TMI Blog1999 (6) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of rectification on 8-3-1993 with disallowance of Rs. 12,69,967 as the excess deduction claimed under section 80HHC. The Assessing Officer also issued a notice under section 148 on 24-2-1993 (i.e., the same date on which the notice under section 154 had been issued) requiring the assessee to file a return of income. In response to that notice, the assessee filed the return declaring income of Rs. 40,800 as admitted in the original return. Subsequently, the Assessing Officer sent a letter on 23-12-1993 informing the assessee that notice u/s 148 issued on 24-2-1993 was cancelled for the reason that it was defective, in the sense that the assessee had not been given time of 30 days for filing the return. The Assessing Officer issued a fresh notice under section 148 on 23-12-1993 calling for the return of income. The assessee was informed that the second notice under section 148 was issued to bring to tax the income that had escaped assessment and to allow the deduction under section 80HHC correctly by treating the interest on deposits as income under the head "Other sources'. The assessee filed the return on 27-1-1994 stating that they had not concealed any particulars in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the Assessing Officer wanted the interest income to be assessed under some other head or to make the computation under section 80HHC in a particular manner, that would not give him the jurisdiction to act under section 148. The learned counsel stated that after processing the return under section 143(1)(a) and issuing the intimation on 27-2-1991, the Assessing Officer could have made the regular assessment u/s 143(3) after issuing a notice under section 143(2) within a period of 12 months from the end of the month in which the return had been filed. Shri Sarangan contended that if the Assessing Officer had failed to issue the notice under section 143(2) within the statutory time, that would not give him the jurisdiction to make the assessment by issuing a notice under section 148. His contention was that the Assessing Officer had wrongly assumed jurisdiction to make the assessment u/s 147, instead of making the regular assessment, as provided in section 143(3) and so the impugned order of assessment was not a valid order. Arguing on the above lines, the learned representative urged us to cancel the assessment and reverse the finding of the first appellate authority. 4. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account of the business the total sum of Rs. 12,88,367. The assessee also worked out the deduction under section 80HHC on the entire income from the business, which included the interest credited in the P L account. While processing the return under section 143(1)(a), the Assessing Officer could not have made any disallowance in regard to the deduction under section 80HHC as the same would not be in the nature of prima facie adjustment envisaged in that section. The Assessing Officer had to issue the intimation accepting the income returned by the assessee. 6. True that there was a notice under section 154 issued by the Assessing Officer for the purpose of rectifying the intimation under section 143(1)(a), on realising that the assessee could not have enjoyed the relief under section 80HHC on the interest on bank deposits. As a matter of fact, an order of rectification under section 154 was also passed treating the interest income under the head 'Other sources' and the consequential reduction in the relief under section 80HHC. But that order of rectification was cancelled by the CIT (Appeals) by his order dated 15-6-1993 with the reasoning as under: "I am in agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere income chargeable to tax has escaped assessment. If the income liable to tax in the hands of the assessee has been made the subject of excessive relief under section 80HHC, and the Assessing Officer has reason to believe so, that will give him the jurisdiction to make the assessment or reassessment under section 147 and for that purpose the notice can be issued under section 148. The Assessing Officer was thus justified in issuing the notice under section 148 to withdraw the excess deduction allowed under section 80HHC, with the computation of the income from business, including interest on deposits as business income. 7. It is provided in section 143(2) that where a return has been made under section 139, the Assessing Officer shall, if he considers it necessary or expedient, to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him on a date to be specified therein, either to attend his office or to produce or cause to be produced there, any evidence on which the assessee may rely in support of the return. But then no notice shall be served on the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1) or (1B) shall be deemed to be an order for the purpose of section 264. The Finance Act, 1994 has substituted in the Explanation "sections 246 and 264" for section 264 with effect from June 1, 1994. The effect of the amendment is that an intimation sent to the assessee under section 143(1)(a) or section 143(1B) is also deemed to be an order for the purpose of section 246 which deals with first appeals against the orders of the Assessing Officer. From the above provisions in section 143 it can be seen that only for the limited purpose of section 246 or 264 the intimation under section 143(1) will be treated as an order passed by the Assessing Officer. But for the above amendments and for the limited purpose of sections 246 and 264 the intimation under section 143(1)(a) will not be an order and much less an order of assessment. The fact that the intimation under section 143(1)(a) is not an order is evident also from the provisions of section 154, which provides for rectification of mistakes. With a view to rectify any mistake apparent from the record of an income-tax authority, it is provided that the income-tax authority may--- (a) amend any order passed by it under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... export business, the assessee had included the interest amount in the computation of the deduction under section 80HHC. In the assessment, the Assessing Officer considered the interest as income under the head "Other sources" and excluded the same while working out the deduction under section 80HHC. This was confirmed by the CIT (Appeals). The CIT(A) noticed that it was the surplus amount generated from the export business that the assessee had invested for a period of two years and more and on the facts of the case the decision of the jurisdictional High Court in the case of Collis Line (P.) Ltd. v. ITO [1982] 135 ITR 390/9 Taxman 129 (Ker.) was applicable. The appellate authority also placed reliance on the decision of this Tribunal in the case of Abad Fisheries [IT Appeal No. 515 (Coch.) of 1993 dated 23-11-1993], wherein it had been held that interest income earned as a result of employment of surplus funds with banks was assessable under the head 'Other sources'. 12. Before us, the learned counsel Shri Sarangan submitted that the CIT (Appeals) was not correct in confirming the assessment of the interest on bank deposits as income from other sources without considering, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee was the fixed deposit with banks and not the export business and so, the interest income would not form part of the export profit. He further submitted that the CIT (Appeals) was fully justified in confirming the assessment of the interest income under the head 'Other sources', in view of the decisions of the jurisdictional High Court in the case of Collis Line (P.) Ltd. and also in the case of CIT v. Cochin Refineries Ltd. [1985] 154 ITR 345/22 Taxman 347 (Ker.). 14. As per the details available in the assessment order, the assessee had a number of F.D. accounts and Cash Certificates with Vijaya Bank. Almost all the deposits were for a period of two years, except two deposits, (1) 13/89 and (2) 15/89, which were for a period of six months only. The question to be considered is whether the interest accrued on the term deposits and the Vijaya Cash Certificates could be considered as income from business. Considering the duration of the deposit period, it can be seen that it was the surplus money available with the assessee that had gone into the deposit accounts. In the case of Collis Line (P.) Ltd. decided by the Kerala High Court, a shipping company, deposited i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from other sources and not profits and gains attributable to the business of the assessee as a priority company. In that case it was held as under : "Profits and gains are well understood to mean only the business income, and not any other income. So long as the company has no business of lending money, and so long as the admitted case of the company is that the income derived is only on account of the peculiar situation arising from the time schedule for repayment of the loans, it cannot be stated that the income yielded by the deposits or investments was received in the course of the company's business so as to be treated as a business profit." 16. As regards the claim for deduction under section 80HHC of the interest amount, it may be noted that the deduction is allowable only on the profit derived by the assessee from the export of specified goods and merchandise. In the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC) the Supreme Court has held that the expression 'derived from' has a definite, but narrow meaning and it cannot receive a flexible or wider concept. Reference may also be made to the decision of the Karnataka High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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