G.S. Pannu, Accountant Member. - These two appeals have been preferred by the assessee against the respective orders of the CIT, Moradabad (in short ‘CIT’) passed under section 263 of the Income-tax Act, 1961 (in short ‘the Act’) dated 31-3-2005 pertaining to the assessment years 2001-02 and 2002-03.

2. In both the appeals, the assessee has assailed the assumption of jurisdiction by the CIT under section 263 of the Act on various grounds. Since the two appeals relate to a single assessee and involve common issues they have been heard together and we find it expedient to dispose of the same by a common order. We take up for consideration appeal for the assessment year 2001-02.

3. In this appeal, the challenge to the order of the CIT under section 263 is on the basis that the same is bad in law for it is beyond the jurisdiction of the CIT. The assessee has also challenged the order of the CIT on merits of the dispute. The brief background leading up to the present proceedings can be understood as follows. In this case, the assessee filed a return of income on 31-10-2001 declaring total income at Rs. 12,70,840. In the return of income, the assessee, who is engaged in the manufacture and export of brass artwares, etc., declared income from business to Rs. 49,97,658 and claimed deduction under sections 80-B and 80HHC of the Act amounting to Rs. 11,18,635 and Rs. 38,17,023, respectively. The assessment was finalized by the Assessing Officer under section 143(3) of the Act on 26-3-2004, wherein the income from business, deductions under sections 80-IB and 30HHC of the Act were computed at Rs. 47,96,351, Rs. 11,80,635 and Rs. 35,77,491, respectively. The assessment so framed has been considered by the CIT as erroneous insofar as it is prejudicial to the interest of the revenue on two counts. Firstly, the CIT observed that for the purpose of calculation of deduction under section 80HHC, the Assessing Officer adopted the same figure of profits as adopted for the purpose of calculation of deduction under section 80-IB. of the Act. The CIT observed that both the deductions were computed after taking into consideration the same amount of profit without considering the provisions of section 80-IA(9) of the Act, which are applicable to section 80-IB as well by virtue of the provisions of section 80-IB(13) of the Act. In the context, the CIT issued notice under section 263, dated 31-3-2005 requiring the assesses to show-cause as to why the assessment order dated 26-3-2004 passed under section 143(3) of the Act be not treated as erroneous insofar as it was prejudicial to the interest of the revenue. Secondly, the CIT noted that the Assessing Officer while computing the amount of deduction under section 80-B of the Act did not exclude the income by way of duty-drawback, receipt and sale of samples. On this count also, the CIT vide his notice dated 17-3-2005 show-caused the assessee to explain as to why the assessment order dated 26-3-2004 be not treated as erroneous insofar as it was prejudicial to the interest of the revenue. The assessee contested the action of the CIT and filed a detailed reply which has been exhaustively referred by the CIT in his impugned order. In brief, the stand of the assessee before the CIT was that the Assessing Officer had duly examined the issue regarding the admissibility as well as quantum of deduction under sections 80HHC and 80-IB of the Act, that therefore the notice issued under section 263 of the Act was not justified since the Assessing Officer had allowed both the deductions after consideration of the factual and legal aspects. On merits, it was contended that the provisions of section 80-IA(9) of the Act do not impose the restriction that deduction under section 80HHC is quantifiable after reducing the amount of deduction under section 80-IB of the Act. According to the assessee, the implication of section 80-IA(9) was to prevent total deductions under Chapter VI-A of the Act from exceeding the profit