TMI Blog2010 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... his mind. It cannot also be said that the Assessing Officer had failed to make any enquiry because no further enquiry was necessary and all the facts were before the Assessing Officer - ITA 1376/2009 AND ITA 1382/2009 - - - Dated:- 5-7-2010 - Advocates who appeared in this case:- For the Appellant: Mr N.P. Sahni and Ms Prem Lata Bansal with Mr P.C. Yadav For the Respondent: Mr Ajay Vohra with Ms Kavita Jha and Mr Sriram Krishna CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE V.K. JAIN BADAR DURREZ AHMED, J 1. These appeals were heard together and are being disposed of by this common judgment inasmuch as the question of law framed in both the appeals is identical and the circumstances are also virtually identical. The question of law that has been framed in these appeals is as under:- "Whether the Income Tax Appellate Tribunal was correct in law in cancelling the order passed by the Commissioner of Income Tax under Section 263 and in restoring the order of the Assessing Officer by holding that the Assessing Officer had taken a possible view at the relevant point of time?" 2. ITA 1376/2009 relates to the assessment year 2001-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 263 on 15.02.2006 and after receiving the written submissions from the respondent / assessee and hearing the representatives of the respondent / assessee, the Commissioner of Income-tax, by virtue of his order dated 07.03.2006, held that the assessment order passed by the Assessing Officer under Section 143(3) on 18.03.2004 was erroneous insofar as it was prejudicial to the interests of the revenue inasmuch as the Assessing Officer had not applied the provisions of Section 80IB(13) / 80IA(9) of the said Act and had wrongly calculated the deduction under Section 80HHC without reducing from the profits and gains computed for allowing such deduction, the claim already allowed as deduction to the extent of such profits and gains under Section 80IB of the said Act. The Commissioner of Income-tax directed the Assessing Officer to re-calculate the allowable deduction under Section 80HHC after reducing from the profits and gains calculated for the purposes of allowance under Section 80HHC, such profits and gains to the extent of Rs 3,04,15,236/-, which had been claimed and allowed as deduction under Section 80IB of the said Act. 6. In the order dated 07.03.2006 passed by the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court decision in the case of CIT v. Max India Ltd: (2007) 295 ITR 282(SC) as also to the decision in the case of CIT v. G.M. Mittal Stainless Steel Pvt. Ltd: 263 ITR 255. The Tribunal held that on the question of allowability of deduction under Section 80HHC on the profits without reducing it by the amount of deduction allowed under Section 80IB, there was a difference of opinion amongst the various benches of the Tribunal and the same continued till the decision of the Special Bench (Chennai) of the Income-tax Appellate Tribunal on 27.04.2007 in the case of ACIT v. Rogini Garments: 108 ITD 49 (Chennai) (SB). In order to examine as to whether there were two different views on the aforesaid issue on 17.03.2006, when the Commissioner of Income-tax passed the order under Section 263 of the said Act, the Tribunal referred to various decisions of different benches of the Tribunal prior to 17.03.2006. The decisions were in respect of Section 80IA(9), which is applicable in view of Section 80IB(13). The following decisions, all prior to 17.03.2006, were in favour of the assessee:- 1) Decision of the Bangalore bench of the Tribunal in the case of Mittal Clothing Co.: (2005) 4 SOT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 pertaining to the assessment years 2001-02 and 2002-03 where the Tribunal had, inter alia, held that on the allowability in deduction under Section 80HHC on the profits without reducing it by the amount of deduction under Section 80IB, there was a cleavage of opinion and that this position continued till the decision in the case of Rogini Garments (supra) was delivered by the Special Bench of Chennai. Consequently, the Tribunal in Anil Kumar Rastogi‟s case concluded that when the Commissioner passed the order dated 31.03.2005 under Section 263, there were two different possible views on the issue and, therefore, the provisions of Section 263 could not be invoked. 11. As a result, the Tribunal, without entering into the question of applicability of the provisions of sub-section (9) of Section 80IA and deciding as to which view was sustainable in law, cancelled the order passed by the Commissioner of Income-tax under Section 263 and restored the order of the Assessing Officer on the issue involved in the appeal for the reason that the view taken by the Assessing Officer was a possible view at the relevant point of time. 12. Being aggrieved by the said decision of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also submitted that the assessee has no control over the manner in which the Assessing Officer makes his order of assessment and that merely because the deduction allowed under Section 80IB was not reduced from the profits and gains while computing the deduction under Section 80HHC, it cannot be said that the Assessing Officer had not applied his mind to the provisions of Section 80IB(13) read with Section 80IA(9). The learned counsel for the respondent / assessee placed reliance on the following decisions:- 1) Commissioner of Income-tax v. Max India Ltd: 268 ITR 128(P H); 2) Commissioner of Income-tax v. Max India Ltd: 295 ITR 282(SC); 3) Hari Irion Trading Company v. Commissioner of Income-tax: 263 ITR 437 (P H); 4) Commissioner of Income-tax v. Eicher Limited: 294 ITR 310 (Delhi); 5) Commissioner of Income-tax v. Kelvinator of India Limited: 256 ITR 1 (FB) (Del); 6) Godrej Agrovet Limited v. Assistant Commissioner of Income-tax and Others: 290 ITR 252 (Bom). 14. Let us first examine the decisions cited by the learned counsel for the respondent / assessee. The Punjab Haryana High Court in the case of Max India Limited (supra) took the position that if the view expressed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile exercising his powers under Section 263, has to look into not only the assessment order, but the entire record of the proceedings before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. This is so because the assessee has no control over the way the assessment order is drafted. It was further observed that during the course of assessment proceedings, the Assessing Officer examines numerous issues and, generally, the issues which are accepted, do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions / disallowances are made. The said High Courts observations to this effect were as under:- "A bare perusal of the aforesaid provisions shows that the CIT can exercise powers under sub-s. (1) of s. 263 of the Act only after examining "the record of any proceedings under the Act". The expression 'record' has also been defined in cl. (b) of the Explanation so as to include all records relating to any proceedings available at the time of examination by the CIT. Thus, it is not only the assessment order but the entire record which has to be examined befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 80-IB(13) read with section 80-IA(9) of the Act and if those provisions were taken into consideration, there would be negative profit and consequently deduction under Section 80HHC could not be granted. This argument is also without any merit because, in the affidavit in reply filed on behalf of the Revenue it is admitted that the assessee had not made exports of the goods manufactured in the industrial units eligible for deduction under section 80-IB. If the goods manufactured in the units availing of deduction under section 80-IB were not exported, then obviously the goods manufactured in those units would not be taken into account for computation of deduction under section 80HHC. In that event, the question of applying the principles laid down in section 80-IA(9) while computing the deduction under section 80HHC does not arise at all." 18. From the aforesaid discussion, it is apparent that the expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression "erroneous" and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such in inquiry has not been made and not because there is anything wrong with the order if the facts stated therein are assumed to be correct." (underlining added) 20. The Supreme Court in Malabar Industrial Company Ltd (supra), with reference to the powers exercised under Section 263 of the said Act, observed as under:- "A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO 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) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to s. 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down for the exercise of revisional power under Section 263 of the Act and that it would depend on the facts of each case. However, the Commissioner of Income-tax must be satisfied of the existence of the twin conditions, that is, that the order of the Assessing Officer is erroneous and that it is prejudicial to the interest of the revenue. The decision of the Madhya Pradesh High Court was challenged before the Supreme Court by way of a Special Leave Petition being SLP (C) 4814-16/08, but the same was dismissed by the Supreme Court by its order dated 10.03.2008. 22. From the decisions cited by the learned counsel for the revenue, it is apparent that failure to make an enquiry on the part of the Assessing Officer would be a ground for invoking the powers under Section 263. The Supreme Court in Malabar Industrial Company Ltd (supra) also noted that the cases which fell in the category of non-application of the principles of natural justice or non-application of mind would also satisfy the requirement of the order being erroneous and would, therefore, be amenable to correction under the revisional jurisdiction of Section 263 of the said Act. In the case of Gee Vee Enterprises (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an enquiry or proper enquiry, would have no application to the present appeals. It is also true that the validity of an order under Section 263 has to be tested with regard to the position of law as it exists on the date on which such an order is made by the Commissioner of Income-tax. From the narration of facts in the Tribunals order, it is clear that on the date when the Commissioner of Income-tax passed his orders under Section 263, the view taken by the Assessing Officer was in consonance with the views taken by several benches of the Income-tax Appellate Tribunal. Therefore, the conclusion of the Tribunal that the Commissioner of Income-tax could not have invoked his jurisdiction under Section 263 of the said Act was correct. As a result, we answer the question against the revenue and in favour of the assessee by holding that the Income-tax Appellate Tribunal was correct in law in cancelling the order passed by the Commissioner of Income-tax under Section 263 and in restoring the order of the Assessing Officer by holding that the Assessing Officer had taken a possible view at the relevant point of time. The appeals are accordingly dismissed. There shall be no order as to cost ..... X X X X Extracts X X X X X X X X Extracts X X X X
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