TMI Blog2004 (11) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... recompute deduction u/s. 80HHC by reducing the loss on trading goods exported. The direction, being bad in law, maybe quashed. 3. Without prejudice and in alternative, worthy CIT(C) erred in law and on facts in not ignoring the negative figure i.e. loss of export on trading goods for the purpose of computing deduction under section 80HHC. Adequate directions may be given to allow deduction u/s. 80HHC by taking the negative figure of loss on trading goods exported as Nil." 4. From the above grounds, it would be clear that the assessee is aggrieved by the order passed by the CIT(C) u/s. 263 of I.T. Act, 1961. 5. The facts of the case in brief are that the assessee filed its return of income on 30-11-94 declaring an income of Rs. 18,76,090 which was processed on 20-6-95 u/s. 143(1)(a) of I.T. Act, 1961. Later on notices u/ss. 142(1) and 143(2) were issued and the assessment was framed u/s. 143(3) of I.T. Act, 1961 on 18-12-95. The assessee claimed deduction u/s. 80HHC amounting to Rs. 5,96,147. However, deduction was allowed at Rs. 7,35,435 after considering various additions made by the Assessing Officer. The Assessing Officer while allowing deduction u/s. 80HHC had considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consideration the net result of both the activities i.e. manufacturing and trading and not only the profit of one activity i.e. manufacturing. Now the assessee is in appeal. 7. Ld. counsel for the assessee submitted that the assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue. Therefore, CIT was not justified in setting aside the order passed by the Assessing Officer by invoking the provisions of section 263 of I.T. Act, 1961. It was stated that the Assessing Officer, after proper verification allowed the claim of the assessee u/s. 80HHC and the Ld. CIT(A) further allowed claim of the assessee when the matter was under his consideration and since the order passed by the Assessing Officer merged with the order passed by the Ld. CIT(A). CIT had no jurisdiction to pass the order u/s. 263. Reliance was placed on the following case laws: (i) CIT v. Mehsana District Cooperative Milk Producers Union Ltd. [2003] 263 ITR 645 (Guj,) wherein it has been held that: "Powers of the Commissioner under sub-sec. (1) of section 263 extend to such matters as have not been considered and decided in appeal. The revisional powers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra [2001] 252 ITR 76 (Punj. Har.) (F.B). 8. In his rival submissions, Ld. DR for the revenue strongly supported the order of CIT and submitted that Hon'ble Supreme Court had clearly laid down that if there is a loss that should be adjusted with the positive profit while claiming deduction u/s. 80HHC(i) of I.T. Act, 1961. Reference was made to the judgment passed in the case of IPCA Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521(SC). He further submitted that since the Assessing Officer had not considered the loss while allowing deduction u/s. 80HHC, order passed by him was erroneous as well as prejudicial to the interest of revenue and the CIT had all the powers of revision as provided in Explanation (c) to section 263 of I.T. Act, 1961. It was further stated that although the First Appellate Authority had decided the appeal of the assessee, the CIT had all the powers to review the order u/s. 263 of I.T. Act, 1961 because neither the Assessing Officer nor the CIT had dealt with the issue of loss to be adjusted with the profit earned by the assessee while claiming deduction u/s. 80HHC. Reliance was placed on the judgment of Hon'ble High Court of Punjab Haryana (FB) in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of Hon'ble Supreme Court was not available with the Assessing Officer. 11.1 The Hon'ble Calcutta High Court in the case of Geo Miller Co. Ltd. held as under: "Order 47 of the Code of Civil Procedure, 1908 provides for review on account of mistake or error apparent on the fact of the record. An explanation was added to it by the 1976 amendment. The explanation lays down that a subsequent reversal or modification of the existing interpretation on which a judgment is based does not render the judgment open to review. The explanation added to rule 1 of Order 47 of the Code in order to define an error or mistake apparent on the face of the record is equally applicable to section 154 of the I.T. Act, 1961. In construing section 154 the court is justified in taking into consideration other enactments where an identical provision has been defined by the same Legislature." 11.2. The Hon'ble High Court of Punjab Haryana in the case of Smt. Aruna Luthra observed: "The obvious intention of the Legislature is that if the mistake has come to the notice of the authority within the prescribed time, it should not be allowed to continue. Section 154 clearly provides for the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Max India Ltd. have taken a view that action u/s. 263 cannot be taken when on the date of passing the order the Assessing Officer has taken one of the possible view. The relevant portion of the judgment of Hon'ble High Court of Punjab Haryana in the case of Max India Ltd. is quoted herein below: "Since the turnover of the assessee for the Assessment year 1992-93 included exports, it had claimed deduction u/s. 80HHC of the IT. Act, 1961, at Rs. 1,33,09,439. The assessment was completed by the Assessing Officer on March 15, 1995 and deduction u/s. 80HHC of the Act was allowed as claimed by the assessee. However, on a perusal of the record, the Commissioner of Income-tax observed that while working out the deduction u/s. 80HHC, there was a negative figure of profit at one stage which had been ignored by the Assessing Officer and thereby excess deduction u/s. 80HHC had been allowed. He set aside the order of the Assessing Officer. The Tribunal held that since the view taken by the Assessing Officer was a possible view, the Commissioner had no jurisdiction to exercise power under section 263 of the Act and treat the order to be erroneous in any manner." It has further been held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be related as prejudicial to the interests of Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." Similarly, the ITAT, Pune Bench (TM) in the case of Jamnadas T. Mehta v. ITO [2002] 257 ITR 90 (AT) held that- "the ambit of interference under section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was that in case there is a loss that should be adjusted instead of taking figure at NiL However, other Benches of the Tribunal have taken a different view. In the case of Asstt. CIT v. Avon Cycles Ltd., dated 26-5-2002 in IT Appeal No. 116 (Chd.) of 1997 for the assessment year 1994-95, ITAT Chandigarh Bench 'A' held that- "the machinery to compute the income from export activity is provided in section 80HHC(3) and after computing such income, such income is required to be deducted from the gross total income of the assessee in order to arrive at the taxable income/total income of the assessee as contemplated by section 80HHC(1). In other words, the deduction under section 80HHC(1) has to be a positive figure. If, after computing the amount under section 80HHC(3) there is a resultant loss, it cannot be deducted from the gross total income in order to arrive at the total income. Only the resultant profits from the export activities representing net profits or 90 per cent of the export incentive as per proviso to section 80HHC(3) could be deducted from the gross total income to arrive at the total income/taxable income. Thus, there has to be positive income under section 80HHC(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) is negative, then the construction suggests that those losses cannot be increased by a positive figure and as such this required to be ignored. Even if there is an ambiguity in the interpretation of section 80HHC, the interpretation favourable to the assessee is required to be adopted. Thus taking in to the totality of the facts and circumstances of the case and since the profit from export of manufactured goods and profit from export of trading goods was negative, those figures had to be completely ignored and 90 per cent of export incentive had to be taken into consideration working out the claim of deduction under section 80HHC." 16. On a similar issue, ITAT, Cochin Bench in the case of A.M. Moosa v. Asstl. CIT[1996] 86 Taxman 161 (Mag.) held as under: "It is a bounden duty to liberally construe the provisions of sub-section (3) and the proviso thereunder of section 80HHC as the section was enacted to give a fillip to the exporters who earned precious foreign exchange. In addition to this stand of thought clause (baa) of the Explanation has given a statutory definition of "profit of the business". According to the Explanation in order to arrive at the "profits of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clauses (a) and (b), there is no difficulty in increasing the same by the 90 per cent export incentive as stipulated in clause (c) but if the profit under clauses (a) and (b) are negative, then harmonious construction suggests that those losses cannot be increased by a positive figure under clause (c). Even if there is a ambiguity the same has to be interpreted in favour of the assessee. The Assessing Officer is, accordingly directed to allow the assessee's claim under section 80HHC on the basis of 90 per cent of export incentives as worked out under proviso to sub-section (3) of section 80HHC by ignoring the loss under clauses (a) and (b) of the said section." 18. On a similar issue, ITAT Ahmedabad Bench 'B' in the case of Pratibha Syntex Ltd. v. Joint CIT[2002] 81 ITD 118 held as under: "Section 80HHC(3) provides for quantification of profits derived by the assessee from exports. This computation provision lays down three stages for computation of profits derived from exports: (1) In the first stage "profits of the business" are to be computed as per Explanation (baa) appended below section 80HHC(4B). Profits and gains of business as computed under the head "business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot algebraic sum of two profit components, one computed under the main section i.e., clause (a) and the other computed under the proviso to the section. Had the Legislature used the word 'income' the word may have negative connotation also in the light of the inclusive definition of income under section 2(24)." 18.1 From the above discussion it would be clear that the majority of the ITAT Benches had taken a view that when the computation was to be made under section 80HHC, loss at any stage was required to be ignored. In other words, if the figures under clauses (a), (b) and (c) of sub-section (3) of section 80HHC are negative then the negative figure or loss worked out has to be ignored. In the instant case, the Assessing Officer has taken the view which has been supported by the aforesaid decisions of the various Benches of the Tribunal. Therefore, it can safely be held that the view taken by the Assessing Officer while allowing the claim of the assessee was one of the possible view. Now the question is - if the Assessing Officer has taken one of the possible view then whether the learned CIT was justified in exercising his revisionary powers under section 263 of Income-tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Corpn. [1993] 203 ITR 747 by holding that- "Order of Income-tax Officer following decision of Tribunal in earlier year is not erroneous and could not be revised under section 263 of Income-tax Act, 1961." 21. From the above discussion, it is crystal clear that the view taken by the Assessing Officer was in conformity with the decisions of the various Benches of the Tribunal and thus, the view taken by the Assessing Officer which was the subject-matter of learned CIT's revision, was a reasonable view and, therefore, the ld. Commissioner was not justified in exercising his powers under section 263 of Income-tax Act, 1961 to revise the order passed by the Assessing Officer. Accordingly, we set aside the impugned order of the learned CIT and the appeal is allowed. 22. In ITA No. 285/Chandi/99, the issue involved is identical which would be clear from the grounds raised by the assessee which are following: "1. That worthy CIT(C) Ludhiana erred in law and on facts in assuming jurisdiction under section 263 when the matter (of deduction under section 80HHC) had already been considered by Ld. CIT(A)(C) Ludhiana in order dated 28-11-1996 in appeal No. 50/LT/96-97 and when ..... 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