2007 (6) TMI 204 - HC - Income Tax

AO while exercising the power u/s 143(1)(a) ought not to have set off the business loss arrived u/s 80HHC(3) & restricted the deduction even without giving an opportunity to the assessee & calling for the evidence from assessee - AO ought not to have deducted the notional loss from the export profit question of relief u/s 80HHC was debatable issue & it didn t fall within the purview of prima facie adjustment u/s 143(1)(a) & could be taken only in regular assessment Sec. 154 not applicable

Summary

Issues:
1. Appeal against common order of Income-tax Appellate Tribunal for assessment years 1995-96 and 1996-97.
2. Claim of deduction under Section 80HHC by the exporter of readymade garments.
3. Prima facie adjustment under Section 143(1)(a) by the Assessing Officer.
4. Commissioner of Income-Tax (Appeals) decision in favor of the assessee.
5. Appeals by Revenue before Income-tax Appellate Tribunal.
6. Tribunal's confirmation of Commissioner's decision.
7. Substantial questions of law raised by Revenue.
8. Interpretation of Sections 143(2)(i) and (ii) of the Act.
9. Legal principles regarding deduction under Section 80HHC.
10. Compliance with procedural requirements under Section 143(2).
11. Validity of refusal of deduction under Section 80HHC.
12. Application of Section 154 of the Act.
13. Judgment and dismissal of appeals by the court.

Analysis:
The case involves appeals against the common order of the Income-tax Appellate Tribunal for the assessment years 1995-96 and 1996-97. The appellant, being the Revenue, challenged the deduction claimed by the assessee under Section 80HHC, who is an exporter of readymade garments. The Assessing Officer, during the prima facie adjustment under Section 143(1)(a), set off the business loss against the deductions claimed by the assessee. The Commissioner of Income-Tax (Appeals) allowed the appeals of the assessee, stating that the Assessing Officer erred in setting off the business loss without providing an opportunity to the assessee as required under Section 143(2)(i) and (ii). The Commissioner directed the Assessing Officer to allow the deductions under Section 80HHC as claimed by the assessee.

Subsequently, the Revenue appealed before the Income-tax Appellate Tribunal, which upheld the Commissioner's decision and dismissed the appeals. The Revenue raised substantial questions of law, questioning the Tribunal's decision on the calculation of deduction under Section 80HHC and the treatment of the loss sustained by the assessee from its export business. The court referred to Section 143(2)(i) and (ii) of the Act, emphasizing the procedural requirements for serving notices on the assessee for evidence or objections.

The court highlighted that the relief under Section 80HHC is a debatable issue and cannot be decided through prima facie adjustment under Section 143(1)(a) but requires regular assessment under Section 143(3). The court deemed the refusal of deduction under Section 80HHC without following the procedures under Section 143(2) as illegal. It also clarified that Section 154 of the Act does not apply in such cases. Consequently, the court ruled in favor of the assessee on the first question of law and dismissed the appeals as no substantial question of law arose for consideration. The court emphasized the importance of complying with procedural requirements and upholding the principles of law in tax assessments.