TMI Blog2004 (4) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order was not erroneous or prejudicial to revenue and therefore the same cannot be revised. 3. The Learned CIT (Administration) has erred in overlooking learned Assessing Officer had called for detailed computation statement of depreciation statement and after considering that by allowing deduction of depreciation the tax payable would be lower and therefore decided not to allow depreciation and therefore the learned CIT (Administration) cannot pass order under section 263 asking Assessing Officer to allow the depreciation and re-compute assessed income and disallow the deduction under section 263 and further erred in not following judgment of Bombay High Court and Supreme Court and further erred in not considering that the amendment of section 32(1) of allowing depreciation by proposed Finance Bill, 2001 is not retrospective. 4. The Learned CIT (Administration) has erred in not considering that for the assessment year 1997-98 the learned CIT(A) has held with case of appellant that if there is a loss under computation under a section 80HHC(3) the same should be ignored and deduction should be allowed under proviso to section 80HHC and if learned CIT(Administration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 66,06,22,785 Less : unrealized upto to 30-9-199647,47,0056,55,71,35,780 B. Less : unrealized upto 30-9-199647,47,005 66,06,22,745 II. Incentive under section 28(iiia), (iiib) and (iiic) (a) duty drawback718,68,987 (b) cash incentive7,35,544 (c) Prem. on sale of imp. Licence 3,36,500 (d) Prem. on sale of quota10,42,7777,40,23,303 90% of incentive of ₹ 7,40,23,304...6,66,20,977 III. Exemption under section 80HHC : A. under proviso to section 80HHC(3) 90% of incentive export turnover total turnover 6,66,20,977 65,54,35,7496,61,34,228 66,46,22,785 B.under section 80HHC(3)(b) (Manufacturing) Profit of the business under section 4A-exp (baa) Profit of the business As per statement6,88,40,622 Less : 90% of incentiveRs.6,66,20,977 90% of brokerage- commission- int. on FD4,36,767 Rent1,59,950 Misc. Incomes44,649 Int. on loan1,43,599 7,84,9657,06,4686,73,27,445 15,13,177 In proportion to export turnover : Profit of business Export turnover Total t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of goods amounting to ₹ 42,85,486 while computing the export sales of the assessee. The CIT(A) found merit in this claim and directed the Assessing Officer to reduce from export turnover a sum of ₹ 42,85,486 in place of a sum of ₹ 47,87,005 as reduced by Assessing Officer. It was also agitated that amount of ₹ 47,87,005 should not have been excluded at all from total turnover computed for the purpose of section 80HHC. This contention was not accepted by the CIT(A). On 20-10-2000, the assessee was issued with a show-cause notice under section 263 by the CIT, Mumbai-City-VIII. The CIT took note of the fact that in the original computation of income the profits of business were computed without claiming there from current depreciation allowable under section 32 of the Act. A revised statement of income, revised computation of income and deduction under section 80HHC were submitted during the course of assessment proceedings after consideration of depreciation of ₹ 68,78,020 and thus, deduction under section 80HHC was reduced from ₹ 6,80,22,712 to ₹ 6,19,62,602. Thus, CIT concluded that while passing assessment order, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - - - - - - - - - - - - Profits from activities of export business-Rs. 1,24,30,285 - - - - - - - For the reasoning mentioned in show-cause notice, the CIT held that profit for the purpose of section 80HHC should be computed after excluding export incentive and after allowing current year';s depreciation as assessee has incurred loss from its export business, deduction under section 80HHC was erroneously allowed by the Assessing Officer in the assessment order which cause prejudice to the interest of revenue. Thus, CIT has directed the Assessing Officer to re-compute the income of assessee by disallowing deduction under section 80HHC. The assessee is aggrieved hence in appeal before us. 5. Shri Y P Trivedi, the Learned Counsel of the assessee narrated the above mentioned facts. He contended that as per decision of Hon';ble Bombay High Court in the case of CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 177 ITR 443and the decision of Hon';ble Supreme Court in the case of CIT v. Mahendra Mills (2000) 243 ITR 56, it was optional for the assessee to claim current depreciation. The assessee did not claim depreciation according to such discretion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch ';A'; (iv) CIT v. Farida Prime Tannery (2004) 135 Taxman 70(Mad.). He further argued that CIT was wrong in holding that since assessee did not have any profit under section 80HHC(1), the assessee is not entitled to get deduction under section 80HHC. For this proposition, the Learned CIT has placed heavy reliance on the decision of IPCA Laboratories Ltd. v. Dy. CIT (2001) 251 ITR 401(Bom.). He contended that, this conclusion of CIT is not in accordance with law as case of IPCA Laboratories Ltd. (supra) does not have any impact on the present facts of the case. He further argued that incentives are also profit derived from export activities and according to proviso to section 80HHC(3) profits computed as per clauses (a) to (c) of sub-section 3 of section 80HHC has to be further increased by the amount which is 90 per cent of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28. Export incentive received by the assessee is mentioned in these clauses of section 28. He further contended that this issue has been considered by the Tribunal in various cases wherein even after considering the decision of IPCA Laboratories Ltd.';s case (supra) it has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation cannot be excluded while computing profits derived from industrial undertaking for computing deduction under Chapter VI-A. Referring to the said decision, he contended that there is a distinct dichotomy between the cases of computation of normal income de hors Chapter VIA and computation of taxable income where the assessee claims the benefit of deduction under Chapter VI-A. He contended that section 80HHC is a section comprised in Chapter VI-A. Therefore, the ratio of said decision is fully applicable to the present case as well. 8. He further referred to the decision of the Tribunal in the case of Mandhana Exports (P.) Ltd. v. Asstt. CIT (2002) 82 ITD 306(Mum.) wherein it has been held that the position has been changed after omission of section 34 by the Taxation Law (Amendment) and Miscellaneous Provision Act with effect from 1-4-1988. After the omission of section 34, there does not remain any condition of furnishing of the information to be eligible to claim depreciation. Thus, while computing the income under the head Profits and gains of business , section 32, which allow depreciation has to be considered. In this regard, he also placed reliance on the unreported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been challenged by the assessee on following grounds: - (1)The claim of depreciation is at the option of the assessee according to various decisions relied upon in this regard; therefore, non-consideration thereof while computing the profit under section 80HHC was a view in accordance with law and thus, assessment order cannot be considered to be an erroneous. (2)The order of Assessing Officer has merged with the order of CIT(A) as a specific ground in respect of section 80HHC was taken and the same was decided by CIT(A). Once the assessment order has merged with appellate order, powers under section 263 could not be exercised. (3)On merits, a wrong view has been taken by CIT that it was a condition precedent that there should be a positive profit from export activities. According to assessee, it is not necessary that there should be a positive profit from export activity. Even if there is a loss in export activity, the same has to be adjusted against the 90% sum of export incentive as described in proviso to section 80HHC(3). 14. As ragards the submission that claim of depreciation was at the option of the assessee, therefore, the Assessment Order cannot be considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of such sales amounting to ₹ 42,85,486 which should be deducted from export turnover. The second ground taken was that the said sum being not recovered and excluded from the export turnover should have also been excluded from total turnover. Apart from this, other grounds were taken in regard to chargeability of interest under various provisions of the Act. The said appeal has been decided by the CIT(A) vide his order dated 7-7-1999. The CIT(A) has allowed the first ground of assessee and directed the Assessing Officer to reduce a sum of ₹ 42,85,486 from expert turnover being F.O.B. value. Thus, he allowed first ground and the second ground was not accepted and was dismissed. Thus, it is clear that computation of deduction under section 80HHC was agitated in the appeal filed before the CIT(A) and CIT(A) has given directions to Assessing Officer to recompute the said deduction. On these facts, the assessee has claimed that assessment order had merged with the order of CIT(A) so far as it relates to deduction under section 80HHC and therefore, the powers under section 263 have been wrongly exercised by Commissioner of Income-tax. 16. For the purpose of raising this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter may have many aspects and the above-mentioned two factors may be the aspects of the matter but not entire ';matter'; itself. The ';matter'; in the present case is ';deduction under section 80HHC';. For arriving at this conclusion, we have derived support from the decision of Hon';ble Calcutta High Court in the case of Oil India Ltd. v. CIT (1982) 138 ITR 836. The following question was referred to their Lordships: - 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the issue of disallowance under section 40(a)(v) was not the subject-matter of an order by the Appellate Assistant Commissioner and hence the Commissioner of Income-tax had the jurisdiction under section 263 on this issue? In response to the above-mentioned question, the observations of their Lordships are reproduced below: - Upon this the three questions as mentioned hereinbefore have been referred to this court. The first question is directed to the aspect whether after the appellate order was passed by the AAC or an appeal had been preferred, the Commissioner had jurisdiction in the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat order, in our opinion, cannot be the subject-matter of an order of revision by the Commissioner. This principle, however, comes where the appeal does not lie from the order of the Income-tax Officer and before the AAC where different kinds of appeal are provided for in the scheme of the IT Act. This principle was enunciated by the Supreme Court in the case of CIT v. Amritlal Bhogilal Co. (1958) 34 ITR 130. This was also reiterated in the decision in the case of Jeewanlal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407(Cal.) and the decision in the case of Premchand Sitanath Roy v. Addl. CIT (1977) 109 ITR 751(Cal.) the Allahabad High Court reiterated the same priciple in the case of J.K. Synthetics Ltd. v. Addl. CIT (1976) 105 ITR 344. Therefore, it appears to us that as the quantum of depreciation was the subject-matter of appeal the Commissioner had no jurisdiction, in the facts and circumstances of this case, to issue the notice under section 263 and to pass any order on this aspect of the matter. Question No. 1 therefore, in our opinion, must be answered in the negative and in favour of the assessee. The above-mentioned case has been relied upon by Mumbai Tribunal ';A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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