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THE COMMISSIONER OF INCOME TAX, KOTTAYAM Versus M/s D.C MILLS PVT. LTD.

2016 (11) TMI 720 - KERALA HIGH COURT

Revision u/s 263 - Eligibility of benefit under section 10B - whether the order of the assessing officer is not erroneous and prejudicial to the interest of the Revenue? - Held that:- Reading of the order passed by the Tribunal shows that it has concluded that the view taken by the assessing officer is one of the possible views. The Tribunal arrived at this conclusion relying on the judgment of the Bombay High Court in Hindustan Unilever Limited v. Deputy Commissioner of Income Tax and Union of .....

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SESHADRI NAIDU, JJ. FOR THE APPELLANT : ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX FOR THE RESPONDENT : ADV. SRI.SUKUMAR NAINAN OOMMEN, ADV. SRI.SHERRY SAMUEL OOMMEN JUDGMENT Antony Dominic, J. 1. This appeal is filed by the Revenue calling in question the order passed by the Income Tax Appellate Tribunal, Cochin Bench in ITA.696/08. 2. The respondent assessee owns three 100% export oriented units, viz., PVC Unit, Traditional Mats Unit and Pathirapally Unit. All the three units, being 100% export .....

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the interests of the Revenue, the Commissioner of Income Tax assumed jurisdiction under section 263 of the Income Tax Act and passed Annexure B order, holding that the assessee was not entitled to set off loss of one 100% export oriented unit against the profit of two other 100% export oriented units. According to the Commissioner, such set off would result in giving the assessee 100% deduction from the profit of the profit earning units and that such deduction would go against the intention of .....

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ding of the order shows that the reasoning adopted by the Tribunal is that the view taken by the assessing officer is one of the possible views and that in such a case, the power of revision under section 263 of the Act could not have been invoked. 5. Aggrieved by the aforesaid order of the Tribunal, the Revenue has filed this appeal and the substantial question of law raised is whether, on the facts and circumstances of the case and on interpretation of section 10B of the Act, the Tribunal is r .....

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of the profits and gains derived by an undertaking from export of such articles or things. While the entitlement of the units of the assessee for the benefit of the section is not disputed by the Revenue, its contention is that for the purpose of section 10B, each unit should be separately treated since the word used in the section is 'an undertaking' and that, therefore, set off of loss of one unit against the profit of another is not permissible. 8. However, the question that is requir .....

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sing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. This power includes the power to order enhancing or modifying the assessment or cancelling the assessment and directing fresh assessment. 9. The celebrated decision explaining the scope of section 263 of the Act is that of the Apex Court in Malabar Industrial Co. Ltd. v. Commissioner of Income-tax [243 ITR 83]. In that judgment, the meaning of the term 'prejudicial to the int .....

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pplying the principles of natural justice or without application of mind. 8. 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 conferred (confined) to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy and Co. v. S. P. Jain, (31 ITR 872) : (AIR 1957 Cal 244), the High Court of Karnataka in Commissioner of Income-tax, Mysore v. T. Narayana Pai, (1975 .....

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the interests of the revenue". The High Court held, "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 Administration". In our view this interpretatio .....

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.3) SC], where the court inter alia held thus: There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under S.263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of a .....

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concerned, reading of the order passed by the Tribunal shows that it has concluded that the view taken by the assessing officer is one of the possible views. The Tribunal arrived at this conclusion relying on the judgment of the Bombay High Court in Hindustan Unilever Limited v. Deputy Commissioner of Income Tax and Union of India [325 ITR 102] where, on identical facts, the court has held thus: 23. The fourth and final ground which has weighed with the Assessing Officer in re-opening the assess .....

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ot have been set off against the normal business income. However, this was allowed by the assessment order and it is opined that the assessee's income to the extent of ₹ 1.33 crores has escaped assessment. 24. There is merit in the submission which has been urged on behalf of the assessee that the Assessing Officer has while re-opening the assessment ex-facie proceeded on the erroneous premise that Section 10B is a provision in the nature of an exemption. Plainly, Section 10B as it sta .....

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an exemption. After the substitution of Section 10B by the Finance Act of 2000, the provision as it now stands provides for a deduction of such profits and gains as are derived by a 100 per cent Export Oriented Undertaking from the export of articles or things or computer software for ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce. Consequently, it is evident that the basis on which the .....

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units while the loss sustained by the fourth unit could be set off against the normal business income. In these circumstances, the basis on which the assessment is sought to be reopened is contrary to the plain language of Section 10B. 12. This judgment was followed by the Bombay High Court in The Commissioner of Income Tax v. Galaxy Surfactants Ltd. [343 ITR 108] and it was held thus: 5. At the outset, while dealing with the submission which has been urged on behalf of the Revenue, it must be n .....

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nds, came to be substituted by the Finance Act, 2000 with effect from 1 April 2001. The section as it now stands, is not a provision for exemption, but a provision which enables an assessee to claim a deduction. As it now stands, the section contemplates a deduction of such profits and gains as are derived by a hundred per cent export oriented undertaking from the export of articles and things or computer software for a period of ten consecutive assessment ears beginning with the assessment year .....

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under Section 148. The Division Bench noted that upon the substitution of the provision by the Finance Act, 2000, Section 10B was no longer a provision for exemption, but a provision for deduction. The Division Bench observed as follows: Plainly, section 10B as it stands is not a provision in the nature of an exemption but provides for a deduction. Section 10B was substituted by the Finance Act of 2000 with effect from April 1, 2001. Prior to the substitution of the provision, the earlier provi .....

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