The Case
ORIENT CRAFTS LTD. VS C.I.T., NEW DELHI
Case No.: C.A. No.-000143-000144 – 2013
Decided on: 09/18/2026
Diary No.: 38943/2012 ·
Supreme Court of India
The Legal Issue Before the Supreme Court
The short point for decision is whether the exercise of jurisdiction by the C.I.T. under Section 263 of the Act, 1961, is justifiable and whether the impugned Judgment reversed the findings of the ITAT by recording its own view. In the connected appeals, the controversy falls within a very narrow compass, namely the meaning the Court would attach to the CBDT O.M. for technically equating quota premium with Sections 28(iiia) to 28(iiic) of the Act, 1961.
Facts of the Case
The Assessee is a Public Limited Company incorporated under the Companies Act, 1956, engaged in manufacturing and exporting readymade garments from India, and the dispute relates to Assessment Years 2000-01 and 2001-02 under Section 80HHC read with Sections 28(iiia) to (iiic) of the Act, 1961. For A.Y. 2001-02 the Assessee filed a Return on 31.10.2001 declaring income of Rs.3,97,22,789/- and claimed a deduction under Section 80HHC of Rs. 13,85,68,402/-, and the audited Report under Section 80HHC(4) stated that the Assessee received Rs. 73,49,341/- as premium on the sale of export quota. The AO completed the assessment under Section 143(3) by Order dated 13.08.2003, and the Assessee relied on the CBDT Office Memorandum/Circular dated 23.02.1998 stating that technically export quota premium can be equated with the items mentioned in Section 28(iiia) and (iiic) of the Act, 1961. The C.I.T. (Delhi-V) issued a Notice under Section 263 on 20.12.2004, and by Order dated 01.02.2005 set aside the Order of Assessment dated 13.08.2003 and directed a fresh assessment treating the premium on quota sale proceeds as "other receipts" under Explanation (baa) to Section 80HHC. The AO passed a fresh Assessment Order on 24.02.2006 redetermining taxable income at Rs.4,56,44,810/-, which was set aside by the C.I.T. Appeals-XVI on 31.07.2006, and the ITAT allowed the Assessee's Appeals on 07.09.2007 and dismissed the Revenue's Appeals on 15.10.2007.
Summary of the Decision
The High Court set aside the Orders of ITAT dated 07.09.2007 and 15.10.2007, and this Court is not inclined to interfere with the impugned Judgment and is not keen to remand the matter to the High Court for reconsideration, particularly after appreciating the nature of the disputes between the Assessee and the Revenue; the Appeals fail and are dismissed. This Court held that in considering the scope and ambit of Section 263 of the Act, 1961, the High Court noted the fact in issue between the Assessee and the Revenue and then recorded a finding that the C.I.T. had rightly exercised the revisional jurisdiction under Section 263 of the Act, 1961. The accompanying Appeals, being identical and for the same reasons, are dismissed accordingly, and pending application(s), if any, stand disposed of accordingly, with no costs. On the connected appeals, this Court held that the CBDT O.M. is not binding on the Courts and that the Assessee's argument, for the reasons given in Nagesh Knitwears P. Ltd. (supra), does not merit further consideration. The Constitution Bench in Ratan Melting & Wire Industries (supra) held that Circulars issued by the CBDT bind only the Administrative Departmental Authorities, merely represent the Executive's understanding of a statutory provision, and are never binding on the High Courts or the Supreme Court. Through a legal fiction the CBDT circular has equated premium from quota sales with income under Sections 28(iiia), (iiib) and (iiic) of the Act, 1961, and in Nagesh Knitwears P. Ltd. (supra) it was explained that the incidence of premium cannot be equated with the incomes covered by Sections 28(iiia) to (iiie) of the Act, 1961. On a plain reading of Section 28, the sale of quota cannot be treated as business income, and the argument of the Assessee calling upon this Court to give effect to the CBDT O.M. is rejected; no other argument is canvassed and there is no reason to interfere with the impugned Judgment.
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