COMMISSIONER OF INCOME TAX vs. HARSHA ENGINEERS LTD.

Facts

The revenue is in appeal against the order dated 21.07.2006 passed by the Income Tax Appellate Tribunal (Tribunal). The Tribunal had set aside the issue and remanded it to the Assessing Officer (AO) for assessment year 2002-03. The original assessment under Section 143(3) determined the assessee's total income at Rs. 3,70,62,331/-. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who partly allowed the appeal. The revenue then appealed to the Tribunal. The High Court admitted the appeal on a substantial question of law concerning the disallowance of deduction under Section 80HHC on foreign exchange received due to rate differences.

Held

The High Court agreed with the Tribunal's reasoning and findings. The Tribunal had observed that it was unclear from the CIT(A)'s order or the record whether the foreign exchange difference, arising from exchange rate fluctuations, was received by the assessee within the stipulated six-month period. The Tribunal rightly concluded that this factual aspect required verification by the AO. Consequently, the matter was restored to the AO for decision in accordance with law and the decision of the High Court in CIT vs. Amba Impex. The High Court answered the substantial question of law against the revenue and in favour of the assessee, dismissing the appeal.

Key Issues

1. Whether the Appellate Tribunal is right in law and on facts in cancelling the order passed by the Commissioner of Income Tax u/s.263 of the Act whereby he had directed the Assessing Officer to disallow the assessee's claim of deduction u/s.80HHC of the Act on the foreign exchange received on account of foreign exchange rate difference, after verification? Assessee's contention: The assessee, through its counsel, supported the impugned order of the Tribunal, arguing that the Tribunal had rightly remitted the issue to the file of the AO and that the appeal lacked merits. Revenue's contention: The revenue argued that the Tribunal had not set aside the issue to the AO unconditionally and therefore, the matter ought to have been decided on merits based on the available material.