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2007 (3) TMI 310 - AT - Income TaxJurisdiction Of the CIT u/s 263 - Deduction u/s 80HHC and 80-IB - Erroneous And Prejudicial Order - limited scrutiny by issue of a notice u/s 143(2)(i) - HELD THAT - It is seen that provisions of s. 80HHC(3) have been amended retrospectively w.e.f. 1st April, 1992 and in the light of the aforesaid amendment the claim of the assessee is in accordance with law. Even otherwise as already held by us, the claim for deduction u/s 80HHC was never the subject-matter of the limited scrutiny assessment and therefore the AO could not have considered the same. The CIT in exercise of the jurisdiction u/s 263 could not therefore hold the order of the AO as erroneous on this ground. It is further seen that the AOs passed the orders of assessments in the case of present assessees on 10th April, 2003, 8th Sept., 2003 and 29th Dec., 2003 respectively. The decision of the Hon'ble Supreme Court in the case of IPCA Laboratory 2004 (3) TMI 9 - SUPREME COURT was rendered much later in point of time. Prior to the said decision there was a considerable debate, on this issue. As stated, the subsequent statutory amendment with retrospective effect also supports the claim of the assessee. Exercise of jurisdiction u/s 263 on this ground cannot be sustained. In a limited scrutiny the AO could not go into any other claim except claim u/s 80-IB of the Act because that was the only issue which the AO thought fit to investigate in the limited scrutiny assessment. Thus, we are of the view that the exercise of jurisdiction by the CIT u/s 263 was not justified. Orders u/s 263 are therefore quashed and the appeals of the assessee are allowed. In the result, the appeals by the assessee are allowed.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Allowability of deductions under Sections 80-IB and 80HHC of the Income Tax Act. 3. Inclusion of duty drawback and DEPB in profits for deductions under Section 80-IB. 4. Negative profit after reducing 90% of incentives. 5. Simultaneous deductions under Sections 80-IB and 80HHC. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The primary contention of the assessees was that the Assessing Officer (AO) took up the cases for limited scrutiny, specifically focusing on the claim for deduction under Section 80-IB. The assessees argued that the AO could not exceed this scope and that the Commissioner of Income Tax (CIT) could not invoke jurisdiction under Section 263 on issues beyond this limited scrutiny. The Tribunal concurred, referencing the case of Ajit Gupta, where it was held that the CIT could not direct the AO to look into matters outside the scope of the limited scrutiny. Consequently, the Tribunal held that the CIT was not justified in invoking jurisdiction under Section 263 on issues other than those decided in the limited scrutiny assessment. 2. Allowability of Deductions under Sections 80-IB and 80HHC: The CIT sought to revise the AO's orders on the grounds that they were erroneous and prejudicial to the interest of the Revenue, particularly concerning the simultaneous deductions under Sections 80-IB and 80HHC. The CIT argued that the AO's method of adopting the same profit figure for both deductions was incorrect. The Tribunal, however, found that the AO's approach was supported by various judicial decisions, making it a possible view in law. Therefore, the Tribunal concluded that the CIT could not prefer another view and treat the AO's order as erroneous and prejudicial to the Revenue's interest. 3. Inclusion of Duty Drawback and DEPB in Profits for Deductions under Section 80-IB: The CIT contended that duty drawback and DEPB could not be considered as profits derived from the industrial undertaking for the purpose of Section 80-IB. The Tribunal referred to the case of Ajit Gupta, where it was held that the inclusion of such incomes in eligible profits was supported by judicial decisions. The Tribunal concluded that this issue involved interpretative exercise with two possible views, making the CIT's invocation of Section 263 unjustified. 4. Negative Profit after Reducing 90% of Incentives: The CIT argued that the negative profit after reducing 90% of incentives should lead to the disallowance of the deduction under Section 80HHC. The Tribunal noted that the issue was covered by the decision of the Supreme Court in IPCA Laboratory Ltd. and the subsequent statutory amendment with retrospective effect. The Tribunal held that the claim of the assessee was in accordance with the law and that the CIT's exercise of jurisdiction under Section 263 on this ground could not be sustained. 5. Simultaneous Deductions under Sections 80-IB and 80HHC: The CIT held that the AO should have reduced the deduction under Section 80-IB from the profits before allowing the deduction under Section 80HHC. The Tribunal found that the AO's approach was supported by judicial decisions, making it a possible view in law. The Tribunal concluded that the CIT could not treat the AO's order as erroneous and prejudicial to the Revenue's interest based on a different interpretation. Conclusion: The Tribunal quashed the CIT's orders under Section 263, holding that the CIT was not justified in invoking jurisdiction on issues beyond the limited scrutiny assessment. The appeals by the assessees were allowed.
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