Income Tax Appellate Tribunal - Chandigarh
Nahar Exports Ltd. vs A.C.I.T. C.C. V. [Alongwith Ita No. ... on 8 November, 2004
Equivalent citations: [2005]92ITD484(CHD), (2005)93TTJ(CHD)186
ORDER
AO took one of possible viewDeduction under section 80HHC was allowed by the AO taking trading loss as nil. Later on the CIT invoked section 263 holding that order passed by the AO was erroneous and prejudicial on account of excessive allowance of deduction under section 80HHC. The CIT directed the AO to recompute deduction under section 80HHC after taking into consideration the net result of both the activities, i.e., manufacturing and trading and not only of manufacturing activity.
Held: The AO had taken the view which had been supported by decisions of various Benches of the Tribunal therefore, it could safely be held that the view taken by the AO, while allowing the claim of the assessee, was one of the possible views. Order under section 263 thus set aside.
Income Tax Act, 1961 Sction 263 Income Tax Act, 1961 s.80HHC Revision under section 263--MERGERIssue not considered by the CIT (A) Held: The issue before the CIT(A) was as to whether interest earned by the assessee on FDRs would increase the turnover for purposes of computing deduction under section 80HHC or not whereas the CIT invoked section 263 in relation to issue as to whether loss incurred by the assessee required to be adjusted against profit earned by the assessee therefore, order of CIT(A) was not hit by merger doctrine.
Income Tax Act, 1961 Sction 263 ORDER N.K. Saini, Accountant Member
1. These appeals by the assessees are directed against the orders of the CIT(C) Ludhiana dated 18.2.98 and 20.1.99 for the Assessment year 1994-95.
2. Common issues are involved in both these appeals and the appeals were heard together, so, these are being disposed off by this common order for the sake of convenience.
3. First we will deal with ITA No. 460/Chandl/98. In this appeal following grounds have been raised:
"1. That worth CIT(C) Ludhiana erred in law and on facts in assuming jurisdiction Under Section 263 when the mater had already been considered by Ld. CIT(A)(C), Ludhiana in order dated 12.7.96 in appeal No. 103/I. T/95-96 and when the decision of Assessing Officer on this issue had emerged with that of Ld. CIT(A). Initiation of proceedings Under Section 263 being void-ab-lnitio may kindly be annulled."
"2. That the CIT(C) Ludhiana erred in law and on facts in giving direction to the Assessing Officer to recomputed deduction Under Section 80 HHC by reducing the loss on trading goods exported. The direction, being bad in law, maybe quashed."
"3. Without prejudice and in alternative, worthy CIT(C) erred in la and on facts in not ignoring the negative figure i.e. loss of export on trading goods for the purpose of computing deduction Under Section 80 HHC. Adequate directions may be given to allow deduction Under Section 80 HHC by taking the negative figure of loss on trading goods exported as NIL."
4. From the above grounds, it would be clear that the assessee is aggrieved by the order passed by the CIT(C) Under Section 263 of I.T. Act, 1961.
5. The facts of the case in brief are that the assessee filed Its return of income on 30.11.94 declaring an income of Rs. 18,76,090 which was processed on 20.6.95 Under Section 143(1)(a) of I.T. Act, 1961. Later on notices Under Section 142(1) and 143(2) were issued and the assessment was framed Under Section 143(3) or I.T. Act, 1961 on 18.12.95. The assessee claimed deduction Under Section 80 HHC amounting to Rs. 5,96,147. However, deduction was allowed at Rs. 7,35,435 after considering various additions made, by the Assessing Officer. The Assessing Officer while allowing deduction Under Section 80HHC had considered trading loss as NIL. Later on CIT(C) Ludhiana required the assessee to show cause as to why appropriate remedial action should not be taken as provided Under Section 263(1) of I.T. Act, 1961 by setting aside the assessment order dated 18.12.95 being erroneous and prejudicial to the interest of revenue on account of excessive allowance of deduction Under Section 80 HHC because the Assessing Officer had ignored the loss suffered in export or trading goods which resulted in excessive allowance of deduction. In response to the above notice, the assessee submitted that the deduction Under Section 80 HHC had been claimed according to the strict provisions of I.T. Act, 1961 and the calculation including losses on export of trading goods had been certified by the Chartered Accountant as required under the relevant provisions of I.T. Act, 1961. It was further submitted that the Assessing Officer had allowed deduction In accordance with the provisions of Section 80 HHC and no action Under Section 263 was Justified. It was also contended that the deduction Under Section 80 HHC had been discussed and adjudicated in appellate order. Therefore, the said Issue could not be conveyed in jurisdiction of revision as per the provisions of Section 263(2)(c) or I.T. Act, 1961.
6. Learned CIT(C) Ludhiana after considering the submissions of the assessee observed that as per Clause (baa) to the explanation to Section 80 HHC a negative figure of profit of business was not to be ignored. Reliance was placed on the decision of ITAT indore Bench In the case of Prestige Foods Ltd v. D.C.I.T. reported in (1997) 58 TTJ 300. CIT(C) therefore, held that while allowing deduction Under Section 80 HHC, necessary verification was not made with respect to admissibility of the claim in accordance with the provisions of law. Therefore, the assessment order was not only erroneous but also prejudicial to the interest of revenue. As regards to the contention of the assessee that the deduction Under Section 80 HHC had been adjudicated In the appellate order, CIT(C) stated that the issue before the Ld. CIT(A) was only computation as per assessment order on the basis of facts and the legal issue was neither touched In the assessment order nor In the appellate order. Ld. CIT(if) held the order passed Under Section 143(3) by the Assessing Officer, to be erroneous and prejudicial to the Interest of the revenue and directed the Assessing Officer to recompute deduction Under Section 80 HHC after taking into consideration the net result of both the activities i.e. manufacturing and trading and not only the profit of one activity i.e. manufacturing. Now the assessee is in appeal.
7. Ld. counsel for the assessee submitted that the assessment order passed by the Assessing Officer was neither erroneous nor pre Judicial to the interest of the revenue. Therefore, CIT was not justified in setting aside the order passed by the Assessing Officer by invoking the provisions of Section 263 of I.T. Act, 1961. It was stated that the Assessing Officer, after proper verification allowed the claim of the assessee Under Section 80 HHC and the Ld. CIT(A) further allowed claim of the assessee when the matter was under his consideration and since the order passed by the Assessing Officer merged with the order passed by the Ld. CIT(A). CIT had no jurisdiction to pass the order Under Section 263. Reliance was placed on the following case laws:
i) CIT v. Mehsana Distt. Cooperative Milk Producers Union Ltd, 263 ITR 645 (Guj) - Wherein it has been held that :
"Powers of the Commissioner under Sub-section (1) of Section 263 extend to such matters as have not been considered and decided in appeal. The Revisional powers Under Section 263 do not extend to matters on which the appellate authority has bestowed consideration and given a decision."
ii) Reliance was also placed on the decision of Hon'ble Calcutta High Court in the case of Oil India Ltd. v. CIT II, Calcutta (1982) 138 ITR 836 wherein it has been held -
"Where an appeal is preferred before the AAC and a subject is particularly raised the Commissioner cannot revise such an order taking into account an aspect not dealt with by the AAC."
iii) Reliance was also placed on the judgment of Hon'ble Madras High Court In the case of CIT v. Farida Prime Tannery (2004) 135 Taxman 70 (Mad) wherein it has been held that -
"It is clear from the provisions of Section 263 that issues on which appellate authority had already deliberated the matter, could not be reopened by way of revision."
It was further stated that the Assessing Officer decided the issue by considering the matter in detail, the claim of the assessee was supported by auditor's certificate which was rightly allowed by the Assessing Officer and the view taken by him was one of the possible view allowable in accordance with law, therefore, when the Assessing Officer had decided the issue on the basis of one of the possible view the order can neither be erroneous nor pre judicial to the interest of the revenue.
iv) Reliance was placed on the following case laws:
a) CIT v. Mehsana Distt. Cooperative Milk Producers Union Ltd. 263 ITR 645 (Guj)
b) Malabar Indi Co. Ltd. v. CIT. (2000) 243 ITR 83 (S.C) C) CIT v. Max India Ltd. (2004) 268 ITR 128 (P&H) It was further submitted that various Benches of the Tribunal had taken the view that whenever there was a loss, the same should be taken as Nil while computing the deduction Under Section 80 HHC of I.T. Act, 1961 and the same course had been adopted by the Assessing Officer. Therefore, the Assessing Officer had taken one of the possible view and as such the order was neither erroneous nor pre Judicial to the interest of the revenue. He further submitted that a subsequent reversal or modification of the existing interpretation on which decision is based, does not render the decision open to review as such CIT was not Justified in reviewing the order by invoking the provisions of Section 263 of I.T. Act, 1961. Reliance was placed on the following case laws:
i) Geo Miller and Co. Ltd. v. DCIT, (2003) 262 ITR 237 (Cal)
ii) CIT v. Smt. Aruna Luthra, (2001) 252 ITR 76 (P&H)(F.B)
8. In his rival submissions, Ld. DR for the revenue strongly supported the order of CIT and submitted that Hon'ble Supreme Court had clearly laid down that if there is a loss that should be adjusted with the positive profit while claiming deduction Under Section 80 HHC(I) of I.T. Act, 1961. Reference was made to the judgment passed In the case of IPCA Laboratories Ltd. v. DCIT (2004) 266 ITR 521 (S.C). He further submitted that since the Assessing Officer had not considered the loss while allowing deduction Under Section 80 HHC, order passed by him was erroneous as well as pre judicial to the interest of revenue and the CIT had ail the powers of revision as provided in explanation (c) to Section 263 of I.T. Act, 1961. It was further stated that although the First Appellate Authority had decided the appeal of the assesses, the CIT had all the powers to review the order Under Section 263 of I.T. Act, 1961 because neither the Assessing Officer nor the CIT had dealt with the issue of loss to be adjusted with the profit earned by the assessee while claiming deduction Under Section 80 HHC. Reliance was placed on the judgment of Hon'ble High Court of Punjab & Haryana (F.B) in the case of Punjab Civil Supplies Corporation Ltd. v. CIT (1993) 200 ITR 536. Reliance was also placed on the following case laws:
i) CIT v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (S.C)
ii) CIT v. Panna Knitting Industries (2002) 253 ITR 656 (Guj)
iii) CIT v. Shree Manjunathesware Packing Products and Camphor Works (1998) 231 ITR 53 (S.C)
9. We have heard both the parties and carefully gone through the material available on record. In the Instant case, it Is noticed that the Assessing Officer passed the assessment order on 18.12.95 and that assessment order was the subject matter of appeal before the Ld. CIT(A) on certain issues who decided the appeal of the assessee vide order dated 12.7.96 and the impugned order had been passed by the Id. CIT on 18.2.98. From the above, it appears that the order was passed by the CIT when the Ld. CIT(A) had already decided the appeal of the assessee. As such the order of Assessing Officer merged with the appellate order passed by the Ld. CIT(A). However, on perusing the order of Ld. CIT(A) passed on 12.7.96, it is noticed that the issue before him vis-à-vis deduction Under Section 80 HHC was related to the interest income earned by the assessee on FDRs amounting to Rs. 22,24,201 and the issue to be decided was as to whether the income so earned, would Increase the turn over for the purpose of computing deduction Under Section 80 HHC or not? From the above it is crystal clear that the issue, as to whether loss incurred by the assessee required to be adjusted against profit earned by the assessee, was not before the ld. CIT.
10. In that view of the matter, we do not see any merit in this contention of the Ld. counsel for the assessee that the assessment order merged with the order of Ld. CIT(A) and therefore, the id. CIT was not having any jurisdiction Under Section 263 since the issue before the Ld. CIT(A) was not related to the issue which had been considered by the CIT while Invoking the provisions of Section 263 of I.T. Act, 1961.
11. As regards to the contention of the Ld. DR for the revenue that Hon'ble Supreme Court had decided the issue and laid down that the loss should be adjusted in the profit while claiming deduction Under Section 80 HHC in the case of IPCA Laboratories (supra), it is noticed that the said judgment had been delivered by the Hon'ble Supreme Court on 11.3.2004 while the assessment order had been passed much earlier on 18.12.95. Therefore, the judgment of Hon'ble Supreme court was not available with the Assessing Officer.
11.1 The Hon'ble Calcutta High Court in the case of Geo Miller and Co. Ltd. (supra) held as under:
"Order 47 of the Code of Civil Procedure, 1908 provides for review on account of mistake or error apparent on the fact of the record. An Explanation was added to it by the 1976 amendment. The explanation lays down that a subsequent reversal or modification of the existing interpretation on which a judgment is based does not render the judgment open to review. The explanation added to Rule 1 of Order 47 of the Code in order to define an error or mistake apparent on the face of the record is equally applicable to Section 154 of the I.T. Act, 1961. In construing Section 154 the court is justified in taking into consideration other enactments where an identical provision has been defined by the same Legislature."
11.2 The Hon'ble High Court of Punjab & Haryana in the case of CIT v. Smt. Aruna Luthra, 252 ITR 76 (supra) observed:
"The obvious Intention or the Legislature is that if the mistake has come to the notice of the authority within the prescribed time, it should not be allowed to continue. Section 154 clearly provides for the intervention of the authority within the specified time, subject to the condition that the mistake is apparent and the issue is not debatable. Thus, any right under an order is subject to the provision or the statute. That being so there is no vested right which can be said to have been taken away. The provision has in built safeguards. It provides for the issue of notice, it ensures the grant of an opportunity to be heard. It limits the jurisdiction of the authority. The action can benefit the assessee as well as the Revenue in this situation, there is no ground for placing an unduly restricted interpretation on the provision. The power Under Section 154 can be invoked even when an issue is decided by the Jurisdictional High Court or a superior court after the order had been passed.
In her return for the Assessment year 1987-88, the assessee claimed a deduction from the profits of business, of a sum representing loss in chit fund. This was allowed in an assessment Under Section 143(1). Subsequently on the basis a judgment of the High Court hold that the transactions did not involve any taxable income or revenue expenditure, the Assessing Officer added the sum in question, in proceedings Under Section 154. The Tribunal held in favor of the assessee."
It has been further held -
"that the dispute related to the Assessment year 1987-88. The parties had been litigating for more than 13 years. The ultimate tax effect was limited. Thus, even though the decision on the question of law was in favour of the Revenue, the order passed by the Tribunal was not being interfered with."
12. In the instant case also, although the judgment of Hon'ble Supreme Court was in favour of the revenue, however, that judgment had been delivered on 11.3.2004 while the assessment order had been passed on 18.12.95 and ld. CIT passed the order Under Section 263 on 18.2.98. Therefore, it cannot be said that the Assessing Officer as well as the ld. CIT were aware of the judgment of Hon'ble Supreme Court while taking their respective views for computing the deduction Under Section 80 HHC of I.T. Act, 1961. However, from above order of the Hon'ble High Court of Punjab & Haryana it seems that on the basis of subsequent decision of Hon'ble Supreme Court the view taken by the Assessing Officer was not correct view. But recently their Lordships of Hon'ble High Court of Punjab & Haryana which is the Jurisdictional High Court in the case of CIT v. Max India Ltd (supra) have taken a view that action Under Section 263 cannot be taken when on the date of passing the order the Assessing Officer has taken one of the possible view. The relevant portion of the judgment of Hon'ble High Court of Punjab & Haryana in the case of CIT v. Max India Ltd. (Supra) is quoted herein below:
"Since the turnover of the assessee for the Assessment year 1992-93 included exports, it had claimed deduction Under Section 80 HHC of the I.T. Act, 1961, at Rs. 1,33,09,439. The assessment was completed by the Assessing Officer on March 15, 1995 and deduction Under Section 80 HHC of the Act was allowed as claimed by the assessee. However, on a perusal of the record, the Commissioner of Income-tax observed that while working out the deduction Under Section 80 HHC, there was a negative figure of profit at one stage which had been ignored by the Assessing Officer and thereby excess deduction Under Section 80 HHC had been allowed. He set aside the order of the Assessing Officer. The Tribunal held that since the view taken by the Assessing Officer was a possible view, the Commissioner had no Jurisdiction to exercise power Under Section 263 of the Act and treat the order to be erroneous in any manner."
It has further been held as under:
"Dismissing the appeal, that the view expressed by the Assessing Officer was in conformity with the view subsequently expressed by the various Benches of the Tribunal. The view expressed by the Assessing Officer was a possible view and since the Assessing Officer had taken a possible view, the Commissioner had no jurisdiction to Interfere by exercising his powers Under Section 263."
13. Now the issue before us is - whether the CIT was justified in invoking the provisions of Section 263 by considering the order of Assessing Officer as erroneous and prejudicial to the interest of revenue.
14. We find that the connotation of expression "erroneous" in the context of exercise of reversionary powers by the CIT Under Section 263 of I.T. Act, 1961 a re much narrower than the ordinary connotation of this expression In a common parlance. Hon'ble Supreme Court in the case of Malabar Indi Co. Ltd. v. CIT (2000) 243 ITR 83 (S.C) held as under:
"A bare reading of Section 263 of the I.T. Act, 1961 makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income Tax Officer is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous, and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - If the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to Revenue - recourse cannot be had to Section 263(1) of I.T. Act, 1961. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fail orders passed without applying the principle of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in Ms ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task Is entrusted to the Revenue, if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully-payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the Interests or Revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable In law."
Similarly, the ITAT, Pune Bench (TM) in the case of Jamnadas T. Mehta v. Income Tax Officer (2002) 257 ITR 90 (AT) held that -
"the ambit of interference Under Section 263 is not to set aside merely unfavorable orders and bring to tax some more money to the treasury. The section is not enacted to get a sheer escapement of revenue which is taken care of by other provisions, in the Act. Prejudice that is contemplated Under Section 263 is prejudice to the Income-tax administration as a whole Section 263 is to be invoked not as a jurisdictional corrective or as a review of sub-ordinate's order in exercise of the supervisory power, but it Is to be invoked and employed only for setting right distortions and prejudices to the Revenue which is a unique conception which has to be understood in the context of, and in the interests of the Revenue administration. Where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agreed, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer 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 Assessing Officer is perverse or impossible view and unless and until it is established that the view taken by the Assessing Officer is perverse or impossible, the Commissioner cannot invoke the revisionary powers conferred upon by statute. Therefore, we deem it appropriate to examine as to whether the view taken by the Assessing Officer was at all possible view or not. In the instant case at the time of claiming deduction Under Section 80 HHC of the I.T. Act, 1961, 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 ITAT, Calcutta Bench 'A' in the case of Yarn Syndicate Ltd. v. DCIT (2001) 79 ITD 189 (Cal) (authored by one of us, A.M) has held as under:
"The assessee was having negative figure of profit and took the same as Nil to get the benefit Under Section 80 HHC(3)(b). If the profit was considered as Nil, as claimed, no adjustment could be made which was otherwise allowable as per proviso to Sub-section (3) of Section 80 HHC and also nowhere it was mentioned that negative profit may be considered as Nil. Thus, considering the facts of the case, no interference was required In the order of the Commissioner (Appeals). The Assessing Officer rightly made adjustment in the negative profit according to the proviso to Section 80 HHC(3)."
From the above, it would be clear that one of the views was that in case there is a loss that should be adjusted instead of taking figure at Nil. However, other Benches of the Tribunal have taken a different view. In the case of ACIT Central Circle II, Ludhiana v. Avon Cycles Ltd. Ludhiana order dated 26.5.2002 in ITA No. 116/Chand/97 for the Assessment year 1994-95, ITAT Chandigarh Bench 'A' held that -
"the machinery to compute the income from export activity is provided in Section 80 HHC(3) and after computing such income, such income is required to be deducted from the gross total income of the assessee in order to arrive at the taxable income/total income of the assessee as contemplated by Section 80 HHC(1). In other words, the deduction Under Section 80 HHC(1) has to be a positive figure. If, after computing the amount Under Section 80 HHC(3) there is a resultant loss, it cannot be deducted from the gross total income in order to arrive at the total income. Only the resultant profits from the export activities representing net profits or 90% of the export incentive as per proviso to Section 80 HHC(3) could be deducted from the gross total income to arrive at the total Income/taxable income. Thus, there has to be positive income Under Section 80 HHC(3) and if there is loss as per Clauses (a) to (c) of Section 80 HHC(3), the same has to be Ignored, only then 90% of the export incentive will represent the positive income."
In the case of VishaI Exports Overseas Ltd. v. Income Tax Officer order dated 21.1.2003 in ITA No. 1248/Mum/2002 for the Assessment year 1998-99, the ITAT 'I' Bench Mumbai observed in para 13 as under:
"13 For the above reasons, we are of the view that the judgment of the Bombay High Court in IPCA Laboratories (supra) is not of assistance to the Revenue in the present controversy. Since the matter is already concluded in favour of the assessee claimed by the orders of the Ahmedabad, Cochin and Mumbai Benches of the Tribunal, respectively following them, we uphold the assessee's contention and direct the Assessing Officer to allow the deduction Under Section 80 HHC without adjusting the export loss against the amount computed under the Proviso to Sub-section (3). Ground Nos. 1 to 7 are allowed."
I5. Similarly, the ITAT Delhi Bench 'C' in the case of Indian Sugar and General Industry Export Import Corporation Ltd. v. DCIT, 21 Taxman 305 held as under:
"Sub-section (3) of Section 80 HHC begins with the words 'for the purpose of Sub-section (1)' Explanation (baa) distinguishes profits of the business from the profits and gains of the business showing that they are separate items for the purposes of Section 80 HHC and the proviso to Section 80 HHC(3) further increases the profit by export incentives. Accordingly it has to be held that the reference in Explanation (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 Section 80 HHC, loss at any stage is required to be ignored.
A critical reading of the proviso to Section 80 HHC indicates that the negative figure worked out under Clause (a)/(b)/(c) of Sub-section (3) of Section 80 HHC cannot be increased by a positive Figure. It can be adjusted and not increased. The plain reading of the proviso to Sub-section (3) of Section 80 HHC provides clue that the figure or loss worked out under Clauses (a), (b) and (c) has to be ignored. If there is a positive figure under Clauses (a) and (b) there is no difficulty in increasing the same by 90% of export incentives as stipulated in proviso to Sub-section (3) of Section 80 HHC, but if the figure under Clauses (a), (b) and (c) is negative, then the construction suggests that those losses cannot be increased by a positive figure and as such this required to be ignored.
Even if there is an ambiguity in the interpretation of Section 80 HHC, the interpretation favourable to the assessee is required to be adopted. Thus taking into the totality of the facts and circumstances of the case and since the profit from export of manufactured goods and profit from export of trading goods was negative, those figures had to be completely ignored and 90% of export incentive had to be taken into consideration working out the claim of deduction Under Section 80 HHC."
16. On a similar issue, ITAT, Cochin Bench in the case of A.M. Moosa v. ACIT, reported at 54 TTJ 193 (Cochin) held as under:
" It is a bounden duty to liberally construe the provisions of Sub-section (3) and the proviso there under of Section 80 HHC as the Section was enacted to give a fillip to the exporters who earned precious foreign exchange. In addition to this stand of thought Clause (baa) of the Explanation has given a statutory definition of "profit of the business". According to the Explanation In order to arrive at the "profits of the business", the profit as computed in terms of the provisions of I.T. Act, 1961 should be reduced by certain sums specified In the Explanation. As the exercise is only to quantify the "profits of the business" in terms of the definition given, one is not empowered to arrive at a loss in such an exercise. If loss is confronted with as a result of the exercise, the same should be ignored and should not merit consideration. In the light of the discussions, the assessee did not have the statutory "profit of business" as defined in the Explanation and, therefore, in terms of the main provisions of Sub-section (3) he is not entitled to the deduction of such profit (which is nil) there being no profit, the context and setting of the enactment and the objects of the section, the proviso should be read as an independent provision to advance the cause rather than to defeat it. Thus, construing the proviso to Sub-section (3) of Section 80 HHC as an independent provisions, the assessee would be entitled to the deduction in an amount equal to 90% of the sums referred to in Clause (iiia) (not being profits on sale of a licence acquired from any other person) and Clause (iiib) and Clause (iiic) of Section 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-section (3) of Section 80 HHC is viewed only as a proviso, still the assessee cannot be denied the deduction. This is because under the main provisions of Sub-section (3) the statutory 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-section (3). As a result, a positive figure will emerge."
17. Similar view has been taken by the ITAT Chandigarh Bench in the case of Avon Cycles Ltd. v. ACIT (1997) 59 TTJ (Chd) 75, by holding as under:
"The plain reading of Section 80 HHC shows that the negative profit worked out under Clauses (a) and (b) of Sub-section (3) of Section 80 HHC 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 Clause (c) of Sub-section (3) of Section 80 HHC provides clue that the negative profit or toss worked out under Clauses (a) and (b) has to be ignored. If there is a profit under Clauses (a) and (b), there is no difficulty in Increasing the same by the 90% export incentive as stipulated in Clause (c) but if the profit under Clauses (a) and (b) are negative, then harmonious construction suggests that those losses cannot be increased by a positive figure under Clause (c). Even if there is a ambiguity the same has to be interpreted In favour of the assesses. The Assessing Officer is, accordingly directed to allow the assessee's claim Under Section 80 HHC on the basis of 90% of export incentives as worked out under proviso to Sub-section (3) of Section 80 HHC by ignoring the loss under Clauses (a) and (b) of the said Section."
18. On a similar issue, ITAT Ahmedabad Bench 'B' in the case of Pratibha Syntax Ltd. v. Joint Commissioner of Income-tax (2002) 81 ITD 118 held as under:
"Section 80 HHC(3) provides for quantification of profits derived by the assessee from exports. This computation provision lays down three stages for computation of profits derived from exports:
(1) In the first stage "profits of the business" are to be computed as per Explanation (baa) appended below Section 80HHC(4B).
Profits and gains of business as computed under the head "business income" minus 90% of any sum under Clauses (iiia), (iiib) and (iiic) of Section 28 or any receipt by way of brokerage, commission, Interest etc. (2) Calculate proportion of the aforesaid 'profits or business' as export turnover bears to the total turnover of the business carried by the assessee.
(3) Proviso lays down that the figure arrived at in stage No. (2) above would be further increased by an amount which bears to 90% of any sum referred to in Clauses (iiia), (iiib) and (iiic) of Section 28, same proportion as export turnover bears to the total turnover of business.
From the aforesaid working, it would be seen that the profits derived from exports as per Section 80 HHC(1) which qualifies for relief would be the amount arrived at In the second stage which is further increased by the amount arrived at in the third stage as above. If the figure in the first stage as above works out to be negative, it clearly means that the same would have to be ignored for the purpose of working out the proportionate figure In the second stage as above and in that eventuality "profit of the business" would be adopted as Nil. There is obviously no question of calculating the proportion of the negative figure in the aforementioned second stage and the profits derived from exports, for the purpose of Section 80 HHC(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 or purposive interpretation of statutes. It is relevant to note that Section 80 HHC(1) as well as the Section 80 HHC(3) along with 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" word as excess of incoming over outgoing, the computation Section 80 HHC(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 Section 80 HHC(1). It is to be noted that the Section envisages both the profit components as positive figure and there is no occasion for any adjustment if the figure as worked out under Explanation (baa) is a negative figure. What Section 80 HHC(3) provides for is not algebraic sum of two profit components, one computed under the main Section i.e. Clause (a) and the other computed under the proviso to the Section. Had the Legislature used the word 'Income' the word may have negative connotation also In the light of the inclusive definition of income Under Section 2(24)."
18.1 From the above discussion, it would be clear that the majority of the ITAT Benches had taken a view that when the computation was to be made Under Section 80 HHC, loss at any stage was required to be ignored. In other words, if the figures under Clauses (a), (b) and (c) of Sub-section (3) of Section 80 HHC are negative then the negative figure or loss worked out has to be ignored. In the instant case, the Assessing Officer has taken the view which has been supported by the aforesaid decisions of the various Benches of the Tribunal.
Therefore, it can safely be held that the view taken by the Assessing Officer while allowing the claim of the assessee was one of the possible view. Now the question is - if the Assessing Officer has taken one of the possible view then whether the learned. CIT was justified in exercising his revisionary powers Under Section 263 of I.T. Act, 1961 and to direct the Assessing Officer to take another possible view.
19. In view of the above discussion, we a re of the opinion that the facts of the present case are similar to the facts involved in the case of CIT v. Max India Ltd (supra). Therefore, in view of the judgment of Jurisdictional High Court, we are of the confirmed view that in the instant case, the Id. Commissioner had no jurisdiction to interfere with the view taken by the Assessing Officer by exercising his powers Under Section 263 of I.T. Act, 1961 since the view expressed by the Assessing Officer was a possible view because majority of ITAT Benches had taken the same view. We are also fortified for-our aforesaid view by the decisions of various High Courts. In the case of Russell Properties Pvt. Ltd. v. A. Chowdhury Addl. Commissioner of Income Tax, W. Bengal and Ors., (1977) 109 ITR 229 (Cal). Hon'ble Calcutta High Court held that -
"The power of revision Under Section 263 of the I.T. Act, 1961 can be exercised only if the following conditions are satisfied - firstly, the Commissioner must call for and examine (he records of the proceedings under the Act and, secondly the Commissioner must consider the order passed by the Income Tax Officer to be erroneous in so far as it is prejudicial to the interest of the revenue. However, where there is a decision of a higher Appellate authority the subordinate authority is bound to follow such decision. Hence, an order passed by the Income Tax Officer following the decision of the Appellate Tribunal cannot be held to be erroneous and such an order cannot be revised."
20. Similarly, Hon'ble Allahabad High Court in the case of K.N. Agarweal v. CIT (1991) 189 ITR 769 (All) has held as under:
"The orders of the Tribunal and the High Court are binding upon the Assessing Officer and since he acts In a quasi judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court as the case may be. He cannot ignore it merely on the ground that the Tribunal's order is the subject matter of a reference in the High Court. Hence, where the Assessing Officer follows the decision of an appellate authority, it cannot be said that his decision is erroneous. Such a decision cannot be revised by the Commissioner of Income-tax Under Section 263."
A similar view has been expressed by the Hon'ble Orissa High Court in the case of CIT v. Orissa State Financial Corporation (1993) 203 ITR 747 by holding that -
"Order of Income Tax Officer following decision of Tribunal in earlier year is not erroneous and could not be revised Under Section 263 of I.T. Act, 1961."
21. From the above discussion, it is crystal clear that the view taken by the Assessing Officer was in conformity with the decisions of the various Benches of the Tribunal and thus, the view taken by the Assessing Officer which was the subject matter of learned. CIT's revision, was a reasonable view and, therefore, the ld. Commissioner was not justified in exercising his powers Under Section 263 of I.T. Act, 1961 to revise the order passed by the Assessing Officer. Accordingly, we set aside the impugned order of the learned. CIT and the appeal is allowed.
22. In ITA No. 285/Chandi/99, the issue involved is identical which would be clear from the grounds raised by the assessee which are following:
"1 That worthy CIT(C) Ludhiana erred in law and on facts in assuming jurisdiction Under Section 263 when the matter (of deduction Under Section 80 HHC) had already been considered by Ld. CIT(A) (C) Ludhiana in order dated 28.11.96 in appeal No. 50/I.T/96-97 and when the decision or Assessing Officer on the said issue had merged with that of Ld. CIT(A) Ludhiana. Initiation of proceedings Under Section 263 being void abinitio may kindly be annulled."
"2 That CIT(C) Ludhiana erred in law and on facts in giving directions to Assessing Officer to recompute deduction Under Section 80 HHC by reducing Joss on trading goods exported. The directions being bad in law may be quashed."
"3 Without prejudice and in alternative, worthy CIT(C) erred in law and on facts in not ignoring the negative figure i.e. loss on export of trading goods for the purpose of computing deduction Under Section 80 HHC. Adequate directions be given to allow deduction Under Section 80 HHC by taking the negative figure of loss on trading goods exported as NIL."
23. Since in the present case the issue involved is similar and even the rival contentions were also identical as were in the case of Nahar Export Ltd (supra), therefore, our findings given in ITA No. 460/Chandi/1998 (supra) shall apply mutatis mutandis to this appeal also. In that view of the matter, we set aside the order of CIT.
24. In the result, both the appeals of the assessees are allowed.