M/s Goyal Impex and Industries Ltd, New Delhi V. CIT-IV, New Delhi

ITA 850/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8216 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 03-02-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 09-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VED JAIN V MOHAN
• Keywords: Business income; Principle of natural justice; Competent authority; Set aside
• Section: 143(3); 80HHC; 80IA; 263; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A DELHI BEFORE SHRI K.G. BANSAL AND SHRI GEORGE MATHAN ITA NO. 850(DEL)/2009 ASSESSMENT YEAR: 2000-01 GOYAL IMPEX & INDUSTRIES LTD., CO MMISSIONER OF INCOME-TAX, 1291, POCKET-I, SECTOR-6, VS. DELHI-IV, NEW DELHI. VASANT KUNJ, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI VED JAIN, V. MOHAN & MS. RANO JAIN RESPONDENT BY : SHRI ASHOK PANDEY, CIT, DR ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDER OF THE CIT(APPEALS)-DELHI-IV, NEW DELHI, PASSED ON 27.0 1.2009, UNDER THE PROVISIONS OF SECTION 263 OF THE INCOME-TAX ACT, 1961, AND IT PERTAINS TO ASSESSMENT YEAR 2000-01. THE CORRESPONDING ORDER OF ASSESSMENT WAS FRAMED BY THE INCOME-TAX OFFICER, WARD 12(2), N EW DELHI ( AO FOR SHORT), ON 21.12.2006 UNDER THE PROVISIONS OF SECTION 143(3) READ WITH SECTION 254 OF THE ACT. THE ASSESSEE HAS TAKEN 8 SUBSTANTIVE GROUNDS IN THE APPEAL. HOWEVER, IT WAS EXPLAINED BEFOR E US BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE WANTS TO PRE SS ONLY FOUR GROUNDS, WHICH ARE PARAPHRASED HERE THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF ITA NO. 850(DEL)/2009 2 THE CASE, THE LD. CIT ERRED IN (I) HOLDING THAT THE ORDER PASSED BY THE AO ON 21.12.2006 WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE; (II) RELYING ON THE FIRST NOTICE ISSU ED U/S 263 ON 28.12.2006, WHICH WAS SET ASIDE BY THE HONBLE HIGH COU RT; (III) TRAVERSING BEYOND THE SHOW CAUSE NOTICE WHILE PASSING T HE FINAL REVISIONARY ORDER; AND (IV) IN DIRECTING THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTION 80HHC. THE OTHER GRO UNDS REGARDING LIMITATION, MERGER OF THE ORDER OF THE AO WITH THA T OF THE CIT(A) ETC. WERE NOT PRESSED. THEREFORE, THIS ORDER DEALS WITH THE AFORESAID GROUNDS ARGUED BY THE LD. COUNSEL. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED RETURN OF INCOME ON 31.11.2000, DECLARING NIL INCOME. IN THIS RETURN, THE ASSESSEE CLAIMED DEDUCTION U/S 80-HHC AT RS. 2,02,25,530/-. THE ASSESSMENT WAS COMPLETED ON 28.03.2003 AT TOT AL INCOME OF RS. 3,05,87,718/-. THE DEDUCTION U/S 80HHC WAS COMP UTED AT RS. 1,72,14,147/-. IT WAS MENTIONED BY THE AO THAT THE EXPORT PROFITS FROM TRADING OF GOODS AMOUNTED TO LOSS OF RS. 57,34,3 66/-. THIS AMOUNT WAS DEDUCTED FROM THE DEDUCTION AVAILABLE IN RESPEC T OF EXPORT INCENTIVE BY APPLYING APPROPRIATE FORMULA, WHICH CAME TO RS. 2,29,48,513/-. THUS, THE ITA NO. 850(DEL)/2009 3 DEDUCTION WAS COMPUTED AT AN AMOUNT OF RS. 1,72,14, 147/-. THEREAFTER, ON AN APPLICATION MADE BY THE ASSESSEE ON 25.4.200 3, THE DEDUCTION WAS REVISED UPWARDS AT RS. 2,86,82,879/- AND, THUS, THE TOTAL INCOME WAS COMPUTED AT RS. 1,91,18,990/-. IN THE RECTIFIC ATION ORDER, IT WAS MENTIONED THAT THERE WAS AN ARITHMETICAL MISTA KE IN TAKING EXPORT PROFIT FROM TRADING OF GOODS AT LOSS OF RS. 57,34, 366/- AGAINST THE ACTUAL PROFIT OF RS. 57,34,366/-, WHICH WAS RECTIFIED I N THIS ORDER. 2.1 THE MATTER WAS AGITATED BEFORE THE LD. CIT( APPEALS) AND THEREAFTER BEFORE THE INCOME-TAX APPELLATE TRIBUNAL. IN ORDE R DATED 20.3.2006, THE MATTER WAS RESTORED TO THE FILE OF THE AO BY THE TRIBUNAL. IT WAS MENTIONED THAT SECTION 80HHC AND SECTION 28 WERE AMENDED BY THE TAXATION LAWS (AMENDMENT) ACT, 2005 RETROSPECTIV ELY. THESE AMENDMENTS HAVE A DIRECT BEARING ON COMPUTATION OF DEDUCTION U/S 80HHC. THEREFORE, THE MATTER NEEDS TO BE EX AMINED BY THE AO. ACCORDINGLY, THE MATTER WAS RESTORED TO THE FI LE OF THE AO WITH A DIRECTION TO EXAMINE THE ALLOWABILITY OF DED UCTION U/S 80HHC AFRESH, IN VIEW OF THE AMENDMENTS AS WELL AS CIRCUL AR NO. 2 OF 2006 DATED 16.01.2006 ISSUED IN CONNECTION THEREWITH. THE AO , IN PURSUANCE OF THE AFORESAID DIRECTIONS, PASSED THE ORDER ON 21.12. 2006, DETERMINING THE ITA NO. 850(DEL)/2009 4 TOTAL INCOME AT NIL. IT WAS SUBMITTED BEFOR E HIM THAT ALL DISALLOWANCES EXCEPT THE ONE IN REGARD TO SECTION 80HHC HAVE BEEN DELETED. THE DEDUCTION U/S 80HHC WAS WRONGLY CALCULATED IN THE ASSESSMENT ORDER AND, THEREFORE, THE ASSESSMENT ORDER WAS REC TIFIED U/S 154 ON 11.8.2003. THIS ORDER MAY BE TAKEN AS THE O RDER REPRESENTING CORRECT CALCULATION OF THE DEDUCTION U/S 80HHC AT RS. 2,86,82,879/-. THE AO MENTIONED THAT THE CLAIM MADE BY THE ASSESSEE H AS ALREADY BEEN CONSIDERED U/S 154 OF THE ACT. THEREAFTER, THE GROSS TOTAL INCOME OF THE ASSESSEE WAS COMPUTED AT RS. 2,02,25,530/- AND THE DEDUCTION U/S 80HHC WAS RESTRICTED TO THIS AMOUNT, THUS, COMP UTING THE TOTAL INCOME AT NIL. 2.2 SUBSEQUENTLY, THE LD. CIT EXAMINED THE RECO RDS OF THE PROCEEDINGS AND ISSUED A NOTICE U/S 263 ON 28.12.2006. IT WAS MENTIONED THAT THE ASSESSEE HAS BEEN ALLOWED DEDUCTION U/S 8 0HHC AT RS. 2,02,25,530/- IN THE ORDER DATED 21.12.2006. THIS DEDUCTIO N WAS WRONGLY ALLOWED BECAUSE THE TWIN CONDITIONS MENTIONED IN THE THIRD PROVISO TO SECTION 80HHC, EFFECTIVE FROM 1.4.1998, WERE NOT A PPARENTLY SATISFIED, RESULTING INTO UNDER-ASSESSMENT OF INCOME BY AN AMOUNT OF RS. 2,02,25,530/-. THE ASSESSEE WAS REQUIRED TO F URNISH ITS OBJECTIONS IN RESPECT OF THE REVISION OF THE ORDER AS AFORESAI D. THE ASSESSEE MOVED A ITA NO. 850(DEL)/2009 5 WRIT PETITION BEFORE THE HONBLE HIGH COURT OF D ELHI, WHICH WAS DISPOSED OF ON 24.1.2007 IN WP (C) 205/2007. THE HONBLE COURT MENTIONED THAT THE LD. COUNSEL FOR THE RESPONDENT (THE COMMISSI ONER OF INCOME-TAX) INFORMED THAT A FRESH SHOW CAUSE NOTICE U/S 263 READ WITH SECTION 154 HAS BEEN ISSUED ON 12.1.2007 AND THE DEP ARTMENT NO LONGER RELIES ON THE AMENDMENT CARRIED OUT IN SECTION 80HHC(3 ) BY THE TAXATION LAWS (AMENDMENT) ACT, 2005, AND DE HORS THE SAID A MENDMENT THESE PROCEEDINGS HAD BEEN INITIATED. IN THESE CIRCUMS TANCES, THE LD. COUNSEL FOR THE PETITIONER STATES THAT THE PETITION MAY BE DISMISSED AS WITHDRAWN WITH LIBERTY TO TAKE STEPS IN RESPECT OF SHOW CAU SE NOTICE DATED 12.1.2007. THE LIBERTY PRAYED FOR WAS GRANTED BY THE HONBL E COURT AND THE WRIT PETITION WAS DISMISSED AS WITHDRAWN. 2.3 IN THE SECOND SHOW CAUSE NOTICE U/S 263 , A REFERENCE WAS MADE TO THE EARLIER SHOW CAUSE NOTICE ISSUED ON 28.12.2006 AND IT WAS MENTIONED THAT ON THE BASIS OF FACTS ON RECORD THERE WAS AN EXPORTING LOSS FROM TRADING GOODS OF RS. 1,13,00,764/-. THEREFORE, EVEN IF IT IS PRESUMED THAT THE AMENDMENTS ARE NOT APPLICABL E, THE DEDUCTION ALLOWED AT RS. 2,02,25,530/- IS NOT IN ORDER. T HE ASSESSEE WAS REQUIRED TO SUBMIT ITS OBJECTION AGAINST THE AFORESAID P ROPOSAL REGARDING UNDER- ITA NO. 850(DEL)/2009 6 ASSESSMENT OF INCOME OF RS. 2,02,25,530/-. FINALLY , THE LD. CIT PASSED THE ORDER ON 28.01.2009, IN WHICH THE ORDER OF THE A O WAS HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FURTHER, THE AO WAS DIRECTED TO MAKE A FRESH ASSESSMENT WITHOU T ALLOWING ANY DEDUCTION U/S 80HHC. IT MAY BE MENTIONED HERE THAT THE L D. CIT INTER-ALIA GAVE THE FINDINGS THAT, (I) THE ASSESSEE IS A TRA DING EXPORTER ONLY; (II) IT WAS NEVER STATED BEFORE THE HONBLE COURT THAT THE DEPARTMENT DID NOT WISH TO APPLY AMENDED PROVISION AND THE INTENT OF THE SU BMISSIONS OF THE LD. COUNSEL FOR THE REVENUE WAS THAT EVEN IF THE AMENDMENT IS NOT CONSIDERED, THE ASSESSEE SHALL NOT BE ENTITLE D TO DEDUCTION U/S 80HHC; (III) THE DEPB ENTITLEMENT CONSISTED OF PREM IUM OF RS. 21,93,355/- AND INCOME OF RS. 2,93,87,765/-; AND (IV) THE PROVISION CONTAINED IN THE PROVISO TO SECTION 80HHC(3) WILL NOT APPLY AS BEFORE THE AMENDMENT, THE PROFIT AND THE PREMIUM WERE NOT MENTIONED A NYWHERE IN SECTION 28. UNDER THE AMENDED PROVISION ALSO, THE TWIN CO NDITIONS MENTIONED IN THE THIRD PROVISO WERE NOT SATISFIED AND, THEREFO RE, THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION. AGGRIEVED BY THIS O RDER, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE MAIN PLANK OF THE ARGUMENTS OF THE LD. COU NSEL WAS THAT THE ORDER PASSED BY THE AO ON 21.12.2006 WAS NOT ERRONEOUS AND ITA NO. 850(DEL)/2009 7 PREJUDICIAL TO THE INTEREST OF THE REVENUE. THI S ORDER WAS PASSED ON THE ORDER OF RECTIFICATION PASSED BY HIM ON 11.08. 2003, IN WHICH EXPORT PROFIT FROM TRADING OF GOODS WAS WORKED OUT AT RS. 57,34,366/-, WHICH WAS INCREASED BY AN AMOUNT OF RS. 2,29,4 8,513/- BEING 90% OF EXPORT TURNOVER MULTIPLIED BY EXPORT TURNOVER AND THE RESULTANT SUM DIVIDED BY THE TOTAL TURNOVER. AT THE TIME WHE N THIS ORDER WAS PASSED, SUBSTANTIAL DISPUTE EXISTED REGARDING THE TRE ATMENT TO BE GIVEN TO BENEFIT BY WAY OF DEPB WHILE COMPUTING THE DEDUCTION. T HE VIEW TAKEN BY THE AO WAS A POSSIBLE VIEW AND, THEREFORE, THE LD . CIT WAS NOT RIGHT IN SUBSTITUTING HER JUDGMENT IN PLACE OF THE JUDGM ENT OF THE AO. FOR THIS PURPOSE, HE RELIED ON THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF CIT VS. MAX INDIA LTD. (2007) 295 I TR 282. THE HONBLE COURT MENTIONED THAT TWO VIEWS WERE POSSIBLE IN REGARD TO THE WORD PROFITS EMPLOYED IN PROVISO TO SECTION 80H HC(3). THE POSITION WAS CLARIFIED BY 2005 AMENDMENTS WITH RETROSPECTI VE EFFECT BY INSERTING THE WORD LOSS IN THE NEW PROVISO. THEREFORE, WITHOUT GOING INTO THE SCOPE OF THE AMENDMENT, IT WAS HELD THAT WHEN THE COMMISSIONER OF INCOME-TAX PASSED THE ORDER, TWO VIEWS WERE PO SSIBLE ON THE WORD PROFITS. THIS COURT, IN THE CASE OF MALABAR I NDUSTRIAL CO. LTD. VS. CIT, (2001) 243 ITR 83, HELD THAT THE PHRASE PRE JUDICIAL TO THE INTERESTS OF ITA NO. 850(DEL)/2009 8 THE REVENUE USED IN SECTION 263 HAS TO BE R EAD IN CONJUNCTION WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY THE AO. EVERY ORDER, WHICH LEADS TO LOSS OF REVENUE, CANNOT BE TREATED AS AN ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN A O ADOPTS ONE COURSE OF ACTION PERMISSIBLE IN LAW WHICH HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN O NE POSSIBLE VIEW, THEN, THE COMMISSIONER CANNOT TREAT THE ORDER TO BE AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF REVENUE BY SUBST ITUTING HIS VIEW WITH THAT OF THE AO, UNLESS IT IS PROVED THAT THE VIEW TAKEN BY THE AO WAS NOT AT ALL SUSTAINABLE IN LAW. FURTHER, HE RELIE D ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MA X INDIA LTD. IN THAT CASE, THE AO HAD IGNORED THE LOSS WHILE GRANTIN G DEDUCTION U/S 80HHC. THE CIT REVISED THE ORDER U/S 263 BY SETTIN G IT ASIDE. THE TRIBUNAL HELD THAT THE VIEW TAKEN BY THE AO WAS A PO SSIBLE VIEW. THE HONBLE HIGH COURT DISMISSED THE APPEAL OF THE REVENUE BY MENTIONING THAT THE VIEW OF THE AO WAS IN CONFORMITY WITH VIEWS SUBSEQUENTLY EXPRESSED BY VARIOUS BENCHES OF THE TRIBUNAL. TH EREFORE, THE VIEW TAKEN BY HIM WAS A POSSIBLE VIEW AND, THEREFORE, THE ORDER COULD NOT BE SAID TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ITA NO. 850(DEL)/2009 9 3.1 IN REPLY, THE LD. DR SUBMITTED THAT THE ASSESSMENT ORDER WAS PASSED AS A CONSEQUENCE OF THE ORDER OF THE TRI BUNAL AND, THEREFORE, THE POWERS OF THE AO WERE CIRCUMSCRIBED BY THE ORDER OF THE TRIBUNAL AND HE COULD NOT GIVE ANY RELIEF BEYOND THE RELIEF MENTIONED BY THE TRIBUNAL. THE TRIBUNAL HAD TAKEN NOTE OF THE AMENDMENTS MADE IN SECTIONS 28 AND 80HHC BY TAXATION LAWS (AMENDMENT) ACT, 20 05. IT WAS MENTIONED THAT THESE AMENDMENTS HAVE A BEARING ON DETERMINATION OF THE QUANTUM OF DEDUCTION. THIS MATTER NEEDED EX AMINATION ON THE PART OF THE AO. THEREFORE, THE MATTER WAS RESTORED TO HIS FILE TO EXAMINE THE CLAIM AFRESH BY TAKING INTO ACCOUNT 2005 AME NDMENTS AND THE CIRCULAR OF THE BOARD. HOWEVER, THE AO DID NOT CONSIDER THE AMENDMENTS AT ALL. HE ALLOWED THE DEDUCTION ON THE BASIS OF THE ORD ER PASSED U/S 154 ON 11.8.2003, WITHOUT HAVING REGARD TO THE AMENDME NTS, WHICH WERE TO BE SPECIFICALLY LOOKED INTO AS PER DIRECTIONS OF TH E TRIBUNAL. SUCH AN ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST O F THE REVENUE. THEREFORE, IT WAS ARGUED THAT THE LD. CIT WAS RIGHT IN ASSUMING JURISDICTION U/S 263 OF THE ACT. 3.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IT IS AN ESTABLISHED LAW, AS SEEN FROM THE DISCUSSION IN THE CASE OF MAX INDIA LTD. (SUPRA) THAT FOR ASSUMIN G JURISDICTION U/S 263, ITA NO. 850(DEL)/2009 10 THE CIT HAS TO SHOW SATISFACTION OF TWO PRE-CO NDITIONS- (I) THE ORDER WAS ERRONEOUS, AND (II) THE ORDER WAS PREJUDICIAL T O THE INTERESTS OF REVENUE. THESE CONDITIONS, ON THE FACTS OF THE CASE, HAV E TO BE SEEN IN THE CONTEXT OF THE HISTORY OF THE CASE, NAMELY, THAT THE M ATTER WAS RESTORED TO THE FILE OF THE AO BY THE TRIBUNAL WITH A DIRECTION TO MAKE A FRESH CALCULATION OF THE DEDUCTION BY TAKING INTO ACCOUNT 2005 AMENDMENTS IN SECTION 28 AND SECTION 80HHC(3). ON READING OF THE ORDER , IT IS SEEN THAT THE AO MERELY REPEATED HIS EARLIER ORDER ALBEIT WIT H RECTIFICATION MADE THERETO U/S 154, WITHOUT APPLYING MIND TO THE AMENDMENTS AND THEIR IMPLICATION IN COMPUTING THE DEDUCTION. THUS, NON-OBSERVANC E OF THE DIRECTIONS OF THE TRIBUNAL IN COMPUTING THE DEDUCTION PER SE MADE THE ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IT M AY BE MENTIONED HERE THAT THE ORDER REVISED BY THE LD. CIT WAS NOT THE FIRST ORDER PASSED BY THE AO, BUT WAS AN ORDER PASSED AS A CONSEQUENCE O F THE DIRECTIONS OF THE TRIBUNAL. THE LD. CIT SPECIFICALLY REFERRED TO THE ORDER PASSED U/S 143(3) READ WITH SECTION 254 AND NOT THE ORIGINAL ORD ER PASSED ON 28.3.2003 OR THE RECTIFICATORY ORDER PASSED ON 11.8.2 003. THE COMPUTATION OF PROFITS OF THE BUSINESS WAS MADE AND A REFERE NCE WAS MADE TO THE THIRD PROVISO TO SECTION 80HHC(3) INSERTED BY WAY OF 2005 AMENDMENTS RETROSPECTIVELY WITH EFFECT FROM 01 .04.1998. THE ITA NO. 850(DEL)/2009 11 AMENDMENTS HAD TO BE CONSIDERED BY THE AO BUT WERE NOT CONSIDERED BY HIM. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT SHE VALIDLY ASSUMED JURISDICTION U/S 263. 4. THE SECOND PLANK OF THE ARGUMENTS OF THE LD. COUNSEL WAS THAT FIRST NOTICE U/S 263 DATED 28.12.2006 DID NOT EXIST ON RECORD BY DINT OF THE ORDER OF HONBLE HIGH COURT DATED 24.1 .2007. THE LD. COUNSEL FOR THE REVENUE HAD SUBMITTED BEFORE THE HOBBLE COURT THAT A FRESH SHOW CAUSE NOTICE HAS BEEN ISSUED ON 12.01.2007 AND THE PURPORT THEREOF IS THAT THE REVENUE NO LONGER RELIES ON THE AMENDMENTS CARRIED OUT IN 2005. THUS, THE PROCEEDINGS HAVE BEEN I NITIATED DE-HORS THE AMENDMENTS. IN THESE CIRCUMSTANCES, THE LD. COU NSEL FOR THE PETITIONER PRAYED FOR WITHDRAWAL OF THE PETITION WITH LIBERT Y TO TAKE STEPS IN RESPECT OF SHOW CAUSE NOTICE ISSUED ON 12.1.2007. THE ASSESSEE WAS ALLOWED LIBERTY TO PROCEED IN RESPECT OF THE SECOND SHOW CAUSE NOTICE AND THE WRIT PETITION WAS DISMISSED AS WITHDRAWN. IN VIEW O F THIS ORDER, IT WAS ARGUED THAT THE REVENUE CANNOT NOW TAKE REC OURSE TO THE AMENDED PROVISIONS FOR COMPUTING THE DEDUCTION. IN REP LY, THE LD. DR SUBMITTED THAT THE REVENUE NEVER SUBMITTED BEFORE THE H ONBLE COURT THAT THE AMENDED PROVISIONS SHALL NOT BE INVOKED, ALTHOUGH APPLICABLE, FOR ITA NO. 850(DEL)/2009 12 COMPUTING THE DEDUCTION. THE REAL INTENT AND P URPOSE WAS THAT SINCE ONE MORE NOTICE HAS BEEN ISSUED, THE WRIT PETITION HAS BECOME INFRUCTUOUS. IN THE CIRCUMSTANCES, THE HONBLE COURT ORDERED THAT THE ASSESSEE SHALL HAVE LIBERTY TO PROCEED WITH THE MATTER IN ACC ORDANCE WITH THE SECOND SHOW CAUSE NOTICE AND THE PETITION WAS DISMISS ED AS WITHDRAWN. 4.1 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. THE ONLY CONCLUSION WHICH WE CAN DRAW FROM TH E ORDER OF THE HONBLE COURT IS THAT THE FIRST NOTICE DATED 28.12.2 006 DOES NOT EXIST ON RECORD AS IT WAS SPECIFICALLY MENTIONED BY THE LD. COUNSEL FOR THE REVENUE THAT ONE MORE NOTICE HAS BEEN ISSUED ON 12.1 .2007. HOWEVER, IT CANNOT BE SAID THAT 2005 AMENDMENTS CAN NOT BE TAKE N INTO CONSIDERATION AS THE LD. COUNSEL FURTHER EXPLAINED THE INTENT OF THE SECOND SHOW CAUSE NOTICE TO BE THAT THE DEPARTMENT NO LONGER RE LIES ON SUCH AMENDMENTS. THE REASONS FOR THIS CONCLUSION ARE MANY. FI RSTLY, THE ASSESSMENT ORDER HAD TO BE FRAMED AS PER DIRECTIONS OF THE TRIBUNAL, WHICH SPECIFICALLY DIRECTED THE AO TO CONSIDER 200 5 AMENDMENTS FOR COMPUTING THE DEDUCTION. THIS WAS NOT DONE. T HE PURPOSE AS SUBMITTED BY THE LD. COUNSEL FOR THE REVENUE WIL L FRUSTRATE THE VERY ORDER ON THE BASIS OF WHICH THE ORDER WAS PASSED ON 21.12.2006 BY THE ITA NO. 850(DEL)/2009 13 AO. SECONDLY, WHILE THE FIRST PART OF THE SU BMISSIONS WAS FACTUAL IN NATURE THAT THE SECOND NOTICE HAS BEEN ISSUED, THE SECOND PART, IF ACTED UPON, WOULD RENDER THE AMENDMENTS OTIOSE, WHICH CANNOT BE DONE BY WAY OF INTERPRETATION OF THE LAW. THE HONBLE HI GH COURT DID NOT GIVE A FINDING THAT THE AMENDMENTS WILL NOT BE CONSIDERED BY THE CIT BUT MERELY GRANTED THE ASSESSEE LIBERTY TO PROCEED WITH T HE SHOW CAUSE NOTICE DATED 12.1.2007, BEING THE SECOND NOTICE. THIS NOTICE ALSO MAKES A SPECIFIC REFERENCE TO THE ORDER PASSED BY THE A O U/S 143(3) READ WITH SECTION 254, UNDER WHICH HE WAS OBLIGED TO CON SIDER THE AMENDMENTS. AND FINALLY, IN ABSENCE OF ANY SPECIFIC DIRECTIO NS BY THE HONBLE COURT AGAINST CONSIDERATION OF 2005 AMENDMENTS, THE SA ME WILL HAVE TO BE CONSIDERED FOR PROPER APPRECIATION OF THE ORDER PASSED BY THE AO AS TO WHETHER IT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE OR NOT. WE HAVE ALREADY HELD THAT SINCE THE AO DID N OT CONSIDER THE AMENDMENTS AT ALL IN SPITE OF SPECIFIC DIREC TION OF THE TRIBUNAL, THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE. THEREFORE, WE ARE OF THE VIEW THAT 2005 AMENDME NTS WILL HAVE TO BE CONSIDERED TO ARRIVE AT THE CORRECT AMOUNT OF DEDUCTION U/S 80HHC. ITA NO. 850(DEL)/2009 14 5. THE THIRD PLANK OF THE ARGUMENTS OF THE LD. COUNSEL WAS THAT THE LD. CIT TRAVERSED BEYOND THE SHOW CAUSE NOTICE WHI LE PASSING THE ORDER AND, THUS, THE ORDER WAS BAD IN LAW. IN THIS CONNECTION, RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. CONTIMETERS ELECTRICALS (P) LTD. IN ITA NO. 1366/2008, REPORTED AT (2009) 22 DTR (DEL) 158. THE HONBLE COURT M ENTIONED THAT THE TRIBUNAL CONSIDERED THE RIVAL CONTENTIONS AND REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF COMMISSIONER OF CUSTOMS VS. TOYO ENGINEERING INDIA LTD. (2006) 7 STC 592, WHER EIN IT WAS HELD THAT THE DEPARTMENT CANNOT TRAVEL BEYOND THE SHOW CAUSE NOTICE. IT WAS MENTIONED THAT THE TRIBUNAL WAS OF THE VIEW TH AT THE GROUND THAT THE ASSESSEE HAD NOT FULFILLED THE CONDITIONS LAID DOWN U/S 80IA DID NOT FORM PART OF THE SHOW CAUSE NOTICE. THE TRIBUNAL ACCE PTED THE ARGUMENT OF THE ASSESSEE THAT THE CIT DID NOT EVEN CALL FOR A NY EXPLANATION ON THIS ISSUE AND, THEREFORE, THE ASSESSEE DID NOT HAVE ANY OPPORTUNITY TO MEET THIS GROUND. THE TRIBUNAL WAS OF THE VIEW THAT IT WOUL D BE AGAINST THE PRINCIPLES OF NATURAL JUSTICE THAT A PERSON WHO HAS NOT BEEN CONFRONTED WITH ANY GROUNDS TO BE SADDLED WITH THE LIABILI TY THEREOF. CONSEQUENTLY, THE TRIBUNAL UPHELD THAT AS THE SAID ISSUE DID NOT FORM PART OF THE SHOW CAUSE NOTICE AND THE ASSESSEE WAS NOT EVEN CONFRONTED WITH EVEN ITA NO. 850(DEL)/2009 15 BEFORE THE CIT, IT CANNOT FORM THE BASIS FO R REVISION OF THE ASSESSMENT ORDER U/S 263. THIS FINDING WAS UPH ELD BY THE HONBLE COURT. 5.1 IN REPLY, THE LD. DR REFERRED TO THE FI RST SHOW CAUSE NOTICE, IN WHICH A REFERENCE WAS MADE TO THE THIRD PROVIS O TO SUB-SECTION (3) OF SECTION 80HHC AND MENTIONED THAT THE CONDITION S STATED THEREIN WERE NOT SATISFIED, LEADING TO UNDER-ASSESSMENT OF IN COME OF RS. 2,02,25,530/-. THEREAFTER, HE REFERRED TO THE SECOND SHOW CAUSE NOTICE, WHICH FURNISHES THE WORKING OF TRADING LOSS IN EXPO RT SALES AT RS. 1,13,00,764/- AND MENTIONS THAT EVEN IF IT IS ASSUMED THA T 2005 AMENDMENTS ARE NOT APPLICABLE, THE DEDUCTION OF RS. 2,02,25, 530/- WAS WRONGLY GRANTED, LEADING TO UNDER-ASSESSMENT OF INCOME TO THE EXTENT OF RS. 2,02,25,530/-. HE ALSO REFERRED TO THE REVISI ONARY ORDER, IN WHICH THE LOSS WAS COMPUTED AT THE SAME FIGURE OF RS. 1,1 3,00,764/- AND THE AO WAS DIRECTED NOT TO ALLOW THE DEDUCTION OF RS. 2,02,25,530/-. HIS CASE WAS THAT THE LD. CIT DID NOT TRAVERSE BEYOND THE SHOW CAUSE NOTICE AND THE ASSESSEE HAD BEEN FULLY HEARD IN RESPECT OF THE COMPUTATION OF THE DEDUCTION. ITA NO. 850(DEL)/2009 16 5.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. FROM THE PROCEEDINGS BEFORE THE HONB LE DELHI HIGH COURT IN THE WRIT PETITION, IT WILL BE CLEAR THAT THE LD. COUNSEL FOR REVENUE CLEARLY SUBMITTED THAT ONE MORE NOTICE HAS BEEN ISSUED ON 12.1.2007, THE PURPORT OF WHICH IS THAT THE REVENUE NO LONGER RELIES ON 2005 AMENDMENTS. WE HAVE ALREADY HELD THAT THE FIRST PART BEING FACTUAL HAS TO BE FOLLOWED IN AS MUCH THE PETITION W AS DISMISSED ON THE REPRESENTATION THAT SUCH A NOTICE DOES NOT EXIS T ON RECORD NOW. AT THE SAME TIME, THE INTENT OF THE AFORESAID REPRES ENTATION COULD NOT BE THAT AMENDMENTS WILL NOT BE CONSIDERED ESPECIALLY I N VIEW OF THE FACT THAT ASSESSMENT WAS MADE IN PURSUANCE OF THE ORDER O F THE TRIBUNAL WHICH DIRECTED THAT THE DEDUCTION MAY BE COMPUTED A FTER TAKING INTO ACCOUNT THE AMENDMENTS. THEREFORE, THE FIRST NOTICE C ANNOT BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF FINDING OUT THE ISSUES WITH WHICH THE ASSESSEE WAS CONFRONTED. HOWEVER, THE SECOND NOTICE, WH ICH WAS ALLOWED TO BE PURSUED BY THE ASSESSEE, CONTAINED THE COMPUT ATION OF LOSS, THE PROVISION CONTAINED IN THE THIRD PROVISO AND THE TENTATIVE CONCLUSION THAT DEDUCTION AT RS. 2,02,25,530/- WAS WRONGLY ALLO WED. THESE VERY ISSUES WERE DEALT WITH IN THE REVISIONARY ORDER FROM T HE POINT OF VIEW OF PRE- AMENDMENT AND POST-AMENDMENT POSITION. THEREF ORE, WE DO NOT FIND ITA NO. 850(DEL)/2009 17 ANY REASON TO HOLD THAT THE LD. CIT TRAVERSED BEYOND THE ISSUES RAISED IN THE SECOND SHOW CAUSE NOTICE. 6. IT WAS ALSO THE ARGUMENT OF THE LD. COUNSEL T HAT THE WORD PROFIT HAS BEEN INTERPRETED BY THE SPECIAL BENCH OF MUMB AI TRIBUNAL IN THE CASE OF TOPMAN EXPORTS VS. INCOME-TAX OFFICER, (20 09) 318 ITR (AT) 87, IN WHICH IT WAS HELD THAT THE ENTIRE AMOUNT RE CEIVED ON SALE OF DEPB ENTITLEMENT DOES NOT CONSTITUTE THE PROFIT. THE FACE VALUE OF THE DEPB SHALL BE DEDUCTED FROM THE SALE PROCEEDS BEFORE ARRIVING AT THE PROFIT. THE FACE VALUE OF THE DEPB IS CHARGEABLE TO TA X U/S 28(IIIB) AT THE TIME OF ACCRUAL OF INCOME WHEN APPLICATION IS FILE D WITH THE COMPETENT AUTHORITY. THE PROFIT, BEING EXCESS OF SALE PROC EEDS OVER THE FACE VALUE, IS LIABLE TO BE CONSIDERED U/S 28(IIID) AT TH E TIME OF ITS SALE. WE FIND THAT THE HONBLE KERALA HIGH COURT ALSO DEALT WITH THE ISSUE IN THE CASE OF CIT VS. GPN CASHEW EXPORTING CO. (2009) 184 TAXMAN 506, IN WHICH IT WAS HELD THAT SALE PROCEEDS OF REP L ICENSE WAS NOT EXPORT PROFIT. IT IS DEEMED BUSINESS INCOME U/S 28(IIIA), THUS, 90% OF THE SAME HAS TO BE EXCLUDED IN COMPUTATION OF BUSINE SS PROFIT WHILE COMPUTING RELIEF U/S 80HHC. HOWEVER, THE MAT TER WAS RESTORED TO THE FILE OF THE AO TO RE-WORK THE RELIEF AFTER CAL LING FOR PARTICULARS AND TO ITA NO. 850(DEL)/2009 18 DECIDE THE MATTER AFRESH IN THE LIGHT OF THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. K. RAVINDRANATHAN NAYAR, (2007) 295 ITR 228 AND FIRST AND FIFTH PROVISOS TO SECTION 80HHC(3). ON THE BASIS OF THE DECISION IN THE CASE OF TOPMAN EXPORTS (SUPR A), HIS CASE WAS THAT IN ANY CASE, THE COMPUTATION MADE BY THE LD. CIT WA S NOT IN ACCORDANCE WITH LAW. 6.1 IN REPLY, THE LD. DR SUBMITTED THAT TH E TRIBUNAL HAD RESTORED THE MATTER TO THE FILE OF THE AO WITH A DIRECTI ON TO COMPUTE THE DEDUCTION IN ACCORDANCE WITH 2005 AMENDMENTS. 6.2 WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IT HAS BEEN HELD EARLIER THAT AMEN DMENTS IN SECTION 80HHC IN THE YEAR 2005 CANNOT BE IGNORED IN VIEW OF T HE SPECIFIC DIRECTIONS OF THE TRIBUNAL, ON THE BASIS OF WHICH THE AO HAD PASSED THE ORDER. HE DID NOT FOLLOW THE DIRECTIONS OF THE TRIBUNAL BUT REPEATED THE ORDER PASSED U/S 154 OF THE ACT ON 11.8.2003. IT IS ALSO SEEN THAT WHILE THE AO WORKED OUT PROFITS OF BUSINESS FROM EXPORT OF TR ADING GOODS AT RS. 57,34,366/-, THE LD. CIT COMPUTED THE LOSS AT RS. 1,13,00,764/-. NO ARGUMENT WAS MADE BY EITHER SIDE IN RESPECT O F THE MERIT ON COMPUTATION OF THE PROFITS OF THE BUSINESS. HOW EVER, IT BECOMES CLEAR FROM THE DECISION IN THE CASE OF K.RAVINDR ANATHAN NAYAR (SUPRA), ITA NO. 850(DEL)/2009 19 TAKEN INTO ACCOUNT IN THE CASE OF GPN CASHEW E XPORTING CO. (SUPRA) THAT SUCH PROFITS WILL HAVE TO BE WORKED OUT BY DED UCTING 90% OF THE DEPB BENEFIT FROM THE PROFITS OF BUSINESS. THEREAFTER, DEPENDING UPON WHETHER THE RESULTANT FIGURE IS A PROFIT OR LOSS, THE PROVISION CONTAINED IN THIRD OR FIFTH PROVISO, AS THE CASE MAY BE, SHALL BE APPLICABLE. FURTHER, THE DECISION IN THE CASE OF TOPMAN EXPORTS (SUPRA), B EING BINDING IN NATURE ON US, SHALL BE TAKEN INTO ACCOUNT FOR INTERP RETING THE WORD PROFITS USED IN THE THIRD PROVISO. THE DEDUCTION U/S 80HHC SHALL BE COMPUTED ACCORDINGLY. THUS, WE MODIFY THE ORDER OF THE L D. CIT TO THE AFORESAID EXTENT AND RESTORE THE MATTER TO THE FILE OF THE AO FOR COMPUTATION OF THE DEDUCTION IN THE MANNER MENTIONED ABOVE AND AFTE R ALLOWING A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 7. IN THE RESULT, THE APPEAL IS TREATED AS PART LY ALLOWED. 8. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 5TH FEBRUARY, 2010. SD/- SD/- (GEORGE MATHAN) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 5TH FEBRUARY, 2010. SP SATIA ITA NO. 850(DEL)/2009 20 COPY OF THE ORDER FORWARDED TO:- 1. GOYAL IMPEX & INDUSTRIES LTD., NEW DELHI. 2. AO 3. CIT(A) 4. CIT-DELHI-IV, NEW DELHI. 5. DR, ITAT, NEW DELHI. ASSISTANT REGISTRA R.