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2006 (11) TMI 236 - AT - Income TaxErroneous And Prejudicial Order - Validity Of Revision Order Passed by CIT u/s 263 - error in the calculation of deduction u/s 80HHC and income u/s 115JB - whether the order passed by the AO can be said to be erroneous insofar as it is prejudicial to the interests of the Revenue - HELD THAT:- In our considered view, the foundation for assessment is the assessment order passed by the AO who is the quasi-judicial authority. The order of the AO is subject to appeal to the CIT(A). The order of the AO is also subject to the revision by the CIT u/s 263 as well as u/s 264. It is, therefore, necessary that the AO considers every fact for and against with due care and give his finding in a manner which would clearly indicate what were the questions which arose for determination and what is the evidence pro and contra in regard to each issue and the findings recorded on such evidence. The order of the AO is silent on the issues raised by the CIT in his order u/s 263. It is only with reference to the questionnaires issued by the AO and the replies furnished by the assessee that it comes to light that the AO had made inquiry in regard to the issues raised by the CIT u/s 263. But, what is the decision of the AO much less what is the basis of such decision is not indicated in the assessment order. Such an order passed by the AO, in our considered view, would fall within the category of an erroneous order being a non-speaking order. It is pertinent to mention that where the AO is enquiring about the facts and the assessee furnishes evidence, the AO may accept the evidence as sufficient in support of the claim. So, however, when a legal issue is involved and/or the interpretation of the relevant provisions of the Act is involved, it is imperative upon the AO to indicate the reasons for interpreting the provisions of the Act in a particular manner. In this case, the AO, as pointed out earlier, has not given reasons much less valid reasons for taking the view contrary to the view expressed by the Tribunal. Therefore, the order of the AO is not only erroneous for accepting the explanation of the assessee but not basing the order on any reasons much less valid reasons in regard to legal issue involved. It is also pertinent to mention that the power of the CIT u/s 263 can be exercised, as pointed out earlier, if twin conditions are satisfied. One of the conditions required for exercising the power u/s 263 is that the order of the AO is erroneous. In this case, the view taken by the AO is the view canvassed by the assessee. No reasons have been given by the AO for accepting the claim accepted in regard to interpretation of law. Computation of deduction for the purpose of s. 115JA - The sub-section provides for reduction to the extent of the profits eligible for deduction u/s 80HHC computed under cl. (a), (b) or (c) of sub-s. (3) or sub-s. (3A). The words "in the manner" have been omitted from the language of above quoted sub-section. It is, therefore, evident that after the assessment what is to be reduced from the profits and gains of business as per the books of account is the amount of deduction u/s 80HHC computed under the relevant provisions of the Act. So, a plain reading of cl. (viii) gives the indication that the AO had wrongly accepted the claim of the assessee. The AO did not notice the distinction between s. 115J and s. 115JA. The AO has not given any reasons for accepting the claim of the assessee which was calculated in the manner as provided u/s 115J. No reasons have been assigned to hold that sub-cl. (viii) of s. 115JA was different from cl. (iii) of s. 115J. We are, therefore, of the considered view that the order of the AO was erroneous insofar as it was prejudicial to the interests of the Revenue in regard to computation of deduction u/s 115JA also. The CIT has also referred to certain other alleged mistakes such as wrong allowance of MAT credit, wrong claim of deduction u/s 80G, etc. The assessee has given explanations in regard to these issues and we are satisfied that there is no error committed by the AO in regard to small issues raised by the CIT. So, however, in regard to calculation of deduction u/s 80HHC and in regard to computation of profits for the purpose of s. 115JA, we are of the view that the order passed by the AO was erroneous insofar as it was prejudicial to the interests of the Revenue. The CIT was accordingly justified in setting aside the assessment order and directing the AO to make assessment afresh in accordance with law. Since the CIT has asked the AO to decide the issue afresh in accordance with law, the law will take its own course in passing of the fresh order by the AO. The issues have got to be decided in accordance with law and assessee has the right to appeal against the order of the AO. The order of CIT is again subject to appellate jurisdiction of the Tribunal, High Court, etc. We make it clear that our order will not prejudice the outcome of such proceedings. We have confined ourselves to the validity of order u/s 263 passed by the CIT. We, on the basis of material on record, are satisfied that the order passed by the CIT u/s 263 is within his powers and there is no infirmity in his order to the extent indicated above. We accordingly uphold his order for asst. yr. 2000-01. As indicated earlier, our decision for asst. yr. 2000-01 shall apply mutatis mutandis to the appeal for asst. yr. 2001-02 as well. In the result, the appeals of the assessee for both the assessment years are dismissed.
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