1999 (7) TMI 47 - HC - Income Tax

Summary

Issues Involved:
1. Validity of Circular No. 693, dated November 17, 1994.
2. Legality of adjustments made u/s 143(1)(a) disallowing the claim of the assessee u/s 80HHC.
3. Applicability of subsequent Circular No. 729, dated November 1, 1995, to earlier assessment years.
4. Entitlement of the assessee to deduction u/s 80HHC for various assessment years.

Summary:

1. Validity of Circular No. 693, dated November 17, 1994:
The single judge upheld the validity of Circular No. 693, dated November 17, 1994, stating that it was in accordance with section 80HHC and the Twelfth Schedule to the Act. The circular clarified that for availing of the benefit u/s 80HHC, the rock must be both cut and polished before export.

2. Legality of Adjustments Made u/s 143(1)(a):
The single judge held that the adjustments made in the intimation u/s 143(1)(a) were illegal and beyond the scope of "prima facie adjustments." The Assessing Officer (AO) was directed to reconsider the matter afresh. This decision was reported in God Granites v. Under Secretary, CBDT [1996] 218 ITR 298 (Kar).

3. Applicability of Subsequent Circular No. 729, dated November 1, 1995:
The Tribunal accepted the assessee's appeal based on the subsequent Circular No. 729, dated November 1, 1995, which clarified that profits derived from the export of granite dimensional blocks would be eligible for deduction u/s 80HHC. The Tribunal found that the assessee was exporting "cut and polished" granite blocks, though not finally cut and precisely polished. The court held that the subsequent circular, being explanatory and clarificatory, is retrospective in its operation and would apply to earlier assessment years as well.

4. Entitlement of the Assessee to Deduction u/s 80HHC:
- Assessment Year 1992-93: The court held that the assessee was entitled to the deduction u/s 80HHC for the assessment year 1992-93, based on the interpretation of the subsequent circular.
- Assessment Year 1991-92: The court set aside the orders of the revisional authority and the AO, directing them to grant the benefit of deduction u/s 80HHC, as Circular No. 729, dated November 1, 1995, was applicable to earlier assessment years.
- Assessment Year 1993-94: The court declined to allow the writ petition due to procedural issues, leaving it open for the assessee to seek remedy under the Act if available.

Conclusion:
The court answered the question of law in the affirmative, against the Revenue and in favor of the assessee, affirming that the assessee was entitled to the deduction u/s 80HHC for the export of "cut and polished" granite blocks. The subsequent Circular No. 729, dated November 1, 1995, was held to be applicable retrospectively to earlier assessment years.