2005 (6) TMI 480 - AT - Income Tax

Deductions u/s 80HHC and 80-IB - Profits from undertaking - exporter of garments - Interest receipt from other source - Order u/s 263 passed without any application of the provisions -payments in respect of instalments of employers and employees contribution to Provident Fund - HELD THAT - It appears that the CIT has revised the assessment order u/s 263 on two points. Firstly there were late payments of PF dues which was found by the Assessing Officer while giving effect to section 263 order as not correct as payments were made in time. According to the CIT the second point is that the assessee cannot be allowed deduction u/s 80HHC because he was allowed deduction u/s 80-IB of the Act. We have already noticed that so far as the allowability of the deduction u/s 80HHC is concerned which was the subject-matter of appeal before CIT (Appeals) and decided in favour of the assessee. Therefore in our considered opinion CIT by exercising the power u/s 263 cannot withdraw the relief u/s 80HHC because theory of merger will apply which is supported by the decision of Full Bench of the jurisdictional High Court in the case of CIT v. Hindustan Aeronautics Ltd. 1985 (7) TMI 74 - KARNATAKA HIGH COURT which was confirmed by the decision of Hon ble Supreme Court in Hindustan Aeronautics Ltd. v. CIT 2000 (5) TMI 3 - SUPREME COURT . Further we find that the Commissioner was not justified to hold that once relief u/s 80-IB was allowed to the assessee no further relief u/s 80HHC can be allowed the provisions of section 80-IA(9) We are of the view that the provisions of section 80-IA(9) only regulate the deductions allowable under Chapter VI-A and there is no restriction contained therein to regulate other deductions. The provisions of Chapter VI-A are meant to encourage various objects and these incentive provisions must be construed for the benefit of the taxpayer. Thus we hold that since the assessee has not claimed more than 100 per cent deduction in respect of the profits of the undertaking and since the Assessing Officer has also not allowed more than 100 per cent deduction of the profits under both sections 80-IB and 80HHC there is no need to interfere with the order of the Assessing Officer. Therefore the order of assessment passed u/s 143(3) cannot be said to be erroneous in so far as it is prejudicial to the interests of revenue. In the result the appeal is allowed.

Summary

Issues Involved:
1. Disallowance under section 43B for late payment of Provident Fund contributions.
2. Deduction under section 80HHC when deduction under section 80-IB is also claimed.
3. Application of the theory of merger.

Detailed Analysis:

1. Disallowance under section 43B for late payment of Provident Fund contributions:
The Commissioner of Income-tax (CIT) held that the Assessing Officer (AO) failed to disallow contributions to the Provident Fund (PF) made after the due dates, invoking section 43B. However, upon verification, the AO found that there was no delay in the payments. Thus, no disallowance under section 43B was required. The Tribunal upheld that the initial assessment was correct, as the payments were timely, rendering the CIT's revision under section 263 unjustified on this point.

2. Deduction under section 80HHC when deduction under section 80-IB is also claimed:
The CIT argued that once a deduction under section 80-IB is allowed, no deduction under section 80HHC should be permitted, citing section 80-IA(9) read with section 80-IB(13). The Tribunal examined the legislative intent and the provisions of section 80-IA(9), which states that the total deductions should not exceed the profits and gains of the undertaking. The Tribunal concluded that the purpose of section 80-IA(9) was to prevent multiple deductions exceeding 100% of the profits, not to prohibit deductions under different sections where conditions are met. Therefore, the CIT's interpretation was incorrect, and the assessee was entitled to deductions under both sections 80-IB and 80HHC, provided the total did not exceed the profits.

3. Application of the theory of merger:
The assessee contended that the issue of deduction under section 80HHC had already been decided in their favor by the CIT(Appeals), invoking the theory of merger. The Tribunal agreed, referencing the jurisdictional High Court's decision in CIT v. Hindustan Aeronautics Ltd. [1986] 157 ITR 315 (Kar.), confirmed by the Supreme Court. Under the theory of merger, once an appellate authority has decided an issue, the original authority cannot revise it. Thus, the CIT's order under section 263 withdrawing the deduction under section 80HHC was invalid.

Conclusion:
The Tribunal found that the CIT's order under section 263 was not justified on both counts: the timely PF payments and the simultaneous deductions under sections 80-IB and 80HHC. Additionally, the theory of merger applied, preventing the CIT from revising the deduction under section 80HHC already decided by the CIT(Appeals). Consequently, the appeal was allowed, and the original assessment order under section 143(3) was upheld.