2008 (1) TMI 906 - AT - Income Tax

Summary

Issues Involved:
1. Validity of proceedings initiated u/s 263.
2. Deduction of royalty payment pertaining to earlier years.
3. Correct deduction allowable u/s 80HHC.

Summary:

1. Validity of proceedings initiated u/s 263:
The learned CIT initiated proceedings u/s 263, believing the assessment order dated 30th March 2005 was erroneous and prejudicial to the interest of the Revenue. The CIT cited the power to set aside the assessment for further enquiry if necessary, referencing the cases of Swarup Vegetable Products vs. CIT and Umashankar Rice Mill vs. CIT. The Tribunal found that the AO had examined the issues during the assessment proceedings, and the CIT's initiation of proceedings u/s 263 was not justified.

2. Deduction of royalty payment pertaining to earlier years:
The AO allowed the deduction of Rs. 6,28,32,100 on account of royalty paid to M/s Guardian Industries Corp. for earlier years, based on the assessee's explanation that the liability accrued during the year under consideration due to IDBI's embargo. The CIT argued that the AO did not examine this issue properly. However, the Tribunal noted that the AO had considered detailed submissions from the assessee and allowed the deduction based on a possible view. The Tribunal held that the CIT was not justified in revising the assessment on this ground.

3. Correct deduction allowable u/s 80HHC:
The AO restricted the assessee's claim for deduction u/s 80HHC from Rs. 3,30,42,693 to Rs. 70,60,279. The CIT contended that the correct deduction should have been Rs. 61.89 lakhs, citing an error in the exclusion of other income. The Tribunal found that the CIT's calculation was factually incorrect and that the AO had correctly computed the deduction. The Tribunal concluded that there was no error in the AO's order regarding the deduction u/s 80HHC.

Conclusion:
The Tribunal held that the AO's assessment order dated 30th March 2005 was neither erroneous nor prejudicial to the interest of the Revenue. Consequently, the Tribunal set aside the CIT's order passed u/s 263 and restored the AO's assessment order. The appeal of the assessee was allowed.