Facts of the Case

The assessee, M/s Kultar Exports, filed returns claiming deductions under Section 80HHC of the Income Tax Act relating to profits derived from export activities.

Pursuant to the Taxation (Amendment) Act, 2005, retrospective amendments were introduced affecting the computation mechanism under the third and fifth provisos to Section 80HHC(3).

Based on these amendments, the Assessing Officer initiated reassessment proceedings under Section 148 and passed reassessment orders for Assessment Years 2001–02, 2002–03, and 2003–04.

Subsequently, in Avani Exports v. CIT, Rajkot [2012] 348 ITR 319 (Guj.), the Gujarat High Court held that retrospective application of the amendment was unconstitutional and that it could operate only prospectively.

Relying upon this later judgment, the assessee filed appeals against the reassessment orders after a delay of approximately 5–6 years.

The appeals were initially dismissed by the Commissioner of Income Tax (Appeals) due to delay. However, the ITAT condoned the delay and ruled in favour of the assessee relying upon Avani Exports.

The Revenue challenged the ITAT order before the Delhi High Court under Section 260A.

Relevant facts derived from the judgment.

Issues Involved

  1. Whether an assessee can challenge assessment or reassessment orders after substantial delay merely because a subsequent judgment in another case declared the underlying provision unconstitutional.
  2. Whether orders that have attained finality can be reopened solely on the basis of a later judicial pronouncement.
  3. Whether the ITAT was justified in condoning substantial delay and granting relief based upon a subsequent decision.
  4. Whether the principle of finality of proceedings overrides later legal developments.

Petitioner’s Arguments (Revenue)

The Revenue argued that:

  • The ITAT erred in treating the amendment as merely prospective.
  • The Legislature possesses authority to enact retrospective tax laws.
  • Tax deductions are not absolute rights and may be restricted by statutory provisions.
  • The assessee accepted reassessment orders passed in 2006 and 2007 and did not challenge them within the prescribed limitation period.
  • Once assessment proceedings attained finality, the assessee could not disturb such settled positions solely because another litigant subsequently obtained a favourable judgment.

Revenue arguments discussed in judgment.

Respondent’s Arguments (Assessee)

The assessee contended that:

  • No substantial question of law arose for consideration.
  • The ITAT correctly followed the Gujarat High Court ruling in Avani Exports.
  • The Supreme Court had required adjudication regarding constitutional validity to avoid conflicting judicial decisions.
  • Since Revenue had not specifically challenged the ITAT's condonation of delay, such objection could not later be raised.

Respondent submissions reflected in the judgment.

Court Findings / Court Order

The Delhi High Court held in favour of the Revenue and against the assessee.

The Court observed that:

  • Finality attached to reassessment orders accepted by the assessee.
  • The assessee neither filed timely appeals nor initiated constitutional challenges.
  • The delayed appeal was instituted only after the favourable ruling in Avani Exports.
  • A litigant cannot revive concluded proceedings merely because another person later succeeded in litigation on similar facts.
  • Public policy demands certainty and finality in judicial proceedings.
  • The principle of constructive res judicata and finality of litigation prevents reopening settled matters.

Accordingly, the Court answered the question of law in favour of the Revenue and allowed the appeals.

Court findings and final order.

Important Clarification

The Court clarified that:

  • An assessee who actively challenges the validity of statutory provisions and pursues litigation may obtain the benefit of a favourable judgment.
  • However, a person who accepts an assessment order and allows it to attain finality cannot later seek the same benefit merely because another litigant succeeded.
  • Finality of proceedings is an essential principle of public policy.

Clarification noted by the Court.

Sections Involved

Income Tax Act, 1961

  • Section 80HHC
  • Section 80HHC(3)
  • Third Proviso to Section 80HHC(3)
  • Fifth Proviso to Section 80HHC(3)
  • Section 148
  • Section 249(2)
  • Section 260A

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:2762-DB/SRB23052014ITA272014.pdf

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