TaxTMI 
TaxTMI 
2007 (1) TMI 213
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....f the CIT under section 263 is on the basis that the same is bad in law for it is beyond the jurisdiction of the CIT. The assessee has also challenged the order of the CIT on merits of the dispute. The brief background leading up to the present proceedings can be understood as follows. In this case, the assessee filed a return of income on 31-10-2001 declaring total income at Rs. 12,70,840.In the return of income, the assessee, who is engaged in the manufacture and export of brass artwares, etc., declared income from business to Rs. 49,97,658 and claimed deduction under sections 80-B and 80HHC of the Act amounting to Rs. 11,18,635 and Rs. 38,17,023, respectively. The assessment was finalized by the Assessing Officer under section 143(3) of the Act on 26-3-2004, wherein the income from business, deductions under sections 80-IB and 30HHC of the Act were computed at Rs. 47,96,351, Rs. 11,80,635 and Rs. 35,77,491, respectively. The assessment so framed has been considered by the CIT as erroneous insofar as it is prejudicial to the interest of the revenue on two counts. Firstly, the CIT observed that for the purpose of calculation of deduction under section 80HHC, the Assessing Officer ....
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....n under section 263 of the Act. The CIT, however, did not accede to the pleas of the assessee. The CIT held that the provisions of section 80-IA(9) of the Act made it clear that the profits of the business for the purposes of calculation of deduction under section 80HHC are to be reduced by the amount of deduction under section 80-IB of the Act and that deduction under section 80-IB is to be calculated and allowed first by virtue of section 80-IA(9) of the Act. The CIT noted that the Assessing Officer had overlooked the provisions of section 80-IA(9) of the Act while computing deduction under section 80HHC of the Act. Secondly, the CIT concluded that incomes by way of duty drawback receipts and samples could not be equated to profits derived from the industrial undertaking. He, therefore, held that duty drawback receipts and income from sale of free samples was excludible for computing deduction under section 80-IB of the Act. On this basis, tie held that the order of the Assessing Officer dated 26-3-2004 was erroneous insofar as it is prejudicial to the interest of the revenue. Thus, by exercising power conferred under section 263 of the Act he cancelled the assessment order and d....
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....us deduction under sections 80HHC and 80-IB of the Act, it was contended that the same was not prohibited provided the aggregate of the deduction claimed under the two sections do not exceed the gross total income. Reliance was also placed on the following decisions. (i) Bharat Heavy Electricals Ltd. v. Dy. CIT [2006] 9 SOT 89 (Delhi)(URO). (ii) Mittal Clothing Co. v. Dy. CIT [2005] 4 SOT 626 (Bang.); (iii) Toshica Creation v. ITO [2005] 96 TTJ (JP) 651. (iv) ITO v. R.V. Diamond Jewellers (P.) Ltd. [IT Appeal No. 2252 (Delhi) of 2005 dated 30-11-2005]. 6. Further with regard to the stand of the CIT on allowability of benefits under section 80-IB with respect to receipt of duty drawback and samples, it was contended that the same are inextricably related to the business of industrial undertaking and thus rightly considered by the Assessing Officer for allowing deduction under section 80-IB of the Act. In support the learned counsel referred to the following decisions : (i) CIT v. India Gelatine & Chemicals Ltd. [2005] 275 ITR 284 (Guj.); (ii) Dy. CIT v. Metro Tyres Ltd. [2001] 79 ITD 557 (Delhi). (iii) A.P. Industrial....
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....ustified, on the facts and circumstances of the case, to hold that the assessment order dated 26-3-2004 passed under section 143(3) of the Act was erroneous and prejudicial to the interest of the revenue, so as to justify invoking of section 263 of the Act. A bare reading of section 263 makes it clear that to justify exercise of jurisdiction by CIT, the order of the Assessing Officer is to be erroneous insofar as it is prejudicial to the interest of the revenue. The satisfaction of the aforesaid twin conditions is a prerequisite to justify intervention by the CIT under section 263 of the Act. The order should be erroneous so that section 263 is attracted. Similarly, the second condition of the order being 'prejudicial to the interest of the revenue' is to be applied in conjunction with an erroneous-order of the Assessing Officer. So however, where the Assessing Officer has adopted one of the course permissible in law or where two views are possible and the Assessing Officer has taken a view which the CIT does not agree with, such an order of the Assessing Officer cannot be treated as an erroneous order insofar it is prejudicial to the interest of the revenue. The exception ....
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....not make an elaborate discussion in that regard. 11. Now, we may also examine as to whether the stand of the Assessing Officer on the issue can be said to be unsustainable in law. On merits, the controversy is whether the Assessing Officer was correct in computing the deduction under section 80HHC without reducing from the "profits of business", the deduction allowable under section 80-IB of the Act. The CIT has held that in view of the provisions of section 80-IA(13), the deduction under section 80HHC is to be computed by reducing from the "profit of business" the deduction allowable under section 80-IB of the Act. The conclusion drawn by the Assessing Officer is supported by the decisions of the Tribunal in the cases of Bharat Heavy Electrical Ltd. (supra), Mittal. Clothing Co. (supra), Toshica Creation (supra) and R.V. Diamond Jewellers (P.) Ltd. (supra). In Bharat Heavy Electrical Ltd. (supra) the Tribunal held that section 80HHC of the Act does not authorize adjustment of deduction under sections 80HH, 80HHB or section 80-I from the export profits before deduction under section 80HHC is given. Whatever deduction is computed by applying the formula prescribed by section 80HH....
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....nts of the Apex Court and Bombay High Court in Malabar Industrial Co. Ltd. (supra) and Gabriel India Ltd. (supra) the order of the Assessing Officer on the issue of computing deduction under sections 80HHC and 80-IB cannot be considered as erroneous insofar it is prejudicial to the interest of the revenue. 14. Now, with respect, to the exclusion of incomes of duty drawback and samples for computing deduction under section 80-IB of the Act, the Assessing Officer had considered such amounts as part, of eligible profits for the purposes of computing deduction under section 80-IB of the Act. On the issue of duty drawback, the judgments of Gujarat High Court in the case of India Gelatine & Chemicals Ltd. (supra) and of the Tribunal in the case of Metro Tyres Ltd. (supra) and A.P. Industrial Components Ltd. (supra) support the stand of the Assessing Officer. Similarly, Special Bench of the Tribunal in the case of Nirma Industries Ltd. (supra) and Mumbai Bench of the Tribunal in the case of Investwel Publishers (P.) Ltd. (supra) support the case of the assessee and the conclusion drawn by the Assessing Officer. In contrast the CIT and the learned Departmental Representative interpreted....
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....rgued by the parties before us. The same is discussed hereinafter. The case of the assessee was selected for limited scrutiny as provided under section 143(2)(i) of the Act on the point of claim for deduction under section 80-IB of the Act. The deductions under sections 80HHC and 80-IB, as claimed by the assessee, were allowed by the Assessing Officer while passing, order under section 143(3)(i) of the Act on 9-9-2004. The assessee contends that the issues raised by the CIT in the proceedings under section 263 relating to the claim for deduction under section 80HHC was not the subject-matter of limited scrutiny made by the Assessing Officer under section 143(2)(i) of the Act and therefore, the same could not be gone into by the CIT by exercising jurisdiction under section 263 of the Act. 20. On this fact, the learned Departmental Representative has justified the order of the CIT by resorting to the phraseology of section 263 and submitted that since the Assessing Officer had failed examine the claims of the assessee, the learned CIT was justified in invoking section 263 and directing the Assessing Officer to complete the assessment de novo in the light of his observations and fi....