1998 (12) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the CIT u/s 263.
2. Consistency in methodology for computation of deduction u/s 80HHC.
3. Misquotation in the CIT's order.
4. Merger of the assessment order with the CIT (Appeals) order.
5. Merits of the computation of deduction u/s 80HHC.

Summary:

1. Jurisdiction of the CIT u/s 263:
The assessee contended that the CIT lacked jurisdiction u/s 263 as he did not explicitly state that the Assessing Officer's (AO) order was erroneous and prejudicial to the interests of the revenue. The Tribunal, however, found that the CIT's order implied that the assessment was both erroneous and prejudicial to the interests of the revenue, fulfilling the requirements for assuming jurisdiction u/s 263.

2. Consistency in Methodology for Computation of Deduction u/s 80HHC:
The assessee argued that the AO's methodology for computing deduction u/s 80HHC had been consistent over the years without objection from the department. The Tribunal held that consistency does not validate a potentially incorrect method. The department's inaction in previous years does not preclude it from correcting the methodology in the current year.

3. Misquotation in the CIT's Order:
The assessee pointed out a misquotation in the CIT's order, arguing it gave a misleading picture. The Tribunal acknowledged the typing mistake but emphasized that the main purport of the CIT's discussion was clear and thus, the order could not be quashed on this ground alone.

4. Merger of the Assessment Order with the CIT (Appeals) Order:
The assessee argued that since the CIT (Appeals) had already deliberated on the computation of deduction u/s 80HHC, the AO's order had merged with the CIT (Appeals) order, leaving no jurisdiction for the CIT to revise it. The Tribunal agreed, noting that the issue of computation of deduction u/s 80HHC is composite and comprehensive, and the CIT (Appeals) had implicitly approved the AO's methodology by not addressing all aspects.

5. Merits of the Computation of Deduction u/s 80HHC:
The Tribunal found that the AO's method of isolating the jute goods business from the share trading business for computing the deduction u/s 80HHC was plausible and not erroneous or prejudicial to the interests of the revenue. The CIT (Appeals) convoluted the issue by directing a computation method that included the total business income, which was incorrect.

Conclusion:
The Tribunal concluded that the CIT's order u/s 263 was unsustainable both on merits and due to the merger issue. The appeal filed by the assessee was allowed, and the CIT's order was cancelled.