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TMI Blog2007 (3) TMI 310X X X X Extracts X X X X X X X X Extracts X X X X ..... reme 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. - Member(s) : N. V. VASUDEVAN., RAJENDRA SINGH. ORDER-N.V. VASUDEVAN, J.M.: ITA 2898/Del/2005 is an appeal by the assessee against the order, dt. 31st March, 2005 of learned CIT, Moradabad, passed under s. 263 of the Act, relating to the asst. yr. 2001-02. ITA 3039/Del/2005 is an appeal by the assessee against the order. dt. 12th A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction under s. 80-IB of the Act. The order of the AO under s. 143(3)(i) of the Act was passed on 8th Sept., 2003. 5. The assessee in ITA 3041/Del/2005 filed its return of income on 14th March, 2002 for the asst. yr. 2001-02 declaring nil income. The assessee had claimed a deduction under s. 80-IB of the Act at Rs. 74,928. His case was taken up for limited scrutiny by issue of a notice dt. 5th Aug., 2003 under s. 143(2)(i) of the Act. The notice for limited scrutiny was issued only for the purpose of verification of the claim of the assessee under s. 80-IB of the Act. After the assessee filed the necessary details the AO was satisfied with the claim of the assessee for deduction under s. 80-IB of the Act. The AO passed the order under s. 143(3) of the Act dt. 29th Dec., 2003. 6. The CIT, Moradabad in exercise of his powers under s. 263 of the Act sought to revise the aforesaid orders passed by the AOs on the ground that they were erroneous and prejudicial to the interest of the Revenue. In the case of the assessee in ITA 2898/Del/2005 there were two show-cause notices, the first one dt. 27th Jan., 2005 and the second one dt. 17th March, 2005. According to the CIT the actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3041/Del/2005 are concerned show-cause notices under s. 263 were issued on identical grounds as in the case of the assessee in ITA 2S9S/Del/2005, except that the claim for exclusion of DEPB incentive from the incentives on which deduction under s. 80HHC was to be allowed. 9. The plea of the assessees in reply to the show-cause notice under s. 263 may be summarised as follows: (a) that the provisions of s. 80-IA(9A) do not impose any restrictions that the deduction under different sections of Chapter VI-A shall be allowed only after reducing from the eligible profits of the business of the undertaking the amount of deduction allowed under s. 80-IB of the Act. This section is meant only for the purpose of emphasizing that the overall deduction under Chapter VI-A, including s. 80-IB should not exceed the profits and gains of the undertaking. In this regard reference was made to several judicial decisions. (b) In respect of the proposal to disallow negative profit after reducing 90 per cent of the sum on account of drawback and DEPB it was contended that the proviso below s. 80HHC(3) contemplates that first of all 90 per cent duty drawback, DEPB, etc. has to be added to profit u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. 80-IB and 80HHC without excluding from the eligible profits the deduction under s. 80-IB of the Act and deduction under s. 80HHC of the Act in spite of there being loss as defined under cl. (baa) of Explanation to s. 80HHC of the Act. 12. The learned Departmental Representative on the other hand submitted that as far as the deduction under s. 80HHC where there is a loss is concerned the issue was covered by the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC). Since the order of the AO did not consider this aspect, it was erroneous and the CIT was justified in exercising jurisdiction under s. 263 of the Act. On the question whether the AO having taken up the case for limited scrutiny of deduction. under s. 80-IB could investigate the claim of the assessee for deduction under s. 80HHC of the Act, the learned Departmental Representative submitted that even an order under s. 143(1) of the Act could be subject-matter of revision. In this connection reliance was placed by the learned Departmental Representative on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Anderson Mari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ajit Gupta this Tribunal had an occasion to examine identical issue and the Tribunal had held that exercise of jurisdiction under s. 263 was not justified in respect of deduction under s. 80HHC of the Act, when the same was not the subject-matter of limited scrutiny before the AO. The following were the observations of the Tribunal in this regard: "The case of the assessee was selected for limited scrutiny as provided under s. 143(2)(i) of the Act on the point of claim for deduction under s. 80-IB of the Act. The deductions under ss. 80HHC and 80-IB, as claimed by the assessee, were allowed by the AO while passing order under s. 143(3)(i) of the Acton 9th Feb., 2004. The assessee contends that the issues raised by the CIT in the proceedings under s. 263 relating to the claim for deduction under s. 80HHC was not the subject-matter of limited scrutiny made by the AO under s. 143(2)(i) of the Act and, therefore, the same could not be gone into by the CIT by exercising jurisdiction under s. 263 of the Act. On this fact, the learned Departmental Representative has justified the order of the CIT by resorting to the phraseology of s. 263 and submitted that since the AO had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and of the Tribunal in the case of Metro Tyres Ltd. and AP Industrial Components Ltd. support the stand of the AO. Similarly, Special Bench of the Tribunal in the case of Nirma Industries Ltd. and Mumbai Bench of the Tribunal in case of Investwel Publishers (P) Ltd. support the case of the assessee and the conclusion drawn by the AO. In contrast the CIT and the learned Departmental Representative 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 interpretative 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 under s. 263 is unjustified." 16. On the question of allowing simultaneous deduction under ss. 80-IB and 80HHC without allowing eligible profits, the same was considered in the case of Ajit Gupta. The Tribunal has held as follows: "Now, we may also examine as to whether the stand of the AO o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under s. 80HHC of the Act. The observation regarding the amendment w.e.f. 1st April, 1999 has been made as a sequel to the argument of the Revenue and is not the ratio of the decision as contended by the learned Departmental Representative. Even if it is accepted that the legal proposition of the learned Departmental Representative is supported by the said decision, it merely reflects a possible view. Thus, 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. and Gabriel India Ltd. 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." 17. With regard to allowing deduction under s. 80HHC in spite of there being a loss as defined under cl. (baa) of Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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