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TMI Blog2003 (8) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... 0HHC was claimed by the assessee as per following calculations: "Deduction under s. 80HHC Profits of the Business Rs. (a) Income from business 1,49,46,364 Less : Commission recd. 1,02,87,639 Interest recd. 8,20,478 Service charges 13,92,131 Cash assistance 60,34,388 Duty drawback 3,36,76,495 5,22,11,175 90% of above 4,69,90,058 3,20,43,694 NIL (b) Total Turnover As per P&L a/c 73,87,12,140 Deduct Cash assistance 60,34,388 Duty drawback 3,36,76,495 Freight & insurance 46,03,064 Export 69,43,98,193 (c) Export on FOB basis 25,85,92,700 (d) Deduction under s. 80HHC 25,85,92,700 69,43,98,193 x NIL NIL Plus Deduction as per proviso to sub-s. (3) of s. 80HHC : Cash assistance 60,34,388 Duty drawback 3,36,76,495 3,97,10,883 90% of above 3,57,39,795 25,85,92,700 69,43,98,193 x 3,57,39,795 1,33,09,439 1,33,09,439 3.1 However, the learned CIT on 8th Oct., 1995, issued a show-cause notice to the assessee requiring to show-cause as to why the assessment order dt. 15th March, 1995, should not be set aside treating the same as erroneous and prejudicial to the interest of the Revenue on account of omission of the AO to work out the correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncreased by the amount which bears to 90 per cent of cash assistance and duty drawback, etc., the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. 3. It will appear from the above that Firstly, the deduction under s. 80HHC has to be completed under any of the three clauses of sub-s. (3) of s. 80HHC and then the same is to be increased by the amount, if any, calculated as per the above referred proviso. The proviso clearly indicates that it will only increase the deduction, if any, computed under any of the three clauses of sub-s. (3) of s. 8HHC. In other words, the proviso will operate only to increase the deduction. Since the proviso has been placed in sub-s. (3) of s. 80HHC after the three clauses and uses the words 'shall be further increased', the result of computation under any of the three clauses cannot reduce the benefit granted by the proviso. Secondly, all the three clauses of sub-s. (3) use the word Profit. The word 'Profit' denotes a surplus and not a deficit and accordingly if the result of computation under any of the three clauses is negative, the same will have to be ignored since all the three clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p the proceedings initiated under s. 263 of the IT Act, 1961. Thanking you, Yours faithfully, (Ravi Parkash) Chief-Group Taxation" 3.4 After considering the submissions of the assessee, the CIT made the observation that the interpretation of the word 'Profit' referred by the assessee was not correct. According to him, it was highly improbable that there was legislative intention to ignore the losses as computed under various sub-clauses to sub-s. (3) of s. 80HHC of the IT Act, 1961 and in case result of computation under the head 'Profits and gains' of 'business' or 'profession' was a negative figure, such a negative figure was to be reduced for arriving at the deduction under s. 80HHC, which 90 per cent of in proportion as the export turnover bears to the total turnover. The learned CIT therefore, set aside the order passed by the AO under s. 143(3) and directed him to recompute the deduction under s. 80HHC. 3.5 Aggrieved by the aforesaid order of the learned CIT, the assessee is in appeal before this Bench of the Tribunal. Before us, Shri Ajay Vohra, advocate, the learned counsel for the assessee, vehemently argued that the assessment order was neither erroneous nor p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002) 74 TTJ (Cal) 543 : (2001) 79 ITD 189 (Cal). 4. We have heard both the learned representatives and considered their rival submissions along with the material available on the record. The issue before us is as to whether the learned CIT was justified in invoking the provisions of s. 263 of the IT Act. We find that the connotation of expression "erroneous" in the context of exercise of revisionery powers by the CIT under s. 263 of the IT Act are much narrow than the ordinary connotation of this expression in a common parlance. The Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT held as under: "A bare reading of s. 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interest of the Revenue. If one of them is absent—if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has to be understood in the context of, and in the interests of the revenue administration. Where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the AO is unsustainable in law." In view of the above, we have to see in the instant case as to whether the view taken by the AO is perverse or impossible view and unless and until it is established that the view taken by the AO is perverse or impossible, the CIT could not invoke the revisionary powers conferred upon him by statute. Therefore, we deem it appropriate to examine as to whether the view taken by the AO was at all possible view or not. In the instant case, while claiming deduction under s. 80HHC of the IT Act the assessee ignored the loss while calculating the deduction and the figure relating to the profit from the business was adopted at Nil, since there was loss. First of all, we may mention here that the Tribunal Calcutta 'A' Bench in the case of Yarn Syndicate Ltd. vs. Dy. CIT has held as under: "The assessee was having negative figure of profit and took the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without adjusting the export loss against the amount computed under the proviso to sub-s. (3). Ground Nos. 1 to 7 are allowed." 4.1 Similarly, the ITAT, Delhi 'C' Bench in the case of Indian Sugar & General Industry Export Import Corpn. Ltd. vs. Dy. CIT held as under: "Sub-s. (3) of s. 80HHC begins with the words 'for the purpose of sub-s. (1)' Expln. (baa) distinguishes profits of the business from the profits and gains of the business showing that they are separate items for the purposes of s. 80HHC and the proviso to s. 80HHC(3) further increases the profit by export incentives. Accordingly it has to be held that the reference in Expln. (baa) to the words 'profits of business' will denote a surplus only and not a deficit and, therefore, when the computation is to be made under s. 80HHC, loss at any stage is required to be ignored A critical reading of the proviso to s. 80HHC indicates that the negative figure worked out under cl. (a)/(b)/(c) of sub-s. (3) of s. 80HHC(3) cannot be increased by a positive figure. It can be adjusted and not increased. The plain reading of the proviso to sub-s. (3) of s. 80HHC provides clue that the figure or loss worked out under cls. (a), (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would be entitled to the deduction in an amount equal to 90 per cent of the sums referred to in cl. (iiia) (not being profits on sale of a licence acquired from any other person), and cls. (iiib) and (iiic) of s. 28, the same proportion as to export turnover bears to the total turnover to the business carried on by the assessee. From another point of view even if the proviso to sub-s. (3) of s. 80HHC is viewed only as a proviso, still the profit of business is to be taken as 'nil' there being no profit. This should be increased by the amount specified in the proviso to sub-s. (3). As a result, a positive figure will emerge." 4.3 Similar view has been taken by the Tribunal, Chandigarh Bench, in the case of Avon Cycles Ltd. vs. Asstt. CIT (1997) 59 TTJ (Chd) 75, by holding as under: "The plain reading of s. 80HHC shows that the negative profit worked out under cls. (a) and (b) of sub-s. (3) of s. 80HHC cannot be "increased" by a positive profit. A negative figure cannot be increased by a positive figure. It can be adjusted not increased. The plain reading of the proviso to cl. (c) of sub-s. (3) of s. 80HHC provides clue that the negative profit or loss worked out under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the negative figure in the aforementioned second stage and the profits derived from exports, for the purpose of s. 80HHC(1) would in that case comprise of the amount arrived at the third stage as above. The interpretation being placed above is fully supported by the rule of literal interpretation as well as rule of purposive interpretation of statutes. It is relevant to note that s. 80HHC(1) as well as s. 80HHC(3) alongwith the proviso appended thereto consistently speak of profits. The word "profit" is understood and known in the common parlance as well as in the 'commercial' world as excess of incoming over outgoing. The computation s. 80HHC(3)(a) provides for computation of profits derived from exports comprised in two components, say (A) and (B). The profit component (A) is to be further increased by profit component (B) to arrive at the profits derived from exports for purpose of s. 80HHC(1). It is to be noted that the section envisages both the profit components as positive figures and there is no occasion for any adjustment if the figure as worked out under Expln. (baa) is a negative figure. What s. 80HHC(3) provides for is not algebraic sum of two profit components, one ..... X X X X Extracts X X X X X X X X Extracts X X X X
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