COMMISSIONER OF INCOME TAX Vs. EARNEST EXPORTS LTD.

JUDGEMENT

(1.) Admit.

(2.) In exercise of its power under Section 254(2) of the Income Tax Act, 1961, the ITAT has by its order dated 15th January, 2007 recalled its earlier order dated 31st August, 2006 and set aside an order passed by the CIT under Section 263. The substantial question of law which arises before the Court, in this appeal filed by the Revenue, is whether in the circumstances of the case, the impugned order falls within the parameters of the jurisdiction under Section 254(2) of the Act.

(3.) During the course of the assessment proceedings pertaining to assessment year 2000-01, the assessee made a claim of deduction under Section 80HHC. The Assessing Officer by an order dated 25th March, 2003 computed the gross total income of the assessee at Rs. 32.19 crores, allowed a deduction under Section 80HHC in the amount of Rs. 32.17 crores and computed the taxable income at Rs. 1.25 lakhs. On 22nd March, 2005, the CIT exercised jurisdiction under Section 263 on the ground that the order passed by the Assessing Officer under Section 143(3) was erroneous in so far as it was prejudicial to the interests of the Revenue. The order under Section 263 basically refers to four items, namely: (i) Unrealised sundry debtors; (ii) Proceeds of sale of a DEPB licence; (iii) Direct costs of export sales; and (iv) Indirect costs attributable to trading goods exports. Since the issue to be considered in this proceeding is confined to the issue of the entitlement of the assessee to claim a deduction in respect of the sale proceeds of a DEPB licence under Section 80HHC, it would now be necessary to consider the reasons furnished by the CIT. The CIT observed that the DEPB licence in question had been granted to the assessee under the Foreign Trade (Development & Regulation) Act, 1992 and was not a licence which was eligible, having regard to the provisions of Section 28(iiia). Section 28(iiia) inter alia deals with profits on sale of a licence granted under the Imports (Control) Order, 1955 made under the Imports and Exports (Control) Act, 1947 (18 of 1947). The CIT noted that Sub-clause (iiia) was inserted in Section 28 by the Finance Act of 1990 with retrospective effect from 1st April, 1962. Since Parliament had confined the ambit of the provision to a licence granted under Imports (Control) Order, 1955 and had not made any further additions, a DEPB licence was not eligible for deduction under Section 80HHC as it did not fall under Section 28(iiia). On this ground the order passed by the Assessing Officer was considered to be erroneous and to be prejudicial to the interest of the Revenue.