1997 (5) TMI 430 - AT - Income Tax

Summary

Issues:
The judgment concerns the validity of the order passed u/s 263 of the Income-tax Act, 1961, by the CIT, Mumbai City-III, Mumbai, regarding deduction u/s 80HHC for assessment years 1987-88 and 1988-89.

Validity of Order u/s 263:
The CIT contended that the assessee had been given excessive deduction under section 80HHC, inviting objections and subsequently directing the Assessing Officer to enhance the income by limiting the deduction. The assessee objected, arguing that the total turn-over should not include income from sources other than exports. The Tribunal examined the interpretation of section 80HHC and previous decisions, concluding that the CIT's action was not warranted as the Assessing Officer's view was in line with Tribunal decisions. Therefore, the orders of the CIT u/s 263 were canceled, and the Assessing Officer's orders were restored.

Interpretation of Section 80HHC:
The Tribunal analyzed the calculation of deduction u/s 80HHC when an assessee has income from exports and other sources. It was noted that the deduction should be calculated based on a formula involving profits of the business, export turn-over, and total turn-over. The dispute arose over whether the total turn-over should include all receipts or only those related to sales of goods. The Tribunal referred to various decisions and the dictionary meaning of "turn-over" to determine that total turn-over encompasses all business receipts, not just sales receipts. The Tribunal emphasized that the intention of the Legislature was to grant deduction only on export profits, not on unrelated income.

Conclusion:
The Tribunal found that the Assessing Officer's decision was not erroneous as it aligned with previous Tribunal decisions. Therefore, the CIT's exercise of power u/s 263 was deemed unwarranted. The Tribunal highlighted that the controversy regarding the interpretation of export profits and total turn-over had been clarified through subsequent amendments in section 80HHC. As a result, the appeals of the assessee were allowed.