K. Anji Reddy, Hyderabad vs Assessee

Dy. Commissioner of Shri K. Satish Reddy, Income Tax, Vs LR of Late K.Anji Reddy, Circle-1(2), Banjara Hills, HYDERABAD HYDERABAD [PAN: AERPK6947F]

I.T.A. No. 1384/HYD/2012 Assessment Year: 2008-09

Dr. K.Anji Reddy, Asst. Commissioner of Rep. by his son and LR Vs Income Tax, Shri K. Satish Reddy, Circle-1(2), Banjara Hills, HYDERABAD HYDERABAD [PAN: AERPK6947F]

(Appellant) (Respondent)

For Revenue : Shri Rama Krishna, Bandi DR For Assessee : Shri A.V.Raghu Ram, AR

Date of Hearing : 12-02-2015 Date of Pronouncement : 20-02-2015

ORDER

PER B. RAMAKOTAIAH, A.M. :

These are cross appeals by assessee and Revenue against the order of the Commissioner of Income Tax(Appeals)-II, Hyderabad dated 29-06-2012 on the issue of claim of deduction u/s.80GGA/35(1) of the Income Tax Act (Act).

:- 2 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

2. Assessee Dr.K. Anji Reddy has since deceased on 15-03-2013, the legal heir Shri K. Satish Reddy filed revised form with a request to consider him as legal heir of Shri K. Anji Reddy. Department has accepted Shri K. Satish Reddy as LR of late Shri K. Anji Reddy and has taken on record. Accordingly, Shri K. Satish Reddy is considered as LR of late Shri K. Anji Reddy in these appeals.

3. Briefly stated, assessee, an individual, filed return of income declaring total income of Rs.13,22,68,574/-. Assessee claimed a deduction of Rs.1,50,00,000/- u/s.80GGA of the Act. In the scrutiny proceedings u/s.143(3), the Assessing Officer examined the claim and found that assessee has given donation of Rs.1 Crore to M/s.Naandi Foundation on 25-06-2007 and an amount of Rs.50 Lakhs to M/s.Madras Diabetes Research Foundation on 17-03-2008. Assessee had business income and declared the same at Rs.77,21,353/-. Since assessee has business income, Assessing Officer was of the opinion that as per Sub-Section (3) of Section 80GGA, assessee is not eligible to claim deduction as he has income from business. He has discussed the provisions of Section 80GGA and came to the conclusion that the deduction claimed u/s.80GGA is not allowable. Accordingly, he disallowed the amount and added to the income returned thereby determining total income at Rs.15,44,82,540/-. This order of the Assessing Officer has been accepted by assessee. No appeal has been preferred. However, assessee subsequently preferred an application u/s.154 dt.09-11-2010 seeking rectification of the order to allow above amount u/s.35(1)(i)/(ii) as an alternate claim. The Assessing Officer vide his letter dt.09-03-2011 rejected the application on the reason that there is no mistake apparent from record to be rectified u/s.154.

:- 3 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

4. Assessee preferred an appeal before the Ld.CIT(A) inter alia contending that assessee is eligible for deduction of the amount of Rs.1.50 Crores either u/s.80GGA or u/s.35(1) (i),(ii) and (iia) as both these provisions are synonymous for scientific research. Ld.CIT(A) vide impugned order held that assessee claimed deduction u/s.80GGA in the return which was rejected by the Assessing Officer in the assessment order u/s.143(3) on the clear reasoning and the appellant's subsequent petition for rectification under other section i.e., 35(1)(i)(ii) does not emanate from the record, and therefore are not apparent from record. The Ld.CIT(A) also was of the opinion that in order to allow deduction u/s.35(1)(i)(ii)/(iia) AO has to be first satisfied with the conditions contained under said sections and the deduction is not automatic. All these point out that the alternate claim made by the appellant u/s.154 is not a mistake apparent from record. Therefore, the action of Assessing Officer in rejecting the rectification application u/s.154 is justified.

5. However, after approving the action of the Assessing Officer in rejecting the application u/s.154, Ld.CIT(A) went on to discuss the issue u/s.35(1) on merits and ultimately directed the Assessing Officer as under:

"6.4 From this it appears that any assessee who is having income from business or profession is entitled to the deduction u/s.35(1)(i)&(ii) in respect of donations made to institutions involved in scientific research, provided certain conditions are satisfied. Since the appellant is having business income he is entitled to deduction u/s.35, but the deduction is subject to certain conditions and terms. Since the AO has not examined the claim with regard to the provisions of section 35, he is directed to examine the issue with regard to the provisions of section 35 and if, all the conditions specified are satisfied, to allow deduction u/s.35(1)(i)(ii)&(iia) of the IT Act as per law".

:- 4 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

6. Revenue is aggrieved and preferred present appeal contending that CIT(A) erred in considering the assessee's claim u/s.35(1)(i)(ii) and (iia). Even though Revenue also contended that CIT(A) ought not have allowed assessee's claim under alternate provisions in view of the decision of the Apex Court in the case of Goetze (India) Ltd., Vs. CIT, this contentions does not survive as it does not emanate from the issue in the order.

7. Coming to the Revenue's appeal, we have noticed that Ld.DR has not come fully prepared. It was also noticed that the order u/s.154 which is the subject matter of appeal was not even filed along with appeal even though order u/s.143(3) was enclosed. However, assessee's appeal do contain the order. So Revenue's appeal is heard.

8. We are of the opinion that Ld.CIT(A) exceeded the jurisdiction/powers granted in directing the Assessing Officer to examine the issue u/s.35(1). Vide para 5 of the order, when dismissing the assessee's contention u/s.154, the Ld.CIT(A) was of the opinion that "in order to allow deduction u/s.35(1), Assessing Officer has to be first satisfied with conditions contained under the said sections and deduction is not automatic". Ld. CIT(A) held that the alternate claim made by the appellant u/s.154 is not a mistake apparent from record. Having given an opinion/ finding while rejecting the application u/s.154, the CIT(A) should not have traversed beyond that in directing the AO to examine the claim on merits. As already stated, assessee has not preferred any appeal on the order u/s.143(3), therefore, the issue of claim u/s.80GGA was concluded. There was no claim u/s.35(1) either in return or in the course of assessment proceedings when Assessing Officer has issued a show cause notice why the deduction u/s.80GGA should not be disallowed. Therefore, we are of the opinion that in the proceedings u/s.154, the CIT(A) cannot direct the Assessing Officer to :- 5 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

examine the issue, on a new contention afresh which is not arising from the order. We are supported by the decision of the Hon'ble Punjab & Haryana High Court in the case of R.B.L. Banarsi Dass and Co. P. Ltd., Vs. CIT [316 ITR 212] (P&H) wherein on a similar issue on the following facts, it was held as under:

"The assessee's assessment for the year 1989-90 under section 143(3) of the Income-tax Act, 1961, was completed calculating the shot-term capital gains after deducting the sum received on an insurance claim and the sum received from sale of scrap. The Commissioner set aside the assessment under section 263 and the Assessing Officer made assessment afresh under section 143(3) rejecting the claim of the assessee that the insurance claim was in lieu of damage by the fire and holding that the insurance money was to be considered as short-term capital gain in terms of the provisions of section 50 of the Act. No appeal was filed against the assessment order under section 143(3) read with section 263 of the Act. Thereafter, the assessee moved an application under section 154 of the Act for rectification of a mistake in assessing the short- term capital gain under section 50 of the Act. The Assessing Officer rejected the application on the ground that the claim of the assessee having being rejected under section 143(3) could not be considered afresh by invoking section 154 and only an appeal was the appropriate remedy for the assessee against the assessment order. On appeal against rejection of the application under section 154, the Commissioner (Appeals) set aside the assessment order under section 143(3) of the Act and directed the Assessing Officer to examine the issue in the light of the provisions of section 50 of the Act. The Tribunal observed that the correctness of the view taken by the Assessing Officer relating to his finding in the order passed under section 154 of the Act alone should have been decided by the Commissioner(Appeals) and that he had travelled beyond his powers in substituting his own opinion on the issue relating to the provisions of section 50 for the opinion of the Assessing Officer in the absence of any appeal before him against the assessment order passed by the Assessing Officer under section 143(3). Therefore, the Tribunal set aside the order of the Commissioner (Appeals) and restored the order of the Assessing Officer under section 154. On appeal:

Held, dismissing the appeal, that the order of assessment passed under section 143(3) of the Act had attained finality and there was :- 6 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

no appeal filed against that order. The Commissioner (Appeals) illegally set aside the assessment order under section 143(3). It was only the order under section 154 seeking rectification that was the subject matter of challenge before him. The order passed by the Tribunal was in conformity with law".

9. Even though provisions of Section 80GGA and 35(1)(i),(ii) are synonymous, the claim is not allowable automatically u/s.35(1). It is to be examined whether those institutions/research bodies to whom the payments were made are eligible to claim such deduction and whether necessary approvals are there to grant benefit. As seen from the facts of the payments, assessee has made a donation to M/s. Naandi Foundation which does not indicate that it is one of the research institutions prima- facie. Not only that Madras Diabetes Research Foundation to whom another amount was paid also required to be examined whether the same was approved under the Act so as to allow the benefit. Without examination, the claim cannot be allowed. As seen from the order of the Assessing Officer, Assessing Officer has not given any finding that assessee's claim u/s.80GGA is otherwise allowable but for the provisions of 80GGA(3) which was invoked. Assessee having accepted the order u/s.143(3) cannot seek relief u/s.35(1) in the proceeding u/s 154. Had he preferred appeal of the order u/s.143(3), the CIT(A) could have examined/directed the Assessing Officer to examine whether alternate claim can be entertained. We are of the opinion that the same cannot be done in an appeal u/s.154, which has limited scope and jurisdiction. As held by the Hon'ble Supreme Court in the case of T.S. Balaram, ITO, Company Circle-IV Bombay Vs. Volkart Brothers and Others [82 ITR 50] (SC), a mistake apparent on record must be an erroneous and evident mistake and not same thing which can be established by a long drawn process of reasoning on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from record. Similar view was reiterated by the Hon'ble Supreme Court in the :- 7 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

case of CIT Vs. Keshri Metal P. Ltd.237 ITR 165(SC), it was further reiterated that a look at the record must show that there has been an error and that error may be rectified. Reference to documents outside the records and the law is impermissible when applying the provisions of Section 154. In view of this, we are of the opinion that the subsequent direction of the CIT in examining the Assessing Officer to consider the provisions of Section 35(1)(i),(ii) is beyond the jurisdiction. Therefore, to that extent, the order is set aside. Revenue's ground no 2 is therefore, allowed. We uphold the order to the extent that the issue cannot be rectified under the provisions of Section 154 as it is not a mistake apparent from record. Revenue's appeal is accordingly, partly allowed.

10. ITA No.1384/Hyd/2012:

Coming to assessee's appeal, assessee has raised the following grounds in his appeal:

"2. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred by upholding the denial of deduction claimed under section 80GGA. She failed to appreciate that the Gross Total Income of the appellant does not include income chargeable under the head 'Profits and gains of business or profession', after allowing deduction u/s.35(1)(ii) and (iia).

3. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred by upholding the deduction u/s.80GGA was not allowable from income from sources other than business. While holding so, she completely misread and thereby thoroughly misinterpreted the provisions of section 80GGA. She ought to have appreciated that such denial goes against the spirit and intent of the said provisions.

4. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) failed to appreciate that the deduction under section 80GGA was a benefit granted by the statue and as such no assessee can be discriminated against in so far as availing of such benefit is concerned. She ought to have appreciated :- 8 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

the real intent and purpose of the provisions of sub-section 3 of section 80GGA.

5. On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) failed to appreciate that denial of deduction claimed under section 80GGA by misreading and misinterpreting and express and unambiguous provision constitutes a mistake apparent from record".

11. These grounds cannot be entertained in the present appeal as the issue does not arise out of the order of Assessing Officer u/s.154. The issue of denial of deduction claimed u/s.80GGA was determined and rejected by the Assessing Officer in an order u/s.143(3). Assessee has not preferred an appeal on that. Assessee as stated earlier preferred an application u/s.154 claiming an alternate claim u/s.35(1). The Assessing Officer rejected the same. In view of this, the scope of appeal is limited to claim u/s.35(1) and not under 80GGA. Therefore, the grounds raised by assessee per se are not maintainable.

12. Not only that, similar issue arose in AY.2005-06 and ITAT in ITA No.1741/Hyd/2011 dt.10-05-2013 has considered issue in an order u/s.147 therein on merits with reference to claim u/s.80GGA. It was decided vide para 11, 12 & 13 as under:

11. We have considered the rival submissions and perused the material available on record. We have also carefully applied our mind to the decisions cited before us. Undisputedly, the assessee is carrying on business and for the year under dispute the assessee had a negative income i.e., loss from business. It is the contention of the assessee that since he had no positive income chargeable to tax, he is eligible to avail deduction u/s 80GGA of the Act. The submissions of the learned AR though appears attractive at the first blush, however, on deeper analysis it cannot be accepted. Section 80GGA which comes under chapter VI-A of the Act provides for deduction from gross total income computed, any sum paid by the assessee to a research association undertaking scientific research or research in social science or statistical research. The section further provides that deduction can also be allowed in respect of the sum paid by the assessee to an association or institution which has :- 9 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

as its object the undertaking of any programme of rural development, for carrying out any eligible scheme or project approved by the national committee, to any programme of conservation of natural resources or of aforestation, to a rural development fund set up and notified by the Central Government and any sum paid to the National Urban Poverty Eradication Fund set up and notified by the Central Government. Sub-section (3) of section 80GGA reads as under:-

"(3) Notwithstanding anything contained in sub-section (1), no deduction under this section shall be allowed in the case of an assessee whose gross total income includes income which is chargeable under the head "profits and gains of business or profession."

12. A reading of sub-section (3) which begins with a non obstante clause makes it clear that an assessee whose gross total income includes income which is chargeable under the head profits or gains of business or profession shall not be eligible for deduction u/s 80GGA of the Act. Section 28 of the Act provides for income which shall be chargeable to income-tax under the head profits and gains of business or profession. Section 29 of the Act provides that income u/s 28 shall be computed in accordance with the provisions contained in sections 30 to 43D of the Act. Section 30 to 43D provides for various deductions which can be claimed by an assessee while computing the income under the head 'business or profession'. Section 35AC provides for expenditure incurred by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by a National Committee for carrying out any eligible project or scheme. Therefore, an assessee who is carrying on business or profession can claim exemption of any sum paid to any institution towards scientific research, rural development etc., under various provisions as contained u/s 30 to 43D of the Act. Hence, the rationale behind imposing certain restriction under sub-section (3) of section 80GGA is that since the assessee having income under the head 'business or profession' can avail deduction towards payment of any sum under various provisions contained u/s 30 to 43D of the Act while computing the income under the head 'business or profession', the very same deduction cannot be allowed to them u/s 80GGA which is specifically meant for assessees who do not have any income under the 'business or profession' which in other words means an assessee who does not carry out any business or profession. Otherwise, an assessee carrying on business or profession can claim deduction both under the provisions as contained u/s 30 to :- 10 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

43D and again u/s 80GGA of the Act. This cannot be the intention of the legislature. It will be pertinent to mention here that the assessee, in fact, had claimed deduction u/s 35AC, in the original return while computing profit from business and profession. Subsequently however the assessee gave up its claim u/s 35AC and claimed deduction u/s 80GGA in the revised return probably to reduce the tax burden.

13. So far as the contention of the learned AR that since the assessee during the year had incurred loss from business and had no income chargeable to tax under the head 'income from business or profession' sub-section (3) of section 80GGA will not apply, we are afraid, such contention is not acceptable for the simple reason that "income" as defined u/s 2(24) of the Act is an inclusive definition and also includes loss. The Hon'ble Supreme Court in case of CIT V/s. Hara Prasad & Co. Pvt. Limited (99 ITR 118) held that the words "income" or "profit and gains" should be understood as including losses also, so that, in one sense "profits and gains"

represent "plus income" whereas losses represent "minus income".

In other words, loss is negative profit. Both positive and negative profits are of revenue character. Both must enter into computation, wherever it becomes material in the same mode of the taxable income of the assessee. The aforesaid view was again reiterated by the Hon'ble Supreme Court in case of Reliance Jute and Industries Limited V/s. CIT (120 ITR 921) and CIT V/s. Goldcoin Health (P) Ltd. (304 ITR 308). Therefore, in view of the specific bar created under sub-section (3) of section 80GGA, the assessee is not entitled to avail deduction u/s 80GGA of the Act. In aforesaid view of the matter, we uphold the order of the CIT(A) on this issue. Thus, the grounds raised by the assessee are dismissed".

13. It was fairly admitted by the Ld.Counsel that the matter was pending before the Hon'ble High Court. Since the issue is already considered against assessee in regular proceedings u/s.143(3) r.w.s.147, there is no need to consider the issue again in this year as assessee has accepted the order u/s.143(3) and no proceedings are pending on that. Further, the fact that the matter was contested before the Hon'ble High Court itself shows that it is a debatable one, therefore, the same cannot be considered in proceedings u/s.154. In that view also assessee's grounds cannot be entertained. Accordingly, the same are rejected.

:- 11 -: I.T.A. Nos. 1249/Hyd/2012 & 1384/Hyd/2012 Shri K. Satish Reddy LR of Late K.Anji Reddy

14. In the result, Revenue's appeal is partly allowed and assessee's appeal is dismissed.

Order pronounced in open Court on 20th February, 2015.

Sd/- Sd/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER

Hyderabad, Dated 20th February, 2015.

TNMM

Copy to :

1. Dy. Commissioner of Income Tax, Circle-1(2), 4th Floor, Aayakar Bhavan, Hyderabad.

Asst. Commissioner of Income Tax, Circle-1(2), Aayakar Bhavan, Hyderabad.

2. Sri K. Satish Reddy, LR of Late K. Anji Reddy, 8-2-576/1, Road No.7, Banjara Hills, Hyderabad. C/o. Shri A.V.Raghu Ram, Advocates, 610, Babukhan Estate, Basheerbagh, Hyderabad-1.

3. CIT(A)-II, Hyderabad

4. CIT-I, Hyderabad

5. D.R. ITAT, Hyderabad.