INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial orderLack of proper verification--The Commissioner, however, issued notice under section 263 in exercise of power of revision and held that the AO had wrongly included premium of Rs.1,16,62,320 and Rs.73,49,341 on the sale of quota rights for the assessment years 2000-01 and 2001-02 as covered by Section 28(iiia) to (iiic) and had computed the deduction. The Commissioner referred to the decision of the Supreme Court in CIT v. Sterling Foods (1999) 237 ITR 579 (SC) and held that under the proviso to section 80HHC(3), the three categories mentioned in section 28(iiia), (iiib) and (iiic) have to be included. He held that deduction under section 80HHC has to be computed by reducing business profit by 90% from the receipts on sale of quota rights. He also observed that the AO had not verified facts and no details of export incentives or receipt were taken on record. The AO did not examine the provisions of section 28 (iiia/b/c). The AO was directed to make fresh assessment and treat the sale of quota rights as other receipts” under Explanation (baa) to section 80HHC. He was also asked to verify the receipts on account of export incentives shown for the purpose of deduction under section 80HHC offered for taxation and ensure that the receipts not covered under section 28 (iiia/b/c) were excluded while applying the provisos to section 80HHC(3). The AO, thereafter recomputed deductions under section 80HHC and passed assessment orders for the two years. These were made subject matter of challenge by the assessee, who succeeded in the first appeal. It was observed that the AO had excluded 90% of the profit on sale of export license while computing deduction under Explanation (baa) to section 80HHC. It was held that as per the provisos to section 80HHC(3), the profit has to be computed after increasing the amount which bears to 90% of the same referred to in 28 (iiia) i.e. profit on sale of export license, but this had not been allowed and followed by the AO. The assessee, therefore, succeeded in the first appeal. The Tribunal also examined the case on merits and came to the conclusion that the addition was not justified in view of the circular issued by the Board. On correct interpretation of law, the assessee was entitled to include premium or profit on sale of export quota in Section 28 (iiia/b/c). Accordingly, the twin conditions, i.e., order of the AO should be erroneous and prejudicial to the interest of the revenue, were not satisfied. Held: Proceeds from sale of an export quota is not covered by Section 28(iiia) to (iiie), and the same cannot be taken into consideration. The Tribunal was wrong in holding that the order passed by the Commissioner under section 263 was bad and contrary to the provisions of the Act.