TaxTMI 
TaxTMI 
2012 (6) TMI 65
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....y this common order. Before we examine facts of each individual cases, we deem it appropriate to refer to and examine the legal position. 3. Section 28(iiia) to 28(iiie) read as under: "28. Profits and gains of business or profession.-The following income shall be chargeable to income tax under the head "Profits and gains of business or profession",- xxx (iii-a) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947); (iii-b) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ; (iii-c) any duty of customs or excise repaid or repayable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971; (iii-d) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992); (iii-e) any profit on the transfer of Duty Free Replenishment Certificate, being the Duty Remission Scheme, unde....
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....ety per cent. of any sum referred to in clause (iiid) or clause (iiie), as the case may be, of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee : Provided also that in the case of an assessee having export turnover exceeding rupees ten crores during the previous year, the profits computed under clause (a) or clause (b) or clause (c) of this sub-section or after giving effect to the first proviso, as the case may be, shall be further increased by the amount which bears to ninety per cent. of any sum referred to in clause (iiid) of section 28, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that,- (a) he had an option to choose either the duty drawback or the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme ; and (b) the rate of drawback credit attributable to the customs duty was higher than the rate of credit allowable under the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme : Provided also that in the case of an assessee having export turn....
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....ing the purchase price of such goods ; (e) "indirect costs" means costs, not being direct costs, allocated in the ratio of the export turnover in respect of trading goods to the total turnover ; (f) "trading goods" means goods which are not manufactured or processed by the assessee. xxx Explanation.--For the purposes of this sub-section,-- (baa) "profits of the business" means the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by-- (1) ninety per cent. of any sum referred to in clauses (iiia), (iiib), (iiic), (iiid) and (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits ; and (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India ;" 5. Prior to 1st January, 2005, the export of textiles and clothing was governed by the bilateral agreements entered into between the Government of India and United States of America, countries of European Union and Canada. In view of the said international agreements, policies were framed from time to time for alloc....
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....e on the import from the credit available under the said Scheme. It is only the profit earned on the transfer which is exigible and covered by Section 28(iiid) and not the original amount mentioned and recorded in the Duty Entitlement Passbook Scheme. The original/principal amount is covered by Section 28(iiib) as held in ACG Associated Capsule Private Limited versus Commissioner of Income Tax, Central IV, Mumbai (2012) 3 SCC 321. Premium received is on the sale of export quota. It is a profit earned on transfer to a third party but the quota certificate was not issued under the Duty Entitlement Passbook Scheme and did not have any connect/link with the customs duty paid/payable on imports. (iiie) of Section 28 deals with profit on transfer of duty free replenishment certificate, which entitles a person to import goods for replenishment. What is covered by the said clause is only the profit earned on transfer and not the amount credited under the Scheme. The said clause is not applicable as export quotas were different and not like or similar to free replenishment certificates. 9. Clause 28(iv) deals with value of any benefit or perquisites whether convertible to money or not aris....
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.... sale of import licenses) section 28(iiic) (duty drawback). (iv) Therefore, the present item viz the premium on sale of export quota statutorily receive the same treatment as profit on sale of import license, cash assistance and duty drawback." 12. It is not possible to agree with the learned counsel for the Revenue that the aforesaid instructions is not a circular issued by the Board under Section 119 of the Act. The Office Memorandum refers to the clarification sought by the AEPC, whether the premium received on transfer of the export quotas could be treated as a part of export proceeds eligible for deduction under Section 80HHC. In paragraphs 3 and 4, it is stated that technically export premium can be equated with the items mentioned in the clauses (iiia) to (iiic) of Section 28 and they will statutorily receive the same treatment. 13. The next question, which arises for consideration is whether the aforesaid circular even if it is contrary to the Act is binding on the Revenue. Learned counsel for the Revenue has relied upon decision of the Supreme Court in Commissioner of Central Excise, Bolpur versus Ratan Melting & Wire Industries, (2008) 13 SCC 1. In the said case, Const....
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....(2002) 2 SCC 127 : (2002) 139 ELT 3] ." 14. Thereafter, in Ratan Melting & Wire Industries (supra) it has been held: "7. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the court to direct that the circular should be given effect to and not the view expressed in a decision of this Court of the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the court to declare what the particular provision of statute says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law. 8. As noted in the order of reference the correct position vis-à-vis the observations in para 11 of Dhiren Chemical case has been stated in Kalyani case. If the submissions of learned counsel for the assessee are accep....
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....ot been clarified or stated in the circular. Also which specific sub-clause i.e. (iiia) or (iiib) or (iiic) to Section 28 will apply is not stated. Explanation (baa) to Section 80HHC specifically refers to receipts under clauses (iiia) to (iiie) of Section 28 or receipts in nature of brokerage, commission, interest, rent, charges or any other receipt of similar nature included in such profit. The last part is residuary and will cover and include receipt of similar nature mentioned earlier. We may, however, notice that while referring to clauses (iiia) to (iiie) to Section 28 in the Explanation (baa), the word used is "sum" and for other incomes the word used is "receipt" and in the residuary part the word again used is "receipt". There may or may not be merit in the contention that the word "sum" or "receipt" convey different intention or meaning, but the said aspect is not relevant and need not be examined. What the circular postulates and states at best is that premium earned on sale of export quota would be given the same treatment i.e. will be treated as profits of business. The said amount, therefore, would be exigible under Explanation (baa). The circular has not clarified th....
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....wing substantial question of law was framed:- "Whether the amount received by the assessee from the sale of quota for export of goods could be equated with income mentioned in Sections 28(iiia) or Section 28 (iv) of the Income Tax Act, 1961 so as to be eligible for deduction under Section 80HHC of the Act?" 20. The Assessing Officer noticed that the assessee had earned export quota premium of Rs. 27,68,991/- in the assessment year 2003-04. 10% of the said amount was taken into consideration under Explanation (baa) to Section 80HHC. However, the export quota premium was not taken into consideration while applying proviso to sub Section 3 to Section 80HHC on the ground that it does not fall within Section 28(iiia), (iiib) and (iiic). 21. The assessee succeeded in the first appeal with the CIT (Appeals) holding that the export quota premium should be given the same treatment of DEPB under clauses (a) (b) or (c) to sub Section 3 to Section 80HHC for the assessment year 2003-04. 22. The tribunal by the impugned order dated 6th July, 2007 has observed as under:- "2.9 The issue raised is whether the premium on sale of export quota has to be increased in the ratio of exp....
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.... ratio of export turnover to total turnover has to be added to the profit computed u/s 80HHC(3). The Chandigarh bench of the tribunal in case of M/s. Gateway Pvt. Ltd. (supra), has also allowed the claim of the assessee in relation to premium on sale of export quota while computing deduction u/s 80HHC. In view of the foregoing discussion, we are of the view that the assessee is entitled to the benefit of increase to the profit as provided in the proviso to section 80HHC(3) in relation to premium on sale of export quota on the facts of the case. Accordingly, we set aside the order of CIT(A) and allow the claim of the assessee." 23. We may note that there appears to be an error in the last sentence of paragraph 2.10 quoted above because the Revenue had preferred an appeal before the tribunal and the respondent-assessee was satisfied with the findings/directions given by the CIT (Appeals). 24. As held above, premium on sale of export quota is not covered by clauses 28(iiia) to (iiie) and, therefore, the same cannot be taken into consideration. The question of law mentioned above, therefore, is answered in negative i.e. in favour of the appellant-Revenue and against the respondent-as....
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....had erred in law in holding that assessment order passed under section 143(3) of the Income Tax Act, 1961 was not prejudicial to the interest of the revenue and thereby holding that the proceedings under section 263 of the said Act were without jurisdiction?" 31. Further on 22nd May, 2012, an additional substantial question of law was framed which reads as under: " Whether the Income Tax Appellate Tribunal (ITAT) has erred in setting aside the order passed by the Commissioner of Income Tax under Section 263 of the Income of the Income Tax Act, 1961?" 32. In the two assessment years, the Assessing Officer had in the order under Section 143(3) accepted the computation made by the assessee under Section 80HHC of the Act. The Assessing Officer treated the premium/profit earned on sale of export quota as covered under Section 28(iiia) to (iiic). 33. The Commissioner of Income Tax, however, issued notice under Section 263 in exercise of power of revision and held that the Assessing Officer had wrongly included premium of Rs.1,16,62,320/- and Rs.73,49,341/- on the sale of quota rights for the assessment years 2000-01 and 2001-02 as covered by Section 28(iiia) to (iiic) and had computed....
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.... by the Board. On correct interpretation of law, the assessee was entitled to include premium or profit on sale of export quota in Section 28 (iiia/b/c). Accordingly, the twin conditions i.e. order of the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue, were not satisfied. 36. As far as Section 263 is concerned, we have examined the said Section in depth and detail in ITO Vs. D G Housing Projects Ltd. decided on 1st March, 2012, in ITA No. 179/2011 and observed as under:- "10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression „prejudicial to the interest of the Revenue‟ is of wide import and is not confined to merely loss of tax. The term „erroneous‟ means a wrong/incorrect decision deviating from law. This expression postulates a....
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....at where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:- "These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return." 14. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry. 15. In the case of Commissioner of Incom....
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....onsideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) ... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in a....
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....y conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the ....
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....order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue." 37. In the present case, a reading of the order passed by the Commissioner of Income Tax exposits that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. In paragraph 6, 7, 9 and 10 the Commissioner of Income Tax has observed as under:- "6. The assessee‟s submissions are carefully considered. Explanation (baa) of sectio....
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....other member of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it.‟ Hence deduction u/s 80HHC has to be computed accordingly by reducing profit of business by 90% of the receipts from sale of quota rights. 8. x x x x x x x 9. Moreover, on perusal of the record, it is seen that the assessment was completed even though there were no details on record of export incentives received by the assessee during the year. The assessee was allowed the claim of deduction under Section 80HHC without even verifying as to whether the receipts on account of export incentive fall within the provisions of section 28(iiia/b/c) of the Act on merit the deduction. 10. In view of the above discussion, it is clear that the impugned assessment order is erroneous and prejudicial to the interest of Revenue as it failed to apply the provisions relating to the deduction under section 80HHC correctly. Therefore, the said assessment order is hereby cancelled under section 263 of the Income-tax Act, 1961 and the A.O. is directed to make fresh assessment as per the provisions of law. While making the fresh assessment, the A.O. is direct....