TMI Blog2003 (8) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... owing calculations: "Deduction under s. 80HHC Profits of the Business Rs. (a) Income from business 1,49,46,364 Less : Commission recd. 1,02,87,639 Interest recd. 8,20,478 Service charges 13,92,131 Cash assistance 60,34,388 Duty drawback 3,36,76,495 5,22,11,175 90% of above 4,69,90,058 3,20,43,694 NIL (b) Total Turnover As per P L a/c 73,87,12,140 Deduct Cash assistance 60,34,388 Duty drawback 3,36,76,495 Freight insurance 46,03,064 Export 69,43,98,193 (c) Export on FOB basis 25,85,92,700 (d) Deduction under s. 80HHC 25,85,92,700 69,43,98,193 x NIL NIL Plus Deduction as per proviso to sub-s. (3) of s. 80HHC : Cash assistance 60,34,388 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certified by the auditors of the company. You are requested to please note that sub-s. (3) of s. 80HHC of the IT Act, 1961, provides the manner of computing deduction. Sub-s. (3) has three cls. (a), (b) and (c). While cl. (a) deals with the profit on export of goods which are manufactured by the assessee, cl. (b) deals with profit on export of trading goods and cl. (c) deals with profit on export of goods which are manufactured/traded by the assessee. However, at the end of sub-s. (3) a proviso is added to the effect that the profits computed under cl. (a) or cl. (b) or cl. (c) above shall be further increased by the amount which bears to 90 per cent of cash assistance and duty drawback, etc., the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. 3. It will appear from the above that Firstly, the deduction under s. 80HHC has to be completed under any of the three clauses of sub-s. (3) of s. 80HHC and then the same is to be increased by the amount, if any, calculated as per the above referred proviso. The proviso clearly indicates that it will only increase the deduction, if any, computed under any of the three cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his has been done to rationalise the provision and to avoid confusion (as per para 10.7 of CBDT's Circular No. 559, dt. 4th May, 1990, copy of the relevant extract enclosed as Annex. 3). The purpose, it can reasonably be inferred, is to use the more explicit word 'profit' instead of the less clear expression 'income' which may comprehend loss as well. 5. In view of the above, it is clear that the deduction under s. 80HHC was correctly computed, correctly certified by the auditors and was correctly allowed by the AO in the order passed under s. 143(3) of the IT Act, 1961. You are, therefore, requested to kindly drop the proceedings initiated under s. 263 of the IT Act, 1961. Thanking you, Yours faithfully, (Ravi Parkash) Chief-Group Taxation" 3.4 After considering the submissions of the assessee, the CIT made the observation that the interpretation of the word 'Profit' referred by the assessee was not correct. According to him, it was highly improbable that there was legislative intention to ignore the losses as computed under various sub-clauses to sub-s. (3) of s. 80HHC of the IT Act, 1961 and in case result of computation under the head 'Profits and gains' of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ITD 118 (Ahd) 3.6 In his rival submissions, the learned Departmental Representative strongly supported the order of the learned CIT and submitted that the claim has wrongly been allowed by the AO without considering the term "Profit of Business" as defined in sub-cl. (baa) to the Explanation. It was stated that whenever there was a negative figure under the head "'Profit and gains' of business or profession" the same was required to be reduced while calculating the deduction under s. 80HHC of the IT Act, 1961. The reliance was placed on the decision of the Tribunal Calcutta Bench in the case of Yarn Syndicate Ltd. vs. Dy. CIT (2002) 74 TTJ (Cal) 543 : (2001) 79 ITD 189 (Cal). 4. We have heard both the learned representatives and considered their rival submissions along with the material available on the record. The issue before us is as to whether the learned CIT was justified in invoking the provisions of s. 263 of the IT Act. We find that the connotation of expression "erroneous" in the context of exercise of revisionery powers by the CIT under s. 263 of the IT Act are much narrow than the ordinary connotation of this expression in a common parlance. The Hon'ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT) held that: "the ambit of interference under s. 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. The section is not enacted to get a sheer escapement of revenue which is taken care of by other provisions in the Act. Prejudice that is contemplated under s. 263 is prejudice to the income-tax administration as a whole. Sec. 263 is to be invoked not as a jurisdictional corrective or as a review of subordinate's order in exercise of the supervisory power, but it is to be invoked and employed only for setting right distortions and prejudicies to the Revenue which is a unique conception which has to be understood in the context of, and in the interests of the revenue administration. Where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the AO is unsustainable in law." In view of the above, we have to see in the instant case as to whether the view taken by the AO is perverse or impossible view and unless and until it is established that the view taken by the AO is perverse or imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of s. 80HHC(3), the same has to be ignored, only then 90 per cent of the export incentive will represent the positive income." In the case of Vishal Exports Overseas Ltd. vs. ITO, the Tribunal 'I' Bench Mumbai observed in para 13 as under: "13. For the above reasons, we are of the view that the judgment of the Bombay High Court in IPCA Laboratories is not of assistance to the Revenue in the present controversy. Since the matter is already concluded in favour of the Ahmedabad, Cochin and Mumbai Benches of the Tribunal, respectfully following them, we uphold the assessee's contention and direct the AO to allow the deduction under s. 80HHC without adjusting the export loss against the amount computed under the proviso to sub-s. (3). Ground Nos. 1 to 7 are allowed." 4.1 Similarly, the ITAT, Delhi 'C' Bench in the case of Indian Sugar General Industry Export Import Corpn. Ltd. vs. Dy. CIT held as under: "Sub-s. (3) of s. 80HHC begins with the words 'for the purpose of sub-s. (1)' Expln. (baa) distinguishes profits of the business from the profits and gains of the business showing that they are separate items for the purposes of s. 80HHC and the proviso to s. 80HHC(3) fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If loss is confronted with as a result of the exercise, the same should be ignored and should not merit consideration. In the light of the discussions, the assessee did not have the statutory "Profit of business" as defined in the Explanation and, therefore, in terms of the main provisions of sub-s. (3) he is not entitled to the deduction of such profit (which is nil) there being no profit. In the context and setting of the enactment and the objects of the section, the proviso should be read as an independent provision to advance the cause rather than to defeat it. Thus, construing the proviso to sub-s. (3) of s. 80HHC as an independent provision, the assessee would be entitled to the deduction in an amount equal to 90 per cent of the sums referred to in cl. (iiia) (not being profits on sale of a licence acquired from any other person), and cls. (iiib) and (iiic) of s. 28, the same proportion as to export turnover bears to the total turnover to the business carried on by the assessee. From another point of view even if the proviso to sub-s. (3) of s. 80HHC is viewed only as a proviso, still the profit of business is to be taken as 'nil' there being no profit. This should be incre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as export turnover bears to the total turnover of business. From the aforesaid working, it would be seen that the profits derived from exports as per s. 80HHC(1) which qualifies for relief would be the amount arrived at in the second stage which is further increased by the amount arrived at in the third stage as above. If the figure in the first stage as above works out to be negative, it clearly means that the same would have to be ignored for the purpose of working out the proportionate figure in the second stage as above and in that eventuality "profit of the business" would be adopted as nil. There is obviously no question of calculating the proportion of the negative figure in the aforementioned second stage and the profits derived from exports, for the purpose of s. 80HHC(1) would in that case comprise of the amount arrived at the third stage as above. The interpretation being placed above is fully supported by the rule of literal interpretation as well as rule of purposive interpretation of statutes. It is relevant to note that s. 80HHC(1) as well as s. 80HHC(3) alongwith the proviso appended thereto consistently speak of profits. The word "profit" is understood and k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority is bound to follow such decision. Hence, an order passed by the ITO following the decision of the Tribunal cannot be held to be erroneous and such an order cannot be revised." 4.5 Similarly, the Hon'ble Allahabad High Court in the case of K.N. Agrawal vs. CIT has held as under: "The orders of the Tribunal and the High Court are binding upon the AO and since he acts in a quasi-judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court, as the case may be. He cannot ignore it merely on the ground that the Tribunal's order is the subject-matter of a reference in the High Court. Hence, where the AO follows the decision of an appellate authority, it cannot be said that his decision is erroneous. Such a decision cannot be revised by the CIT under s. 263." A similar view has been expressed by the Hon'ble Orissa High Court in the case of CIT vs. Orissa State Financial Corporation by holding that "Order of ITO following decision of Tribunal in earlier year is not erroneous and could not be revised under s. 263 of the IT Act, 1961. From the above discussions, it is crystal clear that the view taken by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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