1990 (3) TMI 107 - AT - Income Tax

Issues Involved:
1. Applicability of Section 263 despite initiation of action under Section 154.
2. Interaction between Sections 80HHC, 80A(2), and 80VVA.
3. Carry forward of unabsorbed deductions under Section 80HHC.

Issue-wise Detailed Analysis:

1. Applicability of Section 263 despite initiation of action under Section 154:

The assessee contended that the CIT could not invoke Section 263 because the ITO had already initiated action under Section 154. The CIT rejected this argument, stating that there is no bar to taking action under Section 263 simply because a notice under Section 154 was issued. The Tribunal upheld this view, emphasizing that the revisional powers under Section 263 and the rectification powers under Section 154 are conceptually and qualitatively different and operate independently of each other. The Tribunal cited the case of Sharda Trading Co. v. CIT [1984] 149 ITR 19, where the Delhi High Court held that the issue of a reassessment notice does not affect the Commissioner's jurisdiction to revise the original assessment order.

2. Interaction between Sections 80HHC, 80A(2), and 80VVA:

The ITO initially computed the deduction under Section 80HHC at Rs. 5,85,389 but limited it to the gross total income of Rs. 3,06,071 as per Section 80A(2). Further, applying Section 80VVA, the deduction was restricted to 70% of Rs. 3,06,071, resulting in an allowed deduction of Rs. 2,14,249. The CIT observed that the ITO had allowed the deduction under Section 80HHC without applying Section 80A(2) correctly and had wrongly applied Section 80VVA. The CIT directed the ITO to first compute the deduction under Section 80HHC read with Section 80A(2) and then apply Section 80VVA.

The assessee argued that Section 80A(2) talks about the "aggregate amount of the deduction" and should apply only when deductions are available under more than one section of Chapter VIA. However, the Tribunal rejected this argument, noting that the term "aggregate" can refer to a single deduction as well. The Tribunal emphasized that Section 80A(2) restricts the deductions under Chapter VIA to the gross total income, and this restriction applies even if the deduction is under a single section like 80HHC.

3. Carry forward of unabsorbed deductions under Section 80HHC:

The ITO had permitted the assessee to carry forward a loss of Rs. 3,71,140, which was the difference between the total relief under Section 80HHC (Rs. 5,85,389) and the deduction allowed under Section 80VVA (Rs. 2,14,249). The CIT and the Tribunal found this to be incorrect. The Tribunal clarified that the excess deduction of Rs. 2,79,318 (the difference between Rs. 5,85,389 and Rs. 3,06,071) lapses as per Section 80A(2) and cannot be carried forward. Under Section 80VVA(4), only the sum of Rs. 91,822 (30% of Rs. 3,06,071) could be carried forward to subsequent assessment years.

The Tribunal concluded that the CIT rightly assumed jurisdiction under Section 263 and correctly directed the ITO to allow the carry forward of Rs. 91,822 only. The assessee's appeal was dismissed.

Conclusion:

The Tribunal upheld the CIT's order, confirming that the CIT was justified in invoking Section 263 despite the ITO's initiation of action under Section 154. The Tribunal also clarified the application of Sections 80HHC, 80A(2), and 80VVA, emphasizing that deductions under Chapter VIA are limited to the gross total income and that unabsorbed deductions do not carry forward unless specifically provided. The assessee's appeal was dismissed, and the CIT's modifications to the assessment order were upheld.

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