Income Tax Appellate Tribunal - Delhi
Eureka Sales Corpn. vs Asstt. Cit on 14 June, 2004
ORDER
P.M. Jagtap, A.M.
1. This appeal by the assessee is directed against the order of learned CIT dated 23-2-1994 passed under Section 263 setting aside the assessment completed by the assessing officer under Section 143(3) on 23-3-1993 and directing him to decide the issue relating to deduction under Section 80HHC afresh.
2. We have heard the arguments of both the sides and also perused the relevant material on record. The learned Counsel for the assessee has raised elaborate contentions challenging the impugned order of learned CIT passed under Section 263. In brief, the arguments raised by him are three fold. Firstly, he has contended that the issue relating to the deduction under Section 80HHC having been already decided by learned CIT (A) by his appellate orders passed on 30-9-1992 and 15-11-1994 for the year under consideration, the order passed by the assessing officer under Section 143(3) had merged with the said appellate orders and the same, therefore, was not available for revision by the learned CIT under Section 263. Secondly, he has contended that the issue relating to deduction under Section 80HHC was duly examined by the assessing officer inasmuch as a specific query was raised by him on this point during the course of assessment proceedings and the assessing officer having allowed the claim of the assessee for deduction under Section 80HHC after satisfying himself about the explanation offered on behalf of the assessee in this regard on application of mind, there was no error in his order on this issue warranting any interference by the learned CIT under Section 263. The third limb of his argument is that the claim of the assessee for deduction under Section 80HHC was made on the basis of computation made in accordance with the mode specified in the provisions of Section 80HHC(3) prevalent at the relevant time and the claim so made by the assessee was even otherwise allowable on merits in accordance with the said provisions.
3. The learned Departmental Representative, on the other hand, has submitted that neither in the order dated 30-9-1992 nor in the order dated 15-11-1994 the learned CIT (A) had considered and decided the issue relating to deduction under Section 80HHC when there was export loss on merits and therefore, the order of the assessing officer on this issue had not merged with the said appellate orders as specifically provided in clause (c) of Explanation to Section 263(1). He has also submitted that the said issue was not properly examined by the assessing officer in the assessment completed under Section 143(3) as elaborately made out by the learned CIT in his order under Section 263 and since the said order passed by the assessing officer was totally silent on this issue, the same was erroneous as well as prejudicial to the interest of the revenue giving jurisdiction to the learned CIT for revision under Section 263. As regards the contention raised by the learned Counsel for the assessee on merits of the assessees claim for deduction under Section 80HHC, the learned Departmental Representative has pointed out that the learned CIT in his order passed under Section 263 has not decided this issue on merits and the same having been set aside to the assessing officer for deciding the same afresh on merits, the assessee is free to raise his objections in this regard before the assessing officer during the course of set aside proceedings.
4. After considering the rival submissions and perusing the relevant material on record, it is observed that the claim of the assessee for deduction under Section 80HHC was initially allowed by the assessing officer while accepting the said return under Section 143(1)(a). He, however, passed an order under Section 154 on 23-12-1991 withdrawing the deduction so allowed under Section 80HHC and when the said order was assailed by the assessee in an appeal filed before the learned CIT (A), he set aside the same holding that the issue relating to withdrawal of deduction under Section 80HHC, being debatable, was beyond the scope and ambit of Section 143(1)(a). Meanwhile, the case of the assessee was taken up for scrutiny for the year under consideration and in the assessment completed under Section 143(3), the assessing officer allowed the deduction under Section 80HHC claimed by the assessee in the return of income, but reduced the quantum of such deduction by holding that interest credited by the assessee in the profit and loss account being assessable under the head "income from other sources" and not "income from business/profession", the assessee was not entitled for deduction under Section 80HHC on the interest income. This action of the assessing officer in disallowing the claim of the assessee for deduction under Section 80HHC on interest income was challenged before the learned CIT (A) in an appeal filed by the assessee and the same was reversed by the learned CIT (A) accepting the stand of the assessee on this issue. It is pertinent to note here that the issue in respect of which the learned CIT revised the order of the assessing officer passed under Section 143(3) related to the eligibility of the assessee to claim deduction under Section 80HHC when there was no export profit and since this issue was neither considered nor decided on merits by the learned CIT either in his order dated 30-9-1992 or dated 15-11-1994, the order of the assessing officer on this issue was not merged with the said appellate orders as specifically provided in clause (c) of Explanation to Section 263(1). The contention raised by the learned Counsel for the assessee in this regard, being devoid of any merits, cannot be accepted.
5. As regards the proper exercise of jurisdiction by the learned CIT in revising the order passed by the assessing officer under Section 143(3), it is observed that the said order on the issue referred to above was held to be erroneous by the learned CIT (A) mainly for the reason that the issue relating to the entitlement of the assessee to claim deduction under Section 80HHC when there was no export profit had not been properly examined by the assessing officer and there was no application of mind by him while deciding the same. The reasons given by the learned CIT in support in his impugned order passed under Section 263 are as under:
(a) The non-trading receipts like consultancy, commission, interest etc. credited by the assessee in the profit & loss account could not be included in the total turnover and after excluding the said receipts, there was no profit available for consideration in terms of Section 80HHC.
(b) The provisions of Section 80HHC read with Section 80AB visualize the deduction in respect of the income of the particular nature computed in accordance with the provisions of the Act which shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income and since the assessee had incurred loss in the export business, it could not be said that the assessees gross total income also included income or profit from the business of export for the purpose of allowing deduction under Section 80HHC.
6. In the light of the aforesaid reasons given by the learned CIT to hold the order of the assessing officer passed under Section 143(3) to be erroneous, it is necessary to ascertain as to whether the issue in question was properly examined by the assessing officer or not and whether there was an application of mind by him in accepting the claim of the assessee on this account. In this regard, the learned Counsel for the assessee has filed a copy of enquiry letter dated 17-12-1991 issued by the assessing officer to the assessee raising, inter alia, the following query on the issue under consideration:
There is no trading surplus on account of sale/purchase of marine products, the items having mentioned in the audit report. Therefore, the surplus on account of trading is zero. The export sales have not given any profit. Therefore, show cause why your claim of deduction under Section 80HHC should not be rejected."
The learned Counsel for the assessee has also invited our attention to the reply given by the assessee to the aforesaid letter of the assessing officer placed at pages 71 to 73 of his paper book offering the following explanation:
10. The deduction claimed under Section 80HHC by the assessee during the year is correct. Section 80HHC(3) provision reads as follows:
For the purposes of Sub-section (1), profit derived from the Export of Goods or merchandise shall be.
(a) In case where the business carried on by the assessee consists exclusively of the export out of India of the goods or merchandise to which this section applies, the profits of the business as computed under the head "Profit and Gains of Business or Profession".
(b) In a case where the business carried on by the assessee does not consist exclusively of the Export out of India of the goods or merchandise to which this section applies. The amount which bears to the profits of the business (as computed under the head "Profit and Gains of Business and Profession") the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee.
The company is covered by the provisions of Section 80HHC(3)(b). Your attention is drawn to the order of CIT (A)VIII in the case of Magnum International Trading Co. (P) Ltd. in assessment year 1987-88 where on the same facts of the assessees case the Hon. CIT (A) has allowed the appeal against the order passed by the Assistant Commissioner under Section 143(3) of the Income Tax Act, 1961. Copy of the CIT (A)VIII order dated 21-7-1992 is enclosed for your consideration."
7. From a perusal of the aforesaid correspondence between the assessee and the assessing officer during the course of assessment proceedings, it is quite evident that a specific query was raised by the assessing officer on the issue under consideration and in the reply thereto, it was explained on behalf of the assessee referring to the provisions of Section 80HHC(3)(b) prevalent at the relevant time that the deduction tinder Section 80HHC was rightly claimed on the export profit computed as per the mode specified in the Statute. It appears that the assessing officer having satisfied with the said explanation offered on behalf of the assessee, allowed the claim of the assessee for deduction under Section 80HHC and although no discussion was made by him specifically on this issue in his order passed under Section 143(3), the fact remains to be seen, as arising from the relevant correspondence mentioned above, is that this issue was specifically examined by the assessing officer and explanation offered by the assessee in this regard was taken into consideration by him while allowing the claim of the assessee. Before us, the learned Counsel for the assessee has filed a copy of the Tribunals order for assessment year 1991-92 at pages 52 to 56 of his order showing that deduction under Section 80HHC was allowed by the Tribunal on the export profit computed in the similar manner by the assessee as per the mode specified in Section 80HHC(3)(b) relying on the decision of Special Bench of ITAT in the case of International Research Park Laboratories Ltd. v. Asstt. CIT (1999) 50 ITD 37 (Delhi) which is sufficient to show that the view taken by the assessee on the issue in dispute in the year under consideration was a possible view and the order passed by him adopting such possible view was not erroneous as held by the learned CIT. It is well settled that Section 263 does not visualize a case of substitution of the judgment of the CIT for that of the assessing officer who passed the order unless the decision is found to be erroneous. As already discussed, there was no error in the order of the assessing officer passed in the present case as alleged by the learned CIT and in the absence of this jurisdictional aspect, the learned CIT, in our opinion, was not justified in assuming jurisdiction under Section 263. In that view of the matter, we set aside his impugned. Order passed under Section 263 restoring that of the assessing officer passed under Section 143(3).
8. As regards the contention raised by the learned Counsel for the assessee before us on the merits of the issue relating to assessees claim for deduction under Section 80HHC, we find merits in the contention of the learned Departmental Representative that the learned CIT having not decided this issue on merits in his impugned order, it is neither proper nor necessary to render any verdict or this issue especially keeping in view our decision rendered in the preceding paragraphs of this order setting aside the order passed by the learned CIT under Section 263.
9. In the result, the appeal of the assessee is allowed.