2015 (2) TMI 992 - HC - Income Tax

Deduction u/s 80HHC - AO restricted the claim after adjusting the trading loss to its manufacturing profits and adding of 90% export incentives - CIT issued a notice u/s 263 to held that the respondent is not entitled to claim deduction under Section 80HHC - whether Commissioner of Income Tax could not have exercised jurisdiction under Section 263 to revise an order of assessment dated 30 January 2004 when the same has been a subject matter of appeal before the Commissioner of Income Tax (Appeals) - Held that - When the assessment order was passed absent the amendment of 2005 it was not open to the Assessing Officer to set off losses against export incentives. In terms of the first proviso only profits could be increased by export incentives and therefore the order of assessment dated 30 January 2004 was erroneous and prejudicial to the interest by the Revenue and powers under Section 263 of the Act could legitimately be exercised by the CIT. For the purposes of this appeal even if assume (without having examined the same) that the Revenue is correct and set aside the impugned order and restore the matter to Assessing Officer yet the Assessing Officer will while recomputing the benefit available under Section 80HHC of the Act will have to extend the benefit of the retrospective amendment resulting to the same result as found in the Assessment Order dated 30 January 2004. It is relevant to note that even the Revenue does not dispute the applicability of retrospective amendment. In the above view we do not deem it necessary to answer the substantial question of law as formulated particularly in view of the retrospective amendment making the challenge academic. - Decided against revenue.

Summary

Issues:
Challenge to Tribunal's order under Section 260A of the Income Tax Act for Assessment Year 2001-02 - Doctrine of merger in relation to revision of assessment order under Section 263 of the Act - Interpretation of Section 80HHC of the Act and retrospective amendment.

Analysis:

1. The appeal by the Revenue challenged the Tribunal's order regarding the jurisdiction of the Commissioner of Income Tax to revise an assessment order under Section 263 of the Income Tax Act. The issue revolved around the doctrine of merger, questioning whether the Assessing Officer's order merged into the Commissioner of Income Tax (Appeals) order, thus affecting the CIT's jurisdiction.

2. The facts of the case involved the respondent's claim for deduction under Section 80HHC of the Act for Assessment Year 2001-02. The Assessing Officer passed an assessment order in January 2004, which was upheld by the CIT(A) in August 2004. Subsequently, the CIT issued a notice under Section 263 in 2005, disallowing the deduction claimed by the respondent.

3. The Tribunal, relying on the doctrine of merger, held that the CIT had no jurisdiction to issue the notice under Section 263 as the assessment order ceased to exist after the CIT(A)'s order. The Revenue contended that the issue of export incentives was not considered in the CIT(A)'s order, thus the merger did not apply, citing Explanation (c) to Section 263(1) of the Act.

4. The Court examined the retrospective amendment to Section 80HHC introduced in 2005, allowing set off of losses against export incentives. The Court noted that prior to this amendment, only profits could be increased by export incentives. The Court found that the Assessing Officer's order in January 2004 was erroneous due to the lack of provision for setting off losses against export incentives.

5. Despite the potential error in the assessment order, the Court observed that even if the matter was restored to the Assessing Officer, the retrospective amendment would result in the same outcome as the original assessment order. The Court highlighted that the Revenue did not dispute the applicability of the retrospective amendment, making the challenge academic.

6. Considering the peculiar facts of the case and the impact of the retrospective amendment, the Court disposed of the appeal without delving into the substantial question of law raised, as the retrospective amendment rendered the challenge moot. No costs were awarded in the disposition of the appeal.