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2007 (1) TMI 213 - AT - Income TaxChallenge the Order passed by the CIT u/s 263 - assessment order passed u/s143(3) - Erroneous And Prejudicial Order - deduction under ss. 80HHC and 80-IB - receipt of duty drawback and samples - HELD THAT:- We are satisfied that the AO had made inquiries in regard to the applicability of s. 80-IA(9) and the assessee had provided an explanation in that regard by a letter in writing. Thus, it would be safe to deduce that quantification of deduction under ss. 80HHC and 80-IB of the Act was made by the AO on being satisfied with the explanation of the assessee. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. specifically observed that "such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Whether the AO was correct in computing the deduction u/s 80HHC without reducing from the "profits of business"- The deduction allowable u/s 80-IB of the Act. The CIT has held that in view of the provisions of s. 80-IA(13), the deduction u/s 80HHC is to be computed by reducing from the "profit of business" the deduction allowable u/s 80-IB of the Act. The conclusion drawn by the AO is supported by the decisions of the Tribunal in the cases of Bharat Heavy Electrical Ltd.[2005 (7) TMI 299 - ITAT DELHI-E], Mittal Clothing Co.[2005 (6) TMI 480 - ITAT BANGALORE], Toshica Creation [2005 (7) TMI 307 - ITAT JAIPUR]. In Bharat Heavy Electrical Ltd., the Tribunal held that s. 80HHC of the Act does not authorize adjustment of deduction under ss. 80HH, 80HHB or s. 80-I from the export profits before deduction u/s 80HHC is given. Whatever deduction is computed by applying the formula prescribed by s. 80HHC, same is to be allowed without such profits being reduced by other deduction. It cannot be inferred that the stand taken by the AO is unsustainable in law so as to render the order as prejudicial to the interest of Revenue. Certainly, the point of view of the AO is a possible view in the eye of law and the CIT cannot prefer another view and treat the order as erroneous and prejudicial to the interest of the Revenue. Therefore, following the ratio of judgments of the apex Court and Bombay High Court in Malabar Industrial Co. Ltd.[2000 (2) TMI 10 - SUPREME COURT] and Gabriel India Ltd.[1993 (4) TMI 55 - BOMBAY HIGH COURT] the order of the AO on the issue of computing deduction under ss. 80HHC and 80-IB cannot be considered as erroneous insofar it is prejudicial to the interest of the Revenue. Exclusion of incomes of duty drawback and samples - computing deduction u/s 80-IB of the Act - AO had considered such amounts as part of eligible profits for the purposes of computing deduction u/s 80-IB of the Act. On the issue of duty drawback, the judgments in the case of India Gelatine & Chemicals Ltd. [2004 (4) TMI 20 - GUJARAT HIGH COURT] and of the Tribunal in the case of Metro Tyres Ltd.[2001 (8) TMI 1388 - ITAT DELHI] and A.P. Industrial Components Ltd. [2001 (1) TMI 222 - ITAT HYDERABAD-A] support the stand of the AO. Similarly, Special Bench of the Tribunal in the case of Nirma Industries Ltd.[2005 (4) TMI 242 - ITAT AHMEDABAD] and Mumbai Bench of the Tribunal in the case of Investwel Publishers (P) Ltd.[2004 (10) TMI 259 - ITAT BOMBAY-E] support the case of the assessee and the conclusion drawn by the AO. In contrast the CIT and the ld DR interpreted "derived from" to infer that such incomes are not includible for the purposes of s. 80-IB of the Act and reliance was placed in the case of Sterling Foods. Again on this aspect, it is evident that it is a matter of interpretive exercise and two possible interpretations are feasible. Therefore, without adjudicating as to which is a correct interpretation, it is clear that s. 263 is unwarranted in such situation. Therefore, on this aspect also, the assumption of jurisdiction by the CIT u/s 263 is unjustified. Thus, we hold that the CIT erred on facts and in law in exercising revisionary powers u/s 263 holding that the assessment order passed u/s143(3) of the Act was erroneous and prejudicial to the interest of the Revenue. In the result, the appeal of the assessee for asst. yr. 2001-02 stands allowed.
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