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2015 (12) TMI 839 - ALLAHABAD HIGH COURT

2015 (12) TMI 839 - ALLAHABAD HIGH COURT - [2016] 389 ITR 293 - Deductions under Sections 80-IB and 80HHC - whether Tribunal is justified in holding that the deduction u/s 80-HHC and 80-IB on the same figure of profit without reducing deduction allowed u/s 80-HHC ? - revision u/s 263 - Held that:- It is not a case where the assessment order is based on incorrect assumption of fact. We also find that it is not a case where the Assessing officer has not applied its mind to the provision of Section .....

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f the Act from the profits and gains is a legal consideration. The Assessing Officer allowed the deduction in terms of Section 80 IA(9) of the Act and, therefore, it cannot be said that the Assessing Officer had not applied its mind and had failed to make an enquiry. - We are of the view that there was no material to indicate that the Assessing Officer had not applied its mind to the provisions of Section 80IB(13) of the Act and Section 80IA(9) of the Act nor we find that the Assessing Offic .....

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oss of revenue as a consequence of the assessment order could not be treated as prejudicial to the interest of the revenue. Where the Assessing Officer has adopted a view, which is permissible in law or where two views are possible and the Income Tax Officer has taken one view, we are of the view that the Commissioner of Income Tax could not exercise its power under Section 263 of the Act to differ from the view of the Assessing Officer even if there was a loss of revenue. There is no doubt that .....

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No. 598 of 2011 - Dated:- 11-12-2015 - Hon'ble Tarun Agarwala And Hon'ble Vinod Kumar Misra, JJ. ORDER ( Per Tarun Agarwala, J. ) 1. Both the appeals are being decided together since it involves the same questions of law. For facility, the facts in Income Tax Appeal No. 734 of 2007 is being taken into consideration. 2. The assessee is a manufacturer and exporter. For the assessment year 2001-02, the assessee filed his return showing nil income claiming deductions under Sections 80HHC and .....

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under: "In response to discussion during the assessment proceedings, the assessee has filed the copies of Balance Sheet & Profit & Loss Account for the period ending 31/03/1992 and it is found that this firm was not constituted after splitting up the old business. The assessee was specifically asked when this firm was entitled for deduction u/s 80 IB since its establishment, then why it did not claim deduction u/s 80 IB prior to this year. In response to this, the assessee has submi .....

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itial assessment year. In view of above observations, total income is computed as under: Net Profit as Per Profit and Loss Account = 3,4135,688 Add dep for separate Consideration = 34,05,139 Total ₹ 3,75,40,827 Add 1. Donation 75,800 2. Disallowance out of foreign Tour as per para 2 above = 4,17,564 3. Disallowance out of vehicle Maintenance & running expenses vide para 3 above = 1,57,935 4. Disallowance out of Car dep vide Para 4 above = 83,877 5. Disallowance as per Para 6 above =1,1 .....

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erest u/s 244(A) of I.T.Act, 1961. Issue copy of the order, ND & refund voucher to the assessee. Tax refundable comes as under- Income Nil Tax Nil Adv tax 35,00,000 244A 7,00,000 42,00,000" 3. From the aforesaid, it is clear that the deductions under Sections 80-IB and 80 HHC of the Act was given from the profits and gains computed at ₹ 3,49,13,594.00. The computation further indicates that the Assessing Authority granted deductions upto a maximum of 100% of the profits and gains .....

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business was taken to ₹ 3,49,13,594.00 and both the deductions were allowed after taking this amount without considering the provision of Section 80-IA (9) of the Act, which are applicable to Section 80-IB of the Act by virtue of Section 80-IB(13) of the Act. The Commissioner, accordingly, held that the approach of the Assessing Officer was incorrect and consequently, the deductions given was prejudicial to the interest of the revenue. The Commissioner of Income Tax, accordingly, cancelled .....

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e Department, being aggrieved by the said order, has filed the present appeal under Section 260-A of the Act proposing that the following substantial question of law arises for consideration; "(1) Whether on the facts and in the circumstances of the case, the Tribunal is justified in holding that the deduction u/s 80-HHC and 80-IB on the same figure of profit without reducing deduction allowed u/s 80-HHC ? (2) Whether on the facts and in the circumstances of the case, the Tribunal is justif .....

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earned Senior Counsel assisted by Sri Suyash Agrawal, the learned counsel for the respondent as well as Sri Piyush Agrawal, the learned counsel for the respondent in the connected appeal. 7. Lengthy arguments were made on the issue of the method of deduction that is permissible under Sections 80HHC and 80-IB of the Act and, in this regard, the learned counsel for the appellant has cited decisions given by various High Court in their favour. While considering the decisions on the question of appl .....

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on the ground that the assessment order was prejudicial to the interest of revenue". In the event the Court upholds the order of the Commissioner of Income Tax passed under Section 263 of the Act, in that event, the issue with regard to the manner and method of granting deductions under Sections 80HHC and 80-IB of the Act will be considered by the Assessing Authority pursuant to the order of the Commissioner of Income Tax passed under Section 263 of the Act. In the event the Court holds tha .....

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e decisions. It is sufficient for this Court to consider one judgment given by the Supreme Court in Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), wherein the Supreme Court explained the provision of Section 263 of the Act as under: "To consider the first contention, it will be apt to quote Section 263(1) which is relevant for our purpose. 263. Revision of orders prejudicial to revenue - (1) The Commissioner may call for and examine the record of any pro .....

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Explanation... A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous insofar 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 .....

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tisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. Vs. S.P. Jain (1957) 31 ITR 872, the High Court of Karnataka in .....

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) 163 ITR 129 interpreting prejudicial to the interests of the revenue. The High Court held (page 138): "In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Admini .....

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passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the r .....

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323" 9. From the aforesaid, the assessment order can be revised under Section 263 of the Act if the assessment order is based on incorrect assumption of fact or incorrect application of law or where the order was passed without application of mind. If any of these conditions exists, the Commissioner is still required to be satisfied that the order is not only erroneous but is prejudicial to the interests of revenue. Both these conditions are required to exist before exercising the powers u .....

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tion with erroneous order passed by the Assessing Officer and thus every loss of revenue as a consequence of an erroneous order of the Assessing Officer could not be treated as prejudicial to the interest of revenue. The Supreme Court further held that where two views are possible and the Income Tax Officer has taken one view the same cannot be treated as an erroneous order which is prejudicial to the interest of the revenue merely because the Commissioner does not agree with the order unless th .....

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hat consequently, the Commissioner of Income Tax was justified in holding that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue. 11. On the other hand, Sri R.R.Agrawal, the learned Senior Counsel for the assessee submitted that the Assessing Officer considered all the provisions and, after detailed discussions, made the assessment order under Section 143(3) of the Act granting maximum deduction permissible as provided under Section 80-IA (9) of the .....

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the income after granting deductions as per Section 80-IA(9) of the Act on the amount of profits and gains upto the extent of 100% of the amount of profits and gains. The assessment order indicates that deductions calculated was more than 100% of the profits and gains but the Assessing Officer restricted the deductions only to the extent of 100% of the amount of profits and gains. 13. The object of amending section 80-IA by the Finance (No.2) Act, 1998, as is evident from the memorandum explain .....

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allowed under section 80-IA and various sections under heading C of Chapter VI-A are restricted to the profits of the business of the undertaking/enterprise. 14. We also find that it is not a case where the assessment order is based on incorrect assumption of fact. We also find that it is not a case where the Assessing officer has not applied its mind to the provision of Section 80-IB (13) read with Section 80-IA(9) of the Act. The Assessing Officer after considering the matter in detail has pa .....

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Section 80 IA(9) of the Act and, therefore, it cannot be said that the Assessing Officer had not applied its mind and had failed to make an enquiry. 15. The contention that the order of the Assessing Officer was erroneous as there was incorrect application of law, namely, that the deduction under Section 80HHC of the Act was computed after reducing the amount of deduction under Section 80 IB of the Act from the profits and gains is a legal consideration and does not mean that there has been an .....

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has not been mentioned in the impugned order, nonetheless, the impact of this section has been given effect to in the assessment order. This view of ours is also supported by the decision of Delhi High Court in Commissioner of Income-Tax Vs. Honda Siel Power Products, (2011) 33 ITR 547 (Del). 16. The Assessing Officer granted deduction under Sections 80HHC and 80-IB of the Act by taking the same figure of profits. On the other hand, the Department's case is that the deduction under Section .....

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ired to be taken for calculating the deductions under Section 80HHC of the Act and under Section 80-IB of the Act: 17. On the other hand, in the decision of Liberty India Vs. Commissioner of Income Tax, 2009 (225) CTR (SC) 233, Great Eastern Exports Vs. Commissioner of Income Tax, (2011) 332 ITR 14 (Del) and M/s Broadway Overseas Ltd. Vs. Commissioner of Income Tax, 2014 (265) CTR (P&H) 49, the Courts have held that the deduction under Section 80HHC of the Act is required to be computed afte .....

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ejudicial to the interest of the revenue. Further, we find that at the time when the assessment order was made there was no decision either by the jurisdictional High Court or by any other High Court on the subject. 19. In the light of the aforesaid, we are of the view that there was no material to indicate that the Assessing Officer had not applied its mind to the provisions of Section 80IB(13) of the Act and Section 80IA(9) of the Act nor we find that the Assessing Officer had passed the order .....

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