TMI Blog2009 (2) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... s without jurisdiction and/or in excess of jurisdiction and liable to be quashed with consequential relief." 2. Since the facts and issue in both the assessment years are identical, we are considering the facts for the asst. yr. 1999-2000. The brief facts of the case are that the return of income was filed on 29th Dec., 1999 declaring total income at Rs. nil. The assessee claimed deduction of Rs. 2,28,81,916 under s. 80-IA and deduction of Rs. 1,91,10,122 under s. 80HHC of IT Act against the gross total income of Rs. 2,28,81,915. The return of income was revised on 18th Dec., 2000 declaring total income of Rs. nil. The assessee claimed deduction of Rs. 1,94,10,122 under s. 80HHC and deduction of Rs. 1,70,28,746 under s. 80-IA of IT Act against gross total income of Rs. 2,28,81,915. A note was given in the revised return of income that: "The revised return is being filed in view of judgment of the Supreme Court in the case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC), regarding non-eligibility of duty drawback and interest ort bank fixed deposits received from deduction under s. 80-IA. However, we wish to reserve our right to claim deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r s. 148 dropping the reassessment proceedings after considering the submissions of the assessee. In the submissions, the assessee has clearly laid down that as per the computation of income the assessee was entitled to claim deduction under s. 80-IA as well as under s. 80HHC of Rs. 1,70,28,746 and Rs. 1,91,10,122 respectively making total to Rs. 3,61,38,868 but since the gross income was Rs. 2,28,81,916, the claim under s. 80-IA/80HHC was made for Rs. 2,28,81,916 out of the gross total income. The assessee has also enclosed the audit report in Form No. 10CCA in respect of deduction under s. 80HHC in which it was stated that the realization within six months is Rs. 5,06,97,994 as against the total turnover of Rs. 5,96,07,996 and the detail of Rs. 5,06,92,994 was duly submitted. It was contended that the Hon'ble Madras High Court in the case of SCM Creations vs. Asstt. CIT (2008) 218 CTR (Mad) 126 : (2008) 304 ITR 319 (Mad) has decided in favour of the assessee by holding that: 'The relief under s. 80-IA of the IT Act, 1961, should not be deducted from profits and gains of business before computing relief under s. 80HHC." Thus, it was contended that the A0 has duly applied the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the AO shall include- (i) an order of assessment made by the Asstt. CIT or Dy. CIT or the ITO on the basis of the directions issued by the (Jt.) CIT under s. 144A; (ii) an order made by the Jt. CIT in exercise of the powers or in the performance of the functions of an AO conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief CIT or Director General or CIT authorised by the Board in this behalf under s. 120; (b) 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the CIT; (c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal filed on or before or after the 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the CIT under s. 263 can enhance or modify the assessment. 9. It is apparently clear that the powers of the CIT are threefold. One, prior to the initiation of the proceedings under s. 263. Second, at the time of initiation of the proceedings. Third, the final outcome after the initiation of the proceeding. Power of the CIT prior to the initiation includes 'call for and examine the records' of any proceedings under this Act. The word 'record' is very important, because on the basis of the record of the proceedings the CIT will form an opinion that the order passed is erroneous as well as prejudicial to the interest of the Revenue and once he forms an opinion, he has to give an opportunity to the assessee of being heard and after making or causing the enquiry he can pass an order. Moreover the inquiry is conducted once the CIT forms an opinion on the basis of record that the order passed is erroneous and prejudicial to the interest of Revenue. The word 'record' has been defined under Expln. (b) of s. 263 to mean that the 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o that the party against whom the adverse view is taken, can know the reasons for the same. In this case the AO after examining the objections of the assessee on the same very issue preferred to drop the reassessment proceedings in the case of the assessee, therefore, in our opinion there is no error in the order if he has not discussed the issues in the order or dropped the reassessment proceedings on the file itself. It is only the queries raised by the AO and the submissions made by the assessee will speak of whether the AO has applied his mind or not. An assessee cannot compel the AO to incorporate each and every issue in respect of which the AO made the enquiry with the assessee even if the AO got satisfied with the reply of the assessee. We find that Hon'ble Bombay High Court in the case of CIT vs. Gabrial India Ltd. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom) has held in this regard as under: "Held, that the ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in law. We do not agree with the submission of the learned Departmental Representative that no prejudice is caused to the assessee as the assessment order has been set aside on the issue to be made de novo and the assessee will have another chance to agitate this issue again. If the action of the CIT is illegal, the order passed by CIT cannot be sustained. All the subsequent actions carried out on the illegal order are void. We have gone through the various case laws cited from both the sides, but since we find the case of the assessee is duly covered by the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, wherein their Lordships have held as under: "The pre-requisite to the exercise of jurisdiction by the CIT under s. 263 is that the order of the AO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous, and (ii) is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the AO is erroneous but is not prejudicial to the Revenue-recourse cannot be had to s. 263(1). There can be no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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