High Court Of Bombay
CIT vs. Design & Automation Engineers (Bombay) (P) Ltd.
Section 263
Asst. Year 1995-96
Dr. S. Radhakrishnan & S.J. Kathawalla, JJ.
IT Appeal No. 147 of 2002
19th September, 2008
Counsel Appeared : Parag Vyas i/b P.S. Sahadevan, for the Appellant : A.K. Jasani, for the Respondent
JUDGMENT
S.J. KATHAWALLA, J. :
The above appeal is filed by the Revenue impugning the order dt. 24th Aug., 2001 passed by Tribunal, Mumbai Bench in ITA No. 2536/Mum/ 1999, filed by the assessee for the asst. yr. 199596.
2. The above appeal was admitted by this Court on 11th Aug., 2004, on the following substantial question of law :
“Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upsetting the order passed by the CIT under s. 263 of the IT Act, 1961 ?”
3. The relevant facts giving rise to the present appeal are set out hereunder : (i) The assessee is engaged in the business of exporting garments as well as sales in the domestic market. (ii) For the asst. yr. 1995-96 the assessee filed return of income on 30th Nov., 1995 declaring the total income at Rs. 3,51,020. The return of income was processed under s. 143(1)(a) on 18th Oct., 1996. Notice under s. 143(2) was issued to the assessee on 7th Aug., 1996. (iii) Vide Department’s letter dt. 30th Oct.,1996 the assessee was asked to file the details and to explain the reasons for increase in the expenses. The assessee by their letter dt. 5th Nov., 1996 filed details of the export sales, local sales, job work charges received, purchases, duty drawback, sale of export entitlements, job work charges paid and other expenses and also reasons for increase in the expenses. It was also explained that during the year gross profit ratio had increased as compared to earlier year. The AO by his order dt. 13th Dec., 1996 recorded the aforesaid facts and further recorded that all the remittances out of the exports have been received by the assessee before the end of the year and there was no outstanding as on 31st March, 1995.
The AO has further recorded that the copies of the audit report in Form No. 3CD, audit report in Form No. 10CCAC and working of deductions under s. 80HHC have been filed along with the return of income. As the sales and purchases were supported, books of account audited, statutory audit reports in Form Nos. 3CA, 3CD and 10CCAC had been filed, the book results were accepted. After discussion the AO computed the total income whereunder the net profit pertaining to the export business of the assessee was computed at Rs. 65,07,090 and the net profit pertaining to local business of the assessee was computed at Rs. 3,69,491 and the assessee was allowed deduction under s. 80HHC of Rs. 65,07,090 i.e. the entire net profit of the assessee pertaining to his export business. (iv) Thereafter a notice under s. 263 of the IT Act, 1961 was issued by the CIT to the assessee on the ground that the assessment order under s. 143(3), dt. 31st Dec., 1996 was erroneous as the assessee was entitled to only proportionate deduction in the light of s. 80HHC(3) of the Act, and proposing suitable action. The assessee was given an opportunity to be heard in the matter. The CIT by its order dt. 30th March, 1999 accepted the fact that the assessee is involved in both export and domestic sales and is maintaining separate books of account and that the export profits are clearly identifiable. However, in his opinion the deductions can be granted only as per provisions of s. 80HHC(3)(a). CIT has, therefore, held that in order to arrive at the amount deductible under s. 80HHC in the case of assessee doing export business as well as some other domestic business the fraction of “export turnover” to “total turnover” would be applied to the profit computed by the assessee under the head “profits and gains of business or profession”. CIT has in his order recorded that though the assessee has quoted the decision of Tribunal wherein it has been held that if the export profits were clearly identifiable, then, such profits were available for deductions, he would differ with the same due to the above statutory provision. CIT has, therefore, held that since the AO has not followed the above provision of law in the order under s. 143(3), dt. 31st March, 1996 while allowing the deductions under s. 80HHC and as deduction allowed is higher than what is allowable, the order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. CIT, therefore, recalculated the deductions under s. 80HHC and held that the assessee is eligible for deduction under s. 80HHC to the extent of Rs. 41,91,131 as against Rs. 65,07,090 allowed by the AO. (v) The assessee being aggrieved by the order of the CIT, dt. 30th March, 1999 appealed before the Tribunal. The Tribunal by its order dt. 24th Aug., 2001 came to the finding that the view taken by the AO was a possible view and, therefore, it cannot be concluded that the order of the AO was erroneous and was prejudicial to the interest of the Revenue. The Tribunal recorded that reliance was placed by the assessee before the CIT on the decision reported in the case of V.D. Swami & Co. Ltd. vs. Dy. CIT (1993) 44 ITD 91 (Mad) and in the case of Bajaj Tempo Ltd. vs. CIT (1992) 104 CTR (SC) 116 : (1992) 196 ITR 188 (SC). The Tribunal recorded that the scope of interference under s. 263 is not to set aside merely unfavourable orders and bring to tax some money to the treasury nor is the section meant to get sheer escapement of revenue. It is taken care of by other provisions of the Act.
It was recorded that s. 263 is to be invoked not as a jurisdictional corrective or as a review of subordinate order in exercise of supervisory powers but it is to be invoked and employed only for the purpose of setting right distortions and prejudices to the Revenue. The Tribunal after taking into consideration the entire conspectus of the case, came to a finding that since the view taken by the AO was a possible view and considering the decisions relied upon by the assessee the condition precedent for invoking jurisdiction under s. 263 did not exist and the order of the CIT was quashed. (vi) Being aggrieved by the order of the Tribunal dated 24th Aug., 2001 the above appeal was filed by the Revenue which was admitted on 11th Aug., 2004 on the substantial question of law set out in para 2 above.
4. The advocate appearing for the Revenue conceded before us that the view taken by the AO was a possible view. However, he contended that the AO has not given any reasons for allowing deductions to the assessee under s. 80HHC in respect of the entire net profit of Rs. 65,07,090 pertaining the export business of the assessee. The order is, therefore, passed without application of mind. The advocate for the Revenue stated before us that except for this submission he has no other submission to make. The advocate for the assessee on the other hand contended that there is no substance in the contention of the advocate for the Revenue that the AO has not applied his mind at the time of allowing the deduction of Rs. 65,07,090 under s. 80HHC of the Act. He has pointed out that the AO has sought particulars from the assessee and after the assessee provided all the particulars required by the AO and after discussion the AO took a view that the assessee is eligible to reduction of the entire export profit amounting to Rs. 65,07,090 under s. 80HHC of the Act. The advocate for the assessee has also relied upon a decision of this Court in the case of CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom). In that case the CIT had disagreed with the conclusion arrived at by the ITO namely that the expenditure was revenue in nature. The CIT had reopened the matter under s. 263 and after hearing the assessee had directed the ITO to rehear the matter. This Court has in that decision held that in order to exercise the powers under sub-s. (1) of s. 263 of the Act there must be material before the CIT to consider that the order passed by ITO was erroneous in so far as it is prejudicial to the interest of the Revenue. It must be an order which is not in accordance with law or which has been passed by the ITO without making any inquiry in undue haste. This Court has in the said decision also set out that the ITO in that case had made the inquiries in regard to the nature of the expenses incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. Evidently the claim was allowed by the ITO on being satisfied with the explanation of the assessee. It was held by this Court that such a decision of the ITO cannot be held to be “erroneous” simply because in his order he did not make elaborate discussion in that regard.
We have considered the arguments advanced by the advocates appearing for the Revenue as well as assessee. In the instant case as recorded earlier, the ITO had by his order dt. 30th Oct., 1996 sought details/explanation from the assessee which the assessee had given by his letter dt. 5th Nov., 1996. It is evident from the order of the AO that he has considered all detailed particulars filed before him and after discussion allowed the deduction of the entire profit earned by the assessee pertaining to his export business. We are in complete agreement with the decision of this Court in the case of CIT vs. Gabrial India Ltd. (supra) and we reject the submission of the Revenue that the order of the AO is erroneous or is passed without application of mind because in his order he has not made elaborate discussion in that regard. In any event the Revenue has admittedly not argued before the CIT or before the Tribunal that the order passed by the AO was without application of mind. CIT has set aside the order of the AO only on the ground that the CIT did not agree with the view taken by the AO and took a view different than that taken by the AO. In our view it cannot be said that the AO has not applied his mind while granting deduction to the assessee under s. 80HHC as regards net profit earned by the assessee pertaining to their export business. In our view, the Tribunal is correct in its view that the view taken by the AO was a possible view and that the condition precedent for invoking jurisdiction under s. 263 by the CIT did not exist. In view of the above, we hold that Tribunal was justified in upsetting the order passed by CIT under s. 263 of the IT Act, 1961. We, therefore, answer the question of law raised in this appeal in favour of the assessee and against the Revenue. The above appeal, therefore, stands dismissed. However, there will be no order as to costs.
[Citation : 323 ITR 632]
