2012 (3) TMI 120 - AT - Income Tax

Tribunal allows appeal on tax deduction, upholds jurisdiction on exchange gain, directs application of Section 80HHC.

The Tribunal partially allowed the appeal, finding that the Commissioner of Income Tax's jurisdiction under Section 263 was not proper regarding the ... Assessee claimed deduction under 80HHC - Interest Income assessable as 'Business Income OR Other Source' - CIT revoked 263 - Held That:- Deposit in bank account are as business compulsion and as a requirement of bank in granting credit facilities and not to earn interest Income. In earlier year the above ground were decided in assessee favour. Where two views are possible and AO resorted to one, it cannot be considered an order erroneous to revenue. Revocation not justified. Export Gain on forward contracts as a part of export turnover under 80HHC - Held That:- Exchange gain on forward contract translation does not have any element of export turnover or profit from export. 90% of the said income has to be excluded from the business profits Issues Involved:1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act.2. Deduction under Section 80HHC on interest receipt.3. Exchange gain on forward contract transactions.Issue 1: Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax ActThe appeal by the assessee challenges the revision order passed by the CIT under Section 263 of the Income Tax Act for the Assessment Year 2004-05. The assessee contended that the order of the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of revenue, hence the CIT's order under Section 263 is bad in law and should be quashed. The CIT had issued a show cause notice proposing to revise the assessment order on the grounds that the AO had not properly considered the issue of deduction under Section 80HHC on interest receipts and exchange gains on forward contracts. The Tribunal noted that if the AO had taken one of the possible views after applying his mind, the CIT could not invoke Section 263 to take a different view. The Tribunal found that the AO's view was a possible view and the issue was already a subject matter of appeal before higher authorities. Therefore, the CIT's jurisdiction under Section 263 was not proper and justified, and the ground of the assessee on this issue was allowed.Issue 2: Deduction under Section 80HHC on Interest ReceiptThe CIT proposed to revise the assessment order on the issue of deduction under Section 80HHC on interest receipt, stating that the interest received should have been taxed as income from other sources. The assessee argued that the AO had already made an enquiry about the interest income and disallowed 90% of the interest under Clause (baa) of Explanation to Section 80HHC. The Tribunal noted that the AO had applied his mind and taken a possible view by reducing 90% of the interest income, and this view was supported by the Tribunal's decisions in the assessee's own case for earlier years. The Tribunal held that the CIT had no jurisdiction to take a different view under Section 263 when the AO's view was a possible one. Therefore, the Tribunal allowed the ground of the assessee on this issue, stating that the CIT's jurisdiction under Section 263 was not proper and justified.Issue 3: Exchange Gain on Forward Contract TransactionsThe CIT sought to revise the assessment order on the issue of exchange gain on forward contract transactions, noting that the assessee had included the exchange gain in the export turnover, which should not be considered as derived from export sales. The assessee contended that the exchange gain on forward contracts was not included in the export turnover, and therefore, there was no question of reducing the same. The Tribunal found that the AO had not discussed this issue in the original assessment, indicating a lack of enquiry and application of mind. The Tribunal noted that the assessee had claimed the exchange gain as business income but had not included it in the export or total turnover. Therefore, as per Clause (baa) of Explanation to Section 80HHC, 90% of the exchange gain had to be excluded from the business profits. The Tribunal held that the CIT had rightly invoked jurisdiction under Section 263 on this issue due to the lack of enquiry by the AO. The Tribunal modified the revision order, directing the AO to apply Clause (baa) of Explanation to Section 80HHC on the exchange gain on forward contract transactions.ConclusionIn conclusion, the Tribunal allowed the appeal partly. The Tribunal found that the CIT's jurisdiction under Section 263 on the issue of deduction under Section 80HHC on interest receipt was not proper and justified, and allowed the ground of the assessee on this issue. However, the Tribunal upheld the CIT's invocation of jurisdiction under Section 263 on the issue of exchange gain on forward contract transactions, directing the AO to apply Clause (baa) of Explanation to Section 80HHC on the exchange gain. The appeal filed by the assessee was partly allowed.