DECIDED BY: ITAT MUMBAI `J’ BENCH, MUMBAI, IN THE CASE OF: Jewel Enterprises Vs. ITO APPEAL NO: ITA Nos. 6477 & 6478/Mum/07, DECIDED ON May 31, 2010
3. The relevant material facts are as follows. The assessee is a partnership firm engaged in the business of manufacture and exports of stainless sheet utensils and other products. On 12th November, 2003, the assessee filed its income tax return disclosing a taxable income of Rs 1,51,330, after claiming deduction under section 80 HHC, in respect of export profits, amounting to Rs 49,16,854. The income tax return was duly accompanied by the profit and loss account and other financial statements, audit report , certificate under section 10CCAC etc. This income tax return was picked up for scrutiny assessment . The assessee attended these scrutiny assessment proceedings, produce the books of accounts in response to notice under section 142(1) dated 25th October 2004, and complied with the requisitions of the Assessing Officer from time to time. On 31st January 2006, the Assessing Officer finally passed an assessment order accepting the income returned by the assessee, and, in the assessment order so passed, inter alia, observed as follows:
On going through the profit and loss account , it is seen that the assessee has earned an amount of Rs 61,53,537 on Export Licences sales. As per section 28(iiia) of the Income Tax Act , profit on sale of licences granted under the Import (Control) Order 1955, made under the Imports & Exports (Control) Act , 1947 ( 18 of 1947), is chargeable to income tax under the head – “Prof its and Gains of Business or Profession”. However, due to later amendments of Section 28 and Section 80 HHC of the Income Tax Act , 1961, exporters having turnover of less than Rs 10.00 crores will now be eligible f or deduction in respect of Duty Entitlement Passbook Scheme.
In view of the above, the deduction, claimed by the assessee firm, of Rs 49,16,854 is al lowed under section 80HHC and return of income is accepted as it is.
4. The matter, however, did not rest at that. On 21s t June 2007, the successor Assessing Officer intimated the assessee that, in response to a revenue audit objection, he proposes to refer the matter to the Commissioner for exercise of powers under section 263 so as to revise the order since the “deduction was incorrectly computed as the loss incurred in export of goods was not set off against export incentives before al lowing the deduction”. In his letter, the Assessing Officer, inter alia, stated as follows:
In this case, assessment for AY 2003-04 has been completed under section 143(3) on 31.1.2006 assessing the total income at Rs 1,51,330. While completing the assessment, the AO has considered the contention of the assessee as regards deduction under section 80 HHC claimed at Rs 49,16,854.
2. However, the Revenue Audit (para 2 of LAR ITRA/LAPXXIII/ 46th Cycle/AQ No. 2 dated 9.4.2007) pointed out that the deduction was incorrectly computed as loss incurred in export of goods was not set off against export incentives before al lowing the deduction. This has resulted in short levy of tax of Rs 8,81,612 including interest under section 234 B (detailed working of deduction is enclosed)
3. The Revenue Audit Report appears to be correct as the claim of the assessee under section 80HHC is erroneous in so far as it is prejudicial to the interest of the revenue. Hence, I propose this case to the Hon’ble CIT-I, Thane, for revision under section 263.
5. The assessee made detailed submissions to the Assessing Officer as to why it is not a fit case for exercise of revision powers by the Commissioner. It was also pointed out that at the point of time when the income tax return was filed by the assessee, “there was divergence of opinion among the various High Courts and Tribunals” and that “there was no judgment of the Hon’ble jurisdictional High Court”. It was also pointed out that “the claim of the assessee was in accordance with one of the views expressed by various benches of the Tribunal”. A list of Tribunal decisions, which supported the computation by the assessee, was also filed. These submissions of the assessee did not dissuade the Assessing Officer and he apparently referred the matter to the Commissioner for exercising powers under section 263. On 31st July 2007, the assessee was required to show cause as to why the Commissioner should not exercise his revision powers under section 263 and thus revise the deduction granted to the assessee under section 80 HHC. In response to this show cause notice, the assessee once again referred to and mainly relied upon his rather elaborate written submissions dated 16th July 2007 filed before the Assessing Officer. None of these submissions impressed the learned Commissioner either. Learned Commissioner set out the amended provisions of Section 80 HHC, and noted that while the assessment was completed on 31st January 2006, the process of retrospective amendment in section 80 HHC was completed in December 2005. The Assessing Officer was thus required to apply the amended provisions of law. The Assessing Officer ought to have adjusted 90% of incentives against the profits or losses of the assessee, which he failed to do. He was thus of the opinion that the order so passed by the Assessing Officer was clearly erroneous and prejudicial to the interests of the revenue inasmuch as deduction of Rs 22,03,757 was al lowed in excess. Accordingly, in exercise of his powers under section 263, learned Commissioner directed an addition of Rs 22,03,757. Aggrieved by the order so passed by the learned Commissioner, the assessee is in appeal before us.
7. In our considered view there can indeed be no quarrel with the legal proposition, canvassed by the learned counsel for the assessee, that as long as an Assessing Officer has taken a possible view of the matter after applying his mind to the facts of the case and the legal provision, the view so taken can not be subjected to revision proceedings under section 263 merely because the Commissioner has a different view of the matter. The true test , therefore, must lie in whether or not the view taken by the Assessing Officer could be said to be a possible view of the matter, upon due application of mind to facts of the case as also the applicable legal provisions. In the proceedings before the Commissioner, the assessee had sought to justify the view taken by the Assessing Officer on the basis of certain judicial precedents on the issue, but then none of those judicial precedents relate to the legal position post the retrospective amendments made in 2005, in Section 80 HHC. It is also contended by the assessee that as at the time of filing of the income tax return, there were conflicting views of different judicial authorities, but when we are examining whether or not the order of the Assessing Officer was erroneous, it has to be qua the legal position prevailing at the time of order being passed and not qua the legal position prevailing at the time of filing of income tax return. The legal position prevailing at the point of time when order sought to be revised was passed did not, in our considered view, admit any ambiguity or controversy that the profits computed under clause (a) or clause (b) or clause (c) under Section 80 HHC(3) 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) 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”. That was not done by the Assessing Officer in the assessment order. The Assessing Officer has referred to the amendment in Section 80 HHC in December 2005, but so far as computation of deduction is concerned, he has simply followed the pre amendment legal position. Referring to an amendment is one thing, and applying it is another. The Assessing Officer has referred to the amendment but did not apply the same in the computation part. In our humble understanding, the view taken by the Assessing Officer in the order subjected to the revision proceedings is a view which no reasonable person, with understanding of the amendment legal provision, could take. In this view of the matter, we see no infirmity in Commissioner’s assumption of powers under section 263 of the Act.