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TMI Blog2008 (2) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 80-IA has to be deducted on not is a debatable one and two views are possible. Referring to an order passed by another Commissioner under Section 264 of the Income-tax Act in the case of Hetero Drugs Ltd., Hyderabad, the learned Counsel submitted that the Administrative Commissioner, in exercise of his power under Section 264, held that relief under Section 80HHC shall be allowed without deducting the deduction allowed under Section 80-IA. According to the learned Counsel, in view of the order of another Commissioner in the case of Hetero Drugs Ltd. under Section 264 of the Income-tax Act, two views are possible. Therefore, the AO has taken one of the possible views. Therefore, according to the learned Counsel, the order of the AO is neither erroneous nor prejudicial to the interests of the Revenue. According to the learned Counsel, the conditions contemplated under Section 263 of the Income-tax Act are not satisfied for exercising of power of revision by the Commissioner of Income-tax. The learned Counsel placed his reliance on the judgment of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 , and submitted that when two views are pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee, the Administrative Commissioner has rightly exercised his power under Section 263 of the Income-tax Act. Since the AO had not examined the issue whether the deduction allowed under sec 80-IA is to be deducted while computing the eligible profit for the purpose of deduction under Section 80HHC, according to the learned departmental representative, it cannot be said that the AO had taken one of the possible views. The learned departmental representative placed his reliance on the judgment of the Rajasthan High Court in the case of CIT v. Emery Stone Mfg. Co. (1995) 213 ITR 84.3, and submitted that even though the assessee disclosed all the facts before the AO, if the correct provisions of law had not been examined by the AO, the Commissioner of Income-tax can very well exercise his power under Section 263 of the Income-tax Act, Referring to the judgment of the Gujarat High Court in the case of Addl. CIT v. Mukur Corporation [1978] 111 ITR 312, the learned departmental representative submitted that when the AO committed an error in not making enquiry with regard to the claim of the assessee, and due to want of such enquiry, prejudice was caused to the interests of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income on 31-12-1999 disclosing an income of Rs. 2,57,31,090. The return was processed under Section 143(1) on 29-6-2000. Admittedly, no assessment order was passed under Section 143(3). Subsequently, the AO found that the interest income and rental income which formed part of the business profits were not considered for the purpose of exclusion of 90% in view of Explanation (baa) to Section 80HHC. Therefore, the AO reopened the assessment and excluded the interest and other miscellaneous income. The issue whether the deduction allowed under Section 80-IA has to be deducted while computing the eligible profit for the purpose of deduction under Section 80HHC was not at all discussed in the assessment order. Section 80-IA(9) of the Income-tax Act clearly provides for deduction of the profit which is deducted under Section 80-IA. The AO has not discussed the issue of deduction of the relief allowed under Section 80-IA while computing the eligible profit for the purpose of deduction under Section 80HHC. In those circumstances, we may not be able to say whether the AO had expressed any opinion at all. It is also not possible to say that the AO had taken one of the possible views. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee. The Commissioner, in exercise of his power under Section 263 of the Income-tax Act, set aside the order of assessment and directed the AO to make a fresh assessment after giving proper opportunity to the assessee. In those circumstances, the Gujarat High Court held that the words "prejudicial to the interests of the revenue" in Section 263 have not been defined, but they must mean that the orders of assessment challenged are such as are not in accordance with law. The Income-tax Officer had committed an error in not making enquiry into the details as regards both the deductions and also the want of such enquiry resulted in prejudice to the interests of the Revenue. Accordingly, the Gujarat High Court upheld the initiation of proceedings under Section 263 of the Income-tax Act 7. We have also carefully gone through the judgment of the Bombay High Court in the case of Krishna Narayan Naik (supra). In the case before the Bombay High Court, the assessee filed return of income beyond the prescribed time and no application was made for extension of time. However, the Assessing Officer completed the assessment without levying interest under Section 139 of the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and prejudicial to the interests of the Revenue. The Delhi High Court in the case of Consolidated Photo and Finvest Ltd. (supra), held that the application of mind shall be expressed by recording reasons in the order. Since no reason was recorded, it cannot be said that the AO has expressed any opinion or view at all. 9. We have also carefully gone through the judgment of the Apex Court in the case of Malabar Industrial Co. Ltd. (supra). In the case before the Apex Court, the assessee company entered into an agreement for sale of estate of a rubber plantation measuring 699 acres of land for a consideration of Rs. 210 lakhs. The agreement provided for payment of consideration in instalments as scheduled in the agreement. However, the purchaser could not adhere to the schedule and on his request the parties agreed to extend the time for payment of instalments on condition of his paying interest/damages for loss of agricultural income and other liabilities in a sum of Rs. 3,66,649. The assessee company also passed a resolution to that effect and the purchaser paid the said compensation. In the annexure to the return filed by the assessee company, the amount was noted as compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under Section 263(1) was justified. The above observations of the Apex Court clearly supports the view taken by the Rajasthan High Court in the case of Emery Stone Mfg. Co. (supra), the Gujarat High Court in the case of Mukur Corporation (supra), the Bombay High Court in the case of Krishna Narayan Naik (supra) and the Delhi High Court in the case of Consolidated Photo and Finvest Ltd. (supra). Therefore, it is very clear that when the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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