2003 (8) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the CIT's invocation of Section 263 of the IT Act, 1961.
2. Correctness of the AO's computation of deduction under Section 80HHC of the IT Act.
3. Interpretation of the term "Profit" in the context of Section 80HHC.

Detailed Analysis:

1. Legitimacy of the CIT's Invocation of Section 263 of the IT Act, 1961:

The CIT invoked Section 263, arguing that the AO's order was "erroneous and prejudicial to the interest of the Revenue." The CIT contended that the AO did not properly verify the assessee's claim for deduction under Section 80HHC, allowing it without ensuring compliance with relevant legal provisions. The CIT highlighted that the AO adopted a 'NIL' figure for profits when there was a negative figure, which was against the IT Act's provisions.

The Tribunal examined whether the AO's view was perverse or impossible. It found that the AO's view was supported by various Tribunal decisions, making it a possible view. The Tribunal relied on the Supreme Court's ruling in Malabar Industrial Co. Ltd. vs. CIT, which stated that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the Revenue's interests. The Tribunal concluded that the AO's order was not erroneous, as it was one of the possible views supported by legal precedents. Therefore, the CIT was not justified in invoking Section 263.

2. Correctness of the AO's Computation of Deduction under Section 80HHC of the IT Act:

The AO allowed a deduction under Section 80HHC based on the assessee's calculations, which treated negative profit figures as 'NIL.' The CIT argued that this approach was incorrect and led to an excessive deduction.

The Tribunal reviewed various decisions, including those of the Tribunal Benches in cases like Asstt. CIT vs. Avon Cycles Ltd., Vishal Exports Overseas Ltd. vs. ITO, and Indian Sugar & General Industry Export Import Corpn. Ltd. vs. Dy. CIT. These decisions supported the view that negative figures should be ignored while computing deductions under Section 80HHC. The Tribunal found that the AO's computation method was consistent with these decisions, making it a reasonable and possible view.

3. Interpretation of the Term "Profit" in the Context of Section 80HHC:

The assessee argued that the term "Profit" in Section 80HHC should not include losses. They cited legal precedents and interpretations, including the Bombay High Court's decision in Ramniklal Tribhowandas vs. V.R. Amin and the legislative intent behind the term "Profit."

The CIT disagreed, stating that ignoring losses was contrary to the legislative intent. However, the Tribunal found that the majority of Tribunal Benches had interpreted "Profit" to exclude losses, supporting the assessee's view. The Tribunal cited cases like A.M. Moosa vs. Asstt. CIT and Pratibha Syntex Ltd. vs. Jt. CIT, which held that losses should be ignored in the computation under Section 80HHC.

Conclusion:

The Tribunal concluded that the AO's order was not erroneous or prejudicial to the Revenue's interests, as it was a possible view supported by legal precedents. Therefore, the CIT was not justified in invoking Section 263. The Tribunal set aside the CIT's order and allowed the assessee's appeal.