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2015 (10) TMI 756 - HC - Income TaxRevision u/s 263 - whether the Assessee could include notional interest as income in computation of profits and gains derived by its undertaking from export of articles or things, for the purposes of claiming deduction under Section 10A ? - whether the CIT can assume jurisdiction under Section 263 of the Act and enhance the assessed income by reducing the deduction allowed to the Assessee in respect of the eligible undertaking? - Held that:- Supreme Court in Commissioner of Income Tax v. Max India Ltd. (2007 (11) TMI 12 - Supreme Court of India) reiterated that the phrase “prejudicial to the interest of revenue” as used in Section 263(1) of the Act must be read in conjunction with the expression “erroneous” and unless the view taken by the AO is found to be unsustainable in law, the powers under Section 263 of the Act cannot be invoked. Following the aforesaid decision, this Court in Commissioner of Income Tax v. DLF Ltd.(2012 (9) TMI 626 - DELHI HIGH COURT ) had also emphasized that powers under Section 263(1) of the Act were available only if the order sought to be reviewed was prejudicial to the interests of the revenue and was unsustainable in law. In the present case, the interest so credited and debited by the Assessee in the books maintained does not, in the first instance, represent any real profit or gain by the Assessee. Assessee has not derived any interest income. Therefore, reducing such notional income - which has neither been accrued nor received - from the Assessee’s total income is completely alien to the scheme of the Act. Such notional interest could never form a part of the Assessee’s income and thus the Assessee’s claim that the same is to be excluded under Section 10A of the Act is flawed and wholly unsustainable in law. The view as canvassed on behalf of the Assessee is not, even remotely, plausible and we find no infirmity with the CIT’s exercise of jurisdiction under Section 263 of the Act. We are also unable to accept the contention that since in the preceding year, no issue has been raised with regard to charging of interest by one unit to another, the same could not be picked up by the CIT under Section 263 of the Act. Merely because an issue remained unchecked in a preceding year does not mean that the CIT is estopped from exercising its powers under Section 263 of the Act. It is well established that the principles of res judicata do not apply to income tax proceedings and an error in the preceding year need not be repeated or ignored in the subsequent years. The decision of this Court in Escorts Ltd. (2011 (2) TMI 579 - DELHI HIGH COURT) was based on the principle of consistency. In that case, the Assessee had been carrying on transactions similar to the one which was sought to be questioned under Section 263 of the Act, for past several years preceding the relevant assessment year. The transaction had also received the attention of the Commissioner of Income Tax in an earlier year and had been decided in favour of the Assessee. The Revenue had accepted the same and not filed an appeal. It is in that context that the Court held that since the Revenue had accepted similar transactions in the past and had allowed a view to sustain for several years, an exercise under Section 263 of the Act was not warranted. In the present case, the issue was not picked up in the preceding year. Further, the claim of the Assessee cannot be stated to be of a nature which has been consistently accepted in past several preceding years since the entry in relation to notional interest had been passed by the Assessee only in one preceding year and had remained undebated. Insofar as the question whether the Tribunal had erred in not considering the submissions relating to deduction under Section 80HHC of the Act is concerned, we are of the view that the said issue did not arise for consideration. The CIT had rightly held that the only issue under Section 263 of the Act was related to “interest charged by the head office to NEPZ Branch”. He, nonetheless, proceeded to consider the alternative issue whether the turnover of the eligible undertaking (at NEPZ, Noida) could be considered for the purposes of computing exemption under Section 80HHC of the Act. Clearly, this issue did not arise as the CIT had only proposed to reduce the profits and gains claimed by the Assessee as being derived from the eligible undertaking. Thus, only question to be considered by the CIT was whether the notional interest credited in the books could be considered as income derived by the Assessee from the eligible undertaking. The Tribunal did not consider the aforesaid issue and in our view, rightly so. - Decided against revenue.
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