2010 (5) TMI 664 - AT - Income Tax

Summary

Issues Involved:
1. Justification of the Commissioner in exercising powers u/s 263.
2. Correctness of the computation of deduction u/s 80HHC.
3. Assumption of jurisdiction by the Commissioner u/s 263.
4. Quantum of adjustment for deduction u/s 80HHC.

Summary:

Issue 1: Justification of the Commissioner in exercising powers u/s 263
The sole issue requiring adjudication was whether the Commissioner was justified in exercising his powers u/s 263. The Commissioner exercised his revision powers on the grounds that the deduction was incorrectly computed as the loss incurred in export of goods was not set off against export incentives before allowing the deduction. The Commissioner noted that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interests of the revenue as it allowed an excess deduction of Rs. 22,03,757.

Issue 2: Correctness of the computation of deduction u/s 80HHC
The Assessing Officer had accepted the income returned by the assessee, including the deduction claimed u/s 80HHC. However, the Commissioner observed that the Assessing Officer failed to apply the amended provisions of section 80HHC, which required adjusting 90% of incentives against the profits or losses of the assessee. The Commissioner directed an addition of Rs. 22,03,757.

Issue 3: Assumption of jurisdiction by the Commissioner u/s 263
The assessee contended that the Commissioner could not invoke his revision jurisdiction as the Assessing Officer had passed the assessment order after considering all relevant facts and legal provisions, including retrospective amendments. The Tribunal held that the view taken by the Assessing Officer was not a possible view of the matter as it did not apply the amended legal provisions correctly. Therefore, the Commissioner's assumption of powers u/s 263 was justified.

Issue 4: Quantum of adjustment for deduction u/s 80HHC
The assessee raised an additional ground of appeal regarding the reduction of 90% DEPB from profits of the business for the purpose of deduction u/s 80HHC. The Tribunal admitted this additional ground and decided it on merits, referring to the Special Bench decision in the case of Topman Exports v. ITO, which was in favor of the assessee. Consequently, the Tribunal modified the order of the Commissioner regarding the quantum of adjustment.

Conclusion:
In the result, the appeal of the assessee for the assessment year 2003-04 was partly allowed, approving the assumption of jurisdiction by the Commissioner u/s 263 but modifying the quantum of adjustment. The same outcome applied for the assessment year 2004-05. Both appeals were partly allowed in the terms and manner indicated above.