2011 (8) TMI 422 - HC - Income Tax

Deduction u/s 80HHC - Revision u/s263 - amendment with effect from April 01 1991 - the subject-matter of export was really processed minerals within the meaning of the Twelfth Schedule and the appellant s item of export came within item No.(v) of the Twelfth Schedule namely mica blocks mica splittings mica condenser films mica powder micanite slivered mica punched mica mica paper mica tapes mica flakes and the goods in question are really processed mineral as would appear from explanation given to the said Schedule - Held that the said benefit of amendment can be available from the next assessment year and thus for the assessment year in question the exported goods cannot get the benefit of Section 80HHC of the Act Regarding revision - the decision to give benefit though law did not permit grant of such benefit is a grave error on the part of the Assessing Officer which has resulted in the loss of revenue and consequently it was a fit case for invoking the jurisdiction under Section 263 of the Act. - Decidedagainst the assessee

Issues Involved:
1. Eligibility for deduction under Section 80HHC of the Income-tax Act, 1961.
2. Classification of exported goods as "minerals and ores" or "processed minerals."
3. Applicability of the circular dated July 27, 1994, issued by the Central Board of Direct Taxes for the assessment year 1990-91.
4. Justification for invoking Section 263 of the Income-tax Act.
5. Validity of the Tribunal's decision to uphold the order under Section 263 on a new ground.

Detailed Analysis:

1. Eligibility for Deduction under Section 80HHC:
The primary issue was whether the export of fabricated mica products, specifically fabricated mica electronic components, was eligible for deduction under Section 80HHC of the Income-tax Act, 1961, for the assessment year 1990-91. The Tribunal upheld the Commissioner of Income-tax's order, which withdrew the deduction allowed under Section 80HHC, on the grounds that processed minerals were excluded from the purview of Section 80HHC for the relevant assessment year. The Court affirmed this view, stating that the goods exported by the appellant were classified as "minerals and ores" and thus did not qualify for the deduction under Section 80HHC for the assessment year in question.

2. Classification of Exported Goods:
The appellant contended that the fabricated mica parts, silvered mica parts, micanite sheets, and mica flakes were distinct commercial commodities different from raw mica obtained from mines. However, the Court found that these products fell within the category of "minerals and ores" as per Section 80HHC(2)(b)(ii). The Court noted that for the assessment year in question, the exclusion applied to goods and merchandise made of minerals or ores, and thus, the exported items did not lose their character as mineral products despite being processed.

3. Applicability of CBDT Circular:
The appellant argued that the circular dated July 27, 1994, issued by the Central Board of Direct Taxes, should apply to the assessment year 1990-91. However, the Court did not find merit in this argument, as the legislative amendments to Section 80HHC, which allowed deductions for processed minerals, were effective only from the next assessment year (1991-92) and not retrospectively.

4. Justification for Invoking Section 263:
The Court examined whether the Commissioner of Income-tax was justified in invoking Section 263 of the Act to revise the assessment order. The Court held that the Assessing Officer's decision to grant the deduction under Section 80HHC, despite the legislative exclusion for the relevant assessment year, constituted a grave error resulting in a loss of revenue. Therefore, it was a fit case for invoking Section 263 to correct this mistake.

5. Validity of Tribunal's Decision on New Ground:
The appellant challenged the Tribunal's decision to uphold the order under Section 263 on a new ground, alleging a lack of inquiry/verification in making the assessment. The Court dismissed this contention, stating that the Commissioner of Income-tax did not commit any illegality in invoking Section 263, and the Tribunal rightly dismissed the appeal based on the majority view and the Supreme Court's decision in Gem Granites vs. Commissioner of Income-tax.

Conclusion:
The Court dismissed the appeal, affirming that the appellant was not entitled to the deduction under Section 80HHC for the assessment year 1990-91. The Court answered all five points formulated in the appeal in the affirmative and against the assessee, with no order as to costs.

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