COMMISSIONER OF INCOME TAX Vs. ORIENT CRAFT LTD.

JUDGEMENT

(1.) The substantial question of law proposed by the Revenue in this appeal under Section 260A of the Income Tax Act, 1961 ("Act? for short) is, in short, whether the Income Tax Appellate Tribunal is right in law in holding that the reassessment proceedings under section 147 were not validly initiated.

(2.) The assessee is a company and for the assessment year 2002-03 it filed a return of income on 31 st October, 2002 declaring a total income of Rs.4,45,35,395/-. The return was processed under Section 143(1) on 27 th February, 2003; the income returned was accepted. Included in the return was a claim of Rs.8,74,20,642/- under Section 80HHC and Rs.13,35,65,316/- under Section 10B. The assessee was a 100% export-oriented undertaking and was entitled to substantial amounts as duty drawback, DEPB, premium on DEPB and on sale of quota etc. These were all declared in the profit and loss account and the computation of income.

(3.) On 15 th August, 2005, a notice under Section 148 of the Act was issued reopening the assessment on the ground that income chargeable to tax had escaped assessment. According to the reasons recorded under Section 148(2) for reopening the assessment, the assessee was wrong in treating the proceeds of sale of quota as part of the export turnover for claiming deduction under Section 80HHC. It was also the opinion of the Assessing Officer that the sale proceeds of the quota cannot be considered as export turnover but represented business income covered under Section 28(iv) and had to be reduced to the extent of 90% from the business income as provided by Explanation (baa) to section 80HHC. Not doing so resulted in excessive allowance of the deduction under Section 80HHC and consequently in escapement of income chargeable to tax.