2012 (8) TMI 144 - HC - Income Tax

High Court upholds Commissioner's revision of assessments, emphasizes exclusion of non-export income for deductions.

The Kerala High Court upheld the Commissioner's revision of assessments for the years 1995-96 and 1996-97 under Section 263 of the Income-tax Act. The ... Scope of Section 263 - Deduction under Section 80-HHC - computed without excluding charges which fall within the scope of Explanation (baa) to Section 80HHC of the Act – Held that:- Finding of the Commissioner in the orders issued under Section 263 is that the Assessing Officer has not considered the scope of Explanation (baa) of Section 80HHC of the Act - Commissioner had only pointed out the mistake prima facie committed by the Officer in making assessment without reference to the relevant statutory provisions and directed him to re-work the relief under Section 80HHC Even though counsel for the assessee contended that for the year 1993-94 Tribunal allowed these issues on merit - with regard to the exclusions to be considered from the total income as well as the turnover covered by the Commissioner's order – matter remanded to AO Issues:Revision of assessments under Section 263 of the Income-tax Act for deduction under Section 80-HHC; Interpretation of Section 263 similar to proceedings for rectification under Section 154; Exclusion of income not connected to export business while computing deduction under Section 80HHC; Commissioner's finding of mistake in assessment without reference to relevant statutory provisions; Tribunal's orders not sustainable; Department's freedom to contest issues for subsequent years; Reversal of Tribunal's orders; Reopening of closed appeals by the Tribunal for decision on merit.Analysis:The judgment by the Kerala High Court pertains to challenges against orders issued by the Tribunal for the assessment years 1995-96 and 1996-97. The Commissioner revised the original assessments under Section 263 of the Income-tax Act due to the computation of deduction under Section 80-HHC without excluding charges falling within the scope of Explanation (baa) to Section 80HHC. The assessee, engaged in the manufacture and export of coir products, earned income from various activities. The Tribunal, despite separate orders for both years, addressed similar issues, leading to a common judgment.The Tribunal's interpretation of the scope of Section 263, akin to rectification proceedings under Section 154, was scrutinized. The Supreme Court's ruling in CIT v. K. Ravindranathan Nair emphasized excluding income unrelated to export business when calculating deductions under Section 80HHC. The Court noted that the Commissioner's revision was based on the Assessing Officer's oversight regarding Explanation (baa) of Section 80HHC. Precedents, such as CIT v. Veepees Enterprises, supported the Commissioner's revisional authority in such cases.The Court found the Tribunal's orders unsustainable as the Commissioner merely highlighted the Officer's prima facie error and directed a reassessment of relief under Section 80HHC. Despite the Tribunal's previous ruling on similar issues for the year 1993-94, the Court allowed the department to contest subsequent years' issues. The decision left the exclusions from total income and turnover, as per the Commissioner's order, open for reassessment based on the Supreme Court's guidance and after providing the assessee with an opportunity.Regarding the substantial disallowance made post the Commissioner's orders, the Tribunal's closure of appeals was deemed infructuous in light of the reversed orders. The Court directed the assessee to request the Tribunal to reopen the closed appeals for a decision on merit if they see fit. The judgment emphasized the importance of considering the merits of the appeals and the assessee's right to seek reopening of closed appeals for further adjudication.