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TMI Blog2005 (2) TMI 750X X X X Extracts X X X X X X X X Extracts X X X X ..... dmissible only with regard to the profit earned by the assessee in the vegetable oil products division, which is engaged in extraction of edible oil. The CIT also found that the assessee also earned profits in the oil cake processing division and export division. The assessee maintained common accounts for all the activities whereas, as per the CIT, the assessee was entitled to the benefit of section 80-IA only in respect of profits of vegetable oil products division as mentioned above. On the basis of these facts, the ld. CIT issued a notice dated 21-2-2000 under section 263 of the IT Act calling upon the assessee to explain as to why the assessment order passed by the Assessing Officer be not treated as erroneous and prejudicial to the interests of the Revenue. 3. On behalf of the assessee, a detailed reply dated 13-3-2000 was filed before the ld. CIT wherein following submissions were made : "As regards point No. 2 of the said notice your goodself has asked for why profit earned from trading business should not be excluded while computing deduction under section 80-IA of the IT Act. In this regard, our submissions are as under: The company had during the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e computing deduction under section 80-IA profit from all the division is claimed (refer point No. 3 of your notice). Our submissions in this regard are as under: The assessee company is engaged in the business of manufacturing and sale of vegetable oil. The assessee company has vegetable and oil products division where it manufactures and sells vegetable oil and expelled oil. The assessee company has claimed deduction under section 80-IA of the Act in respect of the profit derived from the said unit. During the year under reference the assessee has also exported oil, which was manufactured from the above vegetable and oil product division, and as such there is no separate export division. Further in respect of oil cake processing division, it may be brought to your goodself notice that the oil cake processing division refers to the activity which is carried on for further processing of copra cake which is a by-product generated out of manufacturing of coconut oil. During the year under reference the company has on trial basis produced de-oiled cake. As the said activity was done on trial basis and no separate division was operated, only the profits earned from one industrial und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . vegetable oil products division, oil cake processing division and export division are integrated activities of the industrial undertaking and there is hardly any basis for the finding of the ld. CIT(A) that the Assessing Officer's order is erroneous and prejudicial to the interests of the Revenue. The ld. counsel submitted that the Assessing Officer has considered the entire issue of deduction under section 80-IA in great detail and has allowed deduction only after proper application of mind and therefore it is argued that the CIT has no jurisdiction to invoke his powers under section 263. The ld. counsel relied on the Gujarat High Court decision in the case of CIT v. Arvind Jewellers [2003] 259 ITR 5021 and invited our attention to the relevant portion of the ratio of this case, which is as under : "The provisions of section 263 of the IT Act, 1961, cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous that the section will be attracted. An incorrect assumption of the facts or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er considering the facts and circumstances, in a particular manner, on such issue his order cannot be rendered erroneous and prejudicial to the interests of the Revenue merely because the CIT does not agree with the view adopted by the Assessing Officer even though such a view can be one of the plausible views. Another important ingredient is that if the Assessing Officer has failed to apply his mind to the material issues, his order becomes erroneous and prejudicial to the interests of the Revenue. These parameters clearly emerge from the leading case of Malabar Industrial Co. Ltd. (supra). It would be fruitful to reproduce below the ratio of the Supreme Court in this case from the headnote: A bare reading of section 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed a resolution to that effect on 25-9-1983, and the purchaser paid the said amount. In the annexure to the return filed by it for the assessment year 1983-84, the amount was noted as compensation and damages for loss of agricultural income. By order dated 31-10-1985, the ITO accepted the same and endorsed nil assessment for that year. The Commissioner of Income-tax having examined the records of the assessment found that the nil assessment order passed by the ITO was erroneous and it was prejudicial to the interests of the Revenue. After issuing notice to the assessee and hearing his reply he concluded that the amount was unconnected with any agricultural operation activity and was liable to be taxed under the head 'income from other sources'. The Tribunal dismissed the appeal from the order and its decision was upheld by the High Court. On appeal to the Supreme Court: Held, dismissing the appeal, (i ) that in the instant case, the Commissioner noted that the ITO passed the order of 'nil' assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced from Page 99 of the Report : "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions, which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, Courts must carefully try to ascertain the true principle laid down by the decision." 7. We have given a careful consideration to the rival submissions in the light of the factual position and have gone through the precedents cited before us. First of all, we would like to mention that the reliance on the part of the ld. counsel for the assessee in his rejoinder on the Supreme Court decision in the case of Sun Engg. Woks (P.) Ltd. (supra), in our view, has no relevance whatsoever to the issue involved in this appeal. Now, coming to the facts of the case, as mentioned above, the assessee is running an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal : i. The Assessing Officer erred in passing the order under section 143(3) read with section 263 even when appellant was in appeal before the Hon'ble Tribunal against the action under section 263. ii.The Assessing Officer erred in concluding that appellant was operating separate identifiable units and division and had not furnished separate data asked for by him. iii.The Assessing Officer erred in assessing income of the appellant to the tune of Rs. 29,44,750 by enhancing returned income after disallowing 50% deduction claimed by the appellant under section 80-IA. From the above, it may be seen that the grounds of appeal pertain to only one issue i.e., reduced deduction allowed under section 80-IA by the Revenue authorities. Insofar as the merits are concerned, both the parties submitted that their arguments are the same as made during the course of hearing of the assessee's appeal against CIT's order under section 263, which has been decided by us (supra). We have carefully considered the various arguments raised before us with regard to the merits of the assessee's claim for deduction under section 80-IA of the IT Act. First of all, it may be considered as to whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the industrial undertaking and such by-product is further processed in oil cake processing division and is thereafter sold by the assessee. The income thus accruing to the assessee has direct nexus with the functioning of the industrial undertaking and therefore the same would be eligible for deduction under section 80-IA. We, therefore, direct that deduction under section 80-IA has to be allowed with regard to the income of oil cake processing division. It may be mentioned that while restricting the deduction to 50%, the Assessing Officer has considered three factors namely (a) trading profit (b) income of oil cake processing division and (c) export income. The Assessing Officer has allowed separate deduction under section 80HHC and the export profit has been worked out at Rs. 44,534 at page 6 of the Assessing Officer's order and 100% deduction has been allowed with regard to the aforesaid profit. In our view, this export profit should also be reduced from the profit of the industrial undertaking before allowing deduction under section 80-IA. Thus, the following profit should be excluded from the profit of the industrial undertaking : Export profit Rs. 44,434 Trading prof ..... X X X X Extracts X X X X X X X X Extracts X X X X
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