1. These appeals are preferred by the assessee against the order of the CIT under s. 263 for the asst. yrs. 1990-91 and 1991-92. The CIT on going through the case records for the asst. yrs. 1990-91 and 1991-92 found that the assessment orders passed by the AO were erroneous and prejudicial to the interest of Revenue on the following ground : "The deduction allowed under s. 80HHA and under s. 80-I are not according to the provisions of s. 80HHA(6) of the IT Act. The deduction under s. 80-I should have been allowed from the amount arrived after making the deduction under s. 80HHA from the gross total income. Thus the deduction under s. 80-I allowed at the time of regular assessment is in excess of Rs. 1,82,238 for asst. yr.
1990-91 and Rs. 3,30,692 for the asst. yr. 1991-92." The assessee objected to the action proposed in the written submissions made before the CIT. The CIT was however, not satisfied with the submissions made and held the view that according to the provisions of s. 80HHA(6) if the assessee is also entitled to deduction under s. 80-I or 80J the effect shall first be given to the provisions of this section. Accordingly, deduction under s. 80-I should have been allowed after deducting the amount of relief admissible under s. 80HHA. Failure to do so resulted in excess allowance of relief under s. 80-I of Rs. 1,82,238 for asst. yr. 1990-91 and of Rs. 3,30,692 for asst. yr.
1991-92. The orders of the AO were thus found to be erroneous and prejudicial to the interest of Revenue for both the years and he directed the AO to withdraw the excess deduction allowed under s. 80-I.The AO was also directed to charge additional tax leviable under s.
143(1A) for both the years.
2. As the issue involved was common for both the years the appeals were heard together and the same are decided by this consolidated order for the sake of convenience.
3. The learned counsel for the assessee has made a submission that the assessee-company was doing the business of polishing the diamonds on job work basis and also exporting polished diamonds. The accounting year of the assessee ended on 31st March. The facts for the asst. yr.
1990-91 are that the assessee filed a return declaring total income at Rs. 11,53,110 wherein the deduction was claimed both under s. 80HHA and 80-I. The AO processed the returns under s. 143(1)(a). Subsequently the assessments were made under s. 143(3) determining the total income at Rs. 24,26,950 wherein the deductions claimed under s. 80HHA and 80-I were allowed. The profit on appeal effect before allowance of such deductions was determined at Rs. 36,44,774 and thereon the assessee was allowed deduction under s. 80HHA at Rs. 7,28,954 and under s. 80-I at Rs. 9,11,193.
3.1 For the asst. yr. 1991-92 the income was declared at Rs. 17,67,410 wherein the deduction under ss. 80HHA and 80-I was claimed. The return filed was processed under s. 143(1)(a). Subsequently assessment under s. 143(3) was made determining the total income at Rs. 30,90,180. On appeal effect and before allowing such deduction the income stood determined at Rs. 66,13,845 and the AO thereon allowed deduction under s. 80HHA at Rs. 13,22,769 and under s. 80-I at Rs. 16,53,861. The AO thus allowed deductions both under ss. 80HHA and 80-I based on gross income determining before deduction under Chapter VI-A.3.2 It has been argued that the CIT has withdrawn part of deduction allowed under s. 80-I on the basis of the provisions of s. 80HHA(6).
Sec. 80HHA(6) does not lay down that the deduction under s. 80-I is required to be computed on the amount arrived at after making deduction under s. 80HHA. It only lays down that when the assessee is entitled to both deductions the effect shall first be given to the provisions of s.
80HHA. This only indicates the procedure for making the computation of total income. It is helpful for only determining the amount to be carried forward. Sub-s. (6) of s. 80HHA also refers to s. 80J under which the deficiency of deduction can be carried forward. The learned counsel arguing further has referred to s. 80AB which provides that deduction under Chapter VI-A (under heading C) is allowable on the income included in the gross total income before making any deduction under this Chapter.
3.3 The learned counsel has further submitted that s. 80HHA provides for deduction equal to 20 per cent. of profits and gains from business of newly established industrial undertaking. Similarly s. 80-I provides for deduction at 25 per cent. of the profits and gains of such business in the case of company subject to satisfaction of prescribed conditions. On satisfaction of prescribed conditions deductions envisaged in both the sections have to be allowed and each deduction is independent of the other and would be liable to be computed independently with reference to the profits and gains of business. The learned counsel has, therefore, submitted that the deduction allowed both under ss. 80HHA and 80-I by the AO was fully in accord with the provisions of law and the assessment orders passed by him were neither erroneous nor prejudicial to the interest of Revenue. The action taken by the CIT under s. 263 is, therefore, neither valid nor justified. In support he has relied upon the decision of the Delhi Bench of the Tribunal in the case of Ramnath Export P. Ltd. vs. IAC (1992) (1992) 42 TTJ (Del) 441, wherein it was held that the deduction under s. 80-I is to be allowed without reducing from profits deduction allowed under ss.
80HH and 80HHC. He has also placed reliance on the decision of the Tribunal in the case of Digchem Industries vs. ITO (1987) 27 TTJ (Jp) 593, wherein also it was held that deduction under s. 80-I is allowable without deduction of relief under s. 80HH. The learned counsel has further drawn our attention to a letter dt. 13th January, 1995, of CIT, Surat, addressed to concerned officers in his charge conveying the decision of the Ministry contained in its letter F. No. 235/1469/94-A and PAC-1, dt. 23rd December, 1994, addressed to the Director (RA) New Delhi, and copy endorsed to CIT, Surat, about and if objection on the issue involved which is reproduced hereunder : "The audit objection in the above case (Himson Textile Industries Ltd.) has not been accepted by the Ministry on the ground that provisions of ss. 80HH and 80-I are independent provisions referable to gross total income. The Act nowhere provides that the deduction under s. 80HH is to be deducted from gross total income for the purpose of working out deduction admissible under s. 80-I. Wherever such a course is to be adopted, the Act has made a specific mention of it, i.e., s. 80-I(1) and s. 80P(1)." The learned counsel has, therefore, pleaded that looking to the plain language of the section instructions of the Govt. and the Tribunal decisions cited supra the assessee was entitled to deduction under s.
80-I independently before deduction allowed under s. 80HHA and accordingly the order passed under s. 263 in this behalf is invalid and the same deserves to be cancelled.
4. He has also submitted that direction given by the CIT to the AO to charge additional tax under s. 143(1A) was also not valid inasmuch as the CIT sought to revise the orders passed by the AO under s. 143(3) for both the years as could be seen from the wording of the show-cause notice given. Even otherwise what could be revised under s. 263 is the order and not an intimation under s. 143(1)(a). It is only for the purpose of ss. 246 and 264 that an intimation sent is deemed to be an order as per provisions of Expln. to s. 143. Moreover, prima facie adjustment could be made under s. 143(1)(a) only on the basis of the information available in the return and that too on the point which is not debatable. The computation of deduction under s. 80-I sought to be made is highly debatable and accordingly no adjustment on this account could be made and as such the question of charge of additional tax under s. 143(1A) did not arise.
5. The learned Departmental Representative made detailed submissions and also advanced arguments in support of the order of the CIT passed under s. 263 of the IT Act. He however, did not dispute the facts as given above.
6. We have considered the facts and rival submissions. We have also gone through the orders of the lower authorities. We find that the assessee filed the returns for both the years claiming deduction under ss. 80HHA and 80-I working out the same independently at given percentage of the gross total income computed. The AO processed the returns so filed under s. 143(1)(a) without making any adjustment in the income declared on account of claim made under s. 80-I.Subsequently the AO took up the cases for detailed scrutiny and completed the assessments for both the years under s. 143(3) wherein the claim made under ss. 80HHA and 80-I was accepted.
7. To appreciate the controversy involved in proper perspective we reproduce hereunder ss. 80HHA(1) and also 80-I : "80HHA(1). Where the gross total income of an assessee includes any profits and gains derived from a small scale industrial undertaking to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof.
80-I(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel or the business of repairs to ocean-going vessels or other powered craft to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent. thereof : Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect in relation to profits and gains derived from an industrial undertaking or a ship or the business of a hotel as if for the words 'twenty per cent.', the words 'twenty-five per cent.' had been substituted." The reading of the sections would make it clear that the deduction is required to be computed at the given percentage of gross total income of the industrial undertaking. Further 'gross total income' has been defined in s. 80B to mean the total income computed in accordance with the provisions of this Act before making any deduction under this Chapter, i.e., Chapter VI-A. We also note that in the case of Himson Textile Industries Ltd. the revenue audit raised objection of the nature similar to that of the present case and the Ministry of Finance in its letter dt. 23rd December, 1994, did not accept the objection raised on the ground that provisions of ss. 80HH and 80-I are independent provisions referable to gross total income and the IT Act nowhere provides that the deduction under s. 80HH is to be deducted from gross total income for the purpose of working out deduction admissible under s. 80-I. The Ministry also made it clear that wherever such a course is adopted the Act has made a specific mention of it such as s. 80J(1) and s. 80P(1). The Tribunal in the case of Digchem Industries & Ramnath Export (P) Ltd. cited supra has held a similar view while allowing deduction under s. 80-I. In this view of the matter and relying upon the Tribunal decision cited supra we hold that the claim made and allowed by the AO under s. 80-I for both the years involved was in accordance with the provisions of the law and the AO's orders on this count were neither erroneous nor prejudicial to the interest of Revenue. The action, therefore, taken by the CIT under s.
263 is not held valid.
8. The CIT had also given direction in the order made under s. 263 for charge of additional tax under s. 143(1A) on account of reduction in claim under s. 80-I. We note that the CIT in the show-cause notice issued made no mention about the charge of additional tax on account of proposed reduction in claim under s. 80-I and it was for this reason that the assessee also made no submission in this behalf before the CIT. The direction for charge of additional tax has thus been given without affording any opportunity of being heard to the assessee. It is well established law that one should be condemned only after affording hearing opportunity. In the present case there being no opportunity given, the direction given for charge of additional tax is against the principles of natural justice and is vitiated. Moreover, the proceedings were initiated by the CIT under s. 263 against the orders passed under s. 143(3) for both the years. As is obvious no additional tax could be charged under s. 143(1A) while completing assessment under s. 143(3). The additional tax could be charged under s. 143(1A) only while making adjustment under s. 143(1)(a). Since the proceedings initiated under s. 263 were not directed against the processing made under s. 143(1)(a) but the same was against orders passed under s.
143(3) no such directions could be given validly for charge of additional tax under s. 143(1A).
9. It is, therefore, evident that the orders passed by the CIT under s.
263 is not valid on both counts and we accordingly cancel the same.