1999 (8) TMI 983 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction u/s 263 of the IT Act, 1961.
2. Consideration of sales to foreign airlines as export turnover for relief u/s 80HHC.

Summary:

Issue 1: Jurisdiction u/s 263 of the IT Act, 1961

The assessee appealed against the order of the CIT dated 24th March 1992, made u/s 263 of the IT Act, 1961, for the assessment year 1987-88. The CIT issued a notice u/s 263 seeking to set aside the assessment order passed u/s 143(3) on the grounds that the AO allowed a deduction u/s 80HHC without verifying if the sales to airlines were within India and thus not export sales, and wrongly allowed a deduction on account of incremental liability for a capital asset as revenue expenditure. The CIT concluded that there was no need for revision on the second issue but set aside the first issue for reconsideration by the AO.

Issue 2: Consideration of Sales to Foreign Airlines as Export Turnover for Relief u/s 80HHC

The assessee, a hotelier with a flight kitchen unit, claimed a deduction u/s 80HHC for supplies to foreign airlines. The AO revised the claim from Rs. 7.32 lacs to Rs. 15 lacs based on assessed income. The CIT argued that the AO allowed the deduction without proper discussion and consideration of whether the sales constituted export turnover. The assessee's counsel argued that the AO had applied his mind, evidenced by the audit report in Form 10 CCAC and the discussion of related sales-tax liability in the assessment order. The CIT's reliance on the denial of deduction in the subsequent year was invalid as the CIT(A) had allowed the deduction on appeal.

Tribunal's Findings:

The Tribunal found that the AO had duly considered the issue of deduction u/s 80HHC, supported by three indicators: the audit report, the enhancement of the deduction amount by the AO, and the discussion of sales-tax liability on flight kitchen sales. The Tribunal referenced the authoritative pronouncement in CIT vs. Gabriel India Ltd., emphasizing that an erroneous order is one not in accordance with law or made without enquiry. The Tribunal concluded that the AO's order was not erroneous or prejudicial to the Revenue's interest, and the CIT had not demonstrated how the deduction was legally incorrect.

Conclusion:

The Tribunal quashed the CIT's order u/s 263, holding that the AO's order was neither erroneous nor prejudicial to the Revenue's interest. The appeal of the assessee was allowed.