1997 (2) TMI 495 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax (CIT) under section 263 of the Income-tax Act, 1961.
2. Granting of relief under section 80HHC for the export of granite stones.
3. Classification of granite as "minerals and ores" under section 80HHC.
4. Consideration of interest income, miscellaneous income, and credit balance write back in the total turnover.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax (CIT) under section 263 of the Income-tax Act, 1961:

The primary issue was whether the CIT was justified in invoking section 263 to revise the assessment order. The appellant argued that the CIT did not provide a specific finding that the assessment order was erroneous and prejudicial to the interests of the Revenue. The CIT's order was based on the premise that the Assessing Officer (AO) did not apply his mind to the legal implications of section 80HHC, particularly regarding the exclusion of minerals and ores from eligible exports. The appellant's counsel cited several cases, including CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), to argue that the CIT must clearly state the error and its basis. The CIT's order merely directed the AO to rework the relief under section 80HHC without specifying the error, which was deemed insufficient.

2. Granting of relief under section 80HHC for the export of granite stones:

The appellant contended that the relief under section 80HHC was rightly granted by the AO, who had considered all relevant materials. The CIT, however, held that the AO did not consider the exclusion of minerals and ores under section 80HHC. The CIT pointed out that section 80HHC(2)(b) was amended with effect from April 1, 1991, to include processed minerals and ores in the Twelfth Schedule, which includes cut and polished granite. The CIT inferred that prior to this amendment, granite was considered a mineral and thus ineligible for relief under section 80HHC. The appellant argued that the CIT's interpretation was debatable and that the AO had correctly granted the relief based on the materials provided.

3. Classification of granite as "minerals and ores" under section 80HHC:

The CIT classified the granite stones exported by the appellant as "minerals and ores," making them ineligible for relief under section 80HHC. This classification was based on the amendment to section 80HHC(2)(b) and the inclusion of cut and polished granite in the Twelfth Schedule. The appellant argued that their activity of excavating, cutting, and dressing granite stones amounted to manufacturing or production of an article or thing, thus qualifying for relief under section 80HHC. The CIT's classification was deemed to be a highly debatable issue, and the appellant relied on previous assessments where relief under section 80HHC was granted.

4. Consideration of interest income, miscellaneous income, and credit balance write back in the total turnover:

The CIT also held that the AO did not apply his mind to the inclusion of interest income, miscellaneous income, and credit balance write back in the total turnover for the purpose of section 80HHC. The appellant argued that these items were rightly excluded from the total turnover as they were not directly related to the export business. The CIT's order directed the AO to rework the relief under section 80HHC, considering these items in the total turnover, which the appellant contested.

Judgment:

The Tribunal's Judicial Member quashed the CIT's order, restoring the AO's assessment, stating that the CIT did not provide a specific finding that the assessment order was erroneous and prejudicial to the interests of the Revenue. The Judicial Member relied on the decision of the Bombay High Court in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom), which requires the CIT to state the error and its basis clearly.

The Accountant Member disagreed, upholding the CIT's order, arguing that the CIT had identified an error in the assessment order, particularly the AO's failure to consider the exclusion of minerals and ores under section 80HHC. The Accountant Member cited the same decision of the Bombay High Court, stating that the CIT was within his jurisdiction to revise the assessment order.

The Third Member agreed with the Accountant Member, concluding that the CIT had correctly identified an error in the assessment order and was justified in invoking section 263. The Third Member emphasized that the CIT's action was supported by the decision of the Bombay High Court in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom).

The final decision was to uphold the CIT's order, setting aside the AO's assessment and directing a fresh assessment considering the legal implications of section 80HHC and the classification of granite as minerals and ores.