M/s V.S. Lad & Sons, Sandur V. CIT, Bangalore

ITA 560/BANG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2260 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-07-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 26-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA CITIIIDR
• Assessee Lawyers: S RAMASUBRAMANIAN
• Keywords: Business income; Depreciation; Search and seizure; Period of limitation; Bad and doubtful debts; Onus to prove
• Section: 143(3); 80HHC; 153A; 37(1); 263; 63; 132; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N. BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V. VASUDEVAN, JUDICIAL MEMBER ITA NOS. 560 & 561/BANG/2012 ASSESSMENT YEARS : 2003-04 & 2004-05 M/S. V.S. LAD & SONS, PRASHANT NIVAS, KRISHNA NAGAR, SANDUR 583 119. BELLARY DISTRICT. KARNATAKA. PAN : AACFV 3909R VS. THE COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANIAN, C.A. RESPONDENT BY : SHRI ETWA MUNDA, CIT-III(DR) DATE OF HEARING : 03.07.2013 DATE OF PRONOUNCEMENT : 12.07.2013 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER BOTH THESE APPEALS ARE BY THE ASSESSEE AGAINST THE TWO SEPARATE ORDERS, BOTH DATED 29.03.2012 OF THE COMMISSIONER O F INCOME-TAX, KARNATAKA (CENTRAL), BANGALORE [HEREINAFTER REFERRE D TO AS THE CIT] IN ITA NOS.560 & 561/BANG/2012 PAGE 2 OF 23 EXERCISE OF THE POWERS U/S. 263 OF THE INCOME-TAX A CT, 1961 [HEREINAFTER REFERRED TO AS THE ACT IN SHORT] FOR THE ASSESSM ENT YEARS 2003-04 & 2004- 05 RESPECTIVELY. 2. THE MATERIAL FACTS RELEVANT FOR DECIDING THESE A PPEALS ARE AS FOLLOWS. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE B USINESS OF MINING CONTRACTS AND EXPORTS. FOR THE A.Y. 2003-04 , THE ASSESSEE FILED RETURN OF INCOME DECLARING INCOME AT RS.56,92,450. THE ASSES SEE HAD CLAIMED DEDUCTION U/S. 80HHC OF THE ACT OF A SUM OF RS.16,3 5,250. CONSEQUENT TO THE DISALLOWANCE AND ADDITIONS MADE IN THE COURSE O F ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE ACT, THE INCOME FROM BUSINESS WHICH WAS THE NET PROFIT AS PER THE PROFIT & LOSS ACCOUNT OF RS.74,06,962 WAS ENHANCED TO RS.6,93,05,900. THE DEDUCTION U/S. 80H HC HAD BEEN CLAIMED BY THE ASSESSEE ADOPTING THE PROFIT AS PER THE PROF IT & LOSS ACCOUNT AS PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. 3. THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER O F THE AO MAKING CERTAIN ADDITIONS TO THE PROFIT FROM BUSINESS AS DE CLARED IN THE PROFIT & LOSS ACCOUNT. THE CIT(APPEALS), GULBARGA HAS SUSTAINED THE FOLLOWING ADDITIONS: NET PROFIT AS PER P & L ACCOUNT RS. 74,06,962 1. CHARITY & DONATIONS 53,000 2. COOLIE & WAGES 2,97,000 3. PERSONAL EXPENSES 3,42,392 4. SNOOKER TABLE 50,000 5. DESILTING CHARGES 5,58, 648 6. U/S. 37(1) 54,073 ITA NOS.560 & 561/BANG/2012 PAGE 3 OF 23 7. DEPARTMENTAL EXPENSES 2,01,535 8. CIVIL WORKS 1,22,500 9. U/S.69 4,22,00,452 10. MARRIAGE EXPENSES 4,00,000 11. SALE OF VEHICLES 1,12,220 12. SUPPRESSED INCOME 49,34,117 13. AFFORESTATION EXPENSES 1,50,000 14. REPAIR & MAINTENANCE 6,26,131 15. DEPRECIATION 4,57,194 16. STOCK 4,22,00,452 4. IN THE ORDER DATED 05/2/2007, GIVING EFFECT TO T HE LD. CIT(A)S ORDER DATED 31.8.2006, THE TOTAL INCOME BEFORE DEDUCTION U/S 80HHC WAS REVISED AT RS. 5,74,38,261/- AS AGAINST RS.6,93,05,900/- DE TERMINED IN THE ORIGINAL ASSESSMENT. BASED ON THE REVISED BUSINESS INCOME, T HE DEDUCTION U/S. 8OHHC WAS RECOMPUTED AND ALLOWED AT RS. 1,26,80,764 . THE ORDER OF THE CIT(APPEALS) FOR THE A.Y. 2003-04 BECAME FINAL. 5. FOR THE A.Y. 2004-05 , THE ASSESSEE FILED A RETURN OF INCOME IN WHICH HE CLAIMED DEDUCTION U/S. 80HHC OF THE ACT. THE AS SESSEE ADOPTED THE PROFIT AS PER THE PROFIT & LOSS ACCOUNT AT RS.14,79 ,01,904 AS PROFITS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S. 80HHC OF T HE ACT. IN THE ASSESSMENT COMPLETED U/S. 143(3) OF THE ACT, THE AO MADE SEVERAL ADDITIONS AND DISALLOWANCES WHICH RESULTED IN PROFI TS FROM THE BUSINESS BEING ENHANCED TO RS.23,87,83,816. 6. ON APPEAL, THE CIT(APPEALS), GULBARGA SUSTAINED THE FOLLOWING ADDITIONS: ITA NOS.560 & 561/BANG/2012 PAGE 4 OF 23 1. CHARITY & DONATIONS 59,648 2. UNACCOUNTED STOCK 8,06,44,648 3. CREDITORS 8,79,392 4. DEPARTMENTAL CHARGES 1,41,286 5. PRODUCTION INCENTIVE EXPENSES 10,67,153 6 ADVERTISEMENT EXPENSES 40,000 7. DESILTING CHARGES 11,59,121 8. INSURANCE CHARGES 1,03,557 9 GUEST HOUSE EXPENSES 30,46,531 7. THE CIT(A) DIRECTED THE AO TO CONSIDER THE SUM O F RS.23,15,61,267 AS THE PROFIT OF BUSINESS FOR WORKING THE DEDUCTION U/S. 80HHC OF THE ACT. THE AO PASSED AN ORDER DATED 5.2.2007 GIVING EFFECT TO CIT(A)S ORDER DATED 31.8.2006 WAS PASSED AND DEDUCTION U/S. 80HHC WAS REVISED AT RS. 3,59,75,377. THIS ORDER OF THE CIT(APPEALS) FOR TH E A.Y. 2004-05 ALSO BECAME FINAL. 8. THERE WAS A SEARCH AND SEIZURE OPERATION CARRIED OUT IN THE CASE OF THE ASSESSEE ON 26.10.2007. CONSEQUENT TO THE SEA RCH, NOTICE U/S. 153A OF THE ACT WAS ISSUED FOR THE A.YS. 2003-04 & 2004- 05. IN RESPONSE TO THE NOTICE U/S. 153A OF THE ACT, THE ASSESSEE FILED RET URNS OF INCOME FOR THE A.YS. 2003-04 & 2004-05 IN WHICH THE ASSESSEE DECLA RED THE INCOME AS WAS DETERMINED PURSUANT TO THE ORDER OF THE CIT(APP EALS) DATED 31.08.2006 FOR A.YS. 2003-04 & 5.2.2007 FOR A.Y.200 4-05. THE RETURN SO FILED WAS ACCEPTED BY THE AO. IT IS NOT IN DISPUTE THAT NO INCRIMINATING MATERIAL WHATSOEVER WAS FOUND IN THE COURSE OF SEAR CH WARRANTING ANY FURTHER ENQUIRY. THE ORDER U/S. 153A FOR THE A.YS. 2003-04 & 2004-05 WAS PASSED ON 30.12.2009. ITA NOS.560 & 561/BANG/2012 PAGE 5 OF 23 9. THE CIT IN EXERCISE OF HIS POWERS U/S. 263 OF TH E ACT WAS OF THE VIEW THAT THE ORDER PASSED BY THE AO DATED 30.12.2009 FO R THE A.YS. 2003-04 & 2004-05 U/S. 143(3) R.W.S. 153A OF THE ACT WAS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CASE OF THE CIT WAS THAT THE PROFITS OF BUSINESS WHICH WERE ADOPTED FOR THE PURPOSE OF COM PUTING DEDUCTION U/S. 80HHC OF THE ACT BY THE AO IN THE ORIGINAL ORDERS O F ASSESSMENT DATED 28.03.2006 FOR THE A.Y. 2003-4 AND DATED 05.05.2006 FOR THE A.Y. 2004-05 BY INCLUDING THE VARIOUS ADDITIONS AND DISALLOWANCE S MADE IN THE SAID ASSESSMENT WAS ERRONEOUS. ACCORDING TO THE CIT, TH E DEDUCTION U/S. 80HHC HAS TO BE COMPUTED ONLY ON THE PROFITS EARNED FROM EXPORTS. HE WAS OF THE VIEW THAT THE PROFIT WHICH WAS ENHANCED CONSEQUENT TO ADDITIONS MADE IN THE ORDER OF ASSESSMENT WHICH RELATED TO UN ACCOUNTED STOCK, INCREASE IN PROFIT MARGIN, ETC., CANNOT BE ATTRIBUT ED TO PROFITS EARNED FROM EXPORTS AND THEREFORE CANNOT BE SAID TO BE PROFITS OF BUSINESS AND IT WAS ONLY THE PROFIT AS PER THE PROFIT & LOSS ACCOUNT TH AT OUGHT TO HAVE BEEN CONSIDERED AS PROFITS OF THE BUSINESS FOR COMPUTI NG DEDUCTION U/S. 80HHC OF THE ACT. 10. IN COMING TO THE AFORESAID CONCLUSION, THE CIT PLACED RELIANCE ON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S. SARLA HANDICRAFTS (P) LTD. V. ADDL. CIT, 269 ITR 94 (P&H) WHEREIN IT WAS HELD THAT SURRENDER MADE ON ACCOUNT OF DIFFE RENCE IN THE CLOSING STOCK CANNOT BE TREATED AS INCOME FROM EXPORTS. TH E CIT ALSO PLACED ITA NOS.560 & 561/BANG/2012 PAGE 6 OF 23 RELIANCE ON THE DECISION OF THE PUNJAB & HARYANA HI GH COURT IN THE CASE OF NATIONAL LEGGUARD WORKS V. CIT(APPEALS) & ANR., 288 ITR 18 , WHEREIN IT WAS HELD THAT DEDUCTION U/S. 80HHC OF TH E ACT CAN BE CLAIMED ONLY ON SHOWING THE FACTS WHICH MAKE AN ASSESSEE EL IGIBLE FOR DEDUCTION AND THE BURDEN TO PROVE SUCH FACTS WAS ON THE ASSES SEE. IT WAS HELD THAT INCOME SURRENDERED AS A RESULT OF UNEXPLAINED STOCK S CANNOT BE CONSIDERED AS INCOME FROM EXPORTS. 11. THE CIT ISSUED SHOW CAUSE NOTICE U/S. 263 OF TH E ACT SEEKING TO REVISE THE ORDER DATED 30.12.2009 PASSED U/S. 143(3 ) R.W.S. 153A FOR THE A.YS. 2003-04 & 2004-05. THE ASSESSEE SUBMITTED TH AT THE COMPUTATION OF DEDUCTION U/S. 80HHC WAS NOT THE SUBJECT MATTER OF THE ORDER PASSED U/S. 143(3) R.W.S 153A OF THE ACT AND THEREFORE THE PROC EEDINGS U/S. 263 OF THE ACT CANNOT BE INITIATED IN RESPECT OF DEDUCTION CLA IMED U/S. 80HHC OF THE ACT. IT WAS ALSO SUBMITTED THAT IN EFFECT, THE CI T WAS REVISING THE ORIGINAL ORDER OF ASSESSMENT DATED 28.03.2006 FOR THE A.Y. 2 003-04 AND THE ASSESSMENT ORDER DATED 05.05.2006 FOR THE A.Y. 2004 -05. IT WAS POINTED OUT BY THE ASSESSEE THAT THE PROCEEDINGS U/S. 263 O F THE ACT CAN BE INITIATED ONLY WITHIN A PERIOD OF TWO YEARS FROM TH E END OF THE FINANCIAL YEAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. SINCE BY ISSUE OF SHOW CAUSE NOTICE U/S. 263 OF THE ACT, THE CIT WAS SEEKING TO REVISE THE ORIGINAL ORDERS OF ASSESSMENT, IT WAS BARRED BY TIM E. THE ASSESSEE ALSO POINTED OUT THAT THERE WAS NOTHING FOUND IN THE COU RSE OF SEARCH WARRANTING ITA NOS.560 & 561/BANG/2012 PAGE 7 OF 23 MAKING ENQUIRY WITH REGARD TO DEDUCTION U/S. 80HHC OF THE ACT IN THE ASSESSMENT U/S. 153A OF THE ACT. 12. THE ASSESSEE RELIED ON THE DECISION OF THE TRIB UNAL IN THE CASE OF MEGHMANI ORGANICS LTD. V. DCIT, 129 TTJ 255 , WHEREIN IT WAS HELD THAT THE ISSUES WHICH WERE SUBJECT MATTER OF ORIGIN AL ASSESSMENT PROCEEDINGS WHICH HAVE NOT ABATED CONSEQUENT TO THE SEARCH U/S. 153A OF THE ACT, CANNOT BE THE SUBJECT MATTER OF ENQUIRY IN THE PROCEEDINGS U/S. 153A OF THE ACT. IN OTHER WORDS, IT WAS HELD THAT THE ISSUES CONCLUDED IN THE ORIGINAL ASSESSMENT PROCEEDINGS WHICH HAVE ATTA INED FINALITY CANNOT BE REAGITATED IN THE PROCEEDINGS U/S. 153A OF THE ACT, UNLESS THERE IS MATERIAL FOUND IN THE COURSE OF SEARCH WHICH WOULD WARRANT S UCH ENQUIRY BEING MADE. 13. WITH REGARD TO THE STAND OF THE ASSESSEE THAT T HE CIT IN EXERCISE OF POWERS U/S.263 OF THE ACT WAS IN REALITY NOT REVISI NG THE ORDER DATED 30.12.2009 FOR AY 03-04 & 04-05 BUT WAS SEEKING TO REVISE THE ORIGINAL ORDER OF ASSESSMENT COMPLETED U/S.143(3) OF THE ACT DATED 28.3.2006 FOR AY 03-04 & DATED 5.5.2006 FOR AY 04-05, THE CIT CLA RIFIED THAT THE ORDERS SOUGHT TO BE REVISED WAS ONLY THE ORDERS DATED 30.1 2.2009 FOR AY 03-04 & 04-05 RESPECTIVELY AND NOT THE ORIGINAL ORDERS OF A SSESSMENT. THE CIT, HOWEVER, WAS NOT CONVINCED WITH THE OTHER CONTENTIO NS PUT FORTH ON BEHALF OF THE ASSESSEE. FOR THE A.Y. 2003-04, HE HELD AS FOLLOWS:- ITA NOS.560 & 561/BANG/2012 PAGE 8 OF 23 6.9 THE PROVISIONS OF SECTION 8OHHC IS ABOUT THE PROFITS DERIVED FROM SUCH EXPORT. IT IS SEEN THAT THE ADDI TION MADE BY THE AO MAINLY RELATED TO UNACCOUNTED STOCK OF IRON ORE LYING IN THE PREMISES OF ASSESSEE MINE. THE VALUE OF THE UN-ACCO UNTED STOCK WAS BROUGHT TO ACCOUNT WHICH IN TURN INCREASED THE PROFIT MARGIN. THUS, IT IS EVIDENT THAT THE INCREASE IN PROFIT MAR GIN WAS NOT ON ACCOUNT OF EXPORT OF IRON ORE BUT ON ACCOUNT OF UNA CCOUNTED STOCK FOUND OUT BY THE DEPARTMENT AND ADMITTED BY THE ASS ESSEE. 6.10 AS STATED ABOVE, THE PROFIT WAS NOT ON ACCOUNT OF PROFIT EARNED FROM EXPORT OR NOT ON ACCOUNT OF RECEIPT OF FOREIGN EXCHANGE FLUCTUATION RELATED TO EXPORTS. RELIANCE I S PLACED ON PUNJAB AND HARYANA HIGH COURTS DECISION IN THE CAS E M/S SARALA HANDICRAFTS (P) LTD VS ADDITIONAL COMMISSIONER OF I NCOME-TAX (296 ITR 94). 6.11 IT WAS DECIDED BY THE HONOURABLE HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF M/S. SARLA HANDICRAFTS ( P) LTD. VS. ADDITIONAL CIT 296 ITR 94 (P & H) THAT THE DEDUCTIO N U/S. 80HHC OF IT ACT IS AVAILABLE ONLY ON FULFILLMENT OF CERTAIN CONDITIONS SPECIFIED THEREIN AND THERE CAN BE NO PR ESUMPTION THAT SURRENDER MADE ON ACCOUNT OF DIFFERENCE FOUND IN TH E CLOSING STOCK REPRESENTS INCOME FROM EXPORTS. 6.12 IN THE CASE OF NATIONAL LEGGUARD WORKS V. CIT (APPEALS) & ANR. REPORTED IN 288 ITR 0018, IT WAS HELD THAT T HE DEDUCTION UNDER SECTION 80HHC CAN BE CLAIMED ONLY ON SHOWING FACTS WHICH MAKE ASSESSEE ELIGIBLE FOR DEDUCTION AND BURD EN TO PROVE SUCH FACTS WAS ON THE ASSESSEE AND SINCE THE ASSESS EE WAS UNABLE TO GIVE ANY EXPLANATION FOR DIFFERENCE IN STOCKS, H E WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 8OHHC. IT WAS HELD THAT THE ASSESSEE CANNOT BE HELD TO BE ENTITLED TO CLAIM INC OME SURRENDERED AS A RESULT OF UNEXPLAINED STOCKS AS IN COME FROM EXPORTS. THE BURDEN IS ON THE ASSESSEE TO PROVE THA T THE DISALLOWED AMOUNT REPRESENTS EXPORT PROFIT. 6.13 DUE TO THE DISALLOWANCES AND ADDITIONS MADE AT THE TIME OF THE ASSESSMENT, THE INCOME HAS GONE UP BUT THE SAID INCOME CAN NOT BE CONSTRUED AS INCOME FOR THE PURPO SE OF CALCULATION OF DEDUCTION U/S.8OHHC. IT IS ALSO SEEN THAT OUT OF THE TOTAL TURNOVER OF RS.33.07 CRORES, THE EXPORT T URNOVER COMES TO RS.15.31 CRORES. FURTHER, THE ASSESSEE HAD NOT SHOWN THAT THE DISALLOWANCES MADE AND TO THE EXTENT SUSTA INED BY ITA NOS.560 & 561/BANG/2012 PAGE 9 OF 23 THE APPELLATE AUTHORITIES RELATES TO EXPORT PROFIT AND ELIGIBLE FOR DEDUCTION U/S.8OHHC. THEREFORE, THE ASSESSMENT ORDER PASSED U/S.143(3) RWS 153A ON 30/12/2009 SUFFERS FR OM INFIRMITY IN THIS REGARD. 6.14 THUS, THE AO HAS NOT APPLIED HIS MIND WHILE P ASSING THE ORDER U/S. 143(3) RWS 153A AND AN INCORRECT ASSUMPT ION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ASSESSMENT ORDER BEING ERRONEOUS. THE APEX COUR T IN THE CASE MALABAR INDUSTRIAL CO. LTD VS. CIT REPORTED IN 243 ITR 83 HAS LAID DOWN THAT THE PHRASE PREJUDICIAL TO THE INTE REST OF REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS O RDER PASSED BY THE AO. THIS BEING THE POSITION, THERE CAN BE NO DO UBT THAT THE ORDER OF ASSESSMENT OF THE AO WAS ERRONEOUS TO THAT EXTENT CAUSING PREJUDICE TO THE INTEREST OF REVENUE. 7. IN VIEW OF THE ABOVE STATED FACTS, EXCESS DEDUC TION WAS ALLOWED BY THE AO U/S. 8OHHC IN RESPECT OF THE ASSE SSMENT YEAR 2003-04. I THEREFORE CONSIDER THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S.143(3) RWS 153A DATED 30/12/2 009 FOR THE ASSESSMENT YEAR 2003-04 IS ERRONEOUS INASMUCH AS PR EJUDICIAL TO THE INTEREST OF THE REVENUE AND THE AO IS DIRECTED TO RE-WORK THE DEDUCTION U/S. 8OHHC BY REDUCING FROM THE EXPORT PR OFITS, THE AMOUNT REPRESENTING THE ADDITIONS CONFIRMED BY THE APPELLATE AUTHORITIES, AFTER GIVING OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE.' (EMPHASIS SUPPLIED) 14. SIMILAR ORDER WAS PASSED FOR THE A.Y. 2004-05 B Y THE CIT. 15. AGGRIEVED BY THE ORDERS PASSED U/S. 263 OF THE ACT, THE ASSESSEE HAS PREFERRED THE PRESENT APPEALS BEFORE THE TRIBUN AL. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARN ED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS AS WERE MADE BEFORE THE CIT IN THE PROCEEDINGS U/S.263 OF THE ACT. HE FURTHER DREW OU R ATTENTION TO THE ITA NOS.560 & 561/BANG/2012 PAGE 10 OF 23 DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MYSODET (P) LTD. VS. CIT, 305 ITR 276 (SC) AND P.R. PRABHAUKAR VS. CIT, 284 ITR 548 (SC) FOR THE PROPOSITION THAT DEDUCTION U/S.80HHC OF TH E ACT IS TO BE COMPUTED ONLY WITH REFERENCE TO THE FORMULA G IVEN IN SEC.80HHC(3) OF THE ACT AND INCOME COMPUTED UNDER THE HEAD PROF ITS & GAINS OF BUSINESS OR PROFESSION SHOULD BE ADOPTED SUBJECT T O EXPLANATION (BAA) TO SEC.80HHC OF THE ACT. FURTHER REFERENCE WAS ALSO M ADE TO THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ITO VS. KEVAL CONSTRUCTION 354 ITR 13 (GUJ) FOR THE PROPOSITION THAT WHERE DISALLOWANCE OF EXPENSES U/S.40(A)(IA) OF THE ACT G OES TO INCREASE THE PROFITS OF BUSINESS, SUCH INCREASED PROFITS OF BUSI NESS WOULD ALSO BE ELIGIBLE FOR DEDUCTION U/S.80-IB(10) OF THE ACT. I T WAS SUBMITTED THAT THE DECISIONS OF THE HONBLE PUNJAB & HARYANA HIGH COUR T RELIED UPON BY THE CIT IN THE ORDER U/S.263 OF THE ACT SHOULD BE CONSI DERED AS NOT BINDING IN VIEW OF THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF P.R. PRABHAUKAR ( SUPRA ) AND MYSODET (P)LTD. ( SUPRA ). OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF CIT VS. ALAGENDRAN FINANCE LTD. 293 ITR 1 (SC) FOR THE PROPOSITION THAT IN RESPECT OF MATTERS NOT COVERED BY REASSESSM ENT ORDER WHICH IS SOUGHT TO BE REVISED IN PROCEEDINGS U/S.263 OF THE ACT THE PERIOD OF LIMITATION FOR PASSING ORDER U/S.263 OF THE ACT WOU LD RUN FROM THE ORIGINAL ORDER OF ASSESSMENT AND NOT WITH REFERENCE TO THE R EASSESSMENT ORDER. ITA NOS.560 & 561/BANG/2012 PAGE 11 OF 23 REFERENCE WAS ALSO MADE TO THE DECISION OF THE SPEC IAL BENCH ITAT, MUMBAI IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT 18 ITR (TRIB.)106 , WHEREIN IT WAS HELD THAT THE JURISDICTION TO MAKE ORIGINAL ASSESSMENT AND ASSESSMENT U/S 153A MERGE INTO ONE A ND ONLY ONE ASSESSMENT FOR EACH ASSESSMENT YEAR SHALL BE MADE S EPARATELY ON THE BASIS OF THE FINDINGS OF THE SEARCH AND ANY OTHER M ATERIAL EXISTING OR BROUGHT ON THE RECORD OF THE AO AND THAT IN RESPECT OF NON-ABATED ASSESSMENTS, THE ASSESSMENT WILL BE MADE ON THE BAS IS OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS NOT PRODUCED IN THE COUR SE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COURSE OF SEARCH, AND U NDISCLOSED INCOME OR UNDISCLOSED PROPERTY DISCOVERED IN THE COURSE OF SE ARCH. 17. THE LEARNED DR RELIED ON THE ORDER OF THE CIT. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE ALREADY SEEN THE SEQUENCE OF DATES AND EVENTS. FOR THE A.Y. 2003-04 , THE ASSESSEE FILED RETURN OF INCOME AND CLAIMED DEDUCTION U/S. 8 0HHC OF THE ACT OF A SUM OF RS.16,35,250. CONSEQUENT TO THE DISALLOWANC E AND ADDITIONS MADE IN THE ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT D ATED 28.3.2006 WHICH WAS MODIFIED BY THE CIT(A) BY ORDER DATED 31.8.2006 AND WHICH BECAME FINAL, THE INCOME FROM BUSINESS WAS ENHANCED TO RS. 5,74,38,261. IN THE ORDER DATED 05/2/2007, GIVING EFFECT TO THE LD. CIT (A)S ORDER DATED 31.8.2006, THE TOTAL INCOME BEFORE DEDUCTION U/S 80 HHC WAS REVISED AT RS. 5,74,38,261 AS AGAINST RS.6,93,05,900 DETERMINED IN THE ORIGINAL ITA NOS.560 & 561/BANG/2012 PAGE 12 OF 23 ASSESSMENT. BASED ON THE REVISED BUSINESS INCOME, T HE DEDUCTION U/S. 8OHHC WAS RECOMPUTED AND ALLOWED AT RS. 1,26,80,764 AS AGAINST RS.16,35,250 CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. 19. FOR THE A.Y. 2004-05 , THE ASSESSEE FILED A RETURN OF INCOME IN WHICH HE CLAIMED DEDUCTION U/S. 80HHC OF THE ACT. CONSEQ UENT TO THE DISALLOWANCE AND ADDITIONS MADE IN THE IN THE ORDER OF ASSESSMENT U/S. 143(3) OF THE ACT DATED 5.5.2006 WHICH WAS MODIFIED BY THE CIT(A) BY ORDER DATED 31.8.2006 AND WHICH BECAME FINAL, THE I NCOME FROM BUSINESS WAS ENHANCED TO RS.23,15,61,267. THE AO PASSED AN ORDER DATED 5.2.2007 GIVING EFFECT TO CIT(A)S ORDER DATED 31.8 .2006 AND ALLOWED DEDUCTION U/S. 80HHC AT RS. 3,59,75,377 AS AGAINST A SUM OF RS.1,69,41,168 CLAIMED BY THE ASSESSEE IN THE RETUR N OF INCOME. 20. THE ORDER DATED 31.8.2006 PASSED BY THE CIT(A) FOR BOTH AYS 2003- 04 & 2004-05 BECAME FINAL AND THE ISSUE WHETHER CON SEQUENT TO ADDITIONS AND DISALLOWANCES MADE WHILE DETERMINING INCOME FRO M BUSINESS, THE ASSESSEE WOULD BE ENTITLED TO CLAIMED DEDUCTION ON ENHANCED BUSINESS INCOME CONSEQUENT TO ADDITIONS AND DISALLOWANCES, B ECAME FINAL. IN OTHER WORDS, IT WAS HELD THAT WHILE COMPUTING DEDUCTION U /S.80HHC OF THE ACT, THE PROFITS OF BUSINESS THAT IS DETERMINED UNDER TH E HEAD PROFITS AND GAINS OF BUSINESS & PROFESSION IN THE ORDER OF ASSESSMEN T CONSEQUENT TO WHATEVER ADDITION IS MADE IN THE ORDER OF ASSESSMEN T SHOULD BE TAKEN WHILE APPLYING THE FORMULA GIVEN U/S.80HHC(3) OF TH E ACT. ITA NOS.560 & 561/BANG/2012 PAGE 13 OF 23 21. THERE WAS A SEARCH AND SEIZURE OPERATION CARRIE D OUT IN THE CASE OF THE ASSESSEE ON 26.10.2007. CONSEQUENT TO THE SEA RCH, NOTICE U/S. 153A OF THE ACT WAS ISSUED FOR THE A.YS. 2003-04 & 2004- 05. IN RESPONSE TO THE NOTICE U/S. 153A OF THE ACT, THE ASSESSEE FILED RET URNS OF INCOME FOR THE A.YS. 2003-04 & 2004-05 IN WHICH THE ASSESSEE DECLA RED THE INCOME AS WAS DETERMINED PURSUANT TO THE ORDER OF THE CIT(APP EALS) DATED 31.08.2006 & 05.02.2007 FOR A.YS. 2003-04 & A.Y.200 4-05 RESPECTIVELY. THE RETURN SO FILED WAS ACCEPTED BY THE AO. NO INC RIMINATING MATERIAL WHATSOEVER WAS FOUND IN THE COURSE OF SEARCH WARRAN TING ANY FURTHER ENQUIRY. THE ORDER U/S. 153A FOR THE A.YS. 2003-04 & 2004-05 WAS PASSED ON 30.12.2009. 22. THE FIRST QUESTION THAT WOULD ARISE FOR OUR CON SIDERATION IS AS TO WHETHER IN THE PROCEEDINGS U/S.153A OF THE ACT WHEN ADMITTEDLY NO INCRIMINATING MATERIAL WAS FOUND SO AS TO DOUBT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S.80HHC OF THE ACT DETERMINED IN THE COMPLETED UNABATED ASSESSMENT PROCEEDINGS U/S.143(3 ) OF THE ACT, CAN ANY ENQUIRY AT ALL BE MADE BY THE AO WITH REGARD TO CLAIM FOR DEDUCTION U/S.80HHC OF THE ACT? THIS WILL TAKE US TO THE SC OPE OF THE PROCEEDINGS U/S.153A OF THE ACT. SEC.153A OF THE ACT READS THU S: 153A. ASSESSMENT IN CASE OF SEARCH OR REQUISITION . (1) NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 1 39, SECTION 147, SECTION 148, SECTION 149, SECTION 151 AND SECT ION 153, IN THE CASE OF A PERSON WHERE A SEARCH IS INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS ARE REQUISITIONED ITA NOS.560 & 561/BANG/2012 PAGE 14 OF 23 UNDER SECTION 132A AFTER THE 31ST DAY OF MAY, 2003, THE ASSESSING OFFICER SHALL- (A) ISSUE NOTICE TO SUCH PERSON REQUIRING HIM TO FU RNISH WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, THE RETU RN OF INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SIX ASSESSMENT YEARS REFERRED TO IN CLAUSE (B), IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETTING FORTH SUCH OTH ER PARTICULARS AS MAY BE PRESCRIBED AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN WERE A RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139; (B) ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSE SSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IS CONDUCTED OR REQUISITION IS MADE: PROVIDED THAT THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME IN RESPECT OF EACH ASSESSMENT YEAR FAL LING WITHIN SUCH SIX ASSESSMENT YEARS: PROVIDED FURTHER THAT ASSESSMENT OR REASSESSMENT, I F ANY, RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION PENDING ON TH E DATE OF INITIATION OF THE SEARCH UNDER SECTION 132 OR MAKIN G OF REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE . (2) IF ANY PROCEEDING INITIATED OR ANY ORDER OF ASS ESSMENT OR REASSESSMENT MADE UNDER SUB-SECTION (1) HAS BEEN AN NULLED IN APPEAL OR ANY OTHER LEGAL PROCEEDING, THEN, NOTWITH STANDING ANYTHING CONTAINED IN SUB-SECTION (1) OR SECTION 15 3, THE ASSESSMENT OR REASSESSMENT RELATING TO ANY ASSESSME NT YEAR WHICH HAS ABATED UNDER THE SECOND PROVISO TO SUB-SE CTION (1), SHALL STAND REVIVED WITH EFFECT FROM THE DATE OF RE CEIPT OF THE ORDER OF SUCH ANNULMENT BY THE COMMISSIONER : PROVIDED THAT SUCH REVIVAL SHALL CEASE TO HAVE EFFE CT, IF SUCH ORDER OF ANNULMENT IS SET ASIDE. EXPLANATION : FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT,- (I) SAVE AS OTHERWISE PROVIDED IN THIS SECTION, SEC TION 153B AND SECTION 153C, ALL OTHER PROVISIONS OF THIS ACT SHAL L APPLY TO THE ASSESSMENT MADE UNDER THIS SECTION; (II) IN AN ASSESSMENT OR REASSESSMENT MADE IN RESPE CT OF AN ASSESSMENT YEAR UNDER THIS SECTION, THE TAX SHALL B E CHARGEABLE AT THE RATE OR RATES AS APPLICABLE TO SUCH ASSESSMENT YEAR. ITA NOS.560 & 561/BANG/2012 PAGE 15 OF 23 23. IT CAN BE SEEN FROM THE SECOND PROVISO TO SEC.1 53A OF THE ACT THAT ANY ASSESSMENT PROCEEDINGS FOR ANY OF THE SIX ASSES SMENT YEARS SET OUT IN SEC.153A (1) OF THE ACT, WHICH IS PENDING AS ON THE DATE OF INITIATION OF SEARCH U/S.132 OF THE ACT, THEN SUCH ASSESSMENT PRO CEEDINGS WOULD ABATE AND THE AO WILL MAKE ONE ASSESSMENT AFTER CONSIDERI NG THE ORIGINAL RETURN OF INCOME AS WELL AS MATERIALS FOUND IN THE COURSE OF SEARCH. THE ASSESSMENT PROCEEDINGS WHICH HAVE BEEN COMPLETED AS ON THE DATE OF SEARCH U/S.132 OF THE ACT WILL HOWEVER CONTINUE TO REMAIN VALID. THUS THE FORMER PROCEEDINGS ARE REFERRED TO AS ABATED ASSES SMENT PROCEEDINGS AND THE LATTER PROCEEDINGS ARE REFERRED TO AS UNAB ATED ASSESSMENT PROCEEDINGS. IN THE PRESENT CASE THE ASSESSMENT U /S.143(3) OF THE ACT FOR AYS 2003-04 AND 2004-05 HAD BEEN COMPLETED ON 28.3. 2006 AND 5.5.2006 RESPECTIVELY. 21. THE SPECIAL BENCH ITAT MUMBAI, IN THE CASE OF ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT (2012) 137 ITD 287 (MUMBAI) (SB) HAD TO DEAL WITH SIMILAR QUESTION. THE FOLLOWING QUESTION WAS DETERMINED BY THE SPECIAL BENCH:- 1. WHETHER, ON THE FACTS AND IN LAW, THE SCOPE OF ASSESSMENT U/S 153A ENCOMPASSES ADDITIONS, NOT BASED ON ANY INCRIM INATING MATERIAL FOUND, DURING THE COURSE OF SEARCH'? THE SPECIAL BENCH HELD AS FOLLOWS: 53. THE QUESTION NOW IS - WHAT IS THE SCOPE OF ASS ESSMENT OR REASSESSMENT OF TOTAL INCOME U/S 153A(1)(B) AND THE FIRST PROVISO? WE ARE OF THE VIEW THAT FOR ANSWERING THIS QUESTION, ITA NOS.560 & 561/BANG/2012 PAGE 16 OF 23 GUIDANCE WILL HAVE TO BE SOUGHT FROM SECTION 132(1) . IF ANY BOOKS OF ACCOUNT OR OTHER DOCUMENTS RELEVANT TO THE ASSES SMENT HAD NOT BEEN PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT AND FOUND IN THE COURSE OF SEARCH IN OUR HUMBLE OPINION SUCH BOO KS OF ACCOUNT OR OTHER DOCUMENTS HAVE TO BE TAKEN INTO ACCOUNT WH ILE MAKING ASSESSMENT OR REASSESSMENT OF TOTAL INCOME UNDER TH E AFORESAID PROVISION. SIMILAR POSITION WILL OBTAIN IN A CASE W HERE UNDISCLOSED INCOME OR UNDISCLOSED PROPERTY HAS BEEN FOUND AS A CONSEQUENCE OF SEARCH. IN OTHER WORDS, HARMONIOUS I NTERPRETATION WILL PRODUCE THE FOLLOWING RESULTS :- A) IN SO FAR AS PENDING ASSESSMENTS ARE CONCERNED, THE JURISDICTION TO MAKE ORIGINAL ASSESSMENT AND ASSESS MENT U/S 153A MERGE INTO ONE AND ONLY ONE ASSESSMENT FOR EACH ASS ESSMENT YEAR SHALL BE MADE SEPARATELY ON THE BASIS OF THE FINDIN GS OF THE SEARCH AND ANY OTHER MATERIAL EXISTING OR BROUGHT ON THE R ECORD OF THE AO, (B) IN RESPECT OF NON-ABATED ASSESSMENTS, THE ASSE SSMENT WILL BE MADE ON THE BASIS OF BOOKS OF ACCOUNT OR OTHER D OCUMENTS NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT BUT F OUND IN THE COURSE OF SEARCH, AND UNDISCLOSED INCOME OR UNDISCL OSED PROPERTY DISCOVERED IN THE COURSE OF SEARCH 24. IT IS THUS CLEAR FROM THE AFORESAID RULING OF T HE SPECIAL BENCH THAT WHERE ASSESSMENTS HAVE ALREADY BEEN COMPLETED U/S.1 43(3) OF THE ACT BEFORE INITIATION OF SEARCH U/S.132 OF THE ACT, THO SE ASSESSMENTS WILL ATTAIN FINALITY. THE EXCEPTION WOULD BE THAT IF BOOKS OF ACCOUNTS OR OTHER DOCUMENTS WERE NOT PRODUCED IN THE COURSE OF ORIGIN AL ASSESSMENT BUT FOUND IN THE COURSE OF SEARCH OR WHERE UNDISCLOSED INCOME OR UNDISCLOSED PROPERTY IS DISCOVERED IN THE COURSE OF SEARCH, THE N THE UNABATED ASSESSMENT WILL NOT ATTAIN FINALITY TO THE EXTENT O F MATERIAL FOUND IN THE ITA NOS.560 & 561/BANG/2012 PAGE 17 OF 23 COURSE OF SEARCH WHICH WILL HAVE A BEARING ON THE C ONCLUSIONS ARRIVED AT IN THE UNABATED ASSESSMENT. 25. AS WE HAVE ALREADY SEEN IN THE PRESENT CASE, TH ERE WAS NOTHING FOUND IN THE COURSE OF SEARCH WHICH WILL WARRANT DI STURBING THE DEDUCTION U/S.80HHC OF THE ACT WHICH BECAME FINAL IN THE UNAB ATED ASSESSMENTS COMPLETED PRIOR TO INITIATION OF SEARCH U/S.132 OF THE ACT. THEREFORE THE SCOPE OF PROCEEDINGS IN THE ASSESSMENT U/S.153A OF THE ACT IN THE CASE OF THE ASSESSEE FOR AYS 2003-04 & 2004-05 CANNOT EXTEN D TO REVISING THE DEDUCTION ALREADY ALLOWED U/S.80HHC OF THE ACT IN T HE UNABATED ASSESSMENT COMPLETED PRIOR TO INITIATION OF SEARCH U/S.132 OF THE ACT. IF THE SCOPE OF THE PROCEEDINGS U/S.153A OF THE ACT CANNOT EXTEND TO REVISING THE DEDUCTION U/S.80HHC OF THE ACT ALREADY ALLOWED TO T HE ASSESSEE IN THE UNABATED ASSESSMENT COMPLETED PRIOR TO INITIATION O F SEARCH U/S.132 OF THE ACT, CAN THE CIT IN EXERCISE OF HIS POWERS U/S.263 SEEK TO REVISE THAT ORDER? IF THE CIT IS PERMITTED TO DO SO, WILL IT B E A CASE OF REVISING THE UNABATED ORDER OF ASSESSMENT COMPLETED PRIOR TO INI TIATION OF SEARCH U/S.132 OF THE ACT? THESE QUESTIONS WERE CONSIDERE D BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. ALAGENDRAN FINANCE LTD. 293 ITR 1 (SC) . THE ASSESSEE IN THE AFORESAID CASE FILED ITS RET URNS FOR ASSESSMENT UNDER THE ACT FOR THE ASST. YRS. 1994-95 , 1995-96 AND 1996-97 ON 23RD NOV., 1994, 27TH NOV., 1995 AND 26TH NOV., 1997 RESPECTIVELY. ASSESSMENT FOR THE YEAR 1994-95 WAS COMPLETED ON 27 TH FEB., 1997 AND ITA NOS.560 & 561/BANG/2012 PAGE 18 OF 23 THOSE OF THE ASST. YRS. 1995-96 AND 1996-97 WERE CO MPLETED ON 12TH MAY, 1997 AND 30TH MARCH, 1998 RESPECTIVELY. IN THE SAID ORDERS OF ASSESSMENT, THE ASSESSEES RETURN UNDER THE HEAD LEASE EQUALIZ ATION FUND WAS ACCEPTED. HOWEVER, PROCEEDINGS FOR REASSESSMENT WER E INITIATED BY THE AO AND ORDERS OF REASSESSMENT WERE PASSED ON 28TH MARC H, 2002. PROCEEDINGS FOR REASSESSMENT, HOWEVER, WERE INITIAT ED ONLY IN RESPECT OF THREE ITEMS, VIZ., (I), THE EXPENSES CLAIMED FOR SH ARE ISSUE, (II) BAD AND DOUBTFUL DEBTS AND (III), EXCESS DEPRECIATION ON GA S CYLINDERS AND GOODS CONTAINERS. IN EXERCISE OF POWERS OF REVISION U/S.2 63 OF THE ACT, THE CIT SOUGHT TO REVISE THE ORDER DATED 28.3.2002 IN RESPE CT OF LEASE EQUALIZATION WHICH WAS NOT THE SUBJECT MATTER OF THE REASSESSMEN T PROCEEDINGS. BY AN ORDER DT. 29TH MARCH, 2004 PASSED U/S.263 OF THE AC T, THE CIT REVISED THE ORDER OF REASSESSMENT AND DIRECTED THE AO TO CHECK AND ASSESS THE LEASE RENTALS FROM LEASE EQUALISATION FUND, IF ANY, AND T O BRING TO TAX THE SAME FOR ALL THE ABOVE THREE YEARS. THE TRIBUNAL QUASHED TH E ORDER OF CIT PASSED U/S.263 AND THE HIGH COURT CONFIRMED THE ORDER OF T HE TRIBUNAL. ON FURTHER APPEAL BY THE REVENUE, THE HONBLE SUPREME COURT HE LD: A BARE PERUSAL OF THE ORDER PASSED BY THE CIT WOUL D CLEARLY DEMONSTRATE THAT ONLY THAT PART OF ORDER OF ASSESSM ENT WHICH RELATED TO LEASE EQUALIZATION FUND WAS FOUND TO BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE PROCEEDINGS FOR RE ASSESSMENT HAVE NOTHING TO DO WITH THE SAID HEAD OF INCOME. DO CTRINE OF MERGER, THEREFORE, WOULD NOT APPLY IN A CASE OF THI S NATURE. THERE MAY NOT BE ANY DOUBT OR DISPUTE THAT ONCE AN ORDER OF ASSESSMENT IS REOPENED, THE PREVIOUS UNDERASSESSMENT WILL BE H ELD TO BE SET ASIDE AND THE WHOLE PROCEEDINGS WOULD START AFRESH BUT THE SAME WOULD NOT MEAN THAT EVEN WHEN THE SUBJECT MATTER OF ITA NOS.560 & 561/BANG/2012 PAGE 19 OF 23 REASSESSMENT IS DISTINCT AND DIFFERENT, THE ENTIRE PROCEEDING OF ASSESSMENT WOULD BE DEEMED TO HAVE BEEN REOPENED. E VEN THE TRIBUNAL FOUND THAT ALL THE SUBSEQUENT EVENTS WERE IN RESPECT OF THE MATTERS OTHER THAN THE ALLOWANCE OF LEASE EQUA LIZATION FUND. THE SAID FINDING OF FACT IS BINDING. DOCTRINE OF ME RGER, THEREFORE, IN THE FACT SITUATION OBTAINING HEREIN CANNOT BE SA ID TO HAVE ANY APPLICATION WHATSOEVER. IT IS NOT A CASE WHERE THE SUBJECT MATTER OF REASSESSMENT AND SUBJECT MATTER OF ASSESSMENT WE RE THE SAME. THEY WERE NOT. THEREFORE, IN A CASE OF THIS NATURE, THE DOCTRINE OF MERGER WILL HAVE NO APPLICATION. KEEPING IN VIEW TH E FACTS AND CIRCUMSTANCES OF THIS CASE AND, IN PARTICULAR, HAVI NG REGARD TO THE FACT THAT THE CIT EXERCISING ITS REVISIONAL JURISDI CTION REOPENED THE ORDER OF ASSESSMENT ONLY IN RELATION TO LEASE E QUALIZATION FUND WHICH BEING NOT THE SUBJECT OF THE REASSESSMENT PRO CEEDINGS, THE PERIOD OF LIMITATION PROVIDED FOR UNDER SUB-S. (2) OF S. 263 WOULD BEGIN TO RUN FROM THE DATE OF THE ORDER OF ASSESSME NT AND NOT FROM THE ORDER OF REASSESSMENT. THE REVISIONAL JURI SDICTION HAVING, THUS, BEEN INVOKED BY THE CIT BEYOND THE PE RIOD OF LIMITATION, IT WAS WHOLLY WITHOUT JURISDICTION REND ERING THE ENTIRE PROCEEDING A NULLITY. THE APPEAL BEING DEVOID OF AN Y MERIT IS DISMISSED WITH COSTS. ... 26. THE ONLY DIFFERENCE BETWEEN THE AFORESAID DECIS ION AND THE PRESENT CASE IS THAT, THE CASE BEFORE THE HONBLE SUPREME C OURT WAS A CASE OF REASSESSMENT AND THE ISSUE SOUGHT TO BE REVISED IN PROCEEDINGS U/S.263 OF THE ACT WERE BEYOND THE SCOPE OF THE REASSESSMENT P ROCEEDINGS WHEREAS IN THE PRESENT CASE THE ISSUE SOUGHT TO BE REVISED IN THE PROCEEDINGS U/S.263 OF THE ACT WERE BEYOND THE SCOPE OF PROCEED INGS U/S.153A OF THE ACT. ADMITTEDLY THE PROCEEDINGS U/S.263 OF THE ACT WOULD BE BARRED BY TIME IF CONSIDERED AS ONE INITIATED IN RESPECT OF ASSESS MENT ORIGINALLY COMPLETED U/S.143(3) OF THE ACT. THE PROCEEDINGS U/S.263 OF THE ACT WOULD THEREFORE HAVE TO BE ONE INITIATED BEYOND THE PERIOD OF TIME CONTEMPLATED U/S.263(2) ITA NOS.560 & 561/BANG/2012 PAGE 20 OF 23 OF THE ACT AND HAVE TO BE HELD TO BE ONE BEYOND JUR ISDICTION. THE PROCEEDINGS AND THE ORDER U/S.263 OF THE ACT THEREF ORE DESERVES TO BE QUASHED ON THIS GROUND. 27. BESIDES THE ABOVE, WE ALSO FIND SUBSTANCE IN TH E ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE BASED ON THE DECI SIONS OF THE HONBLE SUPREME COURT IN THE CASE OF MYSODET (P) LTD. VS. CIT 305 ITR 276 (SC) AND P.R. PRABHAUKAR VS. CIT 284 ITR 548 (SC) THAT DEDUCTION U/S.80HHC OF THE ACT IS TO BE COMPUTED ON LY WITH REFERENCE TO THE FORMULA GIVEN IN SEC.80HHC(3) OF THE ACT AND IN COME COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION SHOULD BE ADOPTED SUBJECT TO EXPLANATION (BAA) TO SEC.80HHC OF THE AC T. 28. IN THE CASE OF MYSODET (P) LTD. ( SUPRA ), THE ASSESSEE WAS A LIMITED COMPANY. IT PURCHASED 105 COMPUTERS FOR RS. 90,91,063. IT EXPORTED THEM AND REALIZED EXPORT SALES OF RS. 90,91,063. TH ERE WERE NO PROFITS DURING THAT RELEVANT ASSESSMENT YEAR ON THE EXPORT SALES. THE RELEVANT ASSESSMENT YEAR IS ASST. YR. 1990-91. THE ITO ALLOW ED THE CLAIM OF DEDUCTION UNDER S. 80HHC AT RS. 15,81,389. ACCORDIN G TO THE CALCULATIONS MADE BY THE ITO THE BUSINESS INCOME STOOD AT RS. 55 ,31,941 TO WHICH THE ITO APPLIED THE FORMULA IN TERMS OF SEC. 80HHC(3)( B). APPLYING THAT FORMULA THE EXPORT PROFITS WORKED OUT TO RS. 15,81, 389. THE FORMULA ADOPTED WAS AS FOLLOWS : ITA NOS.560 & 561/BANG/2012 PAGE 21 OF 23 EXPORT PROFITS= 90,91,063X55,31,941 3,18,01,941 THE CIT IN EXERCISE OF POWERS OF REVISION U/S.263 O F THE ACT HELD THAT S. 80HHC(1) REFERS TO PROFITS DERIVED FROM THE EXPORT BUSINESS AND IT IS WITH REFERENCE TO SUCH PROFITS THAT DEDUCTION UNDER S. 8 0HHC IS TO BE COMPUTED. ACCORDING TO THE CIT, S. 80HHC CONFERS THE BENEFIT ONLY ON THOSE ASSESSEES WHO HAVE NOT ONLY CARRIED THE EXPORT BUSI NESS BUT WHO HAVE ALSO DERIVED PROFITS FROM SUCH BUSINESS. ACCORDING TO THE CIT, S. 80HHC(3)(B) IS A MACHINERY PROVISION WHICH ENABLES THE AO TO COMPUTE PROFITS FROM EXPORT BUSINESS PARTICULARLY WHEN THE INCOME OF THE ASSESSEE ACCRUES FROM COMPOSITE BUSINESS OF DOMESTIC AND EXP ORT SALES. THE TRIBUNAL HOWEVER HELD THAT PROFITS NEED NOT BE EARN ED IN THE EXPORT BUSINESS ALONE TO CLAIM SPECIAL DEDUCTION UNDER S. 80HHC. THE HONBLE HIGH COURT AGREED WITH THE VIEW OF THE REVENUE. ON FURTHER APPEAL BY THE ASSESSEE THE HONBLE SUPREME COURT HELD THAT SEC. 8 0A GOVERNS S. 80HHC WHICH DEALS WITH DEDUCTIONS IN RESPECT OF PRO FITS RETAINED FOR EXPORT BUSINESS. THE HEAD NOTE TO S. 80HHC REFERS TO DEDUC TION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. IT IS NOT PRO FITS RETAINED FROM EXPORT BUSINESS. MOREOVER, PRIOR TO 1ST APRIL, 1986, S. 80 HHC REFERRED TO DEDUCTION IN RESPECT OF EXPORT TURNOVER. THAT PHRAS EOLOGY HAS BEEN CHANGED LATER ON. THE ELIGIBILITY FOR DEDUCTION IS CONTEMPLATED BY S. 80HHC(1) WHEREAS QUANTUM OF DEDUCTION IS DETERMINED UNDER S. ITA NOS.560 & 561/BANG/2012 PAGE 22 OF 23 80HHC(3). IN THE MATTER OF DETERMINING THE QUANTUM OF DEDUCTION, THE 'PRINCIPLE OF PROPORTIONALITY' APPLIES. THERE ARE T WO SITUATIONS WHICH ARE COVERED BY S. 80HHC(3), NAMELY, TURNOVER ONLY FROM EXPORT SALES AND, SECONDLY, TURNOVER FROM COMPOSITE SALES (DOMESTIC A ND EXPORT BUSINESS). THE CALCULATION HAS BEEN CORRECTLY DONE BY THE ITO. THE ITO TOOK INTO ACCOUNT THE BUSINESS INCOME AT RS. 55,31,941 TO WHI CH HE CORRECTLY APPLIES THE RATIO OF RS. 90,91,063/RS. 3,81,01,941. IN THE CASE OF COMPOSITE BUSINESS, THE FIGURE OF EXPORT TURNOVER IS QUITE DI FFERENT FROM TOTAL TURNOVER. THE ENTIRE OBJECT FOR APPLYING THE PRINCIPLE OF PRO PORTIONALITY IS TO DERIVE EXPORT PROFITS FROM TOTAL BUSINESS PROFITS. THIS FO RMULA APPLIES BOTH UNDER S. 80HHC(3)(A) AS WELL AS S. 80HHC(3)(B). CIRCULAR NO. 564, DT. 5TH JULY, 1990 INDICATES VIDE PARA 4 THAT S. 80HHC(3) STATUTORILY FIXES THE QUANTUM OF DEDUCTION ON THE BASIS OF A PROPORTION OF BUSINESS PROFITS UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' IRRES PECTIVE OF WHAT COULD STRICTLY BE DESCRIBED AS PROFITS DERIVED FROM EXPOR T OF GOODS OUT OF INDIA. EVEN THE ILLUSTRATION GIVEN IN THE CBDT CIRCULAR IN DICATES THAT THE RATIO MENTIONED IN SUB-S. (3) HAS TO BE APPLIED TO BUSINE SS PROFITS COMPUTED UNDER THE PROVISIONS OF SS. 28 TO 43D. 29. FROM THE AFORESAID DECISION OF THE HONBLE SUP REME COURT IT IS CLEAR THAT PROFITS OF THE BUSINESS CONTEMPLATED U/S.80HHC (3) FOR APPLYING THE FORMULA PRESCRIBED THEREIN IS THE PROFITS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE DECISION S OF THE HONBLE PUNJAB & HARYANA HIGH COURT RELIED UPON BY THE CIT IN THE ORDER U/S.263 OF THE ACT ITA NOS.560 & 561/BANG/2012 PAGE 23 OF 23 SHOULD BE CONSIDERED AS NOT BINDING IN VIEW OF THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF AND MYSODET (P)LTD. ( SUPRA ). THE VIEW EXPRESSED BY THE CIT IN THE ORDER U/S.263 OF THE AC T IS CONTRARY TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MYSODET (P) LTD. , AND CANNOT BE SUSTAINED. 27. FOR THE REASONS GIVEN ABOVE, WE QUASH THE ORDE RS U/S.263 OF THE ACT AND ALLOW THE APPEALS OF THE ASSESSEE. 28. IN THE RESULT, THE APPEALS BY THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JULY, 2013. SD/- SD/- ( N. BARATHVAJA SANKAR ) ( N.V. VASU DEVAN ) VICE PRESIDENT JUDIC IAL MEMBER BANGALORE, DATED, THE 12 TH JULY, 2013. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. C IT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.