TMI Blog2007 (10) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... ith reference to resultant 'Income from business' after reducing deduction under s. 80-IB, that too without discussing and/or countering the merits or otherwise of the arguments especially the rulings of the competent Courts cited and relied upon by the appellant/assessee firm in its reply dt. 28th March, 2005, whereas factually the order under s. 143(3)(i) dt. 21st April, 2003 was issued after selective scrutiny process under s. 143(2)(i) specifically for deduction under s. 80-IB. (2) Deduction under s. 80-IB has been directed to be not admissible on duty drawback and incentives, that too without granting any opportunity not to talk of reasonable, as also without raising said issue in the impugned notice under s. 263. (3) Deduction under s. 80HHC has been directed to be not admissible on the fictional premise that profits from export business are not positive (after reducing export incentives), which defies the stipulated formulae under the said section, that too without granting any opportunity, not to talk of reasonable, as also without raising said issue in the impugned notice under s. 263. (4) Therefore, the impugned notice, proceedings as well as order under s. 263 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the AO should not be enhanced. Subsequently, the order under s. 263 was passed, wherein in addition to revise computation of deduction under s. 80-IB, the CIT also declined deduction in respect of income from DEPB credits, on the plea that assessee was not having positive profit from the business as defined in cl. (baa) of Explanation to s. 80HHC(3) of the Act. He found that the assessee has suffered loss of Rs. 53.91 lacs; this loss cannot be converted into profit by adding 90 per cent of export incentives as per proviso to s. 80HHC(3)(c) of the Act. After referring to the decision of Hon'ble Supreme Court in case of IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC), he declined deduction of export incentives, in view of assessee having negative income. Accordingly, the CIT held that order passed by the AO was erroneous insofar as prejudicial to the interest of Revenue, the same was cancelled and AO was directed to make fresh assessment de novo after providing reasonable opportunity of being heard. 4. Aggrieved by the above order of the CIT under s. 263, the assessee approached us for further adjudication. It was argued by learned Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the CIT under s. 263 of the Act. 7. We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated on various case law referred by CIT in his order under s. 263 as well as cited by the learned Authorised Representative during the course of hearing before us in the context of factual matrix of the case. A bare reading of provisions of s. 263 makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1). There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO. However an incorrect application of law will satisfy the requirement of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness for ten consecutive assessment years. Sub-s. (9) provides for computation procedure which clearly provides that deduction to the extent of such profit and gains shall not be allowed under other provisions of Chapter VI-A on which the assessee has claimed and allowed deduction under s. 80-IA. There exists no ambiguity in the mandate of the statute in the context of s. 80-IA(9). The subscription of section makes it very clear that where any amount of profit. and gains is claimed and allowed under s. 80-IA for any assessment year, deduction to the extent of such profit and gains shall not be allowed under any other provisions of Chapter VI-A. The condition laid down in sub-s. (9) is a mandatory condition for availing the deduction. As per sub-s. (13) of s. 80-IB. the provisions of sub-s. (5) and sub-ss. (7) to (12) of s. 80-IA shall apply to the eligible business under this section. Thus, in view of the specific restrictions provided under s. 80-IA(9). the definition of business profit as contained in cl. (baa) to s. 80HHC(ivc) has to be constituted in the light of restrictions. Most of the case law cited by the learned Authorised Representative are in the context of provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exports flowing under the scheme formulated by the Government does not amount to profit and gains derived from industrial undertaking. This gain arises to the assessee on the scheme for refund of duty drawback. Therefore, deduction under s. 80-I is not allowable on the amount of duty drawback. Similar view has been taken by Hon'ble Delhi High Court in case of CIT vs. Ritesh Industries (2004) 192 CTR (Del) 81 : (2005) 274 ITR 324 (Del). In case of Nahar Exports Ltd. vs. CIT (2006) 204 CTR (P H) 464 : (2007) 288 ITR 494 (P H), Hon'ble Punjab Haryana High Court held that deduction under s. 80-IA is not eligible on income from sale of import licenses. Hon'ble Madras High Court in the case of CIT vs. Jameel Leathers Uppers (2000) 246 ITR 97 (Mad) held that cash assistance, duty drawback and import license nomination premium is not eligible for deduction under ss. 80HH and 80J of IT Act, 1961. No contrary decision of any High Court was brought to our notice by the learned Authorised Representative which supports the contention that duty drawback and other incentives are eligible for deduction under s. 80HH/80-I/80-IB of the Act. Keeping in view submission of learned Authorised Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,- (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme: Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under cl. (a) or cl. (b) or cl. (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent of any sum referred to in cl. (iiie) of s. 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,- (a) he had an option to choose either the duty drawback or the Duty Free Replenishment Certificate, being the Duty Remission Scheme; and (b) the rate of drawback cred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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