any significance and the ito's working of section 80j relief for those years can be ignored as quite irrelevant for decision on points in issue in the assessment year 1973-74. it is further argued that the quantification of unadjusted 80j relief should be made only in the year of profit and, hence, request for such quantification can be legitimately made during the assessment year under consideration, viz., 1975-76 which is the first year of profit. so the learned counsel requested to ignore the quantification done under.....
Judgment:
1. This is an appeal preferred by the assessee. Hitherto the accepted position has been that since Section 80J of the Income-tax Act, 1961 ('the Act') is intended to provide incentive to industry by means of relief from tax and provision is also made for carry forward for seven years, the deduction is permissible even though no formal claim was put forward on the ground that loss had been sustained and there was no profit or gain against which the deduction could be adjusted. Now the position canvassed in this appeal is that even though quantification of 80J relief was made by the ITO in a year of loss, such quantification does not bind the assessee when it comes to a question of adjustment in the first year in which there are profits derived by the assessee-company. The facts are few and they can be summarised as under.

2. The assessee is a company in which public is substantially interested. It manufactures leaf springs. We are concerned with the assessment year 1975-76 for which the previous year is the financial year ending with 31-3-1975. It may be mentioned that it is the first year, after the assessee started its business, in which profits were earned. The original income-tax return was filed on 5-8-1975 returning an income of Rs. 31,83,270 out of which claim for set off for carried forward losses was made. However, a revised return dated 22-9-1976, disclosed an income of Rs. 31,16,255 out of which similar claim for set off and carry forward losses was made. 3. The following facts are undisputed and are admitted by both the sides. The assessee started production or manufacture from the previous year relevant to the assessment year 1968-69. During the assessment years 1968-69 to 1972-73, 80J relief was never quantified as they were all the years in which the assessee incurred losses. However, during the assessment year 1973-74, which also was a year in which losses were incurred by the assessee, in the first, instance, the assessment was finalised without 80J relief relating to the assessment years 1968-69 to 1972-73 being quantified. The assessee went in appeal before the AAC against the said assessment. One of the grounds taken before the AAC was that non-quantification of 80J relief relating to the previous assessment years, namely, 1968-69 to 1972-73 was wrong. This ground was allowed and the AAC directed the ITO to quantify 80J relief to which the assessee is entitled to for the assessment years 1968-69 to 1972-73 and ordered it to carry forward for adjustment in a permissible future assessment year in which it can be adjusted. The abovesaid appellate order of the AAC relating to the assessment year 1973-74 became final.

Thereupon, the ITO passed follow-up orders dated 28-2-1978 and quantified 80J relief, by which the assessee is entitled to carry forward, and adjusted as follows : Unadjusted 80 J relief (Rs.)1968-69 73,0121969-70 7,7341970-71 2,5611971-72 Nil1972-73 Nil1973-74 Nil1974-75 Total 83,307 No appeal was preferred against the abovesaid ITO's order, dated 27-2-1978, made as part of the assessment order relating to the assessment year 1973-74.

4. As already stated, the assessment year 1975-76, for which the accounting period was from 1-4-1974 to 31-3-1975, is the first year in which profits were earned by the assessee-company and it was the last year in which the unadjusted 80J relief can be carried forward and adjusted. On behalf of the assessee, its learned counsel Mr.

Swaminathan contended that the quantification of unadjusted 80J relief made by the ITO by his orders dated 27-2-1978 does not bind the assessee or does not operate as res judicata or estoppel against the assessee, as such quantification of the relief was really not necessary for the purpose of framing or finalising the assessment order for the assessment year 1973-74. He elaborated his arguments by saying that the assessment year 1973-74 is a loss year. 80J relief relating to the previous years cannot be adjusted in that year and so the quantification of unadjusted 80J relief for 1968-69 to 1972-73 cannot be of any significance and the ITO's working of Section 80J relief for those years can be ignored as quite irrelevant for decision on points in issue in the assessment year 1973-74. It is further argued that the quantification of unadjusted 80J relief should be made only in the year of profit and, hence, request for such quantification can be legitimately made during the assessment year under consideration, viz., 1975-76 which is the first year of profit. So the learned counsel requested to ignore the quantification done under the orders of the ITO dated 27-2-1978 and direct fresh quantification in view of the ratio of the decision reported in Century Enka Ltd. v. ITO [1977] 107 1TR 909 (Cal.), etc. The very same contention was raised before the Commissioner (Appeals). Repelling the contention he held as follows : In pursuance of this direction given by the Appellate Assistant Commissioner of Income-tax, the Income-tax Officer passed a modification order on 27-2-1978 and computed the relief allowable to the appellant under Section 80J for the assessment years 1968-69, 1969-70 and 1970-71 at Rs. 73,012, Rs. 7,734 and Rs. 2,561. For the next two years the relief allowable to the appellant was computed at nil. Without objecting to the Appellate Assistant Commissioner's order for 1973-74 or to the modification order dated 27-2-1978, by which quantification of 80J was made and carried forward, the appellant cannot agitate in this appeal the quantum of 80J relief to be adjusted with the current year's profits. In the circumstances, the present claim of the appellant for reworking the relief allowable for the earlier years on the basis of a subsequent decision of the Calcutta High Court cannot be entertained. This contention of the appellant is rejected.

5. The legality of the above view of the learned Commissioner (Appeals) is now sought to be challenged in the second appeal. We have heard Sri Swaminathan, the learned counsel for the assessee, and Sri V.R. Rao, the learned departmental representative. Firstly, it is argued that admittedly the assessee-company began manufacturing in the assessment year 1968-69 and, hence, it is entitled to 80J relief for the assessment years 1968-69 to 1972-73 and the said 80J relief is entitled to be carried forward and adjusted up to the assessment year 1975-76 as it would be 7th assessment year reckoned from the end of the initial assessment year. Admittedly, none of the prior assessment years up to 1972-73 were years in which the assessee-company earned profits and gains from out of its business. During the assessment year 1973-74, no profits were obtained by the assessee-company and so 80J relief for the previous years cannot be carried forward and adjusted during the assessment of that year. In an assessment in which loss was incurred or the returned income was only a loss, no useful purpose would be served if relief was quantified. The unadjusted 80J relief can validly or usefully be quantified only in the year in which profits were earned by the assessee-company and for this proposition, the learned counsel brought to our notice three decisions. The first of the decisions cited before us was rendered by the Allahabad High Court in the case of Addl.

CIT v. Sheetalaya [1979] 117 ITR 658. The following is laid down in the said decision as per the head note : . . . There is no requirement in any part of Section 80J that the assessee must make a definite claim and the ITO must determine the amount of deduction before it can be carried forward in a case, where, admittedly, the undertaking had suffered a loss which had been accepted while making the assessment. Since the provision is intended to provide incentive to industry by means of relief from tax and provision is also made for carry forward for seven years, the deduction is permissible even in a case where the formality of making a claim has not been complied with by the assessee in the first or the relevant assessment year in which, admittedly, loss had been sustained and there was no profit or gain against which the deduction could be adjusted. . .

6. From the above, it would be clear that in the assessment year in which the loss was incurred by an assessee-company, there is no necessity of either claiming 80J relief or getting it quantified for purposes of carrying forward and adjustment. The second decision laying down the law to the same effect is rendered by the Calcutta High Court in the case of Indian Aluminium Co. Ltd. v. CIT [1980] 122 ITR 660. The brief facts of the case and the decision rendered thereon as can be seen from part of head note of that decision are as follows : The assessee had completed erecting its aluminium foil plant at Kalwa in 1965 and as it did not earn any profit up to 1968, the assessee did not make any claim for relief under Section 80J but details of the earning of this unit in those years were filed before the ITO for the purpose of exemption under section 197(3). For the assessment year 1970-71 (which was its fifth year of operation), the assessee claimed relief under Section 80J and also claimed carry forward of deficiency of earlier years. This claim was sought by the revenue to be rejected on the ground that the deficiency for the earlier years had not been determined. The Tribunal allowed the claim of the assessee. On a reference : Held, affirming the decision of the Tribunal, that when Section 80J of the I.T. Act, 1961, came into force with effect from April 1, 1968, it gave retrospective benefit to assessees whereby they could carry forward their deficiency in a newly established industrial undertaking with effect from the assessment year 1967-68. In such case, there could not have been any prior determination or claim for carry forward of deficiency. Section 80J(3) did not provide that in respect of assessment years subsequent to April 1, 1968, the assessee was required to have its deficiency in every year determined so that it could be carried forward. Nor was there any procedure laid down in the Rules for prior determination of such deficiency and the income-tax return forms did not have any column for making such a claim.

The 3rd decision holding the same line of reasoning as adopted by the Allahabad High Court in the first mentioned decision, is the Madras High Court's decision in CIT v. Bluemount Ceramics Ltd. [1980] 123 ITR Held, unlike section 34(1), there was no statutory obligation on the part of the assessee under Section 80J to furnish the necessary particulars for claiming relief under that section in the initial year in which the industrial undertaking was set up. Similarly, unlike Section 80, there was no statutory requirement that unless there was determination of Section 80J relief, it could not be carried forward in the subsequent assessment years. Accordingly, the deduction was permissible even in a case where the claim had not been made in a preceding assessment year in which loss had been sustained, but was made in a subsequent year when profits were made against which the deduction could be adjusted. As in the instant case, the working for the previous year was a loss and there was profit only in 1972-73 enabling adjustment of the relief, the Tribunal was right in its conclusion that the relief should be granted in 1972-73.

Thus, when it was the law that there was no obligation on the part of the assessee either to claim the relief or to get it quantified in a year of loss then even if such a quantification was made by the ITO in a year of loss, it is a futile exercise. Such determination cannot be said to be essential for purposes of finalising the assessment for that year and, hence, the finding relating to the quantum of 80J relief in such circumstances cannot bind the assessee in the year of profit. In order to buttress this argument, the learned counsel invited our attention to the decision of the Hon'ble Supreme Court in CIT v.Manmohan Das [1966] 59 ITR 699. In that case, while determining the loss incurred by the assessee for the assessment year 1950-51, the ITO who framed the assessment, observed that the loss of that year cannot be carried forward to the subsequent year of profit and it cannot be set off against the profits of that year. Despite the said observation, the assessee put forward the claim to carry forward and set off loss, in a year of profit, namely, 1951-52. The question was whether the observation of the ITO relating to the assessment year 1950-51 can bind the assessee. The pointed question referred to the High Court is as follows : Whether the assessee could claim a set-off of the loss suffered by him in the preceding year 1950-51 against his profits in the year under consideration, i.e., 1951-52, having failed to prefer an appeal against the refusal by the Income-tax Officer making the assessment for the year 1950-51 to allow the assessee to carry forward the loss under Section 24(2) of the Act ?" (p. 702) Ultimately, the Supreme Court answered the above question as follows : . . .Whether the loss of profits or gains in any year may be carried forward to the following year and set off against the profits and gains of the same business, profession or vocation under Section 24(2) has to be determined by the Income-tax Officer who deals with the assessment of the subsequent year. It is for the Income-tax Officer dealing with the assessment in the subsequent year to determine whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the Income-tax Officer who computes the loss in the previous year under Section 24(3) that the loss cannot be set off against the income of the subsequent year is not binding on the assessee.

It is argued before as that what was said by the Hon'ble Supreme Court about the losses, equally holds good while we are considering Section 80J relief when especially, there was no obligation on the part of the assessee either to claim the relief under Section 80J or to get it quantified in a year of loss and the whole quantification of relief can validly be got done in the year of profit. Based on the above decision, it is argued that the quantification of 80J relief by the ITO in his orders dated 27-2-1978 is not binding on the assessee and does not stop the assessee to put forward a higher claim than what was determined under that order in the year of profit, even though the assessee did not file an appeal against the orders dated 27-2-1978 or failed to get it cancelled by the higher Tribunal. As against the said arguments advanced on behalf of the assessee, the learned departmental representative relied upon the orders of the lower authorities and ascertained that when once the assessee himself invited a decision over quantification of 80J relief, he cannot be allowed to go back simply because an inconvenient order was obtained by him at the hands of the ITO. The general principles of res judicata, that no matter should be allowed to be agitated twice, should be applied and it should be held that because the assessee did not assail the orders of the ITO dated 27-2-1978 in appeal and did not get them cancelled and inasmuch as it allowed them to become final, the assessee must be held to be fully bound by those orders and, hence, the orders of the lower authorities are perfectly justified and the assessee should not be given any chance to enhance the relief under Section 80J.7. Thus, we heard the arguments advanced on both the sides fully and completely. We are inclined to agree with all the submissions made on behalf of the assessee by its learned counsel, Shri M. Swaminathan, as each one of his contentions are supported by the authorities already noted in this order.

8. The order of modification passed by the ITO dated 27-2-1978 purported to give effect to the directions of the AAC in relation to the assessment year 1973-74. The assessment year 1973-74 was admittedly a loss year. The question of set off of any unabsorbed relief under Section 80J relating to the assessment years 1968-69 to 1972-73 in the assessment year 1973-74 could not, therefore, arise. In the majority judgment in ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335, the Supreme Court has observed as follows : . . .Section 31 prescribes the mode of disposal by an Appellate Assistant Commissioner of an appeal preferred to him : the appeal before him is certainly confined to an assessment year ; after hearing the appeal, he can either confirm, reduce, enhance or annul the assessment ; he can set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The various sub-sections of that section describe in detail the orders or directions that can be made or issued by him in respect of various matters ; but no power is conferred on him to make an order or issue directions in respect of an assessment of a year which was not the subject-matter of the appeal. It may, therefore, be held, on a construction of the provisions of section 31, that the jurisdiction of the Appellate Assistant Commissioner is strictly confined to the assessment orders of a particular year under appeal. . .

The directions given by the A AC, since 1973-74 was a loss year, for computing 80J relief due in the earlier assessment year was clearly a finding extraneous to the subject-matter of the appeal before him and being beyond his jurisdiction is non est in law. Therefore, though the assessee did not challenge the computation of relief made in the follow-up order of 27-2-1978, such computation being in consonance of directions which were themselves non est in law and are also, therefore, non est (as contradistinct with the erroneous findings within validly exercised jurisdiction), the assessee does not stand precluded from seeking for a correct computation of the relief under Section 80J for each of the assessment years 1968-69 to 1972-73 in 1975-76 which is the first year of profit in which alone such computation becomes germane.

9. Viewed from another angle also the assessee is not shut out. Courts have held that an order giving effect to an appellate order is also an order under section 143(3) of the Act. Therefore, the order of 27-2-1978 has the status of an assessment order for 1973-74. If there is an error in an assessment order, normally it can be modified only by way of appeal, etc. The quantum determined by the 1TO was one in the assessment and was not a quantum determined by the AAC. The ratio of the judgment of the Supreme Court in the case of Manmohan Das {supra) is authority for the proposition that a finding in an assessment order in an assessment year, relating to the carry forward of loss is not finding on the assessee in the year when set off of loss is to be considered. Whether such finding is given when the ITO makes the assessment originally or he gives a finding in the assessment pursuant to the order of the AAC (where the AAC has himself not fixed the quantum), the finding is the one in assessment by the ITO. The finding by the ITO in the order of 27-2-1978 for the 1973-74 assessment year regarding 80J relief for earlier years, being a finding in the assessment for that year, will not be binding on the assessee in the assessment year 1975-76 where alone the question of set off arises for the first time. Under the circumstances, we hold that the assessee is not bound by the orders of quantification of 80J relief made by the ITO under his orders dated 27-2-1978 passed in the assessment for the year 1973-74. We further hold that from the end of the initial assessment year of 1968-69, the assessment year 1975-76 is the 7th assessment year and, hence, the unadjusted 80J relief can be quantified and adjusted from the profits of that year.

10. Now regarding quantification of 80J relief for the assessment years 1968-69 to 1972-73, the learned counsel, Sri Swaminathan, submits that the quantification should be made afresh in the light of the decisions of the Calcutta High Court in Century Enka Ltd.'s case {supra). That means he submits that the liabilities incurred by the assessee-company should not be excluded while computing the capital base. Incidentally, he argues that Rule 19A of the Income-tax Rules, 1962, should be held to be derogatory to Section 80J and, hence, it should be disregarded.

The plea of the assessee is also found to be in conformity with the ratio of the judgment of the Andhra Pradesh High Court in the later case of Warner Hindustan Ltd. v. ITO [1982] 134 ITR 158. As against this, the learned departmental representative submitted that Sub-section (1A) was inserted in Section 80J under the provisions of the Finance (No. 2) Act, 1980, with retrospective effect from 1 -4-1972. Even under those amended provisions, the liabilities and debts incurred by the assessee-company should be duly taken into consideration while computing the capital base and so, following the Kerala High Court's decision in the case of Traco Cable Co. Ltd. v. C1T [1982] 138 ITR 385, and the Madhya Pradesh High Court's decision in the case of CIT v. K.N. Oil Industries [1982] 134 ITR 651, it should be held that there is no room for the assessee to make any inflated claim under Section 80J and it should also be held that over and above the quantification made by the ITO under his orders dated 27-2-1978, the assessee is not entitled to any higher relief. We heard these contentions.

11. It is brought to our notice by the assessee's counsel that the retrospective amendment inserting Sub-section (1A) in section 80J is not under challenge before the Supreme Court which also granted stay in several cases. In all such cases, we have been taking the course which has been approved by the Gujarat High Court, viz., to set aside the order of the first appellate authority and restore the matter to his file for a fresh decision regarding unadjusted 80J relief for the assessment years 1968-69 to 1972-73 in accordance with the pronouncement which the Supreme Court may render in the matter. The decision of the Gujarat High Court which we followed in this context is the one rendered in CIT v. Suat District Cooperative Milk Producers Union Ltd. [IT Application No. 81 of 1982, dated 28-3-1983].


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