2002 (5) TMI 220 - AT - Income Tax

Issues Involved:
1. Validity of the CIT's revisionary order under section 263.
2. Impact of rectification under section 154 on the original assessment order.
3. Effect of the Kar Vivad Samadhan Scheme (KVSS) on the revisionary powers of the CIT.
4. Applicability of the Supreme Court decision in Sterling Foods on refund of excise duty.
5. Correctness of the calculation of deductions under sections 80HH, 80-I, and 80HHC.

Detailed Analysis:

1. Validity of the CIT's Revisionary Order under Section 263:
The assessee challenged the CIT's order under section 263, arguing that the original assessment order dated 27-3-1998 was rectified on 28-1-1999, making the original order non-existent for revision purposes. However, the Tribunal found that the rectification did not nullify the entire original order but only amended specific parts. The original order remained operative for all other aspects not subject to rectification. The Tribunal cited various judgments, including CIT v. Sun Engg. Works (P.) Ltd. and Padmasundra Rao v. State of Tamil Nadu, to support the view that rectification does not vacate the original order entirely.

2. Impact of Rectification under Section 154 on the Original Assessment Order:
The assessee argued that the rectified order replaced the original order, making the latter unavailable for revision. The Tribunal disagreed, stating that rectification under section 154 only corrects specific errors and does not affect the entire order. The Tribunal referenced Kundan Lal Srikishan v. CST and Blue Star Engg. Co. (Bombay) (P.) Ltd. v. CIT to highlight that rectification is meant to correct errors without nullifying the original order entirely.

3. Effect of the Kar Vivad Samadhan Scheme (KVSS) on the Revisionary Powers of the CIT:
The assessee contended that the matter was settled under KVSS, and thus, the CIT could not reopen it. The Tribunal clarified that only issues covered by the KVSS could not be reopened. In this case, the dispute under KVSS was related to the exclusion of profit from export of trading goods, not the issues revised by the CIT. Therefore, the CIT had the authority to revise the order regarding the exclusion of export incentive and refund of excise duty.

4. Applicability of the Supreme Court Decision in Sterling Foods on Refund of Excise Duty:
The Tribunal upheld the CIT's order regarding the exclusion of export incentive from the calculation of deductions under sections 80HH and 80-I, citing the Supreme Court's decision in Sterling Foods. However, it agreed with the assessee that the refund of excise duty, being related to goods manufactured and exported, was not covered by Sterling Foods. Therefore, the Tribunal set aside the CIT's order on this point.

5. Correctness of the Calculation of Deductions under Sections 80HH, 80-I, and 80HHC:
The Tribunal upheld the CIT's order on the incorrect calculation of deductions under sections 80HH and 80-I due to the inclusion of export entitlements. It also agreed with the CIT's view that job work receipts should be included in the total turnover while calculating deduction under section 80HHC, referencing CIT v. Sudarshan Chemicals Industries Ltd. The Tribunal found the CIT's order to be correct in this respect.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the CIT's revisionary order concerning the exclusion of export incentives and the inclusion of job work receipts in total turnover. However, it set aside the CIT's order regarding the refund of excise duty, agreeing with the assessee's contention that it was related to goods manufactured and exported, thus not covered by the Sterling Foods decision.

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