2013 (1) TMI 257 - AT - Income Tax

Jurisdiction of AO in remand proceedings - Reducing 90% of other income u/s 80HHC(4C)(baa), which was neither an issue in the original assessment nor remanded by CIT(Appeals) in the first round of litigation - assessee appeal against CIT(A) s notice u/s 251 for enhancement as it consequently resulted in lesser deduction being allowed u/s 8OHHC(3)(c)(i) - Held that - As regards to the dispute of turnover, the CIT(A) has accepted the claim of the assessee and directed the AO just to verify and compute the deduction u/s 80HHC accordingly. Whereas the issue of indirect cost allocated to the export of goods traded as per sec.80HHC(3)(b), the CIT(A) has remanded the issue to the record of the AO to compute the deduction after discussing each and every claim of the assessee. Thus, so far as the issue of deduction u/s 80HHC which was remanded to the AO pertains only to the computation of attributable indirect cost to the export of trading goods. Reduction of 90% of the receipts on account of sales tax refund and processing charges from the profit of business under clause (baa) of Explanation to section 80HHC - Held that - Since the issue of reduction of 90% under clause (baa) of Explanation to sec. 80HHC was neither raised before the CIT(A) in the appeal of the assessee nor it was taken up by the CIT(A) in the first round of litigation, therefore, the said issue was not at all involved and consider in the appeal of the assessee by CIT(A) while passing the order dated 18.5.2001 whereby the issue of indirect cost allocable to the export of traded goods was remanded to the AO - thus when the limited aspect/dispute of allocation of indirect cost to the export of trading goods was remanded to the record of the AO then in the giving effect proceedings in pursuant to the directions of the CIT(A) the jurisdiction and power of the AO is confined only to the issue and aspect, which has been remanded for reworking and re-determination. Hence, in the proceedings pursuant to the directions of the CIT(A), AO cannot go beyond the issue and aspect which was directed to be reconsidered and decided. - thus by taking up the issue of reduction of 90% of the receipts arising from sales tax refund, processing charges and sale of scrap, the AO has travelled beyond his jurisdiction limited to the direction of the CIT(A). As decided in Indo-Aden Salt Works Co 1958 (10) TMI 29 - BOMBAY HIGH COURT scope of the enquiry is restricted only to the question of merit related to the matter of relief from super tax as directed by the Tribunal, thus the AO while making certain additions by restricting 90% of the receipts by applying clause (baa) of Explanation to sec. 80HHC has travelled beyond his jurisdiction. Indirect cost allocable to export of trading goods - Held that - For the purpose of sec. 80HHC(3)(b) r.w.clause (e) of Explanation, the indirect cost to be allocated in the ratio of export turnover of trading goods to the total turnover has to be taken as the total figure of the indirect cost incurred for the total turnover and not the indirect cost directly related to the export turnover as held by the CIT(A) - It is clear from the working of the AO that for determining the indirect cost, the AO has reduced from the total cost of business, cost of goods as well as the other items. Therefore, no error as far as the formula adopted by the AO for computation of indirect cost allocated to the export of trading goods - CIT(A) has proceeded on wrong principle which is contrary to the provisions of sec. 80HHC(3)(b) r.w. clause (e)of Explanation and therefore, the revenue succeeds.

Issues Involved:

1. Jurisdiction of the Assessing Officer (AO) in remand proceedings.
2. Reduction of 90% of receipts on account of sales tax refund and processing charges under clause (baa) of Explanation to Section 80HHC.
3. Allocation of indirect costs attributable to the export of trading goods.
4. Enhancement of assessment by the Commissioner of Income Tax (Appeals) [CIT(A)].

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) in Remand Proceedings:

The assessee contended that the AO exceeded his jurisdiction in the remand proceedings by reducing 90% of other income, which included processing charges, sales tax refund, and income on the sale of scrap from business profits under clause (baa) of Explanation to Section 80HHC(4C). This issue was not part of the original assessment nor remanded by the CIT(A) in the first round of litigation. The CIT(A) upheld the AO's action and issued a notice under Section 251 of the Act for enhancement of assessment. However, the Tribunal held that the AO's jurisdiction in remand proceedings is limited to the directions of the appellate authorities, and since the issue of reduction of 90% of other income was not part of the remand directions, the AO exceeded his jurisdiction. Consequently, the CIT(A) also had no jurisdiction to address this issue in the appeal proceedings against the order giving effect.

2. Reduction of 90% of Receipts on Account of Sales Tax Refund and Processing Charges under Clause (baa) of Explanation to Section 80HHC:

The AO applied clause (baa) of Explanation to Section 80HHC(4C) and reduced 90% of other income, including sales tax refund and processing charges, from business profits. The CIT(A) confirmed the exclusion of 90% in respect of sales tax refund and processing charges but allowed the addition on account of the sale of scrap. The Tribunal found that the AO acted beyond his jurisdiction by making these reductions as they were not part of the remand directions. The Tribunal set aside the orders of the authorities below on this issue as without jurisdiction.

3. Allocation of Indirect Costs Attributable to the Export of Trading Goods:

The AO allocated indirect costs attributable to the export of trading goods at Rs. 2,65,79,211/-. The CIT(A) held that only those items of expenditure that have a connection or link to the export should be considered as part of the indirect costs. The CIT(A) directed the AO to rework the indirect costs accordingly. The Tribunal observed that under Section 80HHC(3)(b) read with clause (e) of Explanation, the indirect costs should be allocated in the ratio of export turnover of trading goods to the total turnover, including all items of indirect cost incurred for the total turnover. The Tribunal upheld the AO's formula for computing the indirect costs and dismissed the assessee's appeal on this issue.

4. Enhancement of Assessment by the Commissioner of Income Tax (Appeals) [CIT(A)]:

The CIT(A) issued a notice under Section 251 of the Act for enhancement of assessment concerning the additions by reducing 90% of other income under clause (baa) of Explanation to Section 80HHC(4C). The Tribunal held that the CIT(A)'s jurisdiction is co-terminus with that of the AO but cannot be expanded beyond the AO's jurisdiction on the subject matter. Since the AO lacked jurisdiction to address the issue of reducing 90% of other income in the remand proceedings, the CIT(A) also had no jurisdiction to enhance the assessment on this issue.

Conclusion:

The Tribunal concluded that the AO and CIT(A) exceeded their jurisdiction in addressing the issue of reducing 90% of other income under clause (baa) of Explanation to Section 80HHC(4C). The Tribunal upheld the AO's formula for computing indirect costs and dismissed the assessee's appeal on this issue. The appeal filed by the assessee was partly allowed.

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