B. N. NOBIS & CO. v. JOINT COMMISSIONER OF INCOME TAX.

DATE : 04-12-2000

EQUIVALENT CITATION(S) :

2001-(071)-TTJ -0153 -TCAL

2001-(117)-TAXMAN -0150 -TCAL

CATCHNOTE / WORDS AND PHRASES :

Income Tax

Recovery -- Stay

-- Demand Arose As A Result Of Recomputation Of Allowable Deduction Under S.

80Hhc After The Cit(a) Declined The Claim For Deduction Only On The Technical
Ground That Chartered Accountant's Certificate In Form No. 10Ccac Was Issued
On An Old Performa-strong Prima Facie Case Exists For Granting Stay-registry
Directed To Take Up The Appeal For Hearing Out Of Turn And Revenue Authorities
Directed Not To Take Coercive Measures For Collection/recovery Of Disputed
Demands Till Further Orders.

HEADNOTE :

recovery-stay-demand arose as a result of recomputation of allowable deduction under s.

80Hhc after the cit(a) declined the claim for deduction only on the technical ground that
chartered accountant's certificate in form no. 10Ccac was issued on an old performa-strong
prima facie case exists for granting stay-registry directed to take up the appeal for hearing
out of turn and revenue authorities directed not to take coercive measures for
collection/recovery of disputed demands till further orders.

Held

A strong prima facie case has been successfully made out by the assessee. The assessee
had offered to give an undertaking not to withdraw/encash fixed deposits lying with bank.
Keeping in view all the relevant factors, it will be just and proper to direct the registry that
this appeal may be taken up for out of turn hearing on 18th dec., 2000, And to direct the
revenue authorities that pending disposal of the appeal or till further orders by the tribunal,
whichever is earlier, no coercive measures should be taken for collection/recovery of these
disputed demands aggregating to rs. 1,05,00,417. As this date of hearing has already been
announced in open court, no formal notices need be issued. These directions are, however,
subject to the stipulations that the assessee shall not seek any adjournment; the assessee
will fully co-operate in expeditious disposal of the appeal; and that the assessee will not
withdraw/encash fixed deposits lying with bank till these appeals are disposed of. Since
these appeals are fixed for hearing within this month itself, the ao should refrain from
giving effect to the cit(a)'s orders impugned in this appeal, till these appeals are disposed
of. The supreme court's observations in asstt. Collector of central excise vs. Dunlop india
ltd. (1985) 154 Itr 172 (sc) cannot be interpreted to mean that this tribunal is denuded of
the powers to grant stay until case for financial stringency is successfully made out by the
applicant. However, there is no conflict in holding this view as also adhering to the settled
principles governing grant of stay which lay down that financial constrains of the applicant
are important, even if not sole or qualifying, consideration in entertaining a stay application,
besides considerations like existence of strong prima facie case, balance of convenience and
possibilities of revenue's rights of recovery being prejudiced by waiting till the outcome of
appeals.-Asstt. Collector of central excise vs. Dunlop india ltd. (1985) 154 Itr 172 (sc)
explained and applied. (Paras 4 & 6)

Conclusion

Strong prima facie case exists for staying the demand arose as a result of recomputation of
allowable deduction under s. 80Hhc after the cit(a) declined the claim for deduction only on
the technical ground that chartered accountant's certificate in form no. 10Ccac was issued
on an old performa.

Case law analysis

Cit vs. Hajarimal nagji & co. (1962) 46 Itr 1168 (bom) ito vs. Khalid mehdi khan (1977)
110 itr 79 (ap) ito vs. M.K. Mohd kunhi (1969) 71 itr 815 (sc) mumbai kamgar sabha vs.
Abdulbhai faizullbhai air 1976 sc 1455 new indian assurance co. Ltd. Vs. Cit (1957) 31 itr
844 (bom)

Legislation referred to

Income-tax act, 1961, s. 254(1). Income-tax appellate tribunal rules, 1963, r. 35A.

Counsel

N.K. Poddar & praveen kapoor, for the applicant : d.K. Ghosh, for the respondent

JUDGE(S) :

Gopal Chowdhury
Pramod Kumar

TEXT :

B. N. NOBIS & CO. v. JOINT COMMISSIONER OF INCOME TAX.

Stay Appln. Nos. 15 & 16/Cal/2000 in ITA Nos. 1596 & 1597/Cal/2000; Asst. yr. 1993-94,
decided on December 4, 2000.

ITAT, CALCUTTA 'E' BENCH

Counsels : N. K. Poddar, Praveen Kapoor - Applicant.

D. K. Ghosh - Respondent.
ORDER

PRAMOD KUMAR, A.M. :

The assessee has moved these stay petitions, under r. 35A of the Appellate Tribunal Rules,
1963, to seek stay on collection/recovery of income-tax demand of Rs. 10,24,699 and Rs.
94,75,718, created by order under s. 154 r/w s. 143(1)(a) and under s. 143(3) r/w s. 148,
respectively, for the asst. yr. 1993-94. The aforesaid demands were created on account of
AO's recomputation of allowable deduction under s. 80HHC. On assessee's appeal against
this recomputation, the CIT(A), instead of giving any relief to the assessee and instead of
even examining merits of the recomputation, declined the claim for deduction under s.
80HHC per se on the ground that chartered accountant's certificate on 'Form No. 10CCAC'
was an invalid certificate. The admitted defect in the chartered accountant's certificate was
that Annexure A to the aforesaid certificate was on a performa which ceased to be effective
from 1st April, 1992, onwards, though a revised certificate has since been filed before the
lower authorities. The learned CIT(A) declined to admit the revised certificate and directed
the AO to take deduction under s. 80HHC at nil. In effect, the CIT(A) directed enhancement
of assessed income. With these compounded grievances, the assessee had filed appeals
before this Tribunal and has also preferred the present stay petitions.

Learned counsel for the assessee, with a view to demonstrate that he has a strong prima
facie case in appeal, submitted that the AO's recomputation of allowable deduction under s.
80HHC is wholly erroneous. It was submitted that the chartered accountant's certificate in
support of deduction under s. 80HHC, as filed along with the income-tax return, showed the
allowable deduction at Rs. 3,09,84,137 which was worked out as per the old formula which
admittedly ceased to be effective from 1st April, 1992. However, as per the scheme of
amendments effective from 1st April, 1992, the allowable deduction works out to even
higher an amount i.e., at Rs. 4,55,79,721 but the AO has recomputed the allowable
deduction at Rs. 2,42,96,210. It was further submitted that the difference between these
two figures is explained mainly by following errors committed by the AO :

(a) AO did not exclude Rs. 84,55,318 from 'direct costs' being freight and insurance though
this figure was excluded from export turnover;

(b) the AO did not exclude Rs. 11,15,431 from direct costs' though this amount was
admittedly on account of loss by silk fabrics destroyed in the fire; and

(c) the AO did not make adjustment in indirect costs' for 10 per cent of other income (such
as interest income of Rs. 368 lakhs and export entitlements of Rs. 298 lakhs) which works
out to Rs. 66,67,316 and which was required to be excluded from indirect costs in terms of
para 32.11 of the CBDT Circular No. 530.

The learned counsel filed detailed statement to demonstrate that on making these
adjustments which were claimed to be mandatory as per provisions of the IT Act, the s.
80HHC claim will in fact go up to Rs. 4,55,79,921 as against that of Rs. 3,09,84,137
originally claimed by the assessee, and as against Rs. 2,42,96,210 worked out by the AO in
the orders impugned in appeal before us. It was then submitted that CIT(A) has not
disposed of assessee's contentions on the legal grounds about the errors in computation of
deduction under s. 80HHC, but has rejected the claim of s. 80HHC per se on a technical
ground i.e., since the 'Annexure A' to certificate on 'Form No. 10CCAC' was on a proforma
which ceased to be effective from 1st April, 1992, the certificate itself is an invalid certificate
and, consequently, no deduction under s. 80HHC is admissible. According to the learned
counsel, not only that the computation of deduction under s. 80HHC has glaring errors, of
law, which have not been subject-matter of judicial scrutiny by the lower appellate authority
even view taken by the learned CIT(A) regarding rejection of claim of deduction under s.
80HHC per se merely because annexure A to Form 10CCAC was on old format, is a hyper-
technical view and is not in consonance with the judicial precedents on the subject. The
assessee, thus, claimed to have a strong prima facie case. On the strength of these
submissions, it was prayed that the assessee's appeal may be fixed for hearing at the
earliest and, pending disposal of appeal, collection of disputed demand may be stayed. The
learned counsel also prayed for stay on AO's giving effect to the enhancement directed by
the CIT(A), and made reference to the judgment in ITO vs. Khalid Mehdi Khan (1977) 110
ITR 79 (AP) in this regard.

Shri D. K. Ghosh, learned Senior Departmental Representative, strongly opposed the stay
applications. The learned Departmental Representative submitted that since the assessee
has not made out a case for financial stringency nor has he alleged mala fides, it is not a fit
case for grant of stay, reliance was placed on the judgment in Asstt. Collector of Central
Excise vs. Dunlop India Ltd. (1985) 154 ITR 172 (SC). In response to bench's specific
question about prima facie merits of computation of deduction under s. 80HHC by the AO,
the learned Departmental Representative merely submitted that the demands raised by the
AO have already been subject to judicial scrutiny by one appellate authority and, therefore,
presumption has to be taken against the assessee. According to the learned Departmental
Representative merits are required to be discussed only at the time of disposal of appeal
itself. It was also submitted that grant of stay is not a matter of normal course and,
therefore, merely because assessee has a good prima facie case stay should not be granted.
On the strength of these submissions, the learned Departmental Representative urged us to
reject the stay applications though, according to the Departmental Representative he had
no objection to other prayers of the assessee being accepted.

We have heard the rival contentions and though we do not wish to go into merits of the
case, we can place on record our satisfaction that at least a strong prima facie case has
been successfully made out by the assessee. We have also noticed that the assessee had
offered to give an undertaking not to withdraw/encash fixed deposits to the extent of Rs.
3,00,00,000 lying with Ing Bank and Mashreque Bank, New Delhi, we are, keeping in view
all the relevant factors, of the considered opinion that it will be just and proper to direct the
Registry that this appeal may be taken up for out of turn hearing on 18th December, 2000,
and to direct the Revenue authorities that pending disposal of the appeal or till further
orders by the Tribunal, whichever is earlier, no coercive measures should be taken for
collection/recovery of these disputed demands aggregating to Rs. 1,05,00,417. As this date
of hearing has already been announced in open Court, no formal notices need be issued.
These directions are, however, subject to the stipulations that the assessee shall not seek
any adjournment; the assessee will fully co-operate in expeditious disposal of the appeal;
and that the assessee will not withdraw/encash fixed deposits lying with Ing Bank and
Mashreque Bank, till these appeals are disposed of. We are also of the view that since these
appeals are fixed for hearing within this month itself, the AO should refrain from giving
effect to the CIT(A)'s orders impugned in this appeal, till these appeals are disposed of;
order accordingly.

Before parting with the matter, we may make some observations on Revenue's objection,
relying on Hon'ble Supreme Court's observations in Dunlop's case (supra), to the stay
petition on the ground that paucity of funds has not been sufficiently demonstrated and that
for this reason alone stay should not be granted. Hon'ble Supreme Court has indeed decried
'the practice of granting interim orders merely because assessee is able to show a good
prima facie case', but to appreciate true import of Hon'ble Supreme Court's censure, one
has to understand the context in which Their Lordships expressed such feelings. Their
Lordships started with the observation that ......" It is indeed a great pity and we wish we
did not have to say it but we are signally failing in our duty if we do not do so that some
Courts, of late, appear to have developed an unwarranted tedency to grant interim orders-
interim orders with a grant potential for public mischief-for the mere asking. We find it more
distressing that such interim orders, often ex parte and non-speaking, are made by the High
Courts by entertaining writ petitions under Art. 226 of the Constitution." Their Lordships, a
little later in this order, further observed that ...... "There cannot be and there are no hard
and fast rules. But prudence, discretion and circumspection are called for. There are several
other vital considerations apart from existence of prima facie case. There is the question of
balance of convenience. There is the question of irrepairable injury. There is the question of
public interest. There are many such factors worthy of consideration. We often wonder why
in the case of indirect taxation where the burden has already been passed on to the
consumer, any interim relief should be given to the manufacturer, dealer and the like." It
will, therefore, be clear that the context in which Hon'ble Supreme Court disapproved the
practice of granting interim orders, solely on the ground that a prima facie case is made
out, was relevant to the cases in which High Courts were entertaining writ petitions under
Art. 226 of the Constitution of India as also the cases in which disputed demands related to
indirect taxes where burden has already been passed to the consumer. We cannot be
oblivious to the distinction between nature of writ jurisdiction of the Hon'ble High Courts,
and the nature of appellate jurisdiction of this Tribunal. In writ proceedings, Hon'ble High
Courts step in only when fundamental rights of the petitioner are violated and therefore,
they have to resist interfering in the matter until a clear case is made out that not only that
an assessee has a strong prima facie case but also that there is a serious threat of
infringement to petitioner's rights guaranteed under Chapter III of the Constitution. On the
other hand, Tribunal's jurisdiction is akin to that of an appellate Court under the CPC, as
observed in CIT vs. Hajarimal Nagji & Co. (1962) 46 ITR 1168 (Bom) and in New Indian
Assurance Co. Ltd. vs. CIT (1957) 31 ITR 844 (Bom), and right to appeal before the
Tribunal is provided in the statute itself. Therefore, observations of Hon'ble Supreme Court
in the context of grant of stay in writ proceedings do not have the binding force on, or even
direct relevance to, the principles governing grant of stay during these appellate
proceedings. In this context, we are reminded of the observations of Hon'ble Supreme
Court, in Mumbai Kamgar Sabha vs. Abdulbhai Faizullbhai AIR 1976 SC 1455, that .........

"It is trite, going by Anglophonic principles, that a ruling of superior Court is binding in law.
It is not of spiritual sanctity but is of ratio-wise luminosity within the edifice of facts where
the judicial lamps plays the legal flame. Beyond those walls and de hors the milleu we
cannot impart the eternal vernal value to the decision, exalting the doctrine of precedents
into prison house of bigotry, regardless of varying circumstances and myriad developments,
Realism dictates that a judgment has to be read, subject to the facts directly presented for
consideration and not affecting those matters which may lurk in the dark".

We are, therefore, of the view Hon'ble Supreme Court's obiter dicta should not be perceived
as a blind man's walking stick, but as luminosity of a judicial lamp in the light of which we
have to perform our obligations of imparting justice. On principles governing the decision to
grant stay, we undoubtedly find guidance from. Their Lordships' observations that though
there are no hard and fast rules regarding grant of stay, but prudence, discretion and
circumspection are called for and that stay should not be granted as a matter of course.
Considerations about balance of convenience, question of irrepairable injury and
implications to public interest are to be borne in mind. We are also conscious to the
apprehension that "if the Tribunal proceeds to stay recovery of taxes or penalties payable
by or imposed on the assessee as a matter of course, the Revenue will be put to great loss
because of the inordinate delay in disposal of appeals by the Tribunal, [ITO vs. M. K. Mohd
Kunhi (1969) 71 ITR 815 (SC) at p. 822], and therefore, the grant of stay by this Tribunal is
always coupled with grant of an out of turn hearing which, in the present case, is to take
place within three weeks from today. In the present case since the appeals are scheduled to
be disposed of within next few weeks, and since admittedly there is no serious apprehension
to the Revenue's rights of recovery being prejudiced by further waiting till the outcome of
the appeals, the balance of convenience is in favour of not collecting the demand
immediately. We are, therefore, of the considered view that Hon'ble Supreme Court's
observations in Dunlop's case (supra) cannot be interpreted to mean that this Tribunal is
denuded of the powers to grant stay until case for financial stringency is successfully made
out by the applicant. However, we see no conflict in holding this view as also adhering to
the settled principles governing grant of stay which lay down that financial constraints of the
applicant are important, even if not sole of qualifying, consideration in entertaining a stay
application, besides considerations like existence of strong prima facie case, balance of
convenience and possibilities of Revenue's rights of recovery being prejudiced by waiting till
the outcome of appeals. In this view of the matter, we are unable to sustain the objection
raised by the Revenue.

In the result, stay petitions are allowed.

BACKWARD REFERENCE :

[Referred]

1957-(IT2)-GJX -0032 -BOM New India Life Assurance Co. Ltd. V. Commissioner Of Income-
tax, Excess Profits Tax, Bomba....
1961-(IT2)-GJX -0269 -BOM Commissioner Of Income-tax, Bombay City I V. Hazarimal
Nagji & Co.
1968-(IT2)-GJX -0221 -SC Income-tax Officer, Cannanore V. M. K. Mohammed Kunhi.
1977-(IT2)-GJX -0054 -AP Income-tax Officer, J-ward, Circle-ii, Hyderabad V. Khalid Mehdi
Khan (Minor). (Represente....
1984-(IT2)-GJX -0785 -SC Assistant Collector Of Central Excise, Chandan Nagar V. Dunlop
India Ltd., And Others.

FORWARD REFERENCE :

REFERENCES :

ACTS & SECTIONS REFERENCE :

Income Tax Act, 1961

Section 80HHC
Section 143(1)(a)
Section 143(3)
Section 148
Section 154

NOTIFICATIONS REFERENCE :