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TMI Blog2012 (3) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, the assessment was completed at an income of Rs.1,97,94,13,320/- vide order dated 28.12.2006 passed u/s 143(3) of the Income Tax Act, 1961( in short the Act). On examination of assessment records for the assessment year 2004-05, the ld. CIT observed that the AO while al lowing the deduction u/s 80HHF, the expenditure incurred in foreign currency have not been reduced from export/total turnover and the interest income of Rs.57.76 crores has been considered as part of the business income and has reduced 90% of the same from the profit of the business. Whereas the AO should have excluded 100% of the receipt from the business income as interest income has to be taxed under the head "income from other sources". Therefore, the deduction u/s 80HHF has been allowed in excess. He further observed that the AO while considering the provisions of section 14A has not considered the decision of the Special Bench of the Tribunal in ITO V/s Daga Capital Management (P) Ltd., 117 ITD 169(Mum) (SB). Accordingly an opportunity of being heard was provided to the assessee. In response, the assessee interalia submitted that the order has to be both erroneous as well as prejudicial to the interests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire deduction u/s 80HHF afresh and did not restrict to the points raised in the notice u/s 263, therefore, the ld. CIT travel led beyond the show cause notice which is bad in law and for this proposition the reliance was also placed in CIT V/s Shri Ashish Rajpal (2010) 320 ITR 674 (Del) at page 690. The reliance was also placed on the decisions in (i) CIT V/s Gabriel India Ltd., (1993) 203 ITR 108 (Bom), (i i)Malbar Industrial Co. Ltd. V/s CIT (2000) (243 ITR 83 (SC) and (iii) CIT V/s Max India Ltd. (2007) 295 ITR 282 (SC). He further submits that the Tribunal in assessee's own case in M/s Zee Telefilms Ltd. (Now Zee Entertainment Enterprises Ltd.) V/s Addl .CIT in ITA No.265/Mum/2008 (AY-2003-04) dated 29.9.2009 in the appeal against the order passed u/s 263 has upheld the order of the AO in treating the interest income as business income. He further submits that the order passed by the Tribunal has been upheld by the Hon'ble Jurisdictional High Court in CIT V/s M/s Zee Telefilms Ltd. (Now Zee Entertainment\ Enterprises Ltd.) in Income Tax Appeal No.2262 of 2010 dated 10.8.2011. 5. With regard to the issue of deduction u/s 80HHF vis-a-vis non-exclusion of expenditure incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the submissions of the rival parties and perused the materials available on record. It is settled law that the scope of application of section 263 of the Act is governed by the principles set out in Malabar Industrial Co. Ltd. V. CIT (2000) 243 ITR 83(SC) as reaffirmed in CIT V. Max India Ltd (2007) 295 ITR 282 (SC). It has been held that the phrase "prejudicial to the interests of the Revenue" used in section 263 of the Act has to be read in the conjunction with an "erroneous" order passed by the Assessing Officer. Thus, it is not, as if in every case where there is loss of revenue, as a consequence of an order passed by the Assessing Officer, it can be treated as prejudicial to the interests of the Revenue. Consequently, if the Assessing Officer has adopted one of the courses permissible in law, which resulted in loss of revenue or where two views are possible and the Assessing officer has taken one view with which the Commissioner of Income Tax does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing officer is unsustainable in law. 9. In Gabriel India Ltd. (supra) it has been held (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and perusing the material on record it is noted that the assessee had categorically submitted before the Assessing Officer that it was engaged in the financing business and the interest income resulted therefrom only. The Assessing Officer got satisfied and reduced 90% of the gross interest income from the "profits of the business" for the purpose of computing deduction u/s.80HHF of the Act. It shows that the interest income was assessed under the head "profits and gains of business or profession" but deduction u/s.80HHF was not allowed. The finding given by the Auditor simply shows that the surplus funds for the business are invested for making loans and advances on which interest income has been earned. It was nowhere reported by the auditor that the assessee was not engaged in the business of financing. When the assessee is engaged in two businesses being export of fi lm software etc. and financing business and the surplus from the export business is utilized in the other business of financing, the character of the interest income will remain as "profit and gains of business or profession" and not "Income from other sources". If that be the position no fault can be found with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 263 of the Act and hence, the same is cancel led. The grounds taken by the assessee are, therefore, allowed. ITA No.4850/Mum/2010 (by Revenue) 15. The grounds taken by the Revenue read as under: "1. On the facts and in the circumstance of the case and in law, the ld. CIT(A) was not justified in holding that 90% of the net interest and not 90% of the gross interest as held by the AO is to be reduced from the profits of business for the purpose of computation of deduction u/s 80HHF of the IT Act. 2. On the facts and in the circumstance of the case and in law, the ld. CIT(A) erred in directing the AO to al low deduction u/s 14A ignoring the fact that assessee earned exempted income and incurred direct and indirect expenses to earn the said exempted income. 3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO restored." 16. After hearing the rival parties and perusing the material available on record, we find that this appeal was fi led by the Revenue against the order passed by the ld. CIT(A) who has partly allowed the appeal against the assessment order dated 4.12.2009 passed u/s 143(3) read with section 263 of the Act. Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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