2003 (3) TMI 282 - AT - Income Tax

Revision - Of orders prejudicial to interest of revenue, Assessment - Additions to income, Deductions - Exporters

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the IT Act.
2. Computation of deduction under Section 80HHC.
3. Addition of excess stock as undisclosed income.
4. Direction to initiate penalty proceedings under Section 271(1)(c).
5. Levy of interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the IT Act:
The assessee challenged the jurisdiction of the CIT under Section 263 of the IT Act. The CIT had modified the assessment order under Section 143(3), deeming it erroneous and prejudicial to the interest of Revenue. The Tribunal referred to the Supreme Court decision in Malabar Industrial Co. Ltd. vs. CIT, emphasizing that if the AO's view is a possible view supported by judicial precedents, the CIT cannot assume jurisdiction under Section 263. The Tribunal concluded that the CIT did not have jurisdiction to revise the assessment order as the AO's view was sustainable in law.

2. Computation of Deduction under Section 80HHC:
The assessee disputed the CIT's recomputation of deduction under Section 80HHC from Rs. 32,96,071 to Rs. 19,26,717. The CIT excluded 90% of interest income from FDRs placed with banks from "profits of business," which the assessee argued should be net interest income. The Tribunal acknowledged divergent views on this issue but sided with the assessee, citing the principle that a beneficial provision should be interpreted in favor of the assessee. The Tribunal also noted that the AO's view was supported by various judicial decisions, thus the CIT's revision was not justified.

3. Addition of Excess Stock as Undisclosed Income:
The CIT added Rs. 48,98,127 as excess stock funded out of undisclosed income. The assessee argued that the CIT's valuation of closing stock was erroneous and that the AO had accepted the higher valuation shown by the assessee, resulting in higher income. The Tribunal found no difference in the quantity of stock and noted that the assessee's valuation included silver moulds, which were part of the manufacturing process. The Tribunal held that the AO's acceptance of higher profits was not erroneous or prejudicial to the interest of Revenue and quashed the CIT's addition.

4. Direction to Initiate Penalty Proceedings under Section 271(1)(c):
The CIT directed the initiation of penalty proceedings under Section 271(1)(c). The Tribunal cited several decisions, including those of the jurisdictional High Court, which held that the CIT cannot direct the AO to initiate penalty proceedings in revision proceedings under Section 263. The Tribunal quashed the CIT's direction to initiate penalty proceedings.

5. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee sought consequential relief regarding the levy of interest under Sections 234A, 234B, and 234C. The Tribunal directed that interest under these sections be recomputed after giving effect to its order.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the CIT's order under Section 263, including the recomputation of deduction under Section 80HHC, the addition of excess stock as undisclosed income, and the direction to initiate penalty proceedings under Section 271(1)(c). The Tribunal also directed the recomputation of interest under Sections 234A, 234B, and 234C.