TMI Blog2007 (5) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... proper jurisdiction and without satisfying the prerequisite conditions of that section. (1.2) That the CIT erred on facts and in law and exceeded his jurisdiction in excessive allowance of deduction under section 80HHC without appreciating that examination of claim of deduction under the latter section was beyond the scope of assessment order dated 31-3-2003 passed under section 143(3)( i ) of the Act. (1.3) That the CIT erred on facts and in law in not appreciating that the assessment order was passed after detailed examination/enquiries and proper application of mind by the Assessing Officer and exceeded his jurisdiction in revising the assessment order dated 31-3-2003, by substituting his opinion with that of the Assessing Officer, which is not permissible in law. (1.4) That the CIT erred on facts and in law and exceeded his jurisdiction in exercising revisionary powers under section 263 of the Act in respect of issue other than the issues stated in the show-cause notice dated 18-1-2005. (1.5) That the CIT erred on facts and in law and exceeded his jurisdiction by making fishing and roaming enquiries subsequent to the notice under section 263 of Income-tax Act which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act as the same does not constitute profits derived from export. (4.5) That the CIT erred on facts and in law in holding that for computing allowable deduction under section 80HHC, eligible profits of the business have to be reduced by the amount of deduction allowed under section 80-IB of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal at or before the time of hearing." 3. Rival contentions have been heard and records perused. Facts in brief are that assessee-company being an industrial undertaking was also engaged in the export. The claim of the assessee under sections 80HHC and 80-IB was allowed by the Assessing Officer on very same amount as claimed by it, while framing assessment under section 143(3). Thereafter the Ld. CIT issued notice under section 263, wherein it was alleged that Assessing Officer has not correctly allowed deduction under section 80HHC with reference to incentives received by the assessee in the form of excise duty and DEPB. The Ld. CIT found that after excluding 90% incentive received by the assessee, their remains to be a loss, therefore, Assessing Officer was not justified in allowing deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the orders of the authorities below and also deliberate on the case laws cited by the ld. AR ld. DR during the course of hearing before us, as well as case laws discussed by the Ld. CIT in his order under section 263. There is no dispute to the well-settled legal proposition that before exercising powers under section 263, the Ld. CIT has to satisfy two conditions simultaneously to the effect that order of the Assessing Officer was erroneous and a prejudice has been caused to the Revenue because of such erroneous order. Only when both these conditions are being satisfied the Ld. CIT can validly exercise his powers of revision under section 263. A bare reading of provisions of section 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. 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 section 263(1). There can be no doubt that the provision cannot be invoked to correct each and every typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 80HHC and 80-IA, the Assessing Officer at some instances discussed herein below, has applied incorrect application of law which has rendered his order erroneous and resulted in loss of Revenue. Let us now examine each and every action of the Assessing Officer and consequential direction given by ld. CIT, in view of our above observations. 7. In the instant case the Ld. CIT has condemned the action of Assessing Officer for allowing deduction under section 80HHC without reducing therefrom the deduction allowable under section 80-IB in view of provisions of section 80-IB(13). By relying on the decision of ITAT in case of Ajit Gupta ( supra ), ld. AR submitted that the import of the restriction provided under sub-section (9) is to ensure that the assessee does not claim repetitive deductions under Chapter VI-A with respect to same profits and gains of the undertaking in question. 8. We have considered the rival contentions, sub-section (9), section 80-IA/80-IB(13) clearly provide that where an assessee claimed and allowed deduction on the amount of profit and gains of industrial undertaking under this section for any assessment year, deduction to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich bears to ninety per cent of any sum referred to in clause ( iiid ) of section 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 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 clause ( a ) or clause ( b ) or clause ( 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 clause ( iiie ) of section 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by the assessee. Here also, different views are emerging on the issue. The learned counsel, brought to our notice the decision of the Gujarat High Court in the case of CIT v. India Gelatine Chemicals Ltd. [2005] 275 ITR 284 wherein a view has been taken by the Gujarat High Court that receipts of duty drawback are income derived from industrial undertaking and eligible to deduction under section 80J. The reason given is that as customs duties and excise duties are admittedly an integral part of the cost of production any receipts by way of reimbursement of such duties are inextricably linked with the cost of production which has to be reflected in the profit and loss account of the assessee. Therefore, duty drawback was "derived from" the industrial undertaking and eligible for deduction under section 80J of the Act. This is a case for deduction under section 80J of the Act and not under section 80HHC. The issue regarding receipt of duty drawback on the raw-material utilized as in-put by the assessee, whether income derived from industrial undertaking so as to be eligible for deduction under section 80-IB has been examined by the Hon ble Delhi High Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer treats such income as not related to business of exports, but as income from other sources . However, the jurisdictional High Court in such situation have held that these receipts merits separate treatment under section 56 of the Act which is outside the ring of profit and gains from business and profession . The court has further provided that to give effect to this position, the Assessing Officer while computing the profits of the export business will have to remove from the debit side of the Profit Loss Account, the corresponding interest expenditure that had been "laid out" to earn such income from other sources. Otherwise, this will depress the profit by an amount which is out of reckoning of section 80HHC, a consequence not intending to be brought about. Following is the relevant observation of the Hon ble High Court at Para 19 : "We are therefore of the view that where surplus funds are parked with the bank and interest is earned thereon it can only be categorized as income from other sources. This receipt merits separate treatment under section 56 of the Act which is outside the ring of profit and gains from business and profession. It goes entirel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxation Laws (Amendment) Act, 2005, which received the assent of President of India on 28th December, 2005, therefore could not be considered by CIT in his order dated 30th March, 2005, we direct the Assessing Officer of recompute the deduction under section 80HHC in accordance with the amended provisions as discussed hereinabove. With regard to the limited scrutiny by the Assessing Officer, we do not find any merit in AR s contention for exercise of powers by the CIT under section 263. 15. In view of the above discussion we are inclined to agree with ld. DR Shri Rajnish Kumar that there is no fault in the direction issued by the CIT with respect of allowability of claim of deduction on duty drawback and subsidy from DIC under section 80HHC/80-IB as well as reduction of amount of claim of deduction under section 80-IB from the eligible profit on which deduction is permissible under section 80HHC. We thus direct the Assessing Officer to recompute the deduction under section 80HHC and 80-IB keeping in view the verdict of Delhi and Punjab Haryana High Courts as discussed above. We direct accordingly. 16. In the result, appeal of the assessee is allowed in part as indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
