TMI Blog2007 (6) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s 80-IB was before the learned CIT(A) he is presumed to have applied his mind regarding the deduction u/s 80-IB as a whole. We find that the Hon'ble apex Court in the case of State of Madras v. Madurai Mills Co. Ltd.[ 1966 (10) TMI 119 - SUPREME COURT] held that the doctrine of merger is not a doctrine of rigid and universal application and it cannot be said that wherever there are two orders, one by an inferior Tribunal and the other by a superior Tribunal, passed in an appeal or revision, there is a fusion or merger of the two orders irrespective of the subject-matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. The application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provision conferring the appellate or revisional jurisdiction. We are of the considered opinion that since the matter regarding deduction u/s 80-IB was a subject-matter of appeal before the learned CIT(A), therefore, the order of the AO on the issue of deduction u/s 80 IB as a whole had merged with that of the order of the learned CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT called for the assessment records for examination and found that the assessment order passed by the AO is prima facie erroneous and prejudicial to the interest of the Revenue for the following reasons : 3. The learned CIT found that the assessee has two units one at Kanjikode and the other one at Goa. While Kanjikode unit is eligible for deduction @ 30 per cent, the Goa unit is eligible for 100 per cent deduction. He found that although the assessee had debited depreciation in the P L a/c for these two units it has not considered depreciation in computation of its business income and consequently no depreciation was considered while calculating the deduction under s. 80-IB which resulted in higher deduction under s. 80-IB. According to the learned CIT this is not in conformity with the provisions of the Act and not in conformity with the decision of the Hon'ble Bombay High Court in the case of Indian Rayon Corpn. Ltd. v. CIT [2003] 182 CTR (Bom) 247 : [2003] 261 ITR 98 (Bom). 3.1 Similarly, he observed that as against the total sales of Rs. 657.28 crores which includes sales of Goa and Kanjikode units which are eligible for benefit of deduction under s. 80-IB, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide letter dt. 18th March, 2004 the basis and methodology adopted for determination of profits of those two units was explained in detail. This method has been examined in detail during this assessment year as well as during block assessment proceedings and in subsequent years. It was also submitted before the learned CIT that the issue regarding basis of determination of the profits of the Goa and Kanjikode units was subject-matter of appeal before CIT(A). 8. As regards treatment of interest of Rs. 23.39 lakhs, it was submitted that as per para 2 of the agreement a time-limit for payment of interest was provided and therefore any delay in payment could attract interest. It was further submitted that M/s Bombay Oil Industries Ltd. has shown the interest in its income. The assessee also relied on the decision of the Hon'ble Supreme Court in the case of Bombay Steam Navigation Co. (1953) (P) Ltd. v. CIT [1965] 56 ITR 52 (SC) and submitted that the interest is allowable as a deduction under s. 37(1). 9. As regards calculation of income under s. 115JB of the IT Act, it was submitted that any amount added or deleted while computing the taxable income under normal provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the order of the learned CIT(A). Referring to the notice under s. 263 issued by the learned CIT on 30th Jan., 2006, he submitted that one of the issues in the said notice is regarding claim of deduction under s. 80-IB of the IT Act, 1961. Referring to p. 4 of the paper book, he submitted that the assessee vide his letter dt. 20th Feb., 2006 had given reply to the notice issued by the CIT under s. 263. Referring to the p. 9 of he paper book, he submitted that the assessee vide letter dt. 29th March, 2006 had again written another letter to the CIT explaining the various issues raised by him. The learned counsel further submitted that since the issue has clearly merged with the order of the learned CIT(A), the learned CIT has no power to assume jurisdiction under s. 263. 12. He further submitted that the assessee made claim under s. 80-IB which includes various aspects. He submitted that the assessee has taken a particular view for calculation of deduction under s. 80-IB. The AO took another view and reworked the deduction whereas the learned CIT(A) still took another view. Referring to the order of the learned CIT(A), a copy of which is placed at pp. 34 to 39 of the paper bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation only for the purpose of deduction under s. 80-IB of the IT Act and not for the purpose of calculation of business profit. He therefore submitted that in case, depreciation has to be considered for the purpose of deduction under s. 80-IB, depreciation has also to be allowed as a deduction for computation of business profit. 17. As regards head office/administrative office expenses, he submitted that the order of the AO had fully merged with the order of the learned CIT(A) on the basis of the decisions cited as above because the learned CIT(A) has also discussed and gave partial relief on same items and hence the learned CIT has no power to assume jurisdiction under s. 263 of the Act. He further submitted that there are also factual inaccuracies in the annexure given by the learned CIT. 18. As regards to the claim of interest amounting to Rs. 23.39 lacs relating to purchase of brand names and trademarks as revenue expenses, he submitted that the interest was paid for delay in paying the purchase price of the asset. He further submitted that although the agreement did not provide for the interest payment, the parties mutually agreed for payment of interest. Referring to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the depreciation has to be considered by the assessee for the purposes of claiming deduction under s. 80-IB of the Act otherwise the assessee will be claiming double benefit. He further submitted that the issue of not claiming depreciation for calculation of deduction under s. 80-IB was never before the AO or the learned CIT(A). Therefore, the question of merger as argued by the learned counsel for the assessee is not applicable to the facts of the percent case. The learned Departmental Representative also relied on the following cases : (i) Indian Rayon Corpn. Ltd. v. CIT; (ii) Vahid Paper Converters v. ITO [2006] 100 TTJ (Ahd)(SB) 532 : [2006] 98 ITD 165 (Ahd)(SB); (iii) CIT v. Shri Arbuda Mills Ltd. [1998] 147 CTR (SC) 4 74 : [1998] 231 ITR 50 (SC); (iv) CIT v. G.M. Mittal Stainless Steel (P) Ltd. [2003] 179 CTR (SC) 553 : [2003] 263 ITR 255 (SC). 22. As regards apportionment of expenses, the learned Departmental Representative referring to the p. 8 of the order of the learned CIT submitted that the assessee has apportioned the expenses only on domestic sales. Neither the AO nor the learned CIT(A) has held that export sales should be excluded. 23. Referring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of deduction under s. 80-IB is the subject-matter of appeal, it is to be construed that the issue of deduction under s. 80-IB as a whole is the subject-matter of appeal and therefore the order of the AO merged with the order of the learned CIT(A) and therefore the CIT has no power to assume jurisdiction under s. 263. At the same time it is the contention of the Revenue that since the issue regarding computation of deduction under s. 80-IB without claim of depreciation was not considered either by the AO or the leaned CIT(A), therefore, the question of doctrine of merger does not apply. 29. We find that the Expln. (c) to s. 263 reads as under : 263. Revision of orders prejudicial to Revenue. (1)... Explanation. ... (a) ..... (b) ..... (c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the CIT under this sub-section shall extend (and shall be deemed always to have extended) to such matters as had not been considered and decided in such appeal. 30. From the above it is clear that after 1st June, 1988 the powers of CIT under s. 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Finance cost 7,26,925 (ii) Miscellaneous expenses 52,74,287 (iii) Research and development exp. 2,93,102 (iv) ASP expenses 69,35,000 (v) Rent and storage charges 26,87,789 1,59,17,103 13,46,13,086 Add : packing material 1,15,69,232 Income from Kanjikode unit eligible for deduction under section 80-IB 14,61,82,318 30% of above 4,38,54,695 Total 80-IB deduction for this year (Goa + Kanjikode) 51,53,33,805 33. Similarly, we find that the learned CIT(A) vide his order dt. 16th Dec, 2004 at para 6.2 of the order has observed as under : 6.2 I have carefully considered the mater. It is seen that this issue had come up for the decision of my learned predecessor in asst. yrs. 1999-2000 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n should be calculated on the basis of used of the building for 12 months or of 11 month was not a specific aspect which was agitated before the AAC nor was it one on which he gave any direction : Held , that as the quantum of depreciation was the subject-matter of appeal, the CIT had no jurisdiction under s. 263 to revise the order with reference to this aspect. 33.5 We further find that the Hon'ble Bombay High Court in the case of Remix Construction at p. 18 has held as under: Held , (i) that the order under s. 263 of the Act clearly sets out that the point for consideration was that the payments made were expenses of trading nature and, therefore, deemed to have been covered by the estimate of gross profits. The petitioner had filed the appeals before the AAC because of the decision of the ITO that the gross profits disclosed by the assessee could not be accepted in the absence of a day to day stock book, and, therefore, gross profit has to be ascertained by estimate. It was, therefore, obvious that on this aspect of the matter, the CIT should not have exercised revisional powers. The order of revision was null and void. 34. We find that the Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under s. 80HHC and accordingly the CIT did not have jurisdiction. To revise the assessment order under the provisions of 263 as admittedly, it is only the assessment order and not the appellant order which could be revised under s. 263. 35. We further find that the Delhi Bench of the Tribunal in the case of Smt. Sujata Grover v. Dy. CIT has observed as under : A perusal of s. 263(1), Expln. (c) reveals that the power of the CIT under s. 263 extends to all the matters which have not been considered and decided in the appeal. The word used in this expression is 'matters'. A 'matter' may involve one or more aspects. Where there is only one aspect of the matter and that was the subject of appeal before the first appellate authority, the CIT cannot invoke revisionery power on that matter. Sec. 251 states the powers of the CIT(A), which include confirming, reducing, enhancing or annulling the assessment. Explanation to this section provides that in disposing of an appeal the CIT(A) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed notwithstanding that such matter was not raised before him. This sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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