TaxTMI 
TaxTMI 
2006 (11) TMI 236
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....tion 80HHC of Rs. 21,07,522 and deduction under Section 80G of Rs. 14,128. Similarly, return for asst. yr. 2001-02 was filed on 25th Oct., 2001 declaring income of Rs. 53,39,230 after claiming deduction under Section 80HHC of Rs. 62,08,242 and deduction under Section 80G of Rs. 41,273. The AO after making detailed inquiries had made an assessment under Section 143(3) vide order dt. 30th Oct., 2002. On examination of the records, the CIT Shimla was of the view that the orders passed by the AO under Section 143 and 154 are erroneous insofar as prejudicial to the interests of the Revenue. He accordingly issued show-cause notice to the assessee as to why action under Section 263 may not be taken and the assessment order passed by the AO set aside. The assessee filed objections but of no avail. The CIT passed the order under Section 263 setting aside the assessment order and directing the AO to make fresh order after carefully looking into all the relevant points and affording reasonable opportunity of being heard to the assessee. 3. Assessee is aggrieved and is in appeal before us. We have heard the parties and perused the records. It is observed from the impugned order passed under....
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.... relied upon Jay the assessee, is not applicable to the facts of this case. 6. In addition to the above mistakes alleged by the CIT, it has been held that there was mistake committed by the AO in allowing the claim of Modvat credit, excess credit of tax paid under MAT and allowance of deduction under Section 80G. 7. The assessment order was accordingly set aside and the AO was directed to frame the assessment afresh. 8. The assessee is in appeal before us. The learned Counsel for the assessee contended before us that order passed by the CIT under Section 263 is without jurisdiction. Our attention was invited to the show-cause notices issued by the CIT and it was pointed out that all the points raised by the CIT in the show-cause notice had been raised by the AO in the course of original assessment proceedings. Our attention was invited to the questionnaire issued by the AO on 12th June, 2002 in which a specific query was raised about the regrinding charges of Rs. 36,45,148 and the AO had also asked the assessee to show cause as to why the said amount should not be excluded for the purpose of calculation of deduction under Section 80HHC. It was further contended that the AO....
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.... on the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) and that of Punjab and Haryana High Court in the case of CIT v. Max India Ltd. (2004) 191 CTR (P&H) 397 : (2004) 268 ITR 128 (P&H), to support the contention that once an assessment was framed after due inquiry and a possible view was taken by the AO, the CIT is precluded to exercise his powers under Section 263. It was accordingly pleaded that the appeal of the assessee may be allowed by setting aside the order of the CIT. 11. The learned Departmental Representative, on the other hand, contended that the order passed by the AO was clearly contrary to the provisions of the Act. Our attention was invited to Expln. (baa) to Section 80HHC. It was contended that the Explanation specifically refers to exclusion of 90 per cent of the 'charges' recovered by the assessee from the profits of business for the purpose of calculation of deduction under Section 80HHC. the assessee had collected job charges to the tune of Rs. 36,45,148 and 90 per cent of the same was to be excluded from the profits of the business by virtue of Expln. (baa) to Section 8....
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....essee under Section 80HHC. It was contended that the Karnataka High Court upheld the order under Section 263 of the CIT where the AO had wrongly allowed deduction under Section 80HHC. Reliance was also placed on the decision of the Delhi Bench E of the Tribunal in the case of Honda Siel Power Products Ltd. v. Dy. CIT (2000) 69 TTJ (Del) 97 : (2001) 77 ITD 123 (Del), to support the contention that where the AO had passed the assessment order in a routine manner without proper application of mind, the CIT(A) was justified in invoking his powers under Section 263 of the Act. It was contended that the assessee had received job charges in respect of domestic sales and the same were to be excluded from the profits of business for the purpose of determination of deduction under Section 80HHC. Reliance was placed on the decision of the Tribunal, Chandigarh Bench, in the case of Asstt. CIT v. Jagraon Cycle Inds., Ludhiana ITA No. 640/Chd/2005 for asst. yr. 2001-02, to support the contention that for the purpose of computation of deduction under Section 80HHC, scrap sale or service charges were to be excluded from the turnover as well as from the profits of business. It was pointed out that ....
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....culation of deduction under Section 80HHC as well as income chargeable to tax under Section 115JA by way of questionnaire issued to the assessee and assessee had also replied to the queries raised by the AO. The AO has thereafter passed an order on 30th Oct., 2002. The question before us is as to whether the order passed by the AO can be said to be erroneous insofar as it is prejudicial to the interests of the Revenue. It is well-settled principle of law that to enable the CIT to exercise his powers under Section 263, twin conditions must be satisfied. These conditions are (i) that the order passed by the AO is erroneous and (ii) the said order is prejudicial to the interests of the Revenue. Their Lordships of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra) have elaborately laid down the principles relating to the powers of the CIT under Section 263. In this case, their Lordships held that if one of the two conditions required for exercise of power under Section 263 is absent, the recourse to Section 263 cannot be taken. Their Lordships of the Supreme Court further laid down the law that provisions of Section 263 cannot be invoked to correct each and eve....
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....that the AO is a quasi-judicial authority and every quasi-judicial authority is required to pass speaking orders in regard to any issue that may be relevant for determination of the taxable income. In the present case, undoubtedly, the AO had raised the issue and assessee had also filed the reply. Their Lordships of the Punjab and Haryana High Court in the case of CIT v. Vikas Chemi Gum India (2005) 196 CTR (P&H) 23 : (2005) 276 ITR 32 (P&H) had emphasized the requirement of recording of reasons by the authorities. We hereunder quote the relevant portion: The requirement of recording of reasons and communication thereof has been read as an integral part of the concept of fair procedure. The necessity of giving reasons flows from the concept of rule of law which constitutes one of the corner stones of our constitutional set up. The administrative authorities charged with the duty to act judicially cannot decide the matters on considerations of policy or expediency. The requirement of recording of reasons by such authorities is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerat....
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....tion for assessment is the assessment order passed by the AO who is the quasi-judicial authority. The order of the AO is subject to appeal to the CIT(A). The order of the AO is also subject to the revision by the CIT under Section 263 as well as under Section 264. It is, therefore, necessary that the AO considers every fact for and against with due care and give his finding in a manner which would clearly indicate what were the questions which arose for determination and what is the evidence pro and contra in regard to each issue and the findings recorded on such evidence. The order of the AO is silent on the issues raised by the CIT in his order under Section 263. It is only with reference to the questionnaires issued by the AO and the replies furnished by the assessee that it comes to light that the AO had made inquiry in regard to the issues raised by the CIT under Section 263. But, what is the decision of the AO much less what is the basis of such decision is not indicated in the assessment order. Such an order passed by the AO, in our considered view, would fall within the category of an erroneous order being a non-speaking order. 20. There are decisions of Tribunal, Chandi....
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....t, the Tribunal has merely been swayed by the fact that the AO has not mentioned anything in the assessment order. During the course of assessment proceedings, the AO examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. As already observed, we have examined the records of the case and find that the AO had made full inquiries before accepting the claim of the assessee qua the amount of Rs. 10 lakhs on account of discrepancy in stock. Not only this, he has even gone a step further and appended an office note with the assessment order to explain why the addition for alleged discrepancy in stock was not being made. 22. It may appear that non-mentioning of the reasons for acceptance of the explanation of the assessee may not be a defect in the assessment order. So, however, in our considered view, the decision of the Hon'ble High Court has got to be read in the context in which it has been rendered. In the case of Hari Iron Trading Co. v. CIT (supra), the AO had made inquiry and collected mater....
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....e present case. 26. Before proceeding further, it may be relevant to refer to the following observations of the Hon'ble Supreme Court in the case of CIT v. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC): It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, Courts must carefully try to ascertain the true principle laid down by the decision. 27. In the case of Hari Iron Trading Co. v. CIT (supra), the issue was relating to a question of fact. The assessee had furnished sufficient material to establish the claim. The AO had in the office note explained the reasons why the explanation of the assessee was accepted. In the present case, the issu....
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....T: 115J. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. (1A) Every assessee, being a company, shall, for the purposes of this section, prepare its P&L a/c for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956). Explanation.:--For the purposes of this section, 'book profit' means the net profit as shown in the P&L a/c for the relevant previous year prepared under Sub-section (1A), as increased by-- (a) the amount of inco....
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....HHD; so, however, that such amounts are computed in the manner specified in Sub-section (3) or Sub-section (3A) of Section 80HHC or Sub-section (3) of Section 80HHD, as the case may be; or (iv) the amount of the loss or the amount of depreciation which would be required to be set off against the profit of the relevant previous year as if the provisions of Clause (b) of the first proviso to Sub-section (1) of Section 205 of the Companies Act, 1956 (1 of 1956), are applicable. (2) Nothing contained in Sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions of Sub-section (2) of Section 32 or Sub-section (3) of Section 32A or Clause (ii) of Sub-section (1) of Section 72 or Section 73 or Section 74 or Sub-section (3) of Section 74A or Sub-section (3) of Section 80J. 115JA. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day....
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.... this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 (but ending before the 1st day of April, 2001) shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation; or (ii) the amount of income to which any of the provisions of Chapter HI applies, if any such amount is credited to the P&L a/c; or (iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.:--For the purposes of this clause, the loss shall not include depreciation; or (iv) the amount of profits derived by an industrial undertaking from the business of generation or generation and distribution of power; or (v) the amount of profits derived by an industrial undertaking located in an industrially backward State or district as referred to in Sub-section (4) and Sub-section....
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....c. It is thus clear that legislature intended _ to allow deduction with reference to the book profits to the extent the assessee would be entitled to deduction under Section 80HHC which was to be calculated in the manner as provided under that section. It is clear from the language of the section that actual deduction permitted to the assessee under Section 80HHC was not to be reduced from the book profits, but the deduction was to be calculated with reference to the book profits as attributable to export profits to be computed in the manner under Section 80HHC. So, however, there is vital distinction in Section 115JA(viii) reproduced above. The Sub-section provides for reduction to the extent of the profits eligible for deduction under Section 80HHC computed under Clause (a), (b) or (c) of Sub-section (3) or Sub-section (3A). The words "in the manner" have been omitted from the language of above quoted Sub-section. It is, therefore, evident that after the assessment what is to be reduced from the profits and gains of business as per the books of account is the amount of deduction under Section 80HHC computed under the relevant provisions of the Act. So, a plain reading of Clause (....