1995 (9) TMI 96 - AT - Income Tax

Tribunal: Partial Appeal Success, Orders on Foreign Currency Conversion Struck Down, 80HHC Deduction Upheld

HMT Limited. Versus Commissioner Of Income-Tax.

HMT Limited. Versus Commissioner Of Income-Tax. - ITD 057, 001, TTJ 055, 160, Issues Involved:1. Jurisdiction of the CIT to invoke powers under section 263.2. Merits of the CIT's order under section 263 regarding the conversion of foreign currency earnings.3. Computation of deduction under section 80HHC.Detailed Analysis:1. Jurisdiction of the CIT to Invoke Powers under Section 263:The first issue raised by the assessee pertains to the jurisdiction of the CIT to invoke powers under section 263, based on the merger theory. The assessee contended that the assessment order revised by the CIT had already merged with the order of the CIT(A) passed before the amendment of section 263 effective from 1-6-1988. The assessee relied on decisions from the Bombay High Court in Ritz Ltd v. Union of India and CIT v. International Computers Indian Mfg. Ltd., and the Karnataka High Court in M.S.P. Spices (P.) Ltd., which suggested that the amended provisions would not apply to orders passed before the amendment.The learned DR countered by citing subsequent judgments where the ITAT, Bangalore Bench decided in favor of the revenue, emphasizing that the date of the revisionary order is crucial. The Tribunal found that recent trends in judgments considered the date of the revisionary order, holding that if the revisionary order is passed after the amendment, it is valid despite the merger theory. The Tribunal noted that in cases cited by the assessee, the revisionary orders were passed before the amendment, distinguishing them from the present case where the revisionary order was passed after the amendment. Hence, the preliminary ground relating to the jurisdiction of the CIT based on the merger theory does not hold good.2. Merits of the CIT's Order under Section 263 Regarding the Conversion of Foreign Currency Earnings:The CIT's order had two limbs, the first concerning the conversion of the assessee's foreign currency earnings. The CIT directed that the AO should have applied Rule 115 of the IT Rules, converting the entire foreign exchange earnings at the rate prevailing on the last day of the accounting year. The assessee contended, relying on a Karnataka High Court judgment in Namasthe Leather Garments (P.) Ltd., that Rule 115 was not applicable.The Tribunal agreed with the assessee, citing the Karnataka High Court judgment, and struck down the CIT's order regarding the conversion of foreign currency earnings.3. Computation of Deduction under Section 80HHC:The second appellate ground related to the computation of deduction under section 80HHC on the assessee's export income. The CIT directed that the increment in export turnover should be determined by considering the total export turnover for the current and preceding years, including the decrease in export turnover for watches.The assessee argued for a liberal interpretation of the exemption provision, citing Supreme Court judgments in Mangalore Chemicals & Fertilizers Ltd. and CIT v. Canara Workshops (P.) Ltd., claiming that deduction should be allowed only for items showing incremental turnover. However, the Tribunal held that the reference to 'goods or merchandise' in section 80HHC should be considered as a whole, not individually. The Tribunal cited judgments from the Calcutta High Court in CIT v. Indian Products Ltd. and the ITAT, Madras in N.B. Abdul Gafoor v. ITO, supporting the view that total export turnover should be considered without individual classification.The assessee also proposed an alternative plea to claim rebate under section 80HHC for only three items, foregoing the deduction for watches. The Tribunal rejected this plea, stating that the assessee should have made this claim earlier and that the Tribunal could not disturb the assessment order portion not appealed.Ultimately, the Tribunal upheld the CIT's direction regarding the computation of deduction under section 80HHC.Conclusion:The appeal filed by the assessee is partially allowed, with the Tribunal striking down the CIT's order on the conversion of foreign currency earnings but upholding the CIT's direction on the computation of deduction under section 80HHC.