Judgment:
1. These appeals by the assessee arise out of two separate orders dated 30-3-1998 and 30-9-1999 of the Commissioner passed by him under Section 263 of the Act, for the assessment years 1993-94 and 1994-95 respectively.
2. On examination of the assessment records, the learned Commissioner found that the assessee claimed deduction under Section 80-O on the following amounts of commission received in foreign convertible exchange on services stated to be rendered outside India.------------------------------------------------------------------------------S. No. Name of the party Commission in Commission in A. Y. 1993-94 A. Y. 1994-95------------------------------------------------------------------------------ Rs. Rs.1. Target Australia PTY 41,23,360 48,06,855 Ltd.2. Cardex Services India 73,87,871 60,04,729 Ltd.5. Foreign Exchange 14,11,153 - difference6. L.M. Buying Ltd. - 31,250------------------------------------------------------------------------------ 3. The learned Commissioner was of the view that since no services outside India is rendered and no payment was received by the assessee for supply of any information etc., the Assessing Officer in his order dated 20-12-1995, under Section 143(3) of the Act, for the assessment year 1993-94 and order dated 24-5-1996, under Section 143(3), for the assessment year 1994-95, wrongly allowed deduction under Section 80-O of the Act. The learned Commissioner further found that in assessment for the assessment year 1993-94, the Assessing Officer treated an amount of import licence of Rs. 28,26,450 as part of export of goods.
He was of the view that the same cannot be premium on sale of import licence receipt against export of goods of Rs. 18,30,37,421 during the year. The deduction under Section 80HHC allowed at 90% of premium amount i.e., Rs. 25,43,805 is, therefore, inadmissible as being not obtained from exports. In the assessment year 1994-95, the learned-Commissioner further found that the assessee claimed excess deduction under Section 80HHC of the Act by artificially reducing the value of total turnover, which was wrongly allowed by the Assessing Officer in assessment.
4. Considering the assessments of both the years as erroneous and prejudicial to the interest of the Revenue, the learned Commissioner issued notice under Section 263 of the Act calling upon the assessee to show cause, why the assessment be not set aside with a direction to make assessment afresh on the issues aforesaid.
5. In response thereto, regarding deduction under Section 80-O, the assessee contended that it had rightly been allowed for the reasons stated by the assessee, which have been incorporated, by the learned Commissioner in Para 9 of his order under Section 263, dated 30-3-1998, for the assessment year 1993-94. The gist of the reasons entitling the assessee for deduction under Section 80-O are that the partner and the employees possessed requisite qualification, experience and skill to render technical, commercial and managerial services to the foreign principals abroad; that the firm had its offices at Bombay, Delhi, Madras, Bangalore and Tirupur; employed more than 200 professionally qualified employees; had full fledged technical laboratory and equipments at all its offices; that the nature of services rendered to the foreign principals have been given in the respective agreements as amended from time to time; that services have been rendered outside India and from India for being used outside India by : (b) Despatch from lime to time of information and knowledge by fax, telephones, correspondences submission of reports on various subjects at quality materials, design, packing, lab-testing shipping and other matters and General Trade Tariff Policy (GAIT), Import and Export Policy of India and general economic scenario with a particular reference to cotton textiles and ready-made garments market, study on international and money market with particular reference to foreign currency dealings to enable the customer companies to make their future plans.
6. It was also contended that the assessee satisfied requisite conditions of Section 80-O of the Act and that in terms of Explanation (Hi) to Section 80-O, the assessee is eligible for deduction in respect of services rendered from India for being used outside India. It was thus urged that deduction under Section 80-O had correctly been allowed.
7. In its reply on the point of deduction under Section 80-O of the Act in assessment year 1994-95, the assessee contended that the claim of allowability of deduction under Section 80-O has been considered by the learned Commissioner of Income-tax (Appeals) in his appellate order, dated 22-10-1996, and accordingly following the principle of merger, the provision of Section 263 cannot be invoked.
7.1 With a view to explain the nature of business and 'he activities carried on by the assessee-firm, a 'Note' was submitted to the learned Commissioner, whose attention was invited to the qualification, experience and skill possessed by the firm, for rendering the services as mentioned in the respective agreements with the parties. It was also explained that the firm is engaged in the business of exports and rendering buying services to certain foreign firms and companies. The assessee is also equipped with requisite infrastructure to render the aforesaid services. It was also explained that the agreements in respect of the services rendered to the overseas firms and companies had been submitted to the Assessing Officer which are on his record. It was also stated that various papers and documents containing information in relation to the technical, commercial and managerial information provided to the foreign parties had been produced before the Assessing Officer during the assessment proceedings. On being satisfied about the services rendered by the assessee to foreign companies and firms that the Assessing Officer had allowed deduction under Section 80-O. It was also submitted that the agreements between the assessee-firm and the foreign companies and firms satisfied the guidelines as contained in Board Circular No. 137, dated 23-12-1975. It was emphasised that the agreements with foreign companies were bona fide, genuine and non-collusive arrangements these were specific and not general; these provided for specific services for rendering information concerning industrial and commercial knowledge or skill. It was also pointed out that the technical, commercial and managerial services rendered by the assessee were of a specialised nature in the fields of textile technology, quality control, merchandising or other commercial nature. Attention of the learned Commissioner was also drawn to Circular No. 700, dated 23-3-1995, wherein it has been clarified that for the services rendered from India received by the foreign enterprises outside India, deduction under Section 80-O would be available even if the foreign recipients of the services utilised the benefits of the said services in India. Further, Sub-clause (iii) of the Explanation to Section 80-O recognises that services could be rendered from India for being used outside India. It was reiterated that the assessee had rendered services abroad or from India for being used outside India as enumerated in the respective agreements with the foreign parties. From the agreements it was demonstrated that major portion of the services had been rendered by the assessee-firm outside India. It was also pointed out that even if certain services were rendered from India, the benefit of which in the form of information, knowledge, etc. have been used by the foreign principals outside India.
It was, therefore, contended that though the assessee was eligible for deduction under Section 80-O at the. rate of 100% in respect of fees received from principals, it had claimed only 2/3rd of the same as deduction under Section 80-O, with a view to avoid litigation.
7.2 Regarding deduction under Section 80HHC in the assessment year 1993-94, it was contended that the assessee had rightly claimed deduction for the reasons that Section 28(iiia) specifically include profit on Sale of import licences granted against export earnings; that the import licences/ Exim Scrips have been received by the assessee in its own name issued by the Director General of Foreign Trade; that the said import Licences/ Exim Scrips have been surrendered in accordance with the Scheme announced by the Reserve Bank of India to State Bank of India and the payments have been received from Stale Bank of India; that the firm has not bought any import licence or exim scrips from any other party for dealing therein. Lastly, what is excluded for grant of deduction under Section 80HHC read with proviso thereto is only profit on sale of licences acquired from any other person, meaning thereby that when a person acquires licences for the purpose of trading, the profit therefrom has to be excluded for the said purpose. However, in the assessee's case there is no such profit earned by it, which has been claimed for deduction under Section 80HHC(3) of the Act.
7.3 Regarding deduction under Section 80HHC in the assessment year 1994-95, it was submitted that while granting the deduction the Assessing Officer reduced the amount of Rs. 75,432 being loss incurred in respect of exports effected by the assessee. According to the assessee, the Assessing Officer allowed deduction under Section 80HHC based on the decision accepted by the Department in the assessee's own case in the earlier year on same facts and the circumstances.
Therefore, his order cannot be said to be erroneous and prejudicial to the interest of the Revenue.
8. The learned Commissioner considered the aforesaid submissions of the assessee. On the issue of deduction under Section 80-O his observations in both the years are almost identical. According to him, the agreement between the assessee and the foreign parties was for assisting these foreign parties in making purchases from Indian and Nepalese market.
He, further, observed that in the related activities, the assessee was required to take care of the overseas principal's requirements for identifying vendors, ensuring quality and quantity requirement for goods and their timely shipment etc. These activities were entirely inside the country, except periodical communication with the principals and foreign travel. He also negatived the assessee's claim that major portion of the services had been rendered by the assessee outside India. As regards the assessee's plea that even if certain services were rendered by the assessee from India, the benefit of which in the form of information, knowledge, etc., have been used by the foreign principals outside India, the learned Commissioner observed that such skill and knowledge are general in nature and commonly available in the market. He went on to observe further in his order for the assessment year 1994-95 that foreign principals came to India to negotiate with supplier of material and that arranging of L.C. and other services related to banking for payment of artisans and manufacturer in India cannot be skill covered under Section 80-O. In his opinion, the claim of commission is based on and in lieu of services in arranging, supervising, procurement of goods to overseas buyer. He also rejected the assessee's claim of applicability of Circular No. 700, dated 23-3-1995, to the case of the assessee. On the issue of stand of merger taken by the assessee in the assessment year 1994-95, the learned Commissioner observed that the issue before the learned Commissioner (Appeals) was whether the deduction should be granted at the rate of 50% on gross amount received from foreign enterprises. According to the learned Commissioner, there was neither any issue regarding allowability of claim under Section 80-O before the learned Commissioner (Appeals) nor did he adjudicate upon it. Therefore, the Assessing Officer's order is not merged with the order of the learned Commissioner (Appeals) so far as allowability of deduction under Section 80-O is concerned. For these reasons the learned Commissioner held that the order of the Assessing Officer about the deduction under Section 80-O in both the years is erroneous and prejudicial to the interest of the Revenue. Accordingly, the assessment on the issue of deduction under Section 80-O was cancelled in both the years to be finalised de novo as per law.
8.1 As regards deduction granted under Section 80HHC of the Act at the rate of 90% of premium amount i.e., Rs. 25,43,805 in the assessment year 1993-94, the learned Commissioner reiterated his stand as taken in notice under Section 263 in this regard. In the assessment year 1994-95, the learned Commissioner observed that the assessee has firstly taken export incentive of Rs. 12,30,707 as part of export and secondly it has not taken export expenses on proportionate basis in absence of a specific record to determine the actual cost and expenses to carry out the export activity. These factors give rise to excessive deduction under Section 80HHC of the Act. According to him, the issue relating to the correctness of deduction under Section 80HHC has not been decided by the learned Commissioner (Appeals) and, hence, the principle of merger is inapplicable. With the observations aforesaid, he considered the assessment on the point of deduction under Section 80HHC of both the years as erroneous and prejudicial to the interest of the Revenue. Accordingly, he cancelled the assessment order on the point in both the years with a direction to finalise the assessment afresh as per law.
10. Shri Y.P. Trivedi, the learned counsel for the assessee submitted that the Assessing Officer had passed the assessment orders in question as per the provisions of law and, therefore, the learned Commissioner was not justified in exercising his revisionary jurisdiction under Section 263. He invited our attention to the assessment order, dated 20-3-1995, for the assessment year 1992-93, appearing at pages 82-86 of the paper book-II, wherein the Assessing Officer noted that the assessee had rendered services to foreign parties as per contract and summarised the nature of services rendered. The Assessing Officer also took note of the Chart produced before him containing the organisational structure of the assessee-firm indicating a well differentiated professional organisation having a base in most commercially important Indian Cities and Towns. He also took notice of the fact that the assessee produced documents evidencing their thorough research in the field of garments and accessories of textiles and leather and raw-material in these lines of business. He also scrutinized the project reports and correspondence between the assessee and its foreign parties and gave a finding that the assessee-firm had rendered substantial technical services from India. He also recorded a finding that part of the activities of the assessee can however be described as services rendered in India. The Assessing Officer also noticed the kind of services rendered by the assessee to Mondial India Ltd., and Target Australia PTY. Ltd., and finally reached the conclusion on consideration of facts and the nature of services rendered by the assessee that 66.67% of commission received from Mondial India Ltd., Cardex Services India Ltd., and Target Australia PTY Ltd. and 100% from Indcxco Overseas UAE is eligible for deduction under Section 80-O. He, however, rejected the assessee's claim of deduction under Section 80-O on gross receipts. Shri Y.P. Trivedi submitted that on merits the claim of the assessee for deduction under Section 80-O attained finality as his order for the assessment year 1992-93 has not been disturbed. In the impugned assessment order for the assessment years 1993-94 and 1994-95, the Assessing Officer followed his order aforesaid for the assessment year 1992-93. Shri Trivedi further submitted that in appeal for the assessment year 1993-94, the assessee had challenged the Assessing Officer's findings on admissibility of deduction under Section 80-O on the basis of net receipts which claim was rejected. The learned Commissioner (Appeals), however, held that the issue was covered against the assessee by the order of the learned Commissioner (Appeals), for the assessment year 1992-93, dated 29-9-1995, and, therefore, following the same he rejected the assessee's claim of deduction on the basis of gross receipts. The learned Commissioner (Appeals) passed his order for the assessment year 1993-94 on 9-4-1996 and on similar issue raised in appeal for the assessment year 1994-95, the learned Commissioner (Appeals) in his appellate order dated 22-10-1996 held that the deduction under Section 80-O is admissible on net amount and not on gross. Shri Trivedi therefore submitted that the assessment order of the Assessing Officer on the issue of deduction under Section 80-O in both the years merged with the aforesaid appellate orders of the learned Commissioner (Appeals) and, therefore, the impugned assessment order could not be revised by the learned Commissioner in exercise of his powers under Section 263 by the virtue of doctrine of merger. In support of this contention, he placed reliance on the following decisions : 2. Siemens Ltd. v. Dy. CIT [IT Appeal No. 4392/Bom. of 1992, dated 21-6-1999 for assessment year 1987-88]Dy. CIT v. Mittal Corporation 10.1 Shri Trivedi further submitted that the Assessing Officer in his assessment, for the assessment year 1993-94 had correctly taken the amount of import licence of Rs. 28,26,450 as part of export of goods and that he had rightly granted deduction under Section 80HHC of the Act at 90% thereof. According to him, the assessee is following the cash system of accounting in respect of incentive received from the Government which is permissible, as held in ITO v. Bajaj Auto Ltd. [1984] 8 ITD 296 (Bom.) at page 298. In this connection, he invited our attention to para 5.2 of the assessee's submission, dated 26-3-1998, before the learned Commissioner in proceeding relating to the assessment year 1993-94. Profit on sale of import licence has been accounted for as income. Details of import licence received was also filed (copy at page 13 of the Paper Book-II) which has been duly certified in Audit Report in Form No. 10CCAC, appearing at pages 92-93 of the Paper Book-II. Regarding deduction under Section 80HHC in the assessment year 1994-95, Shri Trivedi submitted that as per calculation under Section 80HHC(3) there was loss of Rs. 75,342 in the assessment order, for the assessment year 1994-95, following the direction of the learned Commissioner (Appeals) in the appellate order for the assessment year 1992-93 the Assessing Officer observed that loss from the exports of trading goods amounting to Rs. 75,342 is set off against the deduction of Rs, 11,07,636 claimed by the assessee and deduction of Rs. 10,32,294 is granted under Section 80HHC. He, therefore, submitted that there is no error in the order of the Assessing Officer, as he had followed the directions of the learned Commissioner (Appeals) contained in the appellate order for the assessment year 1992-93 which has become final, as the Revenue did not contest the findings of the learned Commissioner (Appeals) in that year. The learned Commissioner could not, therefore, exercise his revisionary powers under Section 263 of the Act on this issue.
10.2 Shri Trivedi further submitted that the learned Commissioner has exercised his powers under Section 263 on the basis of Audit objection.
He argued that the learned Commissioner has to apply his own mind and cannot proceed to invoke, the provisions of Section 263 on the basis of Audit Objection. In support of the above proposition, reliance was placed on the following decisions : 11. Shri J.L. Girdhar, the learned Departmental Representative, on the other hand, supported the order of the learned Commissioner. He submitted that the learned Commissioner in his order has given finding that the orders of the learned Commissioner (Appeals) have not merged with the assessment orders of the Assessing Officer on the issues taken by the learned Commissioner for exercising his revisionary jurisdiction under Section 263 of the Act. He argued that the issue of admissibility or otherwise of the assessee's claim of deduction under Section 80-O was not the subject matter of consideration by the learned Commissioner (Appeals). Elaborating his point further, he submitted that for instance in the assessment year 1993-94 the issue before the learned Commissioner (Appeals) was whether deduction under Section 80-O was allowable on gross or net receipts, likewise on the issue of deduction under Section 80HHC, the only question before the learned Commissioner (Appeals) was whether loss, if any, under Clauses (a), (b), (c) of Sub-section (3) of Section 80HHC has to be ignored or not. He vehemently argued that the learned Commissioner is of the view that no services have been rendered, so as to enable the assessee to claim deduction under Section 80-O. He further submitted that much stress has been laid on finality of the findings on this issue in the assessment year 1992-93, but that itself will not take away the revisionary powers of the learned Commissioner for the assessment years 1993-94 and 1994-95. There may be reasons for not taking action under Section 147 in respect of the assessment year 1992-93 as it could be interpreted as involving change of opinion. He, therefore, submitted that the learned Commissioner was justified in setting aside the assessments on the aforesaid issues for consideration afresh by the Assessing Officer.
12. In his counter arguments, Shri Trivedi submitted that before the learned Commissioner as well all the requisite evidence regarding rendering of services along with copies of agreements with foreign parties had been submitted. These have been ignored on considerations which are not relevant for the purpose of deciding the issue of admissibility or otherwise of the assessee's claim of deduction under Section 80-O of the Act. Placing reliance on the decision of the Hon'ble High Court of Bombay in the case of CIT v. Gabnel India Ltd. [1993] 203 ITR 108', Shri Trivedi submitted that resort to Section 263 cannot be had because this section did not visualise a case of substitution of the judgment of the learned Commissioner for that of the Assessing Officer.
13. We have considered the arguments advanced by the learned Representatives of the parties. The learned Commissioner has exercised his revisionary powers under Section 263 of the Act on the issue of the assessee's claim of deduction under Sections 80-O and 80HHC in both the years. The first question for consideration which arises in these appeals is whether the order of the Assessing Officer on the issue of deduction under Sections 80-O and 80HHC in both the years is erroneous in so far as it is prejudicial to the interest of the Revenue.
Admittedly, the assessee had gone in appeal against both the assessment orders and the appellate order was passed by the learned Commissioner (Appeals) in both the years, much prior to the date on which the learned Commissioner passed his revisionary orders for both the years.
The second question which arises for our consideration is whether the doctrine of merger so as to debar the learned Commissioner from exercising his powers under Section 263 is applicable to the case of the assessee.
14. Let us address ourselves to the first question. The assessee claimed deduction under Section 80-O in both the years. The assessee filed its return for the assessment year 1993-94 on 31-10-1993, declaring income of Rs. 92,31,310 claiming deduction therein. After initial processing of the return under Section 143(1)(a) on 29-7-1994, the case was taken up for scrutiny. In the opening paragraph of the assessment order dated 20-12-1995, the Assessing Officer has stated that in response to notice under Section 143(2) Shri S.L. Saraf, Accountant, of the assessee appeared from time to time and filed the required details and explanations. In para-2 thereof the Assessing Officer has stated that the firm continued the business of rendering technical services including commercial and managerial services to foreign companies/enterprises. It was further stated that the assessee has also made exports on its own account on a smaller scale. In para-3, the Assessing Officer staled the services rendered to four foreign parties mentioned therein for which the commission/fees have been received. The Assessing Officer further stated in this para that on a perusal of the details filed by the assessee, it is seen that the assessee has claimed deduction under Section 80-O on 66.67% of convertible foreign exchange repatriated from the three foreign parties and on 100% from Indcxco Overseas, UAE on the ground that these receipts are attributable to the -services rendered outside India and from India for use outside India. In para-4, the Assessing Officer stated that the assessee has claimed deduction at the rate of 50% of gross income by way of commission and fees received from foreign parties in convertible foreign exchange under Section 80-O. Relying on the decision reported in 40ITD 521, in Para-5 the Assessing Officer concluded thus : This issue has been discussed at length in the assessment order for assessment years 1992-93 in the assessee's own case. For the reasons discussed therein, 66.67% of commission received from M/s. Mondial India, Cardex Services and Target Australia PTY Ltd. and 100% from Indcxco Overseas is considered eligible for deduction under Section 80-O.With almost identical observations in assessment order for the assessment year 1994-95, the Assessing Officer in his order elated 24-5-1996 calculated deduction allowable under Section 80-O at Rs. 16,19,154. The assessment of both the assessment years was framed by Shri S.K. Dash, Deputy Commissioner of Income-lax, Special Rangc-9, Mumbai. It is pertinent to note that in both the assessment years, the Assessing Officer has observed that the issue of deduction under Section 80-O has been discussed at length in the assessment order for the assessment year 1992-93 in the assessee's own case. Let us sec what has been discussed on this issue in assessment order for the assessment year 1992-93. The same Assessing Officer had passed the assessment order dated 20-3-1995 for the assessment year 1992-93. On Pagc-2 of the assessment order, the Assessing Officer summarised the nature of services rendered by the assessee as per contract filed in the course of assessment proceedings as follows : (a) Study, analyse and carry research of the Indian Market and supply information to foreign buyers; (b) Identification of most reliable Indian supplier of foreign products; (c) Visit customer Co. (foreign parties) and other places as may be necessary and hold meetings, conferences and discussion and present papers, documents, records containing studies data analytical reports in relation to the suppliers, market possibilities and quota potentials in the territory.
On Page-3 of the order, the Assessing Officer stated that on going through the project reports and the correspondence between the assessee and his foreign parties, it is clear that the assessee-firm has rendered substantial technical services from India. A part of the activities of the assessee however can be described as services rendered in India. This kind of services are clearly outlined in the contract with Mondial India Ltd., and Target Australia PTY Ltd. considering these factors and the nature of services rendered, the Assessing Officer held that 66.67% of commission received from Mondial India, Cardex Services and Target Australia PTY Ltd., and 100% from Indcxco Overseas, UAE is considered eligible for deduction under Section 80-O. He further held that deduction under Section 80-O is allowable on net receipts.
15. Before we proceed further, we may notice the provisions of Section 80-O as it then stood and is relevant for the purpose of this appeal.
Section 80-O provides that where the gross total income of an assessee, being an Indian Company or a person (other than a company) who is resident in India includes any income by way of royalties, commission, fees or any similar payment from a foreign Government or a foreign enterprise in consideration for use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge experience or skill made available or provided or agreed to be made available or provided to such Government enterprise by the assessee or in consideration of technical or professional services rendered or agreed to be rendered outside India to such foreign Government or enterprise by the assessee, there shall be allowed a deduction of an amount equal to 50% of the income so received or brought into India, in convertible foreign exchange. For the purposes of the Section 80-O Clause (iii) of Explanation was inserted w.e.f. 1-4-1992 providing therein that "services rendered or agreed to be rendered outside India" shall include services rendered in India. If we peruse the assessment orders passed by the same Assessing Officer, Shri S.K. Dash, the then Deputy Commissioner of Income-lax, Special Rangc-9, Mumbai, for the assessment years 1992-93, 1993-94 and 1994-95, it would be obvious that on the issue of claim of deduction under Section 80-O of the Act he brought on record all requisite information/ details and after due application of his mind, he adjudicated the assessee's claim in the light of the provisions of Section 80-O. He recorded a specific finding that the assessee is engaged in the business of rendering technical services including commercial and managerial services to foreign companies/enterprises and in a summary manner described the nature of services rendered by the assessee. He also recorded a very significant finding that as part of the activities of the assessee can be described as services rendered in India which amply demonstrates consideration of the assessee's claim keeping in mind Clause (Hi) of Explanation referred to above. The Assessing Officer even interpreted the word "income" occurring towards the end of the main section and held that Section 80-O allows deduction on "income" i.e. receipts minus expenses and not gross receipts. On these facts can it be said that the impugned assessment orders on the point of deduction under Section 80-O are erroneous? Undoubtedly not. It is now well settled that erroneous assessment is an assessment that deviates from the law. Unless the assessment order is not in accordance with the law, the same cannot be branded as erroneous. In a recent judgment in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83' (SC), their Lordships observed that an incorrect assumption of the facts or incorrect application of law will satisfy the requirements of the order being erroneous. In the same category fall order passed without application of the principle of natural justice or without application of mind. In our opinion, perusal of the impugned assessment orders would go to establish that none of the aforesaid conditions are satisfied so as to give them an epitaph "erroneous" for the purposes of the Section 263. The learned Commissioner is apparently substituting his own judgment for that of the Assessing Officer, but Section 263 does not visualise such a situation unless the decision of the Assessing Officer falls within the ambit of the expression "erroneous" as envisaged under Section 263. Now let us sec if the impugned assessment orders are prejudicial to the interest of the Revenue on this issue. The, expression "prejudicial to the interest of the Revenue" has not been defined in the Act. In Malabar Industrial Co.
Ltd. 's case (supra), the Apex Court observed that understood in its ordinary meaning the above expression is of wide import and is not confined to loss of tax. The Scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Assessing Officer, the Revenue is loosing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the Revenue. The expression "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer.
Every loss of the Revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interest of the Revenue. For example, when an Assessing Officer adopted one of the course permissible in law and it has resulted in loss of the Revenue or where two views are possible and the Income-tax Officer has taken one view with which the learned Commissioner has not agreed, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. In the case at hand, on the same set of the facts the learned Commissioner has taken a view different from that of the Assessing Officer. As stated earlier, the view taken by the Assessing Officer appears to be in consonance with the law laid down under Section 80-O of the Act. It cannot, therefore, be said that the orders of the Assessing Officer on the issue of deduction under Section 80-O in both the years are erroneous inasmuch as these are prejudicial to the interest of the Revenue.
16. On the issue of claim of deduction under Section 80HHC of the Act amounting to Rs. 26,50,987, in order dated 20th December, 1995, for the assessment year 1993-94, the Assessing Officer observed thus : In the calculation for deduction under Section 80HHC furnished by the assessee, it is seen that no profit arises out of calculation as per Sub-section (3) of Section 80HHC. It is clear from a plain reading of the section that only when profit arises under Clause (a) or Clause (b) or Clause (c) of Sub-section (3) of Section 80HHC, the said profit can be further increased by 90% of the export incentives. In these case laws arise in the calculation under Sub-clauses (a), (b) and (c) of Sub-section (3) of Section 80HHC, the said loss cannot be further 'increased' as envisaged in the Act.
Therefore, 90% of the export incentives cannot be allowed as a deduction under Section 80HHC; as the same is not within the ambit of the said section.
It is thus clear that the Assessing Officer negatived the claim of the assessee for deduction of Rs. 26,50,987 under Section 80HHC of the Income-tax Act, 1961, on the basis of the interpretation given to the amended provisions brought on the (Statute) book by the Finance (No. 2) Act, 1991, which is effective from the assessment year 1992-93 and onwards.
17. In the assessment year 1994-95, the Assessing Officer found that the assessee claimed deduction of Rs. 11,07,636 under Section 80HHC of the Act. He restricted the claim to Rs. 10,32,294 under Section 80HHC with the following observations : In the calculation for deduction under Section 80HHC furnished by the assessee, it is seen that no profit arises out of calculation as per Sub-section (3) of Section 80HHC and there is a loss of Rs. 75,342. Consequently, the deduction of Rs. 11,07,636 claimed by the assessee arises out of 90% of export incentives of Rs. 12,30,707. In identical circumstances in the assessee's own case for the assessment year 1992-93, the learned Commissioner (Appeals) ruled that deduction under Section 80HHC should be granted to the assessee after setting off the loss on export of trading goods against the positive income of 90% of export incentives, which is claimed in entirety by the assessee. The decision has been accepted by the Department. Respectfully following the direction of the learned Commissioner (Appeals), the loss from export of trading goods amounting to Rs. 75,342 set off against the deduction of Rs. 11,07,636 claimed by the assessee and deduction of Rs. 10,32,294 is granted under Section 80HHC.18. It would, thus, be obvious that while examining the assessee's claim of deduction under Section 80HHC of the Act for the assessment year 1994-95, the Assessing Officer followed the direction of the learned Commissioner (Appeals) contained in his appellate order in the assessee's own case for the assessment year 1992-93, which has been accepted by the Department. The effect was that the assessee's claim was reduced by the amount of Rs. 75,342 representing loss from the export of trading goods. Thus, as against the claim of Rs. 11,07,636 made by the assessee, the Assessing Officer allowed the claim to the extent of Rs. 10,32,294 only. The order of the Assessing Officer cannot be said to be erroneous, if the Assessing Officer merely follows the decision of the learned Commissioner (Appeals) in the case of the assessee itself. In fact, the appellate order of the learned Commissioner (Appeals) is binding upon the Assessing Officer since the Assessing Officer acts in a quasi-judicial capacity. The Assessing Officer has to follow the decision of the learned Commissioner (Appeals). Permitting him not do that would introduce judicial indiscipline.
19. On the facts narrated above, can it be said that the Assessing Officer negatived the assessee's claim of deduction of Rs. 26,50,987 under Section 80HHC of the Act in the assessment year 1993-94 and allowed deduction to the extent of Rs. 10,32,294 only as against the claim of Rs. 11,07,636 under Section 80HHC in the assessment year 1994-95 without enquiry and due application of mind. The obvious reply in the negative. The Assessing Officer was fully aware of the amended provisions, which he applied and took due notice of the appellate order of the learned Commissioner (Appeals). The order of the Assessing Officer on the issue of Section 80HHC, which is in accordance with the provisions of law, cannot be said to be erroneous. In the garb of exercising power under Section 263 of the Act, the learned Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in the matters or orders which are already concluded. Such action will be against the well accepted policy of law that there must be a point of finality in all legal proceedings. It is now well-established that revisional power under Section 263 is quasi-judicial power hedged in with limitation and has to be exercised, subject to the same and within its scope and ambit. The Commissioner performs a quasi-judicial act under Section 263 of the Act and his decision cannot be based upon his whims or caprice. He has to act justly and fairly. The power has to be exercised objectively and dispassionately and thereafter conclusions have to be drawn on the basis of material on record in accordance with law. However, perusal of the impugned orders of the learned Commissioner would go to reveal that he has based his conclusions purely on conjectures and surmises and not on an appreciation of material on record in the right perspective.
20. We, therefore, hold that the orders of the learned Commissioner on both the issues, namely, deduction under Section 80-O of the Act as also under Section 80HHC of the Act are not sustainable in both the years. These have to be vacated. We do so. In this view of the matter, we do not propose to record our finding on the issue whether or not the orders of the Assessing Officer got merged with those of the learned Commissioner (Appeals) on these issues, as it would only be of academic interest.
21. In the result, the orders of the learned Commissioner are set aside on these issues in both the years. The assessee succeeds and the appeals stand allowed.