1999 (6) TMI 54 - AT - Income Tax

Tribunal upholds assessment under section 148, interest income, and disallows deduction under section 80HHC.

The Tribunal upheld the validity of the assessment made after the issue of the notice under section 148, the assessment of interest income under the head ... Reassessment, Assessment, Prima Facie Adjustments Issues Involved:1. Validity of the assessment made after the issue of the notice under section 148.2. Assessment of interest income under the head 'Other sources'.3. Deduction under section 80HHC on export profit.Issue-wise Detailed Analysis:1. Validity of the assessment made after the issue of the notice under section 148:The assessee argued that the CIT (Appeals) was not justified in upholding the assessment made after the issue of the notice under section 148. The assessee contended that the same disallowance made under section 154 and canceled by the CIT (Appeals) could not have been made again in the order of assessment after the issue of the notice under section 148. The counsel for the assessee argued that the Assessing Officer could assume jurisdiction under section 148 only if there was escapement of income as per the original assessment and that there was no material to hold that income liable to tax for the assessment year 1990-91 had escaped assessment.The Revenue argued that the CIT (Appeals) was justified in upholding the assessment, as the assessee had been granted excess relief under section 80HHC, leading to escapement of income. The Revenue contended that it was open to the Assessing Officer to issue notice under section 148 to disallow the excess relief allowed by assessing the interest income under a wrong head.The Tribunal concluded that the notice under section 148 was issued to assess the income that had escaped assessment and not for reopening any completed assessment. The Tribunal held that the Assessing Officer was justified in issuing the notice under section 148 on finding that the assessee had claimed excess deduction under section 80HHC in the computation of the total income.2. Assessment of interest income under the head 'Other sources':The assessee received interest on fixed deposits with banks and investment in Vijaya Cash Certificates, which was credited in the profit and loss account of the business and included in the computation of deduction under section 80HHC. The Assessing Officer assessed the interest as income under the head 'Other sources' and excluded it while working out the deduction under section 80HHC, which was confirmed by the CIT (Appeals).The assessee argued that the interest receipts formed part of the export income and should not be separated from the business income. The counsel for the assessee contended that the interest payable on loans taken from banks should be adjusted against the interest receipts, and only the net amount should be treated as income under the head 'Other sources'.The Tribunal upheld the CIT (Appeals) decision, relying on the Kerala High Court decision in the case of Collis Line (P.) Ltd. and Cochin Refineries Ltd., which held that interest on bank deposits was not assessable as income from business. The Tribunal found no direct nexus between the assessee's export business and the earning of the interest income.3. Deduction under section 80HHC on export profit:The Tribunal noted that the deduction under section 80HHC is allowable only on the profit derived by the assessee from the export of specified goods and merchandise. The Tribunal referred to judicial pronouncements, including the Supreme Court decision in the case of Cambay Electric Supply Industrial Co. Ltd. and the Madras High Court decision in the case of CIT v. Pandian Chemicals Ltd., to conclude that the expression 'derived from' has a definite, narrow meaning and requires a direct nexus between the activity and the earning of the profit or gain.The Tribunal held that the interest earned by the assessee on the deposits with banks did not qualify as profit derived from the export of goods or merchandise and, therefore, was not eligible for the deduction under section 80HHC.Conclusion:The appeal by the assessee was dismissed, with the Tribunal upholding the validity of the assessment made after the issue of the notice under section 148, the assessment of interest income under the head 'Other sources', and the disallowance of the deduction under section 80HHC on the interest income.