2011 (5) TMI 685 - AT - Income Tax

Reopening of assessment under section 263 of the Act - doctrine of merger - whether turnover and profit of separate and distinct business carried on by the assessee are liable to be clubbed to form the total turnover and profits of the business for calculating the deduction under section 80HHC of the Act and restricting the claim under section 80HHC of the Act - assessee made claim under section 80HHC, books of the export division are separately maintained which contain complete details of exports, turnover, realization and export profits - CIT(A) apart from being appellate authority has co-terminous powers of AO and has powers of enhancement of assessment - order of AO on the issue of calculation of deduction under section 80HHC having got merged into CIT(A) s order the, statutory bar contained in Explanation to section 263(1) comes into play - proceedings under section 263 have not been validly invoked and the revision action is quashed - assessee s appeal is allowed

Issues Involved:
1. Reopening of assessment under section 263 of the IT Act.
2. Calculation of deduction under section 80HHC of the IT Act.
3. Aggregation of turnover and profits of distinct and separate businesses for calculating deduction under section 80HHC.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 263 of the IT Act:

The appellant challenged the reopening of the assessment under section 263 by the CIT, arguing that the original assessment was not erroneous or prejudicial to the interest of the Revenue. The appellant contended that the AO had applied due diligence and adopted a legally sustainable view supported by judgments from the High Courts of Kerala and Madras. The appellant also argued that the assessment order had merged into the CIT(A)'s order, thus barring revision under section 263.

2. Calculation of Deduction under Section 80HHC of the IT Act:

The appellant claimed that the CIT erroneously recalculated the deduction under section 80HHC, reducing it from Rs. 2,13,25,983 to Rs. 1,22,83,280. The appellant maintained separate books of account for its export trading business, and the AO had accepted these accounts. The appellant argued that the AO's method of calculating the deduction was in line with the Madras High Court's judgment, which supported the exclusion of turnover from other businesses when calculating the deduction under section 80HHC.

3. Aggregation of Turnover and Profits of Distinct and Separate Businesses:

The CIT aggregated the total turnover of all the appellant's business units to calculate the deduction under section 80HHC, contrary to the appellant's method of considering only the turnover of the export business. The appellant argued that this aggregation was incorrect as they maintained separate books for different businesses, which were not interrelated. The appellant cited the Madras High Court's ruling that only the turnover relating to the export business should be considered for the deduction under section 80HHC.

Judgment Analysis:

The Tribunal concluded that the AO had applied his mind and adopted a legally sustainable view supported by the Madras High Court's judgment. It was held that the AO's method of calculating the deduction under section 80HHC was not erroneous, even though another view existed, as supported by the Kerala High Court. The Tribunal emphasized that when more than one view is possible, the view favorable to the taxpayer should be adopted, as held by the Supreme Court in the case of Vegetable Products Ltd.

The Tribunal also noted that the CIT(A) had already adjudicated the issue of deduction under section 80HHC, and therefore, the assessment order had merged into the CIT(A)'s order. Consequently, the CIT could not invoke revisionary jurisdiction under section 263 due to the statutory bar contained in Explanation (c) to section 263(1).

The Tribunal upheld the appellant's plea that the proceedings under section 263 were not validly invoked and quashed the revision action, allowing the appellant's appeal.

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