FCI Technologies Services Limited v. The Assistant Commissioner of Income Tax Circle 1(2), Ernakulam

_**"C.R."**_ **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **WEDNESDAY,THE 14TH DAY OF NOVEMBER 2018 / 23RD KARTHIKA, 1940** **ITA.No. 358 of 2010** **AGAINST THE ORDER/JUDGMENT IN ITA 616/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 04-06-2010** ## **APPELLANT/S:** **M/S FCI TECHNOLOGIES SERVICES LIMITED XXIX/2087,VYTTILA, THYKOODAM, COCHIN-19** **BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH** ## **RESPONDENT/S:** **THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(2), ERNAKULAM.** **SRI PKR MENON SR FOR GOI TAXES** ## **OTHER PRESENT:** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** _ITA 358/2010_ 2 _**"C.R."**_ ## **JUDGMENT** ## Vinod Chandran, J. We are again concerned with the question as to whether a claim raised for the first time before the Appellate Authority, which claim was not available in the return filed before the Assessing Officer, nor a revised return within the time stipulated; could be considered in appeal. 2. The learned Counsel for the asseessee has placed before us the decisions of the Hon'ble Supreme Court in _**Kedarnath Jute Mfg.Co.Ltd. v. C.I.T., (1971) 82 ITR 363 (SC), Addl.C.I.T v. Gurjargravures Private Ltd., [1978] 111**_ _**ITR 1 (SC), NTPC Ltd. Vs C.I.T, [1998] 229 ITR 383**_ and _**Goetze (India) Ltd. v. C.I.T, [2006] 284 ITR 323 (SC)**_ . Before we look at the decisions, on facts it has to be stated that the here the assessee, who is the appellant, had filed a return and being a firm engaged in the development of software, claimed exemption under Section 10A of the Income Tax Act, 1961 (for short “the Act”). The _ITA 358/2010_ 3 exemption was declined and a first appeal was filed as against the claim being disallowed. In the first appeal, a further contention was taken that the lease rent paid by the assessee with respect to certain equipment was not claimed as expenditure. A claim for allowance of business expenditure to the extent of the lease rent paid was made before the First Appellate Authority. The First Appellate Authority and the Tribunal declined to consider the same relying on the decision in _**Goetze (India) Ltd**_ . The learned Counsel also places reliance on the judgment dated 30.05.2018 of this Court in _**ITA No.96/2010 (C.I.T v. M/s Malayala Manorama Co.Ltd.**_ ) 3. _**Kedarnath**_ is relied on to contend that the assessee's entitlement to a particular deduction will depend on the provision of law relating thereto and not the assessee's understanding of his rights. We bow to the said proposition, but the fact remains that the assesee has to make a claim in its returns or the facts necessary to assert such deduction should be available in the assessment records. _**Kedarnath**_ is also in the peculiar circumstances _ITA 358/2010_ 4 of the sales tax dues being determined in the course of the income tax assessment. The refusal to consider the deduction was also on the ground of the sales tax liability being challenged in appeal and no provision having been made in its books. We do not think the decision would help the assessee on the questions arising here. 4. In _**Gurjargravures Private Ltd.**_ , an appeal was filed against the assessment order, in which one of the grounds raised was the denial of benefit under Section 84 of the Act. In fact, the assessee had never raised a claim under Section 84 before the A.O. The Hon'ble Supreme Court found that it is not a rule of law that no additional ground could be raised before the Appellate Assistant Commissioner, since there could be circumstances in which the ground was raised only due to change of circumstances or law. It was also held that there could be several other factors justifying raising of a new plea in appeal and each case has to be considered on its facts. It was stated as a settled position that the various items of income or deductions, which have been subjected to the process of _ITA 358/2010_ 5 assessment, constitute the subject matter of assessment, and that if there is any item of income or claim for deduction, which is not processed by the Income Tax Officer, it would not be a part of the subject matter of assessment and the Appellate Assistant Commissioner would not have the power to consider and process it in an appeal preferred by the assessee. The High Courts view on the facts in the cited case, that though the deduction was not claimed, the fact remains that the portion of income was brought to tax and hence clearly forms the subject matter of assessment, did not find favour with the Hon'ble Supreme Court. Rejecting the assessee's claim under Section 84 for the same having not been a subject matter of assessment, the Hon'ble Supreme Court held so: _“What “consideration” by the Income Tax Officer means in this context was also explained: “... ‘consideration’ does not mean incidental or collateral examination of any matter by the Income Tax Officer in the process of assessment. There must be something in the assessment order to show that the Income Tax Officer applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection”. If, as held in this case, an item of_ _ITA 358/2010_ 6 _income noticed by the Income Tax Officer but not examined by him from the point of view of its taxability or non-taxability cannot be said to have been considered by him, it is not possible to hold that the Income Tax Officer examining a portion of the profits from the point of view of its taxability only, should be deemed to have also considered the question of its non-taxability. As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner. We are not here called upon to consider a case where the assessee failed to make a claim though there was evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case neither any claim was made before the Income Tax Officer, nor was there any material on record supporting such a claim. We therefore hold that on the facts of this case, the question referred to the High Court should have been answered in the negative.”_ (underlining by us for emphasis) 5. _**NTPC Ltd.**_ was a case in which the interest income on short term deposit was offered for assessment and assessed. On second appeal before the Tribunal, an additional ground was raised that the offer made for assessment of the interest income was an erroneous admission. The Hon'ble Supreme Court found that the Tribunal could have answered the issue under Section 254 of _ITA 358/2010_ 7 the Act. In _**Malayala Manorama Co.Ltd.**_ with respect to an ascertained amount, deduction was claimed under Section 37, as business expenditure, which was disallowed in assessment. The assessee in appeal claimed, if it cant be allowed under section 37, it could be allowed under Section 80G. In both the above cases the claim was the subject matter of assessment. In the former, there was an assessment made of an income and in the latter there was an alternative claim for deduction made under a different provision of the ascertained amount. 6. In _**Goetze (India) Ltd**_ . the issue raised was that the A.O. did not consider a letter submitted before him prior to finalisation of the assessment. After the period for revised assessment, raised a claim which did not figure in the return. The Hon'ble Supreme Court distinguished _**NTPC Ltd.**_ insofar as finding that the A.O. did not have any authority to so consider a claim made, which was not raised in the return. The learned Judges of the Supreme Court in _**Goetze (India) Ltd.**_ was careful to observe that they had decided, only on the power of the A.O. and this need not be _ITA 358/2010_ 8 taken as impinging upon the power of the Appellate Tribunal under Section 254 of the Act. On the power of the appellate authorities we have to fall back upon ## _**Gurjargravures Private Ltd.**_ 7. The learned Senior Counsel, Government of India (Taxes) points out that the First Appellate Authority had specifically found that the claim was not decipherable even from the accounts, since the Profit & Loss Account did not show the expenditure towards the leased equipment. The learned Counsel for the appellant would submit that the cash out flow is shown in the balance sheet. For not having raised the claim, the explanation is that under the Companies Act, the depreciation on both owned assets and leased assets could be claimed, while under the Income Tax Act, depreciation claim is permissible only on the owned assets. However, it is to be noticed that the appellant was quite conscious of the fact that there could be no depreciation claimed on leased assets under the Act since no such claim was made in the returns filed. Hence, the claim not having been raised cannot be said to be a _bona_ _ITA 358/2010_ 9 _fide_ omission. The depreciation of leased assets having not been specifically claimed, the assessee was entitled to claim business expenditure, of the lease rent, which they had not claimed in the return. There was no such expenditure shown in the Profit & Loss Account. The learned Counsel specifically refers to the balance sheet as produced by the assessee, along with the audit report to contend that the rent outflow is specifically indicated there. That would not facilitate a consideration of the issue as a _bona fide_ omission; since the claim was not raised due to sheer negligence and it had not even figured in the profit and loss account. It was not the subject matter of assessment. The Hon'ble Supreme Court had categorically declared that the claim could be considered in the event of the facts being evident from the records and the same being subject matter of assessment. In such circumstances, this is not a case which comes under the cover of the facts being evident from the records, which would enable consideration of the claim at the appellate stage. _ITA 358/2010_ 10 8. We are not inclined to consider the claim of the assessee and we affirm the view of the Tribunal. We reject the appeal answering the question of law, on the facts available here, against the assessee and in favour of the Revenue. No costs. **Sd/-** **K.VINOD CHANDRAN** **JUDGE** **Sd/-** **ASHOK MENON JUDGE** _dkr_ _ITA 358/2010_ 11 ## **APPENDIX** ## **APPELLANT'S/(S) ANNEXURES:** **ANNEXURE A COPY OF THE ASSESSMENT ORDER FOR 2003-04 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 13.03.2006. ANNEXURE B COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE APPELLANT DATED 13.02.2008. ANNEXURE C COPY OF THE TRIBUNAL ORDER DATED 04.06.2010 ISSUED TO THE APPELLANT. ANNEXURE D COIPY OF THE TAX AUDIT REPORT (DATED NIL) FOR THE ASSESSMENT YEAR 2003-04.**