2012 (2) TMI 305 - AT - Income Tax

Power of Commissioner - Sale of Scrap deductible under 80HHC - Held That - profits of the business was neither restored by this Tribunal to the AO nor decided by the AO nor otherwise originated from the assessment order passed by the AO u/s 143(3)/254. The ld. CIT(A) however proceeded to examine them. In our view the ld. CIT(A) had no jurisdiction to decide upon the issues which were not restored by this Tribunal to the file of the AO. Eligibility under 80HHC - Duty Entitlement Pass Book (DEPB) and Duty Free Replenishment Certificate (DFRC) - Held That - In view of Topman Exports (2009 - TMI - 208946 - ITAT MUMBAI) case remanded back to AO for fresh perusal.

Summary

Issues Involved:
1. Inclusion of scrap sales in total turnover and profits for deduction under Section 80HHC.
2. Deduction of 90% brokerage from profits for calculating deduction under Section 80HHC.
3. Jurisdiction of CIT(A) to adjudicate issues not restored by the Tribunal.

Detailed Analysis:

1. Inclusion of Scrap Sales in Total Turnover and Profits for Deduction under Section 80HHC:
The primary issue in ITA No. 956/Chd/2011 was whether the value of scrap sales should be included in the total turnover and profits of the business for computing relief under Section 80HHC of the Income-tax Act, 1961. The assessee, a manufacturer and exporter, had its original assessment completed, which was later reopened. The Assessing Officer (AO) excluded the value of scrap sales from the total turnover and profits, following a precedent from Flexfit Industries. However, the Commissioner of Income Tax (Appeals) [CIT(A)] held that the value of scrap must be included in both the total turnover and profits for deduction purposes, referencing a judgment from the Punjab & Haryana High Court.

The Tribunal upheld the CIT(A)'s decision to include the value of scrap sales in the total turnover but modified the inclusion in profits. It concluded that only the profit element from scrap sales, estimated at 7.5%, should be included in the profits for Section 80HHC relief, not the entire value of scrap sales.

2. Deduction of 90% Brokerage from Profits for Calculating Deduction under Section 80HHC:
In ITA No. 957/Chd/2011, the Department challenged the CIT(A)'s decision to not allow the deduction of 90% brokerage from the profits for calculating deduction under Section 80HHC. The AO had followed the judgment in CIT v. Kalapatru Colours and Chemicals, which was affirmed by the jurisdictional High Court in CIT v. F.C. Sondhi & Company P. Ltd. The CIT(A) confirmed the AO's action, noting that the AO applied the law as it existed at the time of the assessment order.

The Tribunal noted that the issue of brokerage deduction was not restored by it to the AO or CIT(A) in the original appeal. Thus, the CIT(A) had no jurisdiction to adjudicate on this issue in the second round of litigation. Consequently, the Tribunal quashed the CIT(A)'s order on this ground.

3. Jurisdiction of CIT(A) to Adjudicate Issues Not Restored by the Tribunal:
The Tribunal emphasized that the CIT(A) overstepped its jurisdiction by deciding on issues not remanded by the Tribunal. The original Tribunal order had only directed the AO to reconsider the taxability of DEPB entitlements in light of the Special Bench decision in Topman Exports. The issues of brokerage and scrap sales inclusion were not part of the remand. Citing several precedents, the Tribunal held that the CIT(A) had no authority to decide on these new grounds in the second round of litigation.

The Tribunal concluded that the CIT(A)'s order on these issues was without jurisdiction and quashed it. Consequently, the Department's appeal on jurisdictional grounds was allowed, and the need to adjudicate the substantive grounds became redundant.

Conclusion:
The appeals resulted in partial relief for the Department. The Tribunal upheld the inclusion of only the profit element from scrap sales in the profits for Section 80HHC relief and quashed the CIT(A)'s order on brokerage deduction and scrap sales inclusion due to lack of jurisdiction. The Department's appeals were thus partly allowed.