1. This appeal by the assessee is directed against the order of the CIT(A)-I, Pune, upholding the order of the AO passed under s. 154 of the IT Act, 1961.
2. The assessee-company is engaged in the business of manufacturing stainless steel flasks and thermowares. For the asst. yr. 1995-96, the company filed its return declaring income of Rs. 97,29,060 which was processed under s. 143(1)(a) of the Act on 25th July, 1996. In its return, the company had claimed that the following amounts should not be included for the purposes of computing total turnover, for the purposes of deduction under s. 80HHC.For claiming so, the assessee relied on the decision of the Tribunal in the cases of Avon Cycles Ltd. and Sudarshan Chemical Industries Ltd. (1997) 57 TTJ (Pune) 718 : (1997) 60 ITD 629 (Pune) In the intimation sent to the assessee, the AO included the above items for the purposes of computing the total turnover for deduction under s. 80HHC. The AO had remarked as under : "Even there is no consensus on this issue among Tribunals, in the case of Bombay Tribunal these are required to be included for the computation of total turnover. The issue has not become final and, therefore, the assessee's claim to exclude these items is rejected." 3. The assessee filed an application under s. 154 and pointed out that the case of the assessee stands squarely covered by the decision of Pune Bench in the case of Sudarshan Chemical Industries Ltd. vs. Dy.
CIT (supra) and further that this decision was binding on the AO because the AO was working within the jurisdiction of Pune Bench. The AO rejected the application observing as under : "I have gone through the submission filed by you along with application for rectification. It is to state that the total turnover has been computed after taking into account the principle laid down by Bombay Bench in the case of Ponds (I) Ltd. vs. Dy. CIT (1997) 59 TTJ (Mum) 560. The reason why total turnover has been computed by taking into the above, has been narrated in the order.
It cannot be said that any apparent mistake has been incurred while passing the order.
4. The assessee appealed to the CIT(A) and urged before him that the AO was not justified in rejecting the assessee's application under s. 154 in view of the judgment of the Pune Bench of the Tribunal in the case of Sudarshan Chemical Industries Ltd. (supra). It was further submitted before him that the decision in the case of Sudarshan Chemical Industries Ltd. (supra) was of a binding nature as held in the case of Union of India & Ors. vs. Kamlakshi Finance Corpn. Ltd. (1992) Suppl (1) SCC 648. The CIT(A) was not convinced by the arguments put before him and rejected the appeal of the assessee observing as under : "I do not agree with the appellant. The binding nature of the Tribunal's decision is only for that case and not in respect of other cases. I, therefore, find no infirmity in the order of the AO who had followed the decision of Ponds India Ltd. vs. Dy. CIT (1997) 59 TTJ (Mum) 560 while deciding the issue before him. No mistake apparent from record can be said to have occurred and no interference is, therefore, called for in the order of the AO." 5. Shri M. K. Kulkarni, the learned counsel for the assessee submitted that while filing the return the assessee had excluded receipts on account of excise duty, octroi, MST, CST, Depot S.T. scrap sale, form the turnover in computing the deduction under s. 80HHC keeping in view the ratio laid down in the case of Sudarshan Chemical Industries (supra). He submitted that since the AO was working under the jurisdiction of Pune Bench, the decision in the case of Sudarshan Chemicals Industries (supra) was of a binding nature as held in the case of Union of India & Ors. vs. Kamlakshi Finance Corpn. Ltd. (supra). The learned counsel further submitted that since there were conflicting decisions on the issue by different Benches of the Tribunal, the matter was highly debatable and was outside the purview of intimation under s. 143(1)(a). The learned Departmental Representative strongly supported the orders of the authorities below.
He submitted that the judgment of the Supreme Court in the case of Union of India & Ors. vs. Kamlakshi Finance Corpn. (supra) is distinguishable as the same was pronounced under Central Excises and Salt Act, 1944.
6. We have considered the rival submissions and perused the facts on record. Before the AO the assessee claimed that receipts on account of excise duty, octroi, MST, CST, Depot S.T. scrap sale were not includible for computing the turnover for computing deduction under s.
80HHC, on the strength of the decision of the Pune Bench of the Tribunal in the case of Sudarshan Chemical Industries Ltd. (supra), this fact was duly brought to the notice of the AO and the learned CIT(A) but both the authorities below held that they were not bound by the decision of the Pune Bench though both of them were working under the jurisdiction of Pune Bench. This action on the part of authorities below is flagrant disregard and disrespect to the provisions of law. In the case of Union of India & Ors. vs. Kamlakshi Finance Corpn. Ltd. (supra) which was cited before the authorities below, it has clearly been held that the decisions of higher authorities on the same issue are binding on subordinate authorities and should be followed unreservedly. Though this decision was pronounced under Central Excises and Salt Act, 1944 yet it lays down a vital proposition of law. Here we would like to reproduce the operative part of the judgment which reads as under : "The learned Addl. Solicitor General submits that the learned Judges have erred in passing severe strictures (1990) 47 ELT 231 (Bom) against the two Asstt. Collectors who had dealt with the matter. He submitted that these officers had given reasons for classifying the goods under heading 39.19 and not 85.46 and could do no more. He submitted that they acted bona fide in the interest of Revenue in not accepting a claim which, they felt, was not tenable. Shri Reddy is perhaps right in saying that the officers were not actuated by any male fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Shri Reddy overlooks is that, if we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fides but with the fact that the officers, in reaching their conclusion, by passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Asstt. Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. The impression or anxiety of the Asstt.
Collector that, if he accepted the assessee's contention, the Department would lose revenue and would also have no remedy to have the matter rectified is also incorrect. Sec. 35E confers adequate powers on the Department in this regard. In the light of these amended provisions, there can be no justification for any Asstt.
Collector or Collector refusing to follow the order of the Appellate Collector or the Tribunal, as the case may be, even where he may have some reservations, on its correctness. He has to follow the order of the higher Appellate Authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under s. 35E(1) or (2) to keep the interest of the Department alive. If the officers' view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee and public without any benefit to the Revenue. We would like to say that the Department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the Appellate Authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher Appellate Authorities which are binding on them." From the observations of the Hon'ble Supreme Court extracted above, it may be considered as settled law that the decision of the higher authorities is binding on the lower authorities in the judicial hierarchy. Accordingly, it would stand to reason that the CIT(A) and the AO would be bound by the decision of the Tribunal because at the time of passing the impugned orders, they were working within the jurisdiction of Pune Bench of the Tribunal.
7. In the light of the above discussion, we reverse the findings of the authorities below and direct the AO to accept the version of the assessee.