ITA Nos.1398 & 1399/Del/2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES: G : NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
ITA Nos.1398 & 1399/Del/2012
Assessment Years: 2002-03 & 2003-04
Sheena Industries, Vs. CIT (Central),
C/o M/s RRA Taxindia, Gurgaon.
D-28, South Extension, Part-I,
New Delhi.
PAN: AADFS8256K
(Appellant) (Respondent)
Assessee By : Dr. Rakesh Gupta, Advocate, Shri Somil Aggarwal, CA &
Shri Rishabh Kapoor, Advocate
Deptt By : Shri Ramesh Chandra, CIT, DR
ORDER
PER A.D. JAIN, JUDICIAL MEMBER:
ITA No.1398/DeI/2012
This is Assessee's appeal for Assessment Year 2002-03 against the order dated 08.02.2012,
passed by the Ld. CIT (Central), Gurgaon, taking the following effective grounds:-
"1. That having regard to facts & circumstances of the case, Ld. CIT has erred in law
and on facts in passing the impugned order u/s 263 is barred by limitation, illegal,
without jurisdiction and contrary to law and facts and deserves to be quashed.
2. That having regard to facts & circumstances of the case, Ld. CIT has erred in law
and on facts in assuming jurisdiction u/s 263 and has further erred in holding that
the assessment not having been framed in accordance with law and has further
erred in holding that the assessment order passed by Ld. AO was erroneous and
prejudicial to the interest of revenue.
3. That having regard to facts & circumstances of the case, Ld. CIT has erred in
law and on facts in setting aside the assessment order u/s 263 and directing Id.
A.O. to recalculate the deduction u/s 80IB and 80HHC and revise the assessment
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order passed on 29.12.2009.
4. That having regard to facts & circumstances of the case, Ld. CIT has erred in
law and on facts in passing the impugned order u/s 263 is bad in law in as much as
no adequate opportunity of hearing was granted and framing the impugned order
without considering the principles of natural justice and without the authority of
law."
2. All the grounds taken by the assessee are directed against the action of the Id. CIT in
invoking his powers u/s 263 of the IT Act and holding the assessment order dated 29.12.2009 to
have not been framed in accordance with the law and the same being erroneous and prejudicial
to the interests of the revenue, and in setting aside the assessment to the Assessing Officer and
directing him to recalculate the deductions under Sections 80IB and 80HHC of the Act and revise
the assessment order.
3. As per the impugned order, on examination of the income-tax assessment record of the
assessee firm for the year under consideration, i.e., Assessment Year 2002-03, the CIT found
that the assessee had claimed deduction of Rs.2,57,06,739/- u/s 80IB and of Rs.7,19,78,869/-
u/s 80HHC of the Act, returning a total income of Rs.51,41,350/-; that the regular assessment of
the assessee had been completed at a total income of Rs.8,60,59,100/- on 30.11.2004, by
making certain additions/disallowances and recomputing the deductions u/ss 80HHC and 80IB of
the Act; that while filing its return of income, the assessee had claimed deduction of
Rs.7,19,78,869/- u/s 80HHC; that it being a case of a supporting manufacturer, deduction of
Rs.1,40,49,120/- was allowed as per the provisions of Section 80HHC (1A) read with those of
Section 80HHC (3A) read with Clause (baa) of Explanation to Section 80HHC; that thereafter, an
assessment order was passed on 29.12.2000, u/s 153A(1) (b) of the Act, in which, deduction of
Rs.1,40,49,113/- was given to the assessee u/s 80HHC and the deduction claimed u/s 80IB was
also allowed; that deduction of Rs.27,16,741/- was allowed u/s 80IB in the original assessment order
and while giving appeal effect on 28.01.2009, it was given at Rs.17,20,320/-; that it had been
observed that the assessee had claimed deductions under Sections 80HHC and 80IB
simultaneously, whereas according to the provisions of the Act, the deduction u/s 80IB was required
to be claimed first and it was thereafter, that deduction u/s 80HHC should have been claimed; that
as per the provisions of Section 8A (9), the deduction on the amount of profits and gains claimed u/s
80lA or 80IB shall not be allowed under any other provision of Chapter C; that compliance of this
Section can be possible only if deduction u/s 80IB is availed of before any other deduction
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mentioned in Chapter C is claimed; that as per the assessee, the limitation period for passing the
order under Section 263 had expired on 31.03.2007; that according to the assessee, supposed
double deductions were allowed vide the original assessment dated 30.11.2004 and subsequently,
similar deductions were allowed u/s 153A, vide assessment order dated 29.12.2009, due to which,
the issue of double deduction is the subject matter of original assessment and as per the provisions
of Section 262 (3), no order shall be made u/s 263 (1), after the expiry of two years from the end of
the financial year in which the order sought to be revised was passed; that the decision in 'CIT vs.
Alagendran Finance Ltd.', 293 ITR 1 (SC)' relied on by the assessee in this regard, was not relevant,
since the re- assessment had been completed u/s 153A; that the second proviso to Section 153A
prescribes that assessment or re-assessment, if any, relating to any assessment year falling within
the period of six assessment years referred to in Section 153A, pending on the date of the search,
shall abate; that the objective of this proviso is to eliminate multiplicity of assessment or re-
assessment proceedings which are pending on the date of the search and which are now required
to be undertaken afresh in view of Section 153A; that abatement means that the assessee is
required to file fresh return in pursuance of notice u/s 153A and the assessment will be framed with
respect to such fresh return; that hence, all assessments completed on the basis of returns filed
earlier become irrelevant; that so, the assessment order passed u/s 153A on 29.12.2009 is relevant
for the purpose of revision u/s 263 of the Act; that so far as regards the assessee's stand concerning
the restrictive provision of Section 80lA (9), reliance was placed by the assessee on 'JClT vs.
Mandideep Engineering and Pkg. Ind.', 292 ITR 1 (SC); that in the said decision, which was
delivered in 2006, Section 80lA (9) had not been considered; that these provisions have been
considered in detail in the case of 'M/s Friends Castings (P) Ltd. vs. CIT, by the Hon'ble Punjab &
Haryana High Court, vide its judgement dated 20.09.2010; and that as per this decision of the
Hon'ble jurisdictional High Court, the deduction to be allowed under any other provision of Chapter
VIA with the heading 'C' is to be reduced by the amount of deduction allowed u/s 80IB/80IA.
4. Before us, challenging the impugned order, the Id. Counsel for the assessee has contended that
the original assessment was completed u/s 143 (3) of the Act; that this assessment involved the
issue of deduction under Sections 80HHC and 801B; that this issue travelled upto the stage of
Hon'ble High Court; that thus, it got merged in the decision of the Hon'ble High Court; and that as
such, the CIT could not have assumed jurisdiction in respect of the issue of deduction u/s 80HHC in
terms of the Explanation to Section 263. The assessee has placed reliance on the following
decisions in this regard:-
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ITA Nos.1398 & 1399/Del/2012
i) 'Sonal Garments vs. Jt. CIT', 95 ITD 363 (Mum);
ii) 'Saw Pipes Ltd. vs. Addl. CIT', 94 TTJ 1036 (Del);
iii) 'Sahara India Savings and Investments Corpn. Ltd. vs. AClT', 90 TTJ
878 (Lkw);
iv) 'Sahara India Mutual Benefit Company Ltd. vs. AClT', 74 TTJ 67 (All);
v) 'Hooghly Mills Company Ltd. vs. ACIT', 71 ITD 264 (Cal);
vi) 'Sadhu Ram & Sons vs. ClT', 108 TTJ 373 (Asr); and
vii) `Marico Industries vs. ACIT', 115 TTJ 497 (Mum).
5. It has further been contended that the issue of deduction u/s 80HHC of the Act could not
have been the subject matter of discussion or assessment in the proceedings u/s 153A, since there
was no incriminating material found as a result of search, which could have given jurisdiction to the
Assessing Officer. In this regard, reliance has been placed on 'Jagdish Duggal vs. ACIT', 24 DTR
174 (Chd) (Trib), 'ACIT vs. Kamal Kumar S. Agrawal (Indl) & Ors', 41 DTR 105 (Nag.), 'ACIT vs.
SRJ Peety Steels (P) Ltd.', 137 TTJ 627 (Pune 'B'), 'LMJ International Ltd. vs. DClT', 14 DTR 540
(KoI), 'Sinhgad Technical Education Society vs. ACIT', 57 DTR 241 (Pune 'B') and 'LMJ
International Ltd. vs. DClT', 119 TTJ 214 (KoI),
6. The contention thus is that when a particular issue could not have been raised in the
assessment u/s 153A of the Act, powers u/s 263 with regard thereto could, obviously, not have
been exercised by the Id. CIT. In this regard, reliance is placed on 'Paul John Delicious Cashew vs.
ITO', 94 ITD 131 (Cochin) and 'Inder Kumar Bachani vs. ITO', 99 ITD 621 (Lkw).
7. It has, likewise, been contended that the position remains the same with regard to the
deduction u/s 80IA which, like the issue of deduction u/s 80HHC, also travelled to the stage of the
Hon'ble High Court and got merged with the order passed by the Hon'ble High Court.
8. The Ld. DR, on the other hand, has strongly supported the impugned order. It has been
contended that the Ld. CIT, while exercising power u/s 263 of the Act, has relied on the decision of
the Hon'ble jurisdictional High Court; that therefore, the concept of merger, as tried to be made out
by the assessee, is not applicable at all; that even otherwise, in the grounds of appeal raised, there
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is no argument taken qua merger; that the grounds of appeal raised have not even been adverted
to; that as recognized by the Hon'ble jurisdictional High Court in 'Friends Castings' (supra), the
deduction to be allowed under any provision of Chapter VI-A with the heading `C', is to be reduced
by the amounts of deduction allowed under Sections 80IB/80IA, as rightly noted by the Ld. CIT; and
that therefore, there being no merit therein, the appeal of the assessee be dismissed.
9. We have heard the parties and have perused the material on record. In the computation of
income and acknowledgement of return for Assessment Year 2002-03 (APB 1-2), the claim of
deduction under Sections 80HHC and 80lB of the Act stand shown. The assessee claimed
deduction of Rs.7,19,78,869/- u/s 80HHC and of Rs.2,57,06,739/- u/s 80lB of the Act. The
statement of assessable income and note for computation of deduction u/s 80HHC filed by the
assessee are at APB 3-4, respectively. The assessee's audit report u/s 80HHC (4)/80HHC (4A) of
the Act, giving the working of deduction u/s 80HHC, is at APB 5. In this audit report, Annexure-B
(APB-8) gives the details relating to the claim of deduction u/s 80HHC. The audit
report u/s 80lB of the Act is at APB-9.
10. In the original assessment order dated 30.11.04, passed u/s 143 (3) of the Act (APB 10-14),
the Assessing Officer took note of the fact that the assessee's source of income was export. The
assessment order also mentions the fact that the books of account were produced and examined.
Information was called for and it was thereafter, that the issue of deduction u/s 80HHC and that of
deduction u/s 80lB were dealt with in detail. The deductions claimed were reduced substantially. It
would be appropriate to reproduce the relevant portion of the assessment order evincing the due
application of mind by the Assessing Officer on both these issues:-
"I have gone through the submissions made by the assessee and has also perused
the relevant decision of the ITAT referred to by the assessee. The issue in question is
reported to have been deliberated upon by the Hon'ble ITAT, Delhi Bench in the case of
Eastern Leather Products Pvt. Ltd. Vs. DCIT, 68 ITD 358(Del). It would be pertinent to
point out that the said decisions relates to the assessment year 1992-93 but the clause
(baa) to sec. 80HHC(4) has been inserted by the Finance Act, w.e.f 1.4.1992 i.e.
relevant to the assessment year 1992-93 onwards. It is further submitted that the order
of the Ld. CIT(A), Karnal in the case of the assessee has been contested before the Ld,
ITAT Delhi Bench which is still pending. In view of the amendments made to the
Statute, the duty draw back has been considered for calculation of deduction u/s
80HHC whereas the assessee has made sales to export house and the deduction is
allowable by taking into consideration the sec. 80HHC(3A) and profit is to be taken into
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account as defined in section 80HHC(4B)(baa) where the definition of "profits of
business" is given as reproduced below:-
(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) and (iiic) 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;]
Taking into consideration the above provisions, the calculation of deduction u/s 80HHC
is made as under:-
Total profit 10,28,26,956/-
Less: 90% of Duty draw back 91951993/-
8,27,56,785/-
Profits to be considered for deduction'u/s 80HHC 2,00,70,171/-
Deduction u/s 80HHC(4B)(baa) as supporting manufacturer is calculated as under:-
Business profit x Exports sales as supporting manufacturer
Total turnover
=20070171 x 909498982/909498982 = 20070171
70% Deduction allowable u/s 80HHC works out to Rs. 1,40,49,120/-
3. The assessee has claimed deduction u/s 80IB at Rs. 25706739/- during the year
under consideration. The assessee was required to justify its claim in view of the
judgement of the Hon'ble Supreme Court in the case of CIT Vs. Sterling Foods Ltd.
Reported at 237 ITR 579. Vide written explanation filed on 27.9.2004, it was stated that
the assessee is engaged in manufacturing of Durries, rugs and carpets etc. exclusively
for export purposes. The assessee has further stated that the deduction u/s 80IB is
allowable on export incentives also in view of the fact that the export incentive is
allowable to the manufacturer of goods meant for export i.e. textiles products. The
export incentives is available to the exporter as rebate of duty chargeable on any
imported material/ excise-able material which is used in the manufacturing of such
goods. It was in view of the above that the excise duty paid by the assessee on raw
martial purchased for manufacture of their exported goods, the drawback of duty paid
was allowed as reimbursement of a part purchased of the raw material. This
reimbursement was nothing but a direct increase in the profit of industrial undertaking
which was engaged in the manufacture of its goods while running of its business as an
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industrial undertaking in the definition of 801. The assessee did not engage in any other
activities which was in any way not directly related to or for which there was no direct
nexus in the business of its manufacture activities. It was further stated that the
reference to the judgement of Hon'ble Supreme Court in the case referred to at 237 ITR
579, the main emphasis was on the profits derived by the industrial undertaking or the
direct nexus between the profit and gains of the industrial undertaking. In the assessee
case it would, be observed that the facts are in favour of the assessee wherein the
direct nexus between the profit and gains and the industrial undertaking is there. The
assessee further relied upon the judgement of the Hon. ITAT Hyderabad Bench in the
case of A.P Industrial components limited vs. DCIT reported at (2002) 74 TT.J (Hyd)
272 and followed by the Ld. CIT(A), Ludhiana-I in the case of M/s Liberty Shoes
Limited, Railway Road, Karnal wherein a similar issue has been discussed and allowed
in favour of the assessee while calculating the deduction u/s 80IB. The assessee has
also relied upon the judgement of Hon'ble Madras High Court in the case of CIT Vs.
Madras Motors Ltd. 257 ITR 60(Mad) and also the order of Ld. CIT(A), Karnal in the
assessee's own case. I have gone through the explanation furnished by the assessee
and also gone through the appellate orders referred to by the assessee. On perusal of
the return of income filed by the assessee, it is noticed that deduction u/s 80IB claimed
@ 25% amounting to Rs.25706739/- has been claimed on business profits of Rs.
10,28,26,956/- which also includes export incentives amounting to Rs. 91951993/-
which do not form part of the business profit in view of the decision of the Hon'ble
Supreme Court in the case of CIT Vs. Sterling Foods Ltd. (237 ITR 579) wherein it has
been held that the export benefits are not the profits derived from Industrial undertaking
and are, therefore, not includible in income for computing special deductions. The
judgement of Hon"ble Apex court has followed by the Hon'ble Delhi High Court in the
case of CIT Vs. Ritesh Industries Ltd. reported at (2004)192 CTR(Del) 81 wherein it has
been held that duty drawback is not profits derived from industrial undertaking and
cannot reckon in computing deduction u/s 801. Similar view has been taken by the
Hon'ble Madras Court in the cases of CIT Vs. Jameel Leather and Uppers 246 ITR 97
and CIT Vs. Vishwanathan & Co. 261 ITR 737. The export incentives given in the form
of Duty Draw back and other export incentives are not a profit and loss derived from
Industrial undertaking. There is no direct nexus between the profits and gains of
industrial undertakings and the above incentives.
In view of the ratio of the Hon'ble Supreme Court and High Courts in the case laws
referred to above, the claim of deduction u/s 80IB of the assessee is not admissible to
the extent of incentives which have been credited to the profit and loss account. The
decisions of the Hon'ble ITAT. Hyderabad Bench relied upon by the assessee is not
acceptable in view of provisions of law as contained in sec. 80IB. Accordingly, the
deduction claimed u/s 80IB is restricted to the available profits of business after
deducting the export incentives and other incomes.
11. Vide order dated 13.02.06 (APB 15-24), the Ld. ClT (A) dealt with and disposed of both
these issues, i.e., deduction u/s 80HHC and deduction u/s 801B. The claims of the assessee under
both these Sections were partly allowed. The relevant portion of the ClT (A)'s order reads as under:-
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ITA Nos.1398 & 1399/Del/2012
"The matter has been considered in the light of the Taxation Laws (Amendment)
Act,2005 No. 55 of 2005. In this regard, it is seen that total export turnover of the
appellant during the asstt. year under appeal was Rs. 909606983/-. The Id.AR during
the appellate proceedings further conceded that rate of DEPB was more than the duty
drawback applicable in the case of the appellant. Thus, in view of the amendment
to Sec. 28 of the I.T. Act with retrospective effect from 01.04.1998, the case of the
appellant is not covered in either of the clauses (iiia), (iiib)), (iiic) or (iiid) of Sec. 28 of
the I.T. Act because the total export turnover of the appellant exceeded Rs.10 crore.
Therefore, it is held that no deduction u/s 80HHC was allowable in respect of the DEPB
income amounting to Rs.14,82,847/-. Therefore, it is held that out of the total export
incentives received at Rs. 9,19,51,993/-, benefit u/s 80-HHC r.w.s. 28 would be
available in respect of Rs.9,04,69,146/-only. The AO is directed to recompute the
deduction u/s 80HHC accordingly. Hence, ground of appeal No. 3 succeeds partly.
12. The Tribunal, vide order dated 27.08.07 (APB 25-33), dealt with both these issues in extenso
and held as follows (relevant portions):-
"It is pertinent to mention here that the Tribunal has considered the issue in the
case of ACIT vs Mtrs Kamini Jain, proprietor M's KTM Exports (ITA No. 1821 &
2177/Del/2006) vide order dated 10th Aug 2007 by following the earlier decision of
the Tribunal in the case of Sharda Exports (ITA No.3921/Del/2004) and the
decision of the Hon'ble Apex Court in the case of CIT vs Baby Marine Exports
(290 ITR 323) held that assessee is entitled to deduction under section 80HHC in
respect of such incentive which are to be treated as business profit. The relevant
portion of the decision is reproduced herewith.
............................................................................................................
.............................................................................................................
Respectfully following the aforesaid decision we dismiss this ground of the
revenue.
4. The next ground raised by the revenue pertains to allowability of deduction
under section 80lB on duty draw back which as per the Id Sr. DR is not an income
derived from an industrial undertaking.
On perusal of record and after hearing the rival submissions, we are of the view,
that duty draw back cannot be said to be an allowable deduction as the same is
not said to be derived from industrial undertaking being arose due to promotional
incentive by the Central Government Scheme. Identical ratio was laid down by the
Hon'ble jurisdictional High Court in the case of Liberty Shoes India Ltd. (207 CTR
543)(P&H) wherein various decisions has been considered including the decision
from the Hon'ble Apex Court pronounced in the case of CIT vs Sterling Foods
(237 ITR 579)(S.C.), Jameel Leathers (246 ITR 97) (Mad), and Ritesh Industries
(274 ITR 324)(del). Respectfully, following the aforesaid decisions, this ground of
the revenue is allowed."
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ITA Nos.1398 & 1399/Del/2012
13. The Hon'ble High Court, vide order dated 23.11.09 (APB 35-37), has held as follows:-
"The revenue has filed this appeal under Section 260-A of the Income Tax
Act, 1961 (hereinafter referred to as 'the Act'), against the order dated 31.8.2007,
passed by the Income Tax Appellate Tribunal, Delhi Bench, 'I', New Delhi
(hereinafter referred to as 'the ITAT') in ITA No.1228/Del/2006, pertaining to the
assessment years 2002-03, raising the following substantial questions of law :-
"Whether on the facts and in the circumstances of the case, learned
ITAT was right in law in upholding the order of the CIT (A), directing
the A.O to allow deduction u/s 80 HHC on export incentives,
received by the assessee, as a supporting manufacturer in the same
manner, as in the case of direct exporter?"
In the present case, the assessee is a partnership firm deriving income from
the manufacturing and sale of textile goods to M/s IKEA Trading (India) Ltd., (an
Export/Trading House) as supporting manufacturer. In the assessment framed
under Section 143 (3) of the Act, the Assessing Officer did not accept the
contention of the assessee for computing deduction allowable to him under Section
80 HHC of the Act as per the provision of Section 80 HHC (IA) read with Section
80 HHC (3A) read with clause (baa) of explanation of Section 80 HHC of the Act,
as the respondent is a supporting manufacturer, and allowed deduction of Rs.
1,40,49,120/- under Section 80 HHC of the Act, instead of Rs.7,19,78,869/-, as
claimed by the assessee. On appeal by the assessee, the Commissioner of
Income Tax (Appeals), Karnal, set aside the order of the Assessing Officer and
held that the assessee was entitled to the deduction under Section 80 HHC of the
Act, as supporting manufacturer in the same manner, as in the case of direct
exporter. The said decision of the CIT (A) has been upheld by the ITAT vide order
dated 31.8.2007, against which the instant appeal has been filed, raising the
aforesaid substantial question of law.
After hearing counsel for the appellant, we find that in ITA No.296 of 2008,
filed by the revenue, the similar substantial question of law was raised to the
following effect:
"Whether on the facts and in the circumstances of the case, the Ld.
ITAT was right in law in upholding the order of the ClT (A), directing
the Assessing Officer to allow deduction under section 80 HHC to the
assessee who is a supporting manufacturer in the same manner, as in
the case of direct exporter, treating the supporting manufacturer at par
with direct exporter and ignoring the provisions of Section 80 HHC
(1A) read with Section 80 HHC (3A) read with clause (baa) of
explanation to Section 80 HHC of the Act?"
The aforesaid appeal was dismissed by this Court, while relying upon the
judgment of the Supreme Court in Commissioner 0f Income Tax,
Thiruvanantapuram v. Babv Marine Exports(2007) 290 ITR 323 (SC), and upheld
the claim of the assessee under Section 80 HHC of the Act as a supporting
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ITA Nos.1398 & 1399/Del/2012
manufacturer at par with the direct exporter. This fact has not been disputed by
learned counsel for the appellant.
In view of the above, no substantial question of law survives for our
determination. Thus, we do not find any merit in this appeal and the same is,
hereby, dismissed."
14. Against the said order of the Hon'ble High Court, the department filed appeal before the
Hon'ble Supreme Court, which is hitherto pending.
15. The above position has also been taken into account in the assessment order dated
29.12.2009, passed u/s 153A of the Act, as follows:-
"3. It is pertinent to record that the assessee bad filed its return of income for the
instant assessment year under section 139(1) of the Act before the then assessing
officer, the DCIT, Circle, Panipat on 31.10.2002, returning a total income of Rs.
51,41,350/-. Regular assessment u/s 143(3) was completed in this case on a total
income of Rs.8,60,59,100/- on 30.11.2004. While filing its return of income the
assessee had claimed deduction u/s 80HHC amounting to Rs. 7,19,78,869/-. It
being a case of supporting manufacturer, deduction u/s 80HHC was allowed at
Rs. 1,40,49,420/- as per provisions of section 80HHC(IA) read with section
80HHC(3A) read with clause (baa) of explanation to section 80HHC. On appeal by
the assessee, the Ld. CIT(A), relying upon the decision of the jurisdictional ITAT,
Delhi Bench "A" in the case of Eastern Leather Products Pvt. Ltd. Vs. DCIT. 68
ITD 358(Del) and the decision of the ITAT Delhi in the case of ITO Vs. Jatinder
Tayal Prop. Alishan Textiles in ITA No. 5177/Del/2004, following the principle of
judicial discipline held that the assessee was entitled to the deduction u/s 80HHC
as supporting manufacturer in the same manner as in the case of a direct
exporter. The department filed further appeal before the ITAT. The Hon'ble ITAT
upheld the order of the CIT{A) relying on the decision of the Tribunal of Delhi
Bench m the case of ACIT Vs. Mrs Kamini Jain (ITA No. 1821 & 2177/Del/2006)
which in turn was based on the Apex Court judgment in the case of Baby Marine
Exports (290 ITR 323), the decision of ITAT Delhi Bench in the case of Sharda
Exports (ITA NO.3921/Del/2004) and Eastern Leather Products Vs. DClT. The
order of Hon'ble ITAT was not accepted by the department and further appeal u/s
260A was moved before Hon'ble Punjab & Haryana High Court on this issue. The
Hon'ble High court also held in favour of the assessee, dismissing the appeal of
the department holding that the matter was no longer res integra. Now the issue is
before the Hon'ble Apex Court in SLP (Civil) No. 16456/2009 connected to the
SLP (Civil) no. 7615/2009. The impugned issue not having attained finality, in the
interest of revenue, the stand adopted in the order u/s 143(3) on 30/11/2004 is
adhered to and the deduction u/s 80HHC is only allowed at Rs.1,40,49,113/- as
per calculation attached hereto as Annexure to this order so that an addition of
Rs. 5,79,29,756/- is made as per computations in the following paragraphs.
[Add: 5,79,29,756/-]
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4. Further, the assessee has claimed deduction u/s 80lB at Rs.2,57,06,739/- on
business profit of Rs. 10,28,26,956/- which included export incentives at Rs.
9,19,51,993/- i.e. duty drawback at Rs. 9,04,69,146/- and DEPB at Rs.
14,82,847/-. While framing assessment u/s 143(3) the deduction claimed u/s
801B was denied in view of the decision of Hon'ble Supreme Court in the case of
CIT vs. Sterling Foods Ltd. reported at 237, ITR 579. On appeal, the Ld. CIT(A)
had allowed the appeal of the assessee thereby allowing the deduction u/s 80lB
on the amount of duty drawback. On further appeal by the department, the
Hon'ble ITAT decided this issue in favour of the department. Therefore, the
concomitant total income of Rs. 2,63,44,800/- on granting appeal effect to the
orders of the Tribunal, is assumed to have attained finality and is taken as the
base for the instant assessment u/s 153A."
16. It is, thus, seen that whereas the issue of deduction u/s 80HHC was the subject matter of
proceedings upto the stage of the Hon'ble High Court, that of deduction u/s 80IB was contested
upto before the Tribunal. The issue is as to whether in such a circumstance, it was within the ambit
of the powers of the Id. ClT to invoke the provisions of Section 263 of the Act to revise the
assessment order in respect of the issue of deduction u/s 80HHC and 80IB. That it is not so, as
clearly been laid down, inter alia, in the following case laws, as relied on by the assessee:-
i) 'Sonal Garments vs. Jt, CIT', 95 ITD 363 (Mum);
ii) 'Saw Pipes Ltd. vs. Addl. CIT', 94 TTJ 1036 (Del);
iii) `Sahara India Savings and Investments Corpn. Ltd. vs. ACIT', 90 TTJ
878 (Lkw);
iv) 'Sahara India Mutual Benefit Company Ltd. vs. ACIT', 74 TTJ 67 (All);
v) 'Hooghly Mills Company Ltd. vs. ACIT', 71 ITD 264 (Cal);
vi) 'Sadhu Ram & Sons vs. CIT', 108 TTJ 373 (Asr); and
vii) 'Marico Industries vs. ACIT', 115 TTJ 497 (Mum).
17. Then, undisputedly, as a result of the search conducted, no incriminating material was found
and so, the issues of deduction under Sections 80HHC and 80lB of the Act could not have been the
subject matter of assessment u/s 153A of the Act. It has been so held in 'ACIT vs. SRJ Peety
Steels (P) Ltd.', 137 TTJ 627 (Pune 'B').
18. A perusal of paras 3 and 4 (as reproduced hereinabove) of assessment order u/s 153A also
shows that this order relates back to the assessment order dated 30.11.04, passed u/s 143 (3), and
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ITA Nos.1398 & 1399/Del/2012
neither of the issues at hand are the subject matter of assessment in the order passed u/s 153A.
19. Now, once the issue of deductions under Sections 80HHC and 80lB of the Act could not be
the subject matter of assessment u/s 153A, obviously, the order passed u/s 153A is not revisable
by invoking the provisions of Section 263. It has been so held in 'Paul John Delicious Cashew vs.
ITO', 94 ITD 131 (Cochin) and 'Inder Kumar Bachani vs. ITO', 99 ITD 621 (Lkw).
20. Therefore, the only order which was revisable was that dated 30.11.04, passed u/s 143 (3) of
the Act and not that dated 29.12.09, passed u/s 153A of the Act. The Id. CIT has gone wrong in
observing, in this regard, as follows:-
"Second proviso to section 153A prescribes that assessment or reassessment,
if any, relating to any assessment year falling within the period of six
assessment years referred to in this sub-section pending on the date of search,
shall abate. The word 'abate' means to stop or to put an end. The objective of
this proviso is to eliminate the multiplicity of assessment or reassessment
proceedings which are pending on the date ...."
21. To reiterate, both the issues at hand, i.e., deduction u/s 80HHC and deduction u/s 801B,
have been the subject matter of appeal, as above. That being so, the assessment order dated
30.11.04, passed u/s 143 (3) of the Act, cannot, by any stretch of imagination, be said to have
become irrelevant or shall abate. In this regard, the assessee has rightly placed reliance on 'CIT vs.
Smt. Shaila Aggarwal', 346 ITR 130 (All), wherein, it has been held, inter alia, that Section 153A
does not have the effect of abatement of an appeal pending against the regular assessment; and
that proceedings which have already terminated are not allowable for abatement unless the statute
expressly provides for it.
22. Hence, the limitation period for passing the order u/s 263 would start running from the date of
the passing of the original assessment order, i.e., 30.11.04. That being so, the limitation expired on
31.03.07, whereas the notice u/s 263 itself was issued on 24.01.12.
23. Then, reliance by the Id. CIT on the decision of the Hon'ble jurisdictional High Court in the
case of `M/s Friends Castings (P) Ltd. vs. ClT', (supra), is also inappropriate. In view of the facts, as
discussed hereinabove, the only order which was revisable was that passed u/s 143 (3) of the Act.
24. For the above discussion, the grievance sought to be raised by the assessee is justified and
12
ITA Nos.1398 & 1399/Del/2012
is accepted as such.
ITA No.1399/Del/2012
25. This is assessee's appeal for Assessment Year 2003-04 against the order passed by the Ld.
CIT (Central), Gurgaon dated 08.02.2012. The facts in this case being, mutatis mutandis, exactly
similar to the facts in ITA No.1398/Del/2012, the observations made by us while deciding the appeal
in ITA No.1398/Del/2012 are squarely applicable to this case.
26. In the result, both the appeals filed by the assessee are allowed.
The order pronounced in the open court on 16.05.2014.
Sd/- Sd/-
[SHAMIM YAHYA] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 16th May, 2014.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. ClT (A)
5. DR, I TAT
AR, I TAT, NEW DELHI.
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