2007 (9) TMI 441 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction assumed by the Commissioner u/s 263 of the Income-tax Act, 1961.
2. Deduction under section 80HHC of the Income-tax Act, 1961 concerning the profits on the sale of quota rights.

Summary:

Issue 1: Jurisdiction Assumed by the Commissioner u/s 263
The assessee challenged the jurisdiction assumed by the Commissioner u/s 263 of the Income-tax Act, 1961, regarding the deduction allowed u/s 80HHC for the profits earned on the sale of quota rights. The Commissioner had cancelled the assessment orders passed by the Assessing Officer (AO) u/s 143(3) for the assessment years 2000-01 and 2001-02, deeming them erroneous and prejudicial to the interests of the revenue. The Commissioner directed that 90% of the receipts from the sale of quota rights be excluded while computing the "profits of business" under Explanation (baa) to section 80HHC. The assessee argued that the Commissioner wrongly assumed jurisdiction as the twin conditions of the order being erroneous and prejudicial to the revenue were not satisfied. The Tribunal agreed with the assessee, citing the Supreme Court judgment in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, which mandates that both conditions must be met for the Commissioner to assume jurisdiction u/s 263.

Issue 2: Deduction u/s 80HHC for Profits on Sale of Quota Rights
The assessee claimed a deduction u/s 80HHC amounting to Rs. 19,13,58,168, which was accepted by the AO. The Commissioner contended that the AO failed to verify whether the receipts fell within the provisions of sections 28(iiia), 28(iiib), and 28(iiic) of the Act. The Tribunal noted that the CBDT Instruction dated 23-2-1998 clarified that premiums on the sale of export quotas should receive the same treatment as profits on the sale of import licenses, cash assistance, and duty drawback. Thus, the income from the sale of quota rights was eligible for deduction u/s 80HHC. The Tribunal also referenced the Mumbai Bench decision in Anil L. Shah v. Asstt. CIT [2005] 95 TTJ (Mum.) 216, which supported this view. Consequently, the Tribunal found that the AO's order, although erroneous, did not result in any prejudice to the revenue. Therefore, the twin conditions for invoking section 263 were not satisfied, and the Commissioner's order was quashed.

Conclusion:
The Tribunal allowed both appeals, quashing the Commissioner's order dated 1-2-2005, and held that the assumption of jurisdiction u/s 263 was vitiated as the twin conditions of the order being erroneous and prejudicial to the revenue were not cumulatively satisfied.