TMI Blog2006 (11) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... sues raised by the CIT in his order u/s 263. It is only with reference to the questionnaires issued by the AO and the replies furnished by the assessee that it comes to light that the AO had made inquiry in regard to the issues raised by the CIT u/s 263. But, what is the decision of the AO much less what is the basis of such decision is not indicated in the assessment order. Such an order passed by the AO, in our considered view, would fall within the category of an erroneous order being a non-speaking order. It is pertinent to mention that where the AO is enquiring about the facts and the assessee furnishes evidence, the AO may accept the evidence as sufficient in support of the claim. So, however, when a legal issue is involved and/or the interpretation of the relevant provisions of the Act is involved, it is imperative upon the AO to indicate the reasons for interpreting the provisions of the Act in a particular manner. In this case, the AO, as pointed out earlier, has not given reasons much less valid reasons for taking the view contrary to the view expressed by the Tribunal. Therefore, the order of the AO is not only erroneous for accepting the explanation of the assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with law. Since the CIT has asked the AO to decide the issue afresh in accordance with law, the law will take its own course in passing of the fresh order by the AO. The issues have got to be decided in accordance with law and assessee has the right to appeal against the order of the AO. The order of CIT is again subject to appellate jurisdiction of the Tribunal, High Court, etc. We make it clear that our order will not prejudice the outcome of such proceedings. We have confined ourselves to the validity of order u/s 263 passed by the CIT. We, on the basis of material on record, are satisfied that the order passed by the CIT u/s 263 is within his powers and there is no infirmity in his order to the extent indicated above. We accordingly uphold his order for asst. yr. 2000-01. As indicated earlier, our decision for asst. yr. 2000-01 shall apply mutatis mutandis to the appeal for asst. yr. 2001-02 as well. In the result, the appeals of the assessee for both the assessment years are dismissed. - M. A. BAKSHI VICE PRESIDENT AND N. K. SAINI A.M. For the Appellant : Ajay K. Jain For the Respondent : R. K. Goyal ORDER M.A. BAKSHI, VICE PRESIDENT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts of Rs. 36,45,148 on account of inspection and regrinding charges received from domestic customers taken into account in the gross total income as business profits. According to the CIT, the above sum cannot be said to be the income derived from exports and thus the same was not to be taken into consideration for computation of deduction under Section 80HHC as business profits. The CIT has referred to Clause (baa) of Explanation to Section 80HHC and held that the job work charges received by the assessee were to be excluded from the profits and gains of business for the purpose of computation of deduction under Section 80HHC. The order passed by the AO has been held to be erroneous and prejudicial to the interests of the Revenue. 5. Similarly, for the purpose of computation of deduction under Section 115JA, the assessee, according to the CIT, had claimed excess deduction of export profits. The CIT has pointed out under Section 115JA/JB, the amount to be allowed as a deduction from book profits under Clause (viii) of Section 115JA(2) and 115JB(2)(iv) are the profits eligible for deduction as per Clause (a), (b) or (c) of Section 80HHC(3). The CIT has also referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 263, assessee had filed an appeal to the CIT(A) against the recalculation of deduction under Section 80HHC. It was pointed out that the CIT(A) has accepted the view canvassed by the assessee and held that the calculations made by the AO in pursuance to the direction of the CIT are not warranted. It was further contended that there is a difference of opinion in regard to the calculation of deduction under Section 80HHC. According to the learned Counsel, once a possible view has been taken by the AO in regard to deduction under Section 80HHC, the CIT has no power to set aside the same by holding the order to be erroneous insofar as prejudicial to the interests of the Revenue. It was contended that it is well-settled principle of law that if an AO takes a possible view, the CIT cannot substitute the same with his own view. 9. In regard to the second issue raised by the CIT pertaining to calculation of deduction under Section 80HHC for deduction from book profits, it was contended that the same is covered in favour of the assessee by decision of the Supreme Court in the case of Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC). It was further contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion about the non-exclusion of job charges from the profits and gains of business. Reliance was placed on the decision of Punjab and Haryana High Court in the case of CIT v. Export House (2002) 175 CTR (P H) 137 : (2002) 256 ITR 603 (P H) to support the contention that where the AO does not record a specific finding in regard to an issue, it would demonstrate the non-application of his mind. Reliance was placed on the decision of Punjab and Haryana High Court in the case of B.S. Bajaj and Sons v. CIT (1996) 135 CTR (P H) 491 : (1996) 222 ITR 418 (P H), wherein the AO had allowed deduction under Sections 80HH and 80J without application of mind and the CIT was held to be justified in cancelling the order under Section 263. Reliance was also placed on the decision of Tribunal, Chandigarh Bench, in the case of Biru Mal Pyare Lal v. Asstt. CIT (2002) 74 TTJ (Chd) 150 : (2001) 79 ITD 169 (Chd), wherein the AO had accepted the cash credits without calling for further details, the order under Section 263 was held to be valid. Reliance was also placed on the decision of Tribunal, Chandigarh Bench, in the case of Morinda Co-operative Sugar Mills Ltd. v. Dy. CIT (2001) 73 TTJ (Chd) 87 : (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the old provision of the Act and accordingly it was inapplicable to this case. Reliance was also placed on the decision of the Punjab and Haryana High Court in the case of Liberty Footwear Co. v. CIT (2004) 191 CTR (P H) 378 : (2006) 283 ITR 398 (P H), to support the contention that 90 per cent of the charges were to be excluded from business profits for the purpose of computation of deduction under Section 80HHC. It was accordingly pleaded that the appeal of the assessee may be dismissed. 13. The learned Counsel for the assessee in counter-reply relied upon the following decisions to support the contention that regrinding charges are part of business profits: (i) CIT v. Rane (Madras) Ltd. (1998) 148 CTR (Mad) 404 : (1999) 238 ITR 377 (Mad); (ii) Asstt. CIT v. Herbal Isolates (P) Ltd. (2003) 79 TTJ (Cochin) 328 . It was contended that the debatable issues cannot be the basis for invoking provisions of Section 263. Reliance was placed on the following decisions: (i) CIT v. G.M. Mittal Stainless Steel (P) Ltd. (2003) 179 CTR (SC) 553 ; (ii) CIT v. Simon Carves Ltd. 1976 CTR (SC) 418 : (1976) 105 ITR 212 (SC); (iii) CIT v. Arvind Jewellers (2002) 177 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lordships further held that the expression 'prejudicial to the interests of the Revenue' is to be understood in its ordinary 'meaning and that it is of wider import and is not confined to loss of tax. Their Lordships further held that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and the task is entrusted to the Revenue. If due to an erroneous order of the ITO the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. Their Lordships further explained that every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. Giving an example, their Lordships held, when an ITO had adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. 17. In this case, we have considered the impugned order under Section 263 in the light of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of certiorari to quash the orders passed by a quasi-judicial authority/Tribunal. Likewise, in appeal, the Supreme Court can nullify such order/decision. These powers can be effectively exercised by the superior Courts only if the order under challenge contains reasons. 18. The Hon'ble Supreme Court in the case of Omar Salay Mohamed Sait v. CIT (1959) 37 ITR 151 (SC) have also laid down the following principles of law in regard to the requirement for passing speaking orders: The Tribunal is a fact-finding Tribunal and if it arrives at its own conclusions of fact, after due consideration of the evidence before it, the Court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there are any circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider the decisions of the jurisdictional Tribunal. The assessee has drawn our attention to the decision of the Bombay Bench of the Tribunal as well as of the Hyderabad Bench of the Tribunal where a contrary view has been expressed. In our considered view, when the decision of the jurisdictional Bench of the Tribunal in favour of the Revenue is available and the AO does not follow the same, the order passed by the AO can be said to be erroneous causing prejudice to the interests of the Revenue. We are, therefore, satisfied that the CIT was within his jurisdiction to hold the order of the AO to be erroneous and prejudicial to the interests of the Revenue in regard to deduction under Section 80HHC. 21. We are conscious of the decision of the Punjab and Haryana High Court in the case of Hari Iron Trading Co. v. CIT (2003) 183 CTR (P H) 228 : (2003) 263 ITR 437 (P H), wherein their Lordships laid down the following principle of law: A bare perusal of the aforesaid provision shows that the CIT can exercise powers under Sub-section (1) of Section 263 of the Act only after examining 'the record of any proceedings under the Act'. The expression 'record' has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the explanation of the assessee but lack of reasons for taking the view in favour of the assessee. There is no evidence on record on the basis of which one can ascertain the reasons for taking the view in favour of the assessee and ignoring the decision of Tribunal, Chandigarh Bench, which is the jurisdictional Tribunal in this case. 24. It is also pertinent to mention that where the AO is enquiring about the facts and the assessee furnishes evidence, the AO may accept the evidence as sufficient in support of the claim. So, however, when a legal issue is involved and/or the interpretation of the relevant provisions of the Act is involved, it is imperative upon the AO to indicate the reasons for interpreting the provisions of the Act in a particular manner. In this case, the AO, as pointed out earlier, has not given reasons much less valid reasons for taking the view contrary to the view expressed by the Tribunal. Therefore, the order of the AO is not only erroneous for accepting the explanation of the assessee but not basing the order on any reasons much less valid reasons in regard to legal issue involved. 25. It is also pertinent to mention that the power of the CIT unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered view that such an order passed by the AO falls within the category of erroneous orders. Reference may also be relevant to the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra), wherein their Lordships held that an incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. We are, therefore, of the considered view that the order of the AO was erroneous in regard to determination of the claim of the assessee under Section 80HHC. 28. The next issue is relating to computation of deduction for the purpose of Section 115JA. The assessee had claimed deduction on the basis of book profits in the manner as provided under Clauses (a), (b) and (c) of Sub-section (3) of Section 80HHC. The issue raised by the CIT in order under Section 263 is that reduction of book profits has wrongly been allowed by the AO insofar as the same was to be allowed to the extent of deduction allowed under Section 80HHC Circular No. 555 dt. 4th May, 1990, [(1990) 85 CTR (St) 1] and Circular No. 680 dt. 21st Feb., 1994 [(1994) 117 CTR (St) 215] and the decision of the Kerala High Court in the case of CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Chapter III applies; or (g) the amount withdrawn from the reserve account under Section 80HHD, where it has been utilised for any purpose other than those referred to in Sub-section (4) of that section; or (h) the amount credited to the reserve account under Section 80HHD, to the extent that amount has not been utilised within the period specified in Sub-section (4) of that section; or (ha) the amount deemed to be the profits under Sub-section (3) of Section 33AC, if any amount referred to in Clauses (a) to (f) is debited or, as the case may be, the amount referred to in Clauses (g) and (h) is not credited to the P L a/c, and as reduced by,-- (i) the amount withdrawn from reserves (other than the reserves specified in Section 80HHD) or provisions, if any such amount is credited to the P L a/c: Provided that, where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988 shall not be reduced from the book profit unless the book profit of such y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the P L a/c laid before the company at its annual general meeting in accordance with the provisions of Section 210 of the Companies Act, 1956 (1 of 1956): Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year failing within the relevant previous year. Explanation.:--For the purposes of this section, 'book profit' means the net profit as shown in the P L a/c for the relevant previous year prepared under Sub-section (2), as increased by-- (a) the amount of income-tax paid or payable, and the provision therefore; or (b) the amounts carried to any reserves by whatever name called; or (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) the amount by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation.:--For the purposes of this clause, 'net worth' shall have the meaning assigned to it in Clause (ga) of Sub-section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); or (viii) the amount of profits eligible for deduction under Section 80HHC, computed under Clause (a), (b) or (c) of Sub-section (3) or Sub-section (3A), as the case may be, of that section, and subject to the conditions specified in Sub-section (4) and (4A) of that section; (ix) the amount of profits eligible for deduction under Section 80HHE, computed under Sub-section (3) of that section. (3) Nothing contained in Sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of Sub-section (2) of Section 32 or Sub-section (3) of Section 32A or Clause (ii) of Sub-section (1) of Section 72 or Section 74 or Sub-section (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has given explanations in regard to these issues and we are satisfied that there is no error committed by the AO in regard to small issues raised by the CIT. So, however, in regard to calculation of deduction under Section 80HHC and in regard to computation of profits for the purpose of Section 115JA, we are of the view that the order passed by the AO was erroneous insofar as it was prejudicial to the interests of the Revenue. The CIT was accordingly justified in setting aside the assessment order and directing the AO to make assessment afresh in accordance with law. 30. Before winding up, it may be pertinent to mention that it was brought to our notice that the CIT in fresh proceedings has decided both the issues in favour of the assessee. In our considered view, since the CIT has asked the AO to decide the issue afresh in accordance with law, the law will take its own course in passing of the fresh order by the AO. The issues have got to be decided in accordance with law and assessee has the right to appeal against the order of the AO. The order of CIT is again subject to appellate jurisdiction of the Tribunal, High Court, etc. We make it clear that our order will not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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