1989 (11) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 after the appellate order.
2. Deduction under Section 80HHC for primary agricultural commodities.
3. Deduction under Section 80HHC for items not exported in the previous year.
4. Classification of expenditure as capital or revenue.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263 after the appellate order:

The assessee argued that the assessment order merged with the appellate order of the CIT(A) dated 16-9-1987, and thus, the Commissioner had no jurisdiction under Section 263 to revise the assessment order. The Commissioner issued a show-cause notice under Section 263 on 19-2-1988 and passed the impugned order on 9-3-1988. The Tribunal noted that the Explanation to Section 263(1) was amended by the Finance Act, 1988, with effect from 1-6-1988, stating that the Commissioner's power extends to matters not considered and decided in the appeal. The Tribunal concluded that this amendment was intended to have retrospective effect, as indicated by the phrase "and shall be deemed always to have extended." Therefore, the Commissioner had jurisdiction to revise the assessment on issues not considered and decided by the CIT(A).

2. Deduction under Section 80HHC for primary agricultural commodities:

The Commissioner held that rice, coriander, garlic, and chillies are primary agricultural commodities and do not involve any processing or specific plantation scheme, thus not eligible for deduction under Section 80HHC. The Tribunal, however, distinguished rice from other commodities. It referred to the Madras High Court decision in South Arcot District Co-operative Supply & Marketing Society Ltd. v. CIT and the Tribunal's decision in Agro Exports v. ITO, concluding that rice is not an agricultural primary commodity because it undergoes processing (hulling) from paddy. Therefore, the deduction under Section 80HHC for rice was allowable.

For coriander, garlic, and chillies, the Tribunal held that these commodities are agricultural primary commodities as they retain their primary character even after drying and sorting. The Tribunal also examined whether these commodities are produce of plantations and concluded they are not, based on dictionary definitions and the context of Section 80HHC. Therefore, the deduction under Section 80HHC was not allowable for coriander, garlic, and chillies.

3. Deduction under Section 80HHC for items not exported in the previous year:

The Commissioner denied the benefit of an additional 5% deduction on the increased export turnover, arguing that the commodities exported during the assessment year were not exported in the previous year. The Tribunal referred to the Tribunal's decision in N.B. Abdul Gafoor, which held that the additional deduction should be given as an incentive on the increased turnover without reference to the specific commodities exported. Therefore, the Tribunal concluded that the order of the assessing officer allowing the additional deduction was neither erroneous nor prejudicial to the revenue's interests.

4. Classification of expenditure as capital or revenue:

The Commissioner sought to revise the assessment order on the ground that the payment of Rs. 10,58,114 as sponsorship fee to Sheikh Ghalib Mansu Rifac was capital expenditure, not revenue expenditure. However, the Commissioner did not provide any findings on this point in the impugned order but set aside the assessment order on this issue because he was setting aside the order on other issues. The Tribunal held that the Commissioner could only assume jurisdiction under Section 263 on points where the order is found to be erroneous and prejudicial to the revenue's interests. Since the Commissioner did not record a finding that the deduction for the sponsorship fee was erroneous and prejudicial to the revenue, the Tribunal quashed this part of the Commissioner's order.

Conclusion:

The Tribunal partly confirmed the Commissioner's order under Section 263, holding that coriander, garlic, and chillies are agricultural primary commodities and not eligible for deduction under Section 80HHC. The rest of the Commissioner's order, including the jurisdiction issue, the deduction for rice, and the additional 5% deduction on increased export turnover, was cancelled. The appeal was allowed partly to the extent indicated above.