THE COMMISSIONER OF INCOME TAX,PANAJI GOA. vs. M/S DAMODAR MANGALJI and CO.LTD.,PANAJI GOA.

This appeal under Section 260-A of the Income Tax Act, 1961 has been admitted by formulating the following 3 questions on 2 2.8.04 : (1)Whether on facts and in the circumstances of the case, the ITAT was justified in setting aside the order passed by the Commissioner u/s 263 of the IT Act, relying on the decision of Bombay High Court in the case of “Alfa Laval India Ltd. vs. DCIT” reported in “133 Tax man 740 = 266 ITR 418”, which is not applicable to the facts of the case ? (2)Whether on the facts and in the circumstances of the case the ITAT was legally correct in placing reliance on the decision of Bombay High Court in the case of “Alfa Laval India Ltd. vs. DCIT” reported in “133 Tax man 740 = 266 ITR 418”, which has held that “having accepted interest income as part of the business profits, the same could not be excluded from business profits, while calculating deduction u/s 80 HHC of the IT Act”, which is not the question involved in the present case ? (3)Whether the ITAT ought to have held that the order passed by the Assessing Officer allowing deductions u/s. 80 HHC (1) and (1A) of the IT Act, by not excluding certain receipts from the business profits under Explanation (baa) to section 80 HHC, is 3 prejudicial to the interest of Revenue and therefore the Commissioner was justified in revising the same u/s. 263 of the IT Act ?

The facts, in brief, are that the assessee a partnership firm engaged in business of manufacture and sale of processed ore, filed return for the assessment year 1993-94 and claimed deduction under Section 80 HHC of Rs.2,13,98,095. The Assessing Officer finalised the assessment under Section 143(3) of the Act on 30.11.1995. In this order, he has considered the truck lease income of Rs.18,58,810/-, machinery lease income of Rs.3,95,500/- and service charges of Rs.30,000/- as eligible for deduction. The matter was taken up by Commissioner of Income Tax (CIT), Panaji, Goa under Section 263(1) of the Act and after hearing the assessee, vide Order dated 26.2.1998 income under these three heads was treated as non-business receipts and, therefore, liable to be excluded while computing illegible business profits. This order was challenged in appeal before the Income Tax Appellate Tribunal (“ITAT” for short) by the asessee and the ITAT, Panaji Bench vide its Order dated 20.1.2004 allowed that appeal by placing reliance upon the Division Bench Judgment of Bombay High Court in Alfa Laval India Ltd. vs. Deputy Commissioner of Income-

We have heard Advocate Rivonkar for the Department and Advocate Srinivasan with Advocate Parag Wagle for the assessee.

After inviting attention to the relevant provisions of the Act, Advocate Rivonkar has argued that mechanical reliance by the ITAT upon judgment of Division Bench of Bombay High Court in Alfa Laval India Ltd. vs. Deputy Commissioner of Income-Tax (supra) is totally misconceived because in that case, the Assessing Officer himself treated the income in dispute as “business profits” and while computing eligible profits under Section 80 HHC excluded them. Advocate Rivonkar by inviting attention to the said judgment attempts to demonstrate that the Division Bench there was required to consider only this question of change in treatment to said income by the Assessing Officer himself and no other question fell for consideration. He points out that in the present matter the CIT has specifically recorded a finding that income under above mentioned 3 heads was 5 non-business receipts, i.e. non-operational income and, therefore, needed to be excluded while computing eligible profits. In this background, he states that the questions, as framed, need to be answered in favour of present appellant and the present appeal needs to be allowed and orders passed by CIT need to be restored.

Advocate Srinivasan, on the other hand, has relied upon Judgments of the Hon'ble Apex Court in R.J. Singh Ahullwalia vs. The Ahullwalia(supra) before the Hon'ble Apex Court, a point not raised Commissioner of Income Tax vs. Design & Automation Engineers (Bombay)(P) Ltd., reported at (2008) 13 DTR (Bom) 145 (para 6) to (IT Appeal Nos. 123 to 127/PNJ/2004) for the assessment years 1991- 92, 1992-93, 1993-94, 1994-95, and 1997-98 and held that truck

With the assistance of both learned Counsel, we have perused the order passed in revision, as well as order passed by the appellate authority and the judgments relied upon by them. Advocate Rivonkar during his reply has invited attention to the provisions of Section 260-A to state that the question of jurisdiction under Section 263 has not been framed in the present matter as substantial question of law and, therefore, in view of provisions of sub-section (4) thereof, the appellant cannot be heard on the said question. He further stated that if this Court finds that such a question is involved, the question needs to be formulated and opportunity needs to be given to the present appellant to assist this Court by arguing the said question on next date.

Ingredients of Section 263 are, therefore, satisfied in the matter and it cannot be said that recourse to Section 263 was misconceived. No substantial question of law, therefore, arises. As we are not framing any substantial question under Section 263, the other arguments advanced by respective Counsel need not be considered at this stage.

Mere perusal of the impugned order of the ITAT is 9 sufficient to show that ITAT, after mentioning the facts, has found that the Assessing Officer was justified in allowing the deduction only by relying upon the Division Bench Judgment of this Court placed before it. The nature of expenditure in dispute and their co-relation with the export business, if any, or otherwise has not been gone into. The specific finding of revisional authority that the same constituted non- Commissioner of Income-Tax (supra) shows that there were 3 questions involved and question no.3 is relevant for present matter. The said question as originally formulated was whether the interest from customers, sales tax set-off and other refunds formed part of business profit or not ? This question has been reformulated while actually dealing with it and actual question considered is, whether the Tribunal was justified in holding that interest from customers sale-tax set off do not form part of business profit for calculating deduction under Section 80HHC ? The discussion undertaken thereafter shows that for the assessment year 1989-90, the Assessing Officer treated the export incentives under caption “Other income” amounting to Rs.2,42,66,453/- as part of business profit and excluded balance amount

In view of the discussion above, we quash and set aside the 13 impugned order passed by ITAT and also the order passed under Section 263 by CIT on 26.2.1998 and restore the proceedings under Section 263 being LRP.263/10/97-98/CIT-PNJ and remand back the same to CIT for taking fresh decision in accordance with law. The present tax appeal is, accordingly, partly allowed. However, in the circumstances of the case, there shall be no order as to costs.