TMI Blog2007 (1) TMI 213X X X X Extracts X X X X X X X X Extracts X X X X ..... -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. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT, Moradabad (in short 'CIT') passed under section 263 of the Income-tax Act, 1961 (in short 'the Act') dated 31-3-2005 pertaining to the assessment years 2001-02 and 2002-03. 2. In both the appeals, the assessee has assailed the assumption of jurisdiction by the CIT under section 263 of the Act on various grounds. Since the two appeals relate to a single assessee and involve common issues they have been heard together and we find it expedient to dispose of the same by a common order. We take up for consideration appeal for the assessment year 2001-02. 3. In this appeal, the challenge to the order of the CIT under section 263 is on the basis that the same is bad in law for it is beyond the jurisdiction of the CIT. The assessee has also challenged the order of the CIT on merits of the dispute. The brief background leading up to the present proceedings can be understood as follows. In this case, the assessee filed a return of income on 31-10-2001 declaring total income at Rs. 12,70,840.In the return of income, the assessee, who is engaged in the manufacture and export of brass artwares, etc., declared income from business to Rs. 49,97,658 and claimed deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpose the restriction that deduction under section 80HHC is quantifiable after reducing the amount of deduction under section 80-IB of the Act. According to the assessee, the implication of section 80-IA(9) was to prevent total deductions under Chapter VI-A of the Act from exceeding the profit and gains. Similarly with regard to the second issue the stand of the assessee was that the issue regarding the exclusion of duty drawback, and income on sale of samples for the purposes of section 80-IB was debatable and a possible view has been taken by the Assessing Officer and therefore, the CIT was ousted from assuming jurisdiction under section 263 of the Act. The CIT, however, did not accede to the pleas of the assessee. The CIT held that the provisions of section 80-IA(9) of the Act made it clear that the profits of the business for the purposes of calculation of deduction under section 80HHC are to be reduced by the amount of deduction under section 80-IB of the Act and that deduction under section 80-IB is to be calculated and allowed first by virtue of section 80-IA(9) of the Act. The CIT noted that the Assessing Officer had overlooked the provisions of section 80-IA(9) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d jurisdiction under section 263 of the Act. In support, the learned counsel referred to the decisions, viz., Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), Paul Mathews Sons v. CIT [2003] 263 ITR 101 (Ker.), CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.) and Maharashtra Seamless Ltd. v. Addl. CIT [2004] 4 SOT 923 (Delhi). 5. Apart from this, on merits, the assessee contended that the CIT erred on facts and in law in determining that the deduction allowable to the assessee under sections 80HHC and 80-IB of the Act was lower than the amounts allowed by the Assessing Officer. With regard to the simultaneous deduction under sections 80HHC and 80-IB of the Act, it was contended that the same was not prohibited provided the aggregate of the deduction claimed under the two sections do not exceed the gross total income. Reliance was also placed on the following decisions. (i) Bharat Heavy Electricals Ltd. v. Dy. CIT [2006] 9 SOT 89 (Delhi)(URO). (ii) Mittal Clothing Co. v. Dy. CIT [2005] 4 SOT 626 (Bang.); (iii) Toshica Creation v. ITO [2005] 96 TTJ (JP) 651. (iv) ITO v. R.V. Diamond Jewellers (P.) Ltd. [IT Appeal No. 2252 (Delhi) of 2005 dated 30-11-2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industrial Co. Ltd. (supra). In nutshell the stand of the learned Departmental Representative was that in this case the Assessing Officer has erroneously allowed claim of deduction under section 80HHC on total income without deducting claim under section 80-IB as provided under section 80-IB(13) rule with section 80-IA(9) and has erroneously allowed claim of deduction under section 80-IB on the duty drawback receipt and receipts from sample. 8. We have considered the rival contentions and examined the material on record. The primary issue is as to whether the CIT was justified, on the facts and circumstances of the case, to hold that the assessment order dated 26-3-2004 passed under section 143(3) of the Act was erroneous and prejudicial to the interest of the revenue, so as to justify invoking of section 263 of the Act. A bare reading of section 263 makes it clear that to justify exercise of jurisdiction by CIT, the order of the Assessing Officer is to be erroneous insofar as it is prejudicial to the interest of the revenue. The satisfaction of the aforesaid twin conditions is a prerequisite to justify intervention by the CIT under section 263 of the Act. The order should be er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer had made inquiries in regard to the applicability of section 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 sections 80HHC and 80-IB of the Act was made by the Assessing Officer on being satisfied with the explanation of the assessee. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) 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. 11. Now, we may also examine as to whether the stand of the Assessing Officer on the issue can be said to be unsustainable in law. On merits, the controversy is whether the Assessing Officer was correct in computing the deduction under section 80HHC without reducing from the profits of business , the deduction allowable under section 80-IB of the Act. The CIT has held that in view of the provisions of section 80-IA(13), the deduction under section 80HHC is to be computed by reducing from the profit of business the deduction allowable under section 80-IB of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is accepted that the legal proposition of the learned Departmental Representative is supported by the said decision, it merely reflects a possible view. 13. Thus, it cannot be inferred that the stand taken by the Assessing Officer is unsustainable in law so as to render the order as prejudicial to the interest of revenue. Certainly, the point of view of the Assessing Officer 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. (supra) and Gabriel India Ltd. (supra) the order of the Assessing Officer on the issue of computing deduction under sections 80HHC and 80-IB cannot be considered as erroneous insofar it is prejudicial to the interest of the revenue. 14. Now, with respect, to the exclusion of incomes of duty drawback and samples for computing deduction under section 80-IB of the Act, the Assessing Officer had considered such amounts as part, of eligible profits for the purposes of computing deduction under section 80-IB of the Act. On the issue of duty dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act was erroneous and prejudicial to the interest of the revenue. 17. In the result, the appeal of the assessee for assessment year 2001-02 stands allowed. 18. Now, we may take up the appeal of the assessee for assessment year 2002-03. It was a common ground between the parties that the issues involved in this assessment year are similar to those considered by us in the appeal for the assessment year 2001-02. Our decision in the earlier year squarely applies herein also. 19. However, there is an additional feature in this year which has been separately argued by the parties before us. The same is discussed hereinafter. The case of the assessee was selected for limited scrutiny as provided under section 143(2)(i) of the Act on the point of claim for deduction under section 80-IB of the Act. The deductions under sections 80HHC and 80-IB, as claimed by the assessee, were allowed by the Assessing Officer while passing, order under section 143(3)(i) of the Act on 9-9-2004. The assessee contends that the issues raised by the CIT in the proceedings under section 263 relating to the claim for deduction under section 80HHC was not the subject-matter of limited scrutiny mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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