TaxTMI 
TaxTMI 
2004 (11) TMI 280
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....his issue had emerged with that of Ld. CIT (A). Initiation of proceedings u/s. 263 being void-authorities below-initio may kindly be annulled. 2. That the CIT(C) Ludhiana erred in law and on facts in giving direction to the Assessing Officer to recompute deduction u/s. 80HHC by reducing the loss on trading goods exported. The direction, being bad in law, maybe quashed. 3. Without prejudice and in alternative, worthy CIT(C) erred in law and on facts in not ignoring the negative figure i.e. loss of export on trading goods for the purpose of computing deduction under section 80HHC. Adequate directions may be given to allow deduction u/s. 80HHC by taking the negative figure of loss on trading goods exported as Nil." 4. From the above grounds, it would be clear that the assessee is aggrieved by the order passed by the CIT(C) u/s. 263 of I.T. Act, 1961. 5. The facts of the case in brief are that the assessee filed its return of income on 30-11-94 declaring an income of Rs. 18,76,090 which was processed on 20-6-95 u/s. 143(1)(a) of I.T. Act, 1961. Later on notices u/ss. 142(1) and 143(2) were issued and the assessment was framed u/s. 143(3) of I.T. Act, 1961 on 18-....
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....ssessment order nor in the appellate order. Ld. CIT(C) held the order passed u/s. 143(3) by the Assessing Officer, to be erroneous and prejudicial to the interest of the revenue and directed the Assessing Officer to recompute deduction u/s. 80HHC after taking into consideration the net result of both the activities i.e. manufacturing and trading and not only the profit of one activity i.e. manufacturing. Now the assessee is in appeal. 7. Ld. counsel for the assessee submitted that the assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue. Therefore, CIT was not justified in setting aside the order passed by the Assessing Officer by invoking the provisions of section 263 of I.T. Act, 1961. It was stated that the Assessing Officer, after proper verification allowed the claim of the assessee u/s. 80HHC and the Ld. CIT(A) further allowed claim of the assessee when the matter was under his consideration and since the order passed by the Assessing Officer merged with the order passed by the Ld. CIT(A). CIT had no jurisdiction to pass the order u/s. 263. Reliance was placed on the following case laws: (i) CIT v. M....
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....f the existing interpretation on which decision is based, does not render the decision open to review as such CIT was not justified in reviewing the order by invoking the provisions of section 263 of I.T. Act, 1961. Reliance was placed on the following case laws: (i) Geo Miller and Co. Ltd. v. Dy. CIT [2003] 262 ITR 237 (Cal.) (ii) CIT v. Smt. Aruna Luthra [2001] 252 ITR 76 (Punj. & Har.) (F.B). 8. In his rival submissions, Ld. DR for the revenue strongly supported the order of CIT and submitted that Hon'ble Supreme Court had clearly laid down that if there is a loss that should be adjusted with the positive profit while claiming deduction u/s. 80HHC(i) of I.T. Act, 1961. Reference was made to the judgment passed in the case of IPCA Laboratories Ltd. v. Dy. CIT [2004] 266 ITR 521(SC). He further submitted that since the Assessing Officer had not considered the loss while allowing deduction u/s. 80HHC, order passed by him was erroneous as well as prejudicial to the interest of revenue and the CIT had all the powers of revision as provided in Explanation (c) to section 263 of I.T. Act, 1961. It was further stated that although the First Appellate Authority ha....
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.... contention of the Ld. DR for the revenue that Hon'ble Supreme Court had decided the issue and laid down that the loss should be adjusted in the profit while claiming deduction u/s. 80HHC in the case of IPCA Laboratories Ltd. It is noticed that the said judgment had been delivered by the Hon'ble Supreme Court on 11-3-2004 while the assessment order had been passed much earlier on 18-12-95. Therefore, the judgment of Hon'ble Supreme Court was not available with the Assessing Officer. 11.1 The Hon'ble Calcutta High Court in the case of Geo Miller & Co. Ltd. held as under: "Order 47 of the Code of Civil Procedure, 1908 provides for review on account of mistake or error apparent on the fact of the record. An explanation was added to it by the 1976 amendment. The explanation lays down that a subsequent reversal or modification of the existing interpretation on which a judgment is based does not render the judgment open to review. The explanation added to rule 1 of Order 47 of the Code in order to define an error or mistake apparent on the face of the record is equally applicable to section 154 of the I.T. Act, 1961. In construing section 154 the court is just....
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....he judgment of Hon'ble Supreme Court while taking their respective views for computing the deduction u/s. 80HHC of I.T. Act, 1961. However, from above order of the Hon'ble High Court of Punjab & Haryana it seems that on the basis of subsequent decision of Hon'ble Supreme Court the view taken by the Assessing Officer was not correct view. But recently their Lordships of Hon'ble High Court of Punjab & Haryana which is the Jurisdictional High Court in the case of Max India Ltd. have taken a view that action u/s. 263 cannot be taken when on the date of passing the order the Assessing Officer has taken one of the possible view. The relevant portion of the judgment of Hon'ble High Court of Punjab & Haryana in the case of Max India Ltd. is quoted herein below: "Since the turnover of the assessee for the Assessment year 1992-93 included exports, it had claimed deduction u/s. 80HHC of the IT. Act, 1961, at Rs. 1,33,09,439. The assessment was completed by the Assessing Officer on March 15, 1995 and deduction u/s. 80HHC of the Act was allowed as claimed by the assessee. However, on a perusal of the record, the Commissioner of Income-tax observed that while working....
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.... law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principle of natural justice or without application of mind. The phrase "prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be related as prejudicial to the interests of Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with ....
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....on 80HHC(3)(b). If the profit was considered as Nil, as claimed, no adjustment could be made which was otherwise allowable as per proviso to sub-section (3) of section 80HHC and also nowhere it was mentioned that negative profit may be considered as NiL. Thus, considering the facts of the case, no interference was required in the order of the Commissioner (Appeals). The Assessing Officer rightly made adjustment in the negative profit according to the proviso to section 80HHC(3)." From the above, it would be clear that one of the views was that in case there is a loss that should be adjusted instead of taking figure at NiL However, other Benches of the Tribunal have taken a different view. In the case of Asstt. CIT v. Avon Cycles Ltd., dated 26-5-2002 in IT Appeal No. 116 (Chd.) of 1997 for the assessment year 1994-95, ITAT Chandigarh Bench 'A' held that- "the machinery to compute the income from export activity is provided in section 80HHC(3) and after computing such income, such income is required to be deducted from the gross total income of the assessee in order to arrive at the taxable income/total income of the assessee as contemplated by section 80HHC(1). ....
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....tion 80HHC indicates that the negative figure worked out under clause (a)/(b)/(c) of sub-section (3) of section 80HHC cannot be increased by a positive figure. It can be adjusted and not increased. The plain reading of the proviso to subsection (3) of section 80HHC provides clue that the figure or loss worked out under clauses (a), (b) and (c) has to be ignored. If there is a positive figure under clauses (a) and (b) there is no difficulty in increasing the same by 90 per cent of export incentives as stipulated in proviso to sub-section (3) of section 80HHC, but if the figure under clauses (a), (b) and (c) is negative, then the construction suggests that those losses cannot be increased by a positive figure and as such this required to be ignored. Even if there is an ambiguity in the interpretation of section 80HHC, the interpretation favourable to the assessee is required to be adopted. Thus taking in to the totality of the facts and circumstances of the case and since the profit from export of manufactured goods and profit from export of trading goods was negative, those figures had to be completely ignored and 90 per cent of export incentive had to be taken into conside....
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.... has been taken by the ITAT Chandigarh Bench in the case of Avon Cycles Ltd. v. Asstt. CIT [1997] 95 Taxman 248 (Mag.), by holding as under: "The plain reading of section 80HHC shows that the negative profit worked out under clauses (a) and (b) of sub-section (3) of section 80HHC cannot be "increased" by a positive profit. A negative figure cannot be increased by a positive figure. It can be adjusted not increased. The plain reading of the proviso to clause (c) of sub-section (3) of section 80HHC provides clue that the negative profit or loss worked out under clauses (a) and (b) has to be ignored. If there is a profit under clauses (a) and (b), there is no difficulty in increasing the same by the 90 per cent export incentive as stipulated in clause (c) but if the profit under clauses (a) and (b) are negative, then harmonious construction suggests that those losses cannot be increased by a positive figure under clause (c). Even if there is a ambiguity the same has to be interpreted in favour of the assessee. The Assessing Officer is, accordingly directed to allow the assessee's claim under section 80HHC on the basis of 90 per cent of export incentives as worked out unde....
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....onsistently speak of profits. The word "profit" is understood and known in the common parlance as well as in the "commercial" word as excess of incoming over outgoing. The computation section 80HHC(3)(a) provides for computation of profits derived from exports comprised in two components, say (A) and (B). The profit component (A) is to be further increased by profit component (B) to arrive at the profits derived from exports for purpose of section 80HHC(1). It is to be noted that the section envisages both the profit components as positive figure and there is no occasion for any adjustment if the figure as worked out under Explanation (baa) is a negative figure. What section 80HHC(3) provides for is not algebraic sum of two profit components, one computed under the main section i.e., clause (a) and the other computed under the proviso to the section. Had the Legislature used the word 'income' the word may have negative connotation also in the light of the inclusive definition of income under section 2(24)." 18.1 From the above discussion it would be clear that the majority of the ITAT Benches had taken a view that when the computation was to be made under section 80HHC, ....
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....769 has held as under: "The orders of the Tribunal and the High Court are binding upon the Assessing Officer and since he acts in a quasi-judicial capacity, the discipline of such functioning demands that he should follow the decision of the Tribunal or the High Court as the case may be. He cannot ignore it merely on the ground that the Tribunal's order is the subject matter of a reference in the High Court. Hence, where the Assessing Officer follows the decision of an appellate authority, it cannot be said that his decision is erroneous. Such a decision cannot be revised by the Commissioner of Income-tax under section 263." A similar view has been expressed by the Hon'ble Orissa High Court in the case of CIT v. Orissa State Financial Corpn. [1993] 203 ITR 747 by holding that- "Order of Income-tax Officer following decision of Tribunal in earlier year is not erroneous and could not be revised under section 263 of Income-tax Act, 1961." 21. From the above discussion, it is crystal clear that the view taken by the Assessing Officer was in conformity with the decisions of the various Benches of the Tribunal and thus, the view taken by the Assessing Offi....