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2007 (1) TMI 213 - AT - Income TaxChallenge the Order passed by the CIT u/s 263 - assessment order passed u/s143(3) - Erroneous And Prejudicial Order - deduction under ss. 80HHC and 80-IB - receipt of duty drawback and samples - HELD THAT - We are satisfied that the AO had made inquiries in regard to the applicability of s. 80-IA(9) and the assessee had provided an explanation in that regard by a letter in writing. Thus, it would be safe to deduce that quantification of deduction under ss. 80HHC and 80-IB of the Act was made by the AO on being satisfied with the explanation of the assessee. The Hon'ble Bombay High Court in the case of Gabriel India Ltd. specifically observed that such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. Whether the AO was correct in computing the deduction u/s 80HHC without reducing from the profits of business - The deduction allowable u/s 80-IB of the Act. The CIT has held that in view of the provisions of s. 80-IA(13), the deduction u/s 80HHC is to be computed by reducing from the profit of business the deduction allowable u/s 80-IB of the Act. The conclusion drawn by the AO is supported by the decisions of the Tribunal in the cases of Bharat Heavy Electrical Ltd. 2005 (7) TMI 299 - ITAT DELHI-E , Mittal Clothing Co. 2005 (6) TMI 480 - ITAT BANGALORE , Toshica Creation 2005 (7) TMI 307 - ITAT JAIPUR . In Bharat Heavy Electrical Ltd., the Tribunal held that s. 80HHC of the Act does not authorize adjustment of deduction under ss. 80HH, 80HHB or s. 80-I from the export profits before deduction u/s 80HHC is given. Whatever deduction is computed by applying the formula prescribed by s. 80HHC, same is to be allowed without such profits being reduced by other deduction. It cannot be inferred that the stand taken by the AO is unsustainable in law so as to render the order as prejudicial to the interest of Revenue. Certainly, the point of view of the AO is a possible view in the eye of law and the CIT cannot prefer another view and treat the order as erroneous and prejudicial to the interest of the Revenue. Therefore, following the ratio of judgments of the apex Court and Bombay High Court in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT and Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT the order of the AO on the issue of computing deduction under ss. 80HHC and 80-IB cannot be considered as erroneous insofar it is prejudicial to the interest of the Revenue. Exclusion of incomes of duty drawback and samples - computing deduction u/s 80-IB of the Act - AO had considered such amounts as part of eligible profits for the purposes of computing deduction u/s 80-IB of the Act. On the issue of duty drawback, the judgments in the case of India Gelatine Chemicals Ltd. 2004 (4) TMI 20 - GUJARAT HIGH COURT and of the Tribunal in the case of Metro Tyres Ltd. 2001 (8) TMI 1388 - ITAT DELHI and A.P. Industrial Components Ltd. 2001 (1) TMI 222 - ITAT HYDERABAD-A support the stand of the AO. Similarly, Special Bench of the Tribunal in the case of Nirma Industries Ltd. 2005 (4) TMI 242 - ITAT AHMEDABAD and Mumbai Bench of the Tribunal in the case of Investwel Publishers (P) Ltd. 2004 (10) TMI 259 - ITAT BOMBAY-E support the case of the assessee and the conclusion drawn by the AO. In contrast the CIT and the ld DR interpreted derived from to infer that such incomes are not includible for the purposes of s. 80-IB of the Act and reliance was placed in the case of Sterling Foods. Again on this aspect, it is evident that it is a matter of interpretive exercise and two possible interpretations are feasible. Therefore, without adjudicating as to which is a correct interpretation, it is clear that s. 263 is unwarranted in such situation. Therefore, on this aspect also, the assumption of jurisdiction by the CIT u/s 263 is unjustified. Thus, we hold that the CIT erred on facts and in law in exercising revisionary powers u/s 263 holding that the assessment order passed u/s143(3) of the Act was erroneous and prejudicial to the interest of the Revenue. In the result, the appeal of the assessee for asst. yr. 2001-02 stands allowed.
Issues Involved:
1. Assumption of jurisdiction by the CIT under section 263 of the Income-tax Act, 1961. 2. Merits of the CIT's order regarding the calculation of deductions under sections 80HHC and 80-IB of the Income-tax Act. 3. Exclusion of duty drawback and income from the sale of samples for the purpose of section 80-IB. 4. Scope of limited scrutiny under section 143(2)(i) and its impact on the CIT's jurisdiction under section 263. Issue-wise Detailed Analysis: 1. Assumption of Jurisdiction by the CIT under Section 263: The assessee challenged the CIT's assumption of jurisdiction under section 263, arguing that the prerequisites for invoking this section were not satisfied. The CIT considered the assessment order erroneous and prejudicial to the interest of the revenue on two grounds: (a) improper calculation of deductions under sections 80HHC and 80-IB without considering section 80-IA(9), and (b) failure to exclude duty drawback and sample sale income from the deduction under section 80-IB. The Tribunal emphasized that for the CIT to invoke section 263, the order must be both erroneous and prejudicial to the revenue. The Tribunal noted that the Assessing Officer had examined the issues and made inquiries, and the assessee had provided explanations. The Tribunal cited various decisions, including Malabar Industrial Co. Ltd. v. CIT and Gabriel India Ltd., to support the proposition that an order cannot be deemed erroneous simply because the CIT holds a different view. 2. Merits of the CIT's Order Regarding Calculation of Deductions: The CIT argued that the Assessing Officer failed to consider section 80-IA(9) while calculating deductions under sections 80HHC and 80-IB. The Tribunal found that the Assessing Officer had indeed examined this issue, as evidenced by the assessee's explanation during the assessment proceedings. The Tribunal referred to decisions like Bharat Heavy Electricals Ltd. v. Dy. CIT and Mittal Clothing Co. v. Dy. CIT, which supported the view that deductions under sections 80HHC and 80-IB could be claimed simultaneously, provided the aggregate did not exceed the gross total income. The Tribunal concluded that the Assessing Officer's view was a possible and sustainable interpretation of the law, thus not erroneous. 3. Exclusion of Duty Drawback and Income from Sale of Samples: The CIT held that duty drawback receipts and income from sample sales should be excluded for computing deductions under section 80-IB. The Tribunal noted that the Assessing Officer had included these amounts based on decisions like CIT v. India Gelatine & Chemicals Ltd. and Dy. CIT v. Metro Tyres Ltd., which supported the inclusion of such incomes as part of eligible profits. The Tribunal found that the CIT's interpretation was another possible view but not the only correct one, making the Assessing Officer's order not erroneous. 4. Scope of Limited Scrutiny under Section 143(2)(i) and CIT's Jurisdiction under Section 263: For the assessment year 2002-03, the assessee argued that the CIT could not raise issues beyond the scope of limited scrutiny under section 143(2)(i). The Tribunal referred to the decision in Nayek Paper Converters v. Asstt. CIT, which held that the CIT could not direct the Assessing Officer to examine issues not covered in the limited scrutiny notice. The Tribunal upheld the assessee's contention that the CIT's jurisdiction under section 263 was not justified in this context. Conclusion: The Tribunal concluded that the CIT erred in exercising revisionary powers under section 263. The assessment orders for both years were not erroneous or prejudicial to the revenue. The appeals of the assessee for both assessment years were allowed.
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