TaxTMI 
TaxTMI 
2004 (4) TMI 596
X X X X Extracts X X X X
X X X X Extracts X X X X
....that Assessing Officer had made deleted enquiries before passing assessment order and therefore assessment order was not erroneous or prejudicial to revenue and therefore the same cannot be revised. 3. The Learned CIT (Administration) has erred in overlooking learned Assessing Officer had called for detailed computation statement of depreciation statement and after considering that by allowing deduction of depreciation the tax payable would be lower and therefore decided not to allow depreciation and therefore the learned CIT (Administration) cannot pass order under section 263 asking Assessing Officer to allow the depreciation and re-compute assessed income and disallow the deduction under section 263 and further erred in not following judgment of Bombay High Court and Supreme Court and further erred in not considering that the amendment of section 32(1) of allowing depreciation by proposed Finance Bill, 2001 is not retrospective. 4. The Learned CIT (Administration) has erred in not considering that for the assessment year 1997-98 the learned CIT(A) has held with case of appellant that if there is a loss under computation under a section 80HHC(3) the same should ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... export sales at FBO value : Rs. Rs. Export turnover (c and f value) 67,55,12,263 Less : export freight 1,49,59,478 66,06,22,785 Less : unrealized upto to 30-9-1996 47,47,005 6,55,71,35,780 B. Less: unrealized upto 30-9-1996 47,47,005 66,06,22,745 II. Incentive under section 28(iiia), (iiib) and (iiic) (a) duty drawback 718,68,987 (b) cash incentive 7,35,544 (c) Prem. on sale of imp. Licence 3,36,500 (d) Prem. on sale of quota 10,42,777 7,40,23,303 90% of incentive of Rs. 7,40,23,304... 6,66,20,977 III. Exemption under section 80HHC : A. under proviso to section 80HHC(3) B. under section 80HHC(3)(b) (Manufacturing) Profit of the business under section 4A-exp (baa) Profit of the business As per statement ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1,59,950 Misc. Incomes 44,649 Int. on loan 1,43,599 7,84,965 90% of 7,84,965 15,13,177 In proportion to export turnover: 7,06,468 6,63,53,395 24,87,227 In proportion to export turnover: 24,87,227 x 66,06,22,785 24,83,158 66,17,05,062 1,51,31,177 x 65,54,35,750 Rs. 14,80,520 Profit except under section 80HHC Rs. 6,80,22,712" The above computation made by the Assessing Officer was challenged in an appeal filed before CIT(A) on 29-4-1999. The CIT(A) has decided the said appeal vide his order dated 7-7-1999. It was contended in the appeal that Assessing Officer erred in reducing a sum of Rs. 47,87,005 being CIF value of goods as against the FOB value of goods amounting to Rs. 42,85,486 while computing the export sales of the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned that non claim of depreciation by the assessee was with a sole intention to show positive profit from export activity. The Assessing Officer was wrong in not reducing the depreciation from profits. Thus, the Assessing Officer did not make proper inquiries required in the circumstances of the case. It was incumbent on the part of Assessing Officer to further investigate the facts stated in the revised computation which he failed to do so. Thus, assessment order was erroneous as well as prejudicial to the interest of revenue. Against the show-cause notice, the impugned order under section 263 has been passed. In the order passed under section 263, the profits from the activities of export business is worked at negative figure of Rs. 1,24,30,285. For the sake of convenience the calculation mentioned in the order under section 263 is reproduced below: "Net profit as per P and L account Rs. 6,70,68,878 Add : depreciation to be considered separately Rs. 30,10,494 Less : depreciation as per rules) (as per revised statement of the assessee) Rs. 68,78,020 (-) Rs. 38,67,526 Profit from business Rs. 6,32,01,35....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal High Court and Apex Court that is in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. (1989) 177 ITR 443(Bom.) and CIT v. Mahendra Mills (2000) 243 ITR 56respectively. Therefore, the Learned counsel contended that the view taken by the Assessing Officer being one of the possible view, the assessment order does not become erroneous. For this proposition, he placed reliance on the following decisions: (i) Amrit Steels Ltd. v. Dy. CIT (2001) 79 ITD 498(Delhi) (ii) Blue Dart Express Ltd. v. Joint CIT (2000) 75 ITD 414(Mum.) (iii) CIT v. Gabrial India Ltd. (1993) 203 ITR 108(Mum.) (iv) CIT v. G.M. Mittal Stainless Steel (P.) Ltd. (2003) 263 ITR 255(SC) He further contended that the appeal was filed before CIT(A) with regard to computation of deduction under section 80HHC. Therefore, the assessment order had merged with the order of CIT(A) and thus also order under section 263 was not validly passed by the CIT. For this purposes he placed reliance on the following decisions : (i) Sahara India Mutual Benefit Co. Ltd. v. Asstt. CIT (2002) 74 TTJ (All.) 67 (ii) Smt. Sujata Grover v. Dy. CIT (2002) 74 TTJ (Delhi) 347 (i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee. Thus, learned counsel of the assessee con- cluded that powers under section 263 have not been validly exercised by the CIT, therefore, the impugned order should be quashed. 6. On the other hand, the ld. Departmental Representative pleaded that grant of depreciation is not at the option of assessee. It was mandatory for the Assessing Officer to consider current depreciation while computing deduction under section 80HHC. He in this regard referred to Explanation (baa) to section 80HHC wherein profit of the business has been defined as profits of the business as computed under the head "Profit and gains of business or profession". The profit under the head "Profit and gains of business or profession" includes sections 30 to 43D and section 32 of the Act is part thereof, therefore depreciation has to be considered for computing profit of the business within the meaning of section 80HHC. He contended that section 80HHC has been held to be a separate code by the jurisdictional High Court. Thus, he pleaded that the case law relied upon by the learned counsel of the assessee has no application to the facts of the present case. 7. He further contended that as per decision of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10. He further contended that powers under section 263 can be invoked even in a case where the issue is debatable. For this purpose, he placed reliance on the decision in the case of CIT v. M.M. Khambhatwala (1992) 198 ITR 144 (Guj.). 11. He further contended that as per decision of Hon';ble Madras High Court in the case of Jeyar Consultant & Investment (P.) Ltd. v. CIT (2003) 259 ITR 250, deduction under section 80HHC cannot be claimed in absence of business profit. Thus, the learned D.R. pleaded that power under section 263 has been rightly invoked by CIT, therefore, order under section 263 should be upheld. 12. In reply, the Learned Counsel submitted that reliance by Learned D.R. on the decision of Jeyar Consultant & Investment (P.) Ltd.'s case (supra) has been misplaced as the decision relates to a period prior to insertion of proviso to section 80 HHC(3). After insertion of proviso to section 80HHC(3), the position of law has been changed. He further contended that on the issue of merger, Explanation (c) to section 263 has been taken care in the decisions relied upon by him. Thus, Learned Counsel pleaded that order passed under section 263 should be quashed. 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Vinyl Products Ltd. (supra). Therefore, we find no force in this contention of the assessee. We find that the case-law relied upon by Learned Counsel in this regard has no application to the present case as the period considered by Hon'ble Bombay High Court and Supreme Court in the cases of Shri Someshwar Sahakari Sakhar Karkhana Ltd. (supra) and Mahendra Mills (supra) respectively is prior to omission of section 34 of the Act. Therefore, case-law relied upon in this regard is not relevant to the present case, as for the period with which we are concerned, section 34 is not on the statute book. 15. Now coming to the contention regarding merger of the assessment order with the order of CIT(A). It will be relevant to give the chronology of the events. Assessment in the present case was framed vide assessment order dated 30-3-1999 passed under section 143(3) of the Act. Against the said assessment order an appeal was filed by the assessee on 29-4-1999 before CIT(A). In the grounds of appeal, the assessee agitated the computation of section 80HHC done by Assessing Officer on the ground that Assessing Officer erred in deducting a sum of Rs. 47,87,005 from export turnover not re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mputing profit and gains of business. Therefore, it is the contention of the Learned D.R. that section 263 permits CIT to invoke his powers under that section. On the other hand, it is the claim of the assessee that once section 80HHC had been subject-matter of appeal before the CIT(A), then, the assessment order has merged with the order of CIT(A) and CIT cannot exercise his powers under section 263. 17. We have carefully considered the rival submissions. We find that there is a merit in the case of the assessee. It has been demonstrated by the above-mentioned chronology of events that computation of deduction under section 80HHC was a subject-matter of appeal before CIT(A). The CIT(A) has given some findings on the computation of deduction under section 80HHC. Therefore, the assessment order had merged with the order of CIT(A). Thus, under Explanation (c) to section 263(1), such action of CIT was not permissible. The word 'matter' is certainly a word of wide import and represents a subject or situation that you need to think about, discuss or deal with. Thus, it is difficult to accept the submission of the Learned D.R. that the issue of depreciation being optional or t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the basis of 11 months was not a specific aspect which was agitated before the AAC nor did he give any direction on this aspect of the matter but he had this aspect kept open for adjudication by him even though not taken by the assessee. Then, on that, he could have allowed 5 per cent or 2½ per cent depreciation and should have directed the ITO to compute the same on such basis as he considered fit and proper, namely, 11 months or 12 months on the view that the employee of the assessee was on leave for one month and as such could not be said to be entitled to this accommodation. If that is the position, then, in our opinion, once the appeal has been preferred before the AAC on any aspect of the quantum of depreciation, the Commissioner cannot assume jurisdiction, otherwise an anomalous position would arise. The Income-tax Officer has been directed by the AAC to fix depreciation at a certain percentage, indicated by the AAC, without any further direction that it should be confined to 11 months or 12 months. But, now, if further consideration is superimposed by the Commissioner by rectification made by the Income-tax Officer as a result of the order passed by the Commissioner ....