TaxTMI 
TaxTMI 
2007 (3) TMI 310
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....d are directed against the order of the CIT passed under s. 263 of the Act. The facts and circumstances under which the order under s. 263 was passed by the CIT are identical in all the cases. The grounds of appeal raised by the assessee in all these appeals are also identical. These appeals were heard together and we deem it convenient to pass a consolidated order. 3. The assessees in all these cases are manufacturers and exporters of handicraft items. The assessee in ITA 2898/Del/2005 filed return of the income for asst. yr. 2001-02 on 30th July, 2001 declaring total income at nil. The assessee had claimed deduction under s. 80HHC and 80-IB of the Act. The case of the assessee was selected for a limited scrutiny by issue of a notice under s. 143(2)(i) of the Act. The copy of the notice so issued is at page Nos. 2 and 3 of the assessee's paper book and is dt. 23rd July, 2002 and 30th Dec., 2002 respectively. The only issue which was considered necessary for determination in the limited scrutiny proceedings was the deduction claimed by the assessee under s. 80-IB of the Act. After seeking necessary explanation from the assessee the AO passed order dt. 10th April, 2003; the AO co....
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....the Act was contrary to the above provisions and was erroneous insofar as it was prejudicial to the interests of the Revenue. According to the CIT the correct amount of deduction that should have been allowed under s. 80HHC was as follows: Profits of the business as adopted by the AO Rs. 14,34,729 Less: Admissible deduction under s. 80-IB as Rs. 3,58,682 worked by the AO Deduction under s. 80HHC = 80% of (profit x total export turnover --------------------- total turnover 80% of Rs. 10,76,047 = Rs. 8,60, 838. According to the CIT, the AO allowed deduction under s. 80HHC at Rs. 10,76,047 which is excessive by Rs. 2,15,209 (Rs. 10,76,047 - Rs. 8,60,838). 7. Other areas of dispute raised by the CIT in the show-cause notice under s. 263 of the Act were as follows: "(a) On perusal of the Trading and P&L a/c furnished it was noticed that the assessee has shown to have received incentives amounting to Rs. 12,60,612, the details of which were not available. As to whether the incentives include amount of DEPB or not was not shown. The assessee was called upon to furnish the details of the incentives and in case any ....
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....utation of allowance under s. 80-IB the assessee submitted that the proposed interpretation would virtually deprive the assessee from the benefit of deduction under IT Act. It was submitted that in the case of exporters these items of income would have a bearing on the cost of production. 10. The CIT however did not agree with the submissions made by the asses sees and for the reasons stated in the order under s. 263 the CIT held that the orders passed by the AO were erroneous inasmuch as it was prejudicial to the interest of the Revenue. The CIT therefore cancelled the assessment orders passed by the AO and directed the AO to make fresh assessment de novo after affording the assessee an opportunity of being heard. Against the orders of CIT under s. 263 of the Act, the assessees have preferred the present appeal before the Tribunal. The grounds of appeal as already stated are common in all the three appeals. 11. The first and foremost contention of the assessees is that the AO took up the case of all the three assessees only for the purpose of a limited scrutiny viz., verification of the claim for exception (sic-exemption) under s. 80-IB of the Act. It was contended that in s....
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....IB of the Act, the learned Departmental. Representative submitted that in the light of the decision of the Hon'ble Supreme Court in the following cases: (a) Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC); (b) CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC); (c) Hindustan Lever Ltd. vs. CIT (1999) 156 CTR (SC) 506 : (1999) 239 ITR 297 (SC); (d) Pandian Chemicals Ltd. vs. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC). the expression "derived from", used in s. 80-IB of the Act has to receive a narrow construction and therefore duty drawback could not be said to be income derived from the eligible business. According to him the exercise of jurisdiction by CIT under s. 263 was justified. The learned Departmental Representative prayed that the appeals by the assessee should be dismissed. It was also contended that exercise of jurisdiction under s. 263 was justified even where issues which are considered by the CIT are debatable and in this regard reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. M.M. Khambhatwala (1992) 198 ITR 144 (Guj). 13. We have ....
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.... in exercising powers under s. 263 by the CIT even in cases where the assessment was completed under s. 143(1) of the Act and thus in this case the order of the CIT was justified. On this aspect of the matter, we find that the Calcutta Bench of the Tribunal in case of Nayek Paper Converters vs. Asstt. CIT (2005) 93 TTJ (Cal) 574 : (2005) 93 ITD 144 (Cal) has considered an identical issue. The Tribunal has considered the issue comprehensively by noticing the scope and ambit of ss. 142(2)(i), 143(3)(i), 143(2)(ii) and also 263 of the Act. The Tribunal held that non-initiation of comprehensive security by issuing notice under s. 143(2)(ii) by the AO cannot be a subject-matter of revision under s. 263, where the assessment is completed under s. 143(3)(i) on limited issue. It was further, held that no other item or matter other than items specified in notice under s. 143(2)(i) could be dealt with or examined or verified or adjudicated upon by the AO while passing order under s. 143(3)(ii), CIT cannot direct the AO to look into matters which could be dealt by the AO by assuming jurisdiction under s. 143(2)(i) of the Act. We hereby concur with the decision of the Calcutta Bench of the Tri....
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....he CIT has held that in view of the provisions of s. 80-IA(13), the deduction under s. 80HHC is to be computed by reducing from the 'profits of business' the deduction allowable under s. 80-IB of the Act. The conclusion drawn by the AO is supported by the decisions of the Tribunal in the cases of Bharat Heavy Electrical Ltd., Mittal Cloth Co., Toshica Creation and R.V. Diamond Jewellers (P) Ltd.. In Bharat Heavy Electrical Ltd., the Tribunal held that s. 80HHC of the Act does not authorise adjustment of deduction under s. 80HH, 80HHB or 80-I from the export profits before deduction under s. 80HHC is given. Whatever deduction is computed by applying the formula prescribed by s. 80HHC, same is to be allowed without such profits being reduced by other deduction. The learned Departmental Representative has referred to the judgment of Rajasthan High Court in the case of Rochi Ram & Sons to support a contrary inference with regard to the application of s. 80-IA(9) of the Act. We have perused the said decision. The assessment year involved was 1995-96. The assessee has claimed simultaneous deduction under ss. 80HHC and 80-IA of the Act. The AO reduced the deductions under s. 80-IA by the ....