TMI Blog2008 (5) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and prejudicial to the interests of the Revenue to the extent that no deduction under section 80HHC should have been allowed at nil since the assessee's profits from exports were reduced to negative after reducing export incentives from the income under the head 'Business and profession'. 3. That the learned Commissioner of Income-tax has erred in law and on the facts and circumstances of the case in holding that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue to the extent of computing book profit under section 115JB after reducing available deduction under section 80HHC where as per the Commissioner of Income-tax, the assessee was not entitled to any deduction under section 80HHC. 4. On the facts and in the circumstances of the case, it may be held that section 263 does not encourage the substitution of the judgment of the Commissioner of Income-tax on a mere ipse dixit with that of the Assessing Officer, where the Assessing Officer had examined the issue threadbare after thorough investigation and examination including the application of the provisions of section 80HHC of the Income-tax Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer accepted the gross total income at Rs. 1,94,59,318, but he was not satisfied with the computation of deduction under section 80HHC claimed at Rs. 4,84,02,163 by the assessee on the basis of the auditor's report as per Form No. 10CCAC, when the assessee computed a loss of Rs. 4,12,71,750 derived from export under section 80HHC(2)(a), the assessee took it at nil and did not deduct it from the proportionate 90 per cent. of export incentives as per the proviso to section 80HHC(3) at Rs. 6,05,02,704. The assessee claimed 80 per cent. of this at Rs. 4,84,02,164 as admissible deduction under section 80HHC. However, the Assessing Officer held that the loss in exports at Rs. 4,12,71,750 have to be adjusted against the proportionate 90 per cent. of export incentives at Rs. 6,05,02,704 and thus computed the deduction at Rs. 1,53,84,762 as against that claimed at Rs. 4,84,02,164 by the assessee. The Assessing Officer reduced this deduction of Rs. 1,53,84,762 from the gross total income at Rs. 1,94,59,318 and computed the net income at Rs. 40,74,560. This net income was then adjusted against the brought forward business loss and taxable income was assessed at nil. The assessee filed an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all. The assessee computed the book profit under section 115JB at nil after reducing deduction under section 80HHC from the book profit when the assessee is not entitled for any deduction under section 80HHC. Therefore, the Commissioner of Income-tax held that this has resulted in wrong computation of such book profit also. In view of the above observations, the Commissioner of Income-tax issued notice under section 263 dated August 16, 2005 to show cause why action under section 263 may not be taken. In reply, it was submitted that the Assessing Officer passed detailed and reasoned order after examining the details and qualifying the deductions under section 80HHC. It was also submitted that an appeal was filed on the issue of claim of deduction under section 80HHC before the Commissioner of Income-tax (Appeals), therefore, the order of the Assessing Officer has merged with the order of the Commissioner of Income-tax (Appeals), to that extent the provisions of section 263 cannot be invoked. After considering the contention of the assessee, the Commissioner of Income-tax held that the Assessing Officer has wrongly computed gross total income resulting in higher claim of deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for reducing the same or the deduction eligible under section 80HHC for working out the book profit. He also relied on the decision of the Mumbai Special Bench in the case of Deputy CIT v. Syncome Formulations (I.) Ltd. [2007] 292 ITR (AT) 144. Reliance was also placed on the verdict of the hon'ble Supreme Court in the case of CIT v. Max India Ltd. [2007] 295 ITR 282 in support of the proposition that the Commissioner of Income-tax was not entitled to revise the order under section 263 or 80HHC and the law as applicable as on the date of passing of the order by the Assessing Officer would be applicable. On the other hand, the learned Commissioner of Income-tax (Departmental representative) Shri R.K. Paliwal submitted that the issue with regard to computation of gross total income and set off of brought forward losses and depreciation, was not before the Commissioner of Income-tax (Appeals), therefore, no fault can be found in the order of the Commissioner of Income-tax passed under section 263 directing the Assessing Officer to first adjust carry forward business losses and depreciation for arriving at gross total income on which deduction under Chapter VI-A can be allowed. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80HHC, the Assessing Officer has adjusted the 90 per cent. income on export incentives as per the proviso to section 80HHC(3), against the loss computed under section 80HHC. Accordingly, 90 per cent. of the export incentives works out to Rs. 1.53 crores. The Assessing Officer reduced this deduction of Rs. 1.53 crores from the net profit at Rs. 1.93 crores and computed the net income at Rs. 40.74 lakhs. However, the carried forward business loss and depreciation of Rs. 5.71 crores was not taken into consideration for arriving at the gross total income. The assessee has filed an appeal against the order of the Commissioner of Income-tax (Appeals) wherein he has taken the ground that the Assessing Officer has grossly erred in not accepting the method adopted by the assessee for claiming deduction under section 80HHC of the Act, which method was based on various case law cited in favour of the assessee. The Commissioner of Income-tax (Appeals) after considering the contention of the assessee held that the Assessing Officer was justified in allowing deduction at a reduced figure of Rs. 1.53 crores. The controversy here revolves around the question as to whether the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions for carry forward and set off of unabsorbed depreciation of a particular year. If all these provisions are taken into consideration while computing total income, the losses carried forward and depreciation have to be adjusted and thereafter the Assessing Officer has to work out the deduction permissible under Chapter VI-A. Sub-section (2) of section 80A specifically enacts that the aggregate amount of deduction under Chapter VI-A should not exceed the gross total income of the assessee. The effect of clause (5) of section 80B is that gross total income will be arrived at after making the computation of income, wherein first deduction under the appropriate computation provision is to be allowed, thereafter adjustment of intra-head and/or interhead losses is to be done. In the last, setting off of brought forward unabsorbed losses and unabsorbed depreciation is to be taken care of. Even though the provisions of the Act are very clear some of the High Courts have taken a different view, wherein under Chapter VI-A deduction was considered without reducing the carry forward business losses and depreciation. However, the controversy was resolved by the hon'ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order was passed by the Commissioner of Income-tax. However, in the instant case, there is no controversy either at the time of passing order by the Assessing Officer nor were two views there, at the time of passing the order by the Commissioner of Income-tax under section 263, to the effect that carry forward business losses and unabsorbed depreciation is not required to be set off while computing gross total income on which deduction under section VI-A can be allowed. Whatever controversy was there, the same has already been resolved by the hon'ble Supreme Court in the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604, vide its order dated March 5, 1997. Accordingly, there remains no controversy much less a debatable issue with regard to applicability of the provisions of section 80B(5) read with sections 80A(2) and 80AB of the Act, clearly defining computation of gross total income and the extent of deduction under Chapter VI-A. As the issue with regard to computation of gross total income with reference to the provisions of sections 80AB, 80B(5), and 80A(2) was not before the Commissioner of Income-tax (Appeals), the contention of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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