TMI Blog2012 (6) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 are capable of two views and the AO has taken one of the possible views. It is settled law that when an officer adopts one of the courses permissible in law and it has resulted in a loss of Revenue or when two views are possible and the Assessing Officer takes one view with which the CIT does not agree, the order cannot be treated as erroneous in so far as it is prejudicial to the interests of Revenue. Hence, order passed by CIT u/s 263 is without jurisdiction and liable to be quashed - Decided in favor of assessee. - ITA No.222/Bang/2011 - - - Dated:- 25-5-2012 - P Madhavi Devi, Jason P Boaz, JJ. For Appellant: Shri Padam Chand Khincha For Respondent: Shri S K Ambastha ORDER Per: Jason P Boaz: This appeal is directed against the order passed by the Commissioner of Income Tax, Bangalore-I, Bangalore dt.20.01.2011 under section 263 of the Income Tax Act, 1961 (herein after referred as 'the Act') for the Assessment Year 2006-07. 2. The facts of the case, in brief, are as under : 2.1 The assessee is an Indian company engaged in the business of Business Process Outsourcing (BPO). The return of income for the Assessment Year 2006-07 was filed on 29.11.2006 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 to 85 of paper book). The assessee submitted that the requirements of section 263 were not satisfied and that the assessment order under section 143(3) dt.31.12.2008 was passed after verification of all the details. It was submitted that the Assessing Officer examined the aspects of (i) reduction of foreign currency expenses from export turnover and (ii) the computation of deduction under section 10A without setting off the losses of other STPI units, before passing the order under section 143(3). It was further submitted that the order passed under section 143(3) cannot be regarded as erroneous in so far as it is prejudicial to the interest of Revenue under section 263 since the Assessing Officer has taken a correct view as also a possible view in respect of the issues dealt in the notice under section 263. The assessee placed reliance on the decision in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC) and other decisions in support of the contention that when an Assessing Officer has adopted one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the Assessing Officer has taken one view with w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee also made submissions as to why the decision of the Hon'ble jurisdictional High Court in the case of CIT Vs. Himatasingike Seide Ltd. (286 ITR 255) is distinguishable both in facts and law and also referred to decisions of the co-ordinate bench of the Tribunal and High Court decisions which had distinguished this case. In view of the above submissions, the assessee requested the CIT to drop the proceedings initiated under section 263 of the Act. 2.7 The CIT passed the order under section 263 holding that the Assessing Officer had passed the order under section 143(3) without proper application of mind with reference to the facts of the case and relevant provisions of law and without recording any finding in respect of reduction of foreign currency expenses from 'export turnover' and computation of deduction under section 10A without setting off the losses of other STPI units. The learned CIT relied on the decision of the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (supra) in support of the proposition that no application of mind makes an order erroneous and prejudicial to the interest of Revenue. 2.8 On the merits of the case, the learned CIT held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the above, the learned CIT set aside the order of the assessment passed by the Assessing Officer under section 143(3) of the Act with the direction to make a fresh assessment and to allow the deduction claimed under section 10A in accordance with law and in the light of his observation after giving the assessee reasonable opportunity of being heard. 3. Aggrieved by the order of learned CIT, the assessee has filed this appeal. The grounds of appeal raised are as under : "1.1 The learned Commissioner of Income Tax, Bangalore 1, Bangalore has erred in assuming jurisdiction under section 263 of the IT Act, 1961 and in passing the revisional order. The conditions precedent for assumption/ exercise of jurisdiction. 263 not being satisfied, the order passed under section 263 is bad in law and liable to be quashed. 2.1 Without prejudice, the learned Commissioner of Income Tax, Bangalore 1, Bangalore has erred in (i) concluding that foreign currency expenses should be reduced from 'export turnover' in computing deduction under section 10A. (ii) not giving any reasons as to why foreign currency expenses should be reduced from 'export turnover' in computing deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of profits of each eligible unit without setting off the losses of other eligible units; (ii) 'total income in the context of section 10A refers to total income of the eligible undertaking and not total income of the assessee. 3.3 On facts and circumstances of the case and law applicable, deduction under section 10A is to be computed and allowed in respect of profits of each eligible unit without setting off the losses of other units. 4.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT, Bangalore 1, Bangalore be quashed, or in the alternative (i) (a) foreign currency expenses be not reduced from 'export turnover' in computing deduction under section 10A. Or in the alternative (b) foreign currency expenses, if reduced from 'export turnover', be also reduced from 'total turnover' in computing deduction under section 10A. (ii) losses of 2nd STPI unit at Bangalore be not set off against profits of other STPI units in computing deduction under section 10A. (iii) deduction under section 10A be allowed as claimed by the appellant. The appellant prays accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR AT 353 (Chennai SB) 6.3.2009 2. Tata Elxsi Ltd v ACIT (2008) 115 TTJ 423 (Bangalore) 16.11.2007" Referring to the above, the learned counsel for the assessee submitted that there were decisions in favour of the assessee on the date of issue of notice initiating proceedings under section 263 in respect of all the issues dealt with by the learned CIT. The learned counsel for the assessee relied on the decisions of the Hon'ble Apex Court in the case of CIT Vs. Max India Ltd. (2007) 295 ITR 282 in support of the contention that the law prevailing on the date when the CIT passed the order under section 263, is relevant to judge the validity of the said order. It was submitted that in view of the above decisions of the Hon'ble Apex Court, if there are two views possible on the date of the order under section 263, the CIT lacked the jurisdiction to pass the order. The learned counsel for the assessee also submitted that since there were decisions in favour of the assessee on the dates of issue of notice and passing of order under section 263, the order passed by the CIT taking a contrary view is bad in law and the order is liable to be qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of losses on computation of deduction under section 10A. It was accordingly submitted that no order can be passed under section 263 since there are two views on the issue. The learned counsel for the assessee furnished a copy of the decision of the co-ordinate Bench of the Tribunal in the assessee s own case for Assessment Year 2005-06 wherein the order passed under section 263 by the CIT was quashed by the Tribunal. Relying on the above decision, it was submitted that since the ratio of the above decision squarely applies for the year under consideration, the order passed by the learned CIT under section 263 cannot be sustained and is liable to be quashed. 4.3 On the aspect of foreign currency expenses not reduced from the 'export turnover' by the Assessing Officer, referring to the paper book pages 1,5,6,9, 19, 20 and 21, the learned counsel for the assessee submitted that the details of foreign currency expenses were called for and the same were submitted before the Assessing Officer and the order of assessment was passed only after examination and verification of details filed. It was submitted that the Assessing Officer was aware of the issue of reduction of foreign curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that even if it considered that the enquiries made by the Assessing Officer in the present case is inadequate, the said inadequacy or insufficiency of material on record cannot be a ground to revise the assessment order under section 263. 5.1 The learned Departmental Representative filed written submissions and argued the matter. It was submitted by the learned Departmental Representative that since there is no discussion in the assessment order and application of mind by the Assessing Officer, the learned CIT was right in passing the order under section 263 and for the proposition relied on the decision of the jurisdictional High Court in the case of CIT Vs. Namdhari Seeds (2011) 341 ITR 342. 5.2 On the merits of the case, the learned Departmental Representative submitted that the decision of the ITAT and the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. and Tata Elxsi Ltd. on both issues are covered against the Revenue but with utmost respect submits that these decisions are not based on correct application of facts, interpretation of law and therefore may not be a good precedent to follow. The reasons in support of the above contention were exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of Revenue. Every loss of Revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of Revenue. This was the view held by the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. (supra). The Hon'ble Apex Court followed this decision in the case of Max India Ltd (supra) and held that the position of law as it stood on the date when the CIT passed the order under section 263 is alone relevant to examine the validity of the said order. The relevant portion of the said decision is as under : "Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word "profits" in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore subsequent amendment in 2005 even though retrospective will not attract the provision of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is now eligible to be carried forward and set off against profits of subsequent years. This is in terms of section 10A(6) of the IT Act. The Karnataka High Court in the case of Himatasingike Seide Ltd (288 ITR 255) stated that the computation of total income has to be in terms of the IT Act. The judgment of the High Court makes it clear that the computation of eligible profits for section 10A has to be in accordance with the provisions of the Act and the profit of the undertaking cannot be determined in isolation of the other provisions of the Act. It is therefore held that the provisions of section 70 and section 72 are applicable in determining the profits of the business for the purposes of section 10A. As far as unabsorbed depreciation is concerned, carry forward and set off is governed by section 32(2) and the unabsorbed depreciation assumes the character of current year s depreciation and has to be allowed as a deduction from current year s income. Therefore the claim under section 10A is allowed from total income only after setting off the brought forward losses. There are no brought forward losses of Assessment Year 2005-06 to be adjusted against the profits of the current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n charges from total turnover is incorrect. The deduction under section 10A is recomputed by excluding the telecommunication charges only from export turnover and not total turnover." From the above, we find that the Assessing Officer passed the assessment order after giving reasons in support of his conclusions and after application of mind. The allowability of deduction under section 10A, the computation thereof, the impact of losses of other STPI units, brought forward losses, unabsorbed depreciation, impact of foreign exchange fluctuation on 'export turnover' were examined by the Assessing Officer and conclusions and findings thereon were recorded. Hence, in our considered view, the conclusions of the learned CIT that the assessment order was passed without application of mind and without references to the provisions of the Act is incorrect. 6.5 In the case of Infosys Technologies Ltd. (supra), the Hon'ble jurisdictional High Court in paras 26 to 28 of the order has held that : "26. We are also not in a position to accept the submission that the materials had been placed before the assessing authority and therefore there should be a conclusion that the authority has app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as erroneous in so far as it is prejudicial to the interests of Revenue. In the instant case, the allowability of deduction under section 10A and its computation were examined by the Assessing Officer in the course of assessment proceedings and he has recorded reasons for such conclusions and findings in the assessment order and therefore we are of the view that the learned CIT had no jurisdiction to interfere with the order passed by the Assessing Officer under section 143(3) of the Act. 6.6 In the decision of the Hon'ble High Court in the case of Namdhari Seeds (supra), the assessee was engaged in the activity of growing and selling of fruits, vegetables etc and claimed that the income from such activity is agricultural income which is exempt under section 10(1) of the Act. The Assessing Officer accepted the claim of the assessee and completed the assessment. The Hon'ble High Court held that since there was no discussion in the assessment order as to how the claim of the assessee is correct, the order passed under section 263 by the CIT is in accordance with law. In the instant case, the Assessing Officer has given reasons in support of his conclusions and findings in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been passed on application of mind. The observation of the Court as under : "We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When . When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion allowable under section 10A in respect of the profits of 1st STPI unit at Bangalore and STPI unit at Pune without setting off of the losses of the 2nd STPI unit at Bangalore from total income after setting off brought forward losses and unabsorbed depreciation and after disallowing software expenses, made the disallowance under section 14A and telecommunication expenses were reduced only from 'export turnover' without reducing the same from 'total turnover'. The Assessing Officer has recorded and discussed the reasons for his findings and conclusions in the assessment order that expenses reduced from 'export turnover' should not be reduced from 'total turnover' and accordingly adjustments were made in respect of foreign exchange fluctuations. Obviously the said adjustment was made by the Assessing Officer after examining the details of foreign currency expenses also, which were called for by him and furnished by the assessee. In computing the deduction. 10A, the Assessing Officer relied on the decision of the Hon'ble Jurisdictional High Court in the case of Himatasingike Seide Ltd. (supra), that the deduction should be allowed from profits remaining after setting off brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in computing deduction under section 10A is not correct. It is also seen that the learned CIT himself has acknowledged on page 11 of the order under section 263 that there are a number of decisions in favour of the assessee on the issue of set off of brought forward losses and deduction under section 10A. The mater being a debatable issue with contrasting views, the learned CIT was not correct in assuming jurisdiction under section 263 of the Act. 7.1 For Assessment Year 2005-06, in the assessee s own case, the Assessing Officer had computed the eligible deduction under section 10A without setting off brought forward losses and unabsorbed depreciation. The deduction so computed was allowed from total income of the assessee after setting off brought forward losses and unabsorbed depreciation. The learned CIT passed an order under section 263 thereon directing the Assessing Officer to compute the deduction under section 10A after setting off brought forward losses and unabsorbed depreciation. On appeal, the Tribunal in order dt.16.3.2012 in ITA No.698/Bang/2009 quashed the order under section 263. The relevant observation of the Tribunal in paras 7 to 9 thereof are as under : " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and set off are governed by sec. 32(2) and the unabsorbed depreciation assumes the character of current year s depreciation and has to be allowed as a deduction from current year s income. Therefore the claim u/s.10A is allowed from total income of the assessee after setting off the brought forward losses." 8. The above order of the assessing authority clearly shows that he has applied his mind to the facts of the case before him and as to whether the unabsorbed business loss and depreciation are to be reduced from the total turnover before allowing claim of deduction u/s. 10A of the Income-tax Act. Therefore, in our opinion, the decision of the Hon ble High Court of Karnataka in the case of Infosys Technologies Ltd cited (supra) is clearly applicable to the facts of the case before us and, therefore, the order of the CIT(A) u/s 263 has to be quashed. As we have already quashed the proceedings u/s 263 of the Income tax Act, we are not inclined to go into merits of the direction of the CIT. 9. In the result, the assessee s appeal is allowed." In the instant case also the Assessing Officer computed the deduction under section 10A without seting off the losses of 2nd STPI u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exchange cannot be brought into India. He contended that in view of this, foreign currency expenses should not be reduced from total turnover. The contentions of the learned Departmental Representative have been considered in the case of Sak Soft Ltd. (supra) wherein at para 45 on pages 393 and 394 thereof it was observed as under : "The learned representative for Adventnet Development Centre (India), one of the interveners submitted that the definition of 'export turnover' in clause (iii) of Explanation 2 below section 10B was not based on the concept of "Net inflow of foreign exchange" as sought to be made out in the order of the Chennai Bench of the Tribunal in California Software Co. Ltd. (2008) 118 TTJ 842 because the condition that the assessee should have used foreign currency is applicable only to the expenses incurred by it in providing the technical services outside India and is not applicable to the expenses incurred in freight, telecom charges or insurance attributable to the delivery of the goods outside India. We have gone through the order especially paragraphs 22.3 and 23. In paragraph 22.3 the Tribunal has observed that the effect of the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing by comparing the inflow and outflow of foreign exchange from or into the country. We have already held that this could not have been the objective. The order of the Chennai Bench, to the extent it holds so, with respect, cannot be approved." 7.5 The submission of the learned counsel for the assessee that even if enquiries made by the Assessing Officer in the present case is considered inadequate, the said inadequacy of the material on record cannot be a ground to revise the assessment order under section 263, in our opinion, is to be accepted. If the Assessing Officer passes the order of assessment after examination of the material on record and with application of mind thereon, then the conclusion of the Assessing Officer cannot be regarded as erroneous simply because the CIT does not feel satisfied with the said conclusion, the provisions of section 263 are not attracted merely to substitute the judgment of the CIT for that of the Assessing Officer. "Lack of enquiry" is different from "inadequate enquiry." If the Assessing Officer passed the order after making enquiries, even if they are considered inadequate, the CIT has no jurisdiction. 263. The CIT may assume jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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