2001 (3) TMI 252 - AT - Income Tax

Tribunal Upholds AO's Decision on Section 80HHC Deduction, Rejects Rectification Application

Income Tax Officer. Versus Iran Tea Trading Co. (P.) Ltd.

The Tribunal upheld the Assessing Officer's actions in reducing the deduction under section 80HHC, rejecting the rectification application, and confirming ... Rectification Of Mistakes, Apparent From Record Issues Involved:1. Deduction under section 80HHC.2. Rectification under section 154.3. Jurisdiction of the Assessing Officer.4. Doctrine of merger.5. Time-limit for rectification.Issue-wise Detailed Analysis:1. Deduction under section 80HHC:The original assessment allowed a deduction under section 80HHC of Rs. 12,95,588, reduced from the claimed Rs. 18,66,484. The CIT, using section 263, set aside this order due to insufficient investigation into commission payments, leading to a fresh assessment that drastically reduced the deduction to Rs. 2,827. However, the Tribunal quashed the section 263 order, reinstating the original assessment. The subsequent order by the Assessing Officer, dated 22-3-1993, adjusted for unabsorbed business losses, reducing the deduction to Rs. 54,829, which was contested by the assessee. The CIT(A) held that the original order should be revived, but the Tribunal found that the deduction must be restricted to the gross total income as per section 80A(2), thus supporting the Assessing Officer's revised deduction.2. Rectification under section 154:The assessee's application for rectification of the 22-3-1993 order was rejected by the Assessing Officer, a decision upheld by the Tribunal. The Tribunal emphasized that the reduction in deduction was due to the mandatory provisions of section 80B(5) and section 80A(2), which limit deductions to the gross total income. The Tribunal found no mistake apparent from the record that warranted rectification, thus supporting the Assessing Officer's rejection of the rectification application.3. Jurisdiction of the Assessing Officer:The Tribunal clarified that the Assessing Officer's actions were within jurisdiction, as they were consequential to the allowance of unabsorbed business losses from the previous year. The Tribunal noted that the recomputation of the deduction under section 80HHC was not a fresh assessment but a statutory restriction due to the reduced gross total income. The Tribunal also highlighted that the Assessing Officer's actions were consistent with the provisions of section 72 and section 80B(5).4. Doctrine of merger:The Tribunal addressed the Departmental Representative's argument that the doctrine of merger did not apply, as there was no CIT(A) decision on the merits of section 80HHC. The Tribunal agreed, noting that the effective order was the one dated 6-11-1995, which revived the original assessment order. The Tribunal also referenced the Supreme Court's decision in Hind Wire Industries Ltd., explaining that the rectification was within the time-limit as it was based on the effective order date.5. Time-limit for rectification:The Tribunal referred to the Supreme Court's ruling in Hind Wire Industries Ltd., which states that the time-limit for rectification should be counted from the date of the effective order, not the original order. Thus, the rectification initiated by the Assessing Officer on 1-11-1996 was within the permissible four-year period from the effective order dated 6-11-1995. The Tribunal upheld the Assessing Officer's rectification, limiting the deduction under section 80HHC to the gross total income, as it was within the statutory time frame.Conclusion:The Tribunal allowed all three appeals filed by the Revenue, supporting the Assessing Officer's actions in reducing the deduction under section 80HHC, rejecting the rectification application, and confirming the jurisdiction and time-limit for the rectification. The Tribunal emphasized adherence to statutory provisions, particularly sections 80A(2) and 80B(5), and upheld the principle that deductions cannot exceed the gross total income.