A "substantial question of law" arise from the order of the Tribunal- High Court u/s. 260A cannot consider the validity of a retrospective amendment when no such question has arisen from its Tribunal order

High Court of Kerela has observed and reasonably drawn a conclusion that, "a validity of a provision cannot be considered or adjudicated upon by the Tribunal constituted under the Act. Section 260A provides for an appeal from every order passed by the Appellate Tribunal, if it involves a substantial question of law. Such question of law should arise from the order of the Tribunal. If the Tribunal cannot consider the validity of a retrospective amendment, no doubt such question does not arise from its order and the jurisdiction conferred on the High Court under Section 260A cannot also enable the High Court to consider such validity or otherwise". 

HIGH COURT OF KERALA

M. Abdul Rehuman Kunju

vs.

Assistant Commissioner of Income-tax, Circle -I, Kollam

THOTTATHIL B. RADHAKRISHNAN AND K. VINOD CHANDRAN, JJ.

I T APPEAL NOS. 50 & 63 OF 2012

AUGUST 3, 2012

ORDER

Facts of the case: The appellant/assessee is an exporter of cashew kernels and the assessments for the respective years were completed by accepting the returns under Section 143(1) of the Income Tax Act, 1961. Subsequently noticing that the income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act, notice was issued under Section 148. 

Issue: The issue that arose was regarding the deduction claimed while computing the deduction under Section 80 HHC more specifically the deduction claimed with respect to the profit on sale of Duty Entitlement Pass Book (DEPB) (hereinafter referred to as DEPB).

Revenue's contention: pursuant to the amendment brought in, in the year 2005, every assessee having turnover exceeding Rs.10 crores, for claiming entitlement of profits on sale of DEPB under Section 80 HHC; has to satisfy two conditions regarding availability of an option to choose either duty drawback or DEPB scheme and also that the duty drawback credit was higher than that available under DEPB. Exporters of cashew having no such option and the assessee having failed to produce any evidence, the claim made by the assessee was to be disallowed.

Before First Appellate Authority: three specific grounds with respect to the disallowance of the claim under Section 80HHC was raised. 

The first two grounds were on the reopening of the assessment under Section 147 alleging there was no material to invoke the provision and whether an amendment tantamounts to new material. 

The next ground was regarding the reopening of the assessment on the ground of retrospective amendment of Section 80 HHC, since according to the assessee no retrospective amendment could have been made to withdraw the exemption or concessions already granted. 

Held that, The first two grounds were rejected as the reopening under Section 147 was done based on the retrospective amendment, which is new material, and was within the prescribed time limit and hence is valid. The 1st appellate authority, in any event could not have considered the validity of the retrospective amendment.

Appeal by the appellant before ITAT: Whether the assessing officer was entitled to withdraw the deduction in respect of DEPB incentive on the basis of the subsequent amendment. 

The Tribunal held that, "since in a similar situation the jurisdictional High Court has upheld the order of the assessing officer under Section 154, there is no infirmity in the action taken under Section 147. The assessee does not challenge the said finding in the instant appeal".

Appeal before High Court: The question of adjudication raised before High court is as follows,-

"In the facts and circumstances of the case, ought not the Tribunal have allowed the Appeal filed by the assessee more showing the view of the judgment of the Supreme Court in Civil Appeal No.1700/2012 dated 8th February 2012"  

Assessee contended that, the retrospective amendment made by the Finance Act, 2005 classifying exporters into those having turnover less than Rs.10 crores and above Rs.10 crores and also imposing conditions for claim of deduction under Section 80 HHC on the latter; more specifically on the profit derived by sale of DEPB; has been struck down by the High Court of Gujarat at Ahmedabad.

High Court of Kerela held,

"The validity of a provision cannot be considered or adjudicated upon by the Tribunal constituted under the Act. Section 260A provides for an appeal from every order passed by the Appellate Tribunal; if it involves a substantial question of law. Such question of law should arise from the order of the Tribunal. If the Tribunal cannot consider the validity of a retrospective amendment, no doubt such question does not arise from its order and the jurisdiction conferred on the High Court under Section 260A cannot also enable the High Court to consider such validity or otherwise. 

Though the provisions for reference to the High Court, by the Tribunal, of questions of law arising from the order is no longer in existence; the jurisdiction going by the words employed in Section 260A, of the Income Tax Act, 1961, remains the same.

By following or dissenting from the judgment of the High Court of Gujarat, we would be determining the constitutional validity of the amendment of 2005. We would then be stepping out of and beyond the scope of the jurisdiction under Section 260A. The assessee too has not raised such a question in the appeal."