M.M. Kumar, J. - (1.) THIS order shall dispose of ITA Nos. 44 and 45 of 2005 as common questions of law and facts are involved. However, facts are being referred from ITA No. 44 of 2005. The appeal has been filed under section 260A of the Income -tax Act, 1961 (for brevity, 'the Act'), against order dated 29 -6 -2004, passed by the Income -tax Appellate Tribunal, Bangalore (for brevity, 'the Tribunal'), in ITA No. 136 (Bang.)/2000, in respect of assessment year 1996 -97. It is claimed that the following substantial questions of law would arise for determination of this Court: (a) Whether the Tribunal has erred in law in holding that the order of the Assessing Officer was not prejudicial and erroneous to the interest of the revenue where in the relief under section 80HHC of the Income -tax Act, 1961, was allowed on the total income without adjusting the brought forward loss and unabsorbed depreciation of the earlier years? (b) Whether the Tribunal has erred in law in vacating the order under section 263 of the Income -tax Act, 1961? Brief facts of the case are that on 29 -11 -1996 the assessee filed its return of income before the Assessing Officer - cum -Joint Commissioner of Income -tax (Asst.), Special Range -I, Bangalore, declaring its total income of Rs. 3,50,30,300, in respect of assessment year 1996 -97 (A -I). Thereafter a revised return was filed on 12 -12 -1996 in which declared income was the same. The return was processed under section 143(1)(a) of the Act and after taking up the case for scrutiny a notice under section 143(2) of the Act was issued. The assessee determined its income after adjusting the brought forward loss and unabsorbed depreciation of earlier years amounting to Rs. 16,76,69,984 as against the current income of Rs. 82,16,36,146. The assessee also claimed deduction under section 80HHC of the Act out of its income of Rs. 44,52,56,153 earned from export business. On 31 -3 -1999, assessment under section 143(3) of the Act was completed and the Assessing Officer disallowed exchange loss of Rs. 71,24,140 and assessed the income at Rs. 4,21,54,440.
(2.) ON 30 -12 -1999, the Commissioner of Income -tax, Bangalore, passed an order under section 263 of the Act, and held that relief under section 80HHC of the Act can be allowed on the profits of current year as reduced by the carried forward business loss and unabsorbed depreciation. It was further observed that the Assessing Officer has calculated the deduction under section 80HHC of the Act before setting off the unabsorbed loss and depreciation of earlier years against the business profit of current year, which resulted in excess relief to the assessee. The order of the Assessing Officer was found to be erroneous and against the interest of the revenue. Accordingly, the Commissioner of Income -tax directed the Assessing Officer to modify the assessment. On 9 -3 -2000, the Assessing Officer passed fresh order and deduction of Rs. 36,10,68,000 as against Rs. 44,52,56,153, under section 80HHC of the Act was allowed. The assessee filed appeals before the Tribunal at Bangalore against the order dated 30 -12 -1999 passed by the Commissioner of Income -tax under section 263 of the Act as well as before the CIT (Appeals) against the order dated 9 -3 -2000 passed by the Assessing Officer. On 30 -5 -2002, the CIT(A) dismissed the appeal of the assessee by observing that the Assessing Officer has acted in accordance with the directions given by the Commissioner of Income -tax, Bangalore. Against the order dated 30 -5 -2002, the assessee further filed an appeal before the Tribunal and by a single order dated 29 -6 -2004, the Tribunal has allowed both the appeals of the assessee.
(3.) ACCORDING to the assessee it is having eligible units and also several other ineligible units. While computing profits of the eligible unit for the purpose of deduction - working out relief under section 80HHC of the Act, it is the eligible unit alone which has to be seen. After having computed profits of the industrial undertaking, deduction under section 80HHC of the Act has to be computed and thereafter other provisions like set off of unabsorbed depreciation and the carried forward depreciation were to arise based on the principle laid down by the Karnataka High Court in the case of CIT v. H.M.T. Ltd. : [1993] 199 ITR 235 : [1992] 65 Taxman 292 and also the decision of the Bombay High Court in the case of CIT v. Shirke Construction Equipments Ltd. : [2000] 246 ITR 429 : 112 Taxman 311 (Bom.). In the light of these decisions, the assessee has, inter alia, claimed that order of the Assessing Officer cannot be considered as erroneous or prejudicial to the interest of revenue. However, we need not to go into merit of the controversy in view of a preliminary objection canvassed by the assessee.;