Commissioner Of Income Tax Madurai v. Madura Coats Ltd., 144 M.g.road, Bangalore 560 001

IN THE HIGH COURT OF JUDICATURE AT MADRASReserved On 03.10.2019Pronounced On 01.11.2019 CORAM THE HON'BLE DR.VINEET KOTHARI, ACTING CHIEF JUSTICEANDTHE HON'BLE MR.JUSTICE C.SARAVANAN T.C.A.Nos.1212 & 1213 of 2009 Commissioner of Income TaxMadurai. .. Appellant inboth T.C.AsVsMadura Coats Ltd.,144 M.G.Road,Bangalore 560 001.PAN : ... Respondent in both T.C.AsVs... Respondent inboth T.C.As COMMON PRAYER: Tax Case Appeals filed under Section 260A of theIncome Tax Act, to reverse the orders dated 06.02.2009 passed bythe Income Tax Appellate Tribunal, Madras 'C' Bench in ITANo.1472/Mds/2008 & ITA No.1473/Mds/2008 against the order of theCommissioner of Income Tax-1, Madurai-2 dated 31.03.2008 inC.No.401/5/2007-08, and C.No.401/6/2007-2008/CIT-1, for theassessment year 1998-1999 and 2003-2004 respectively against theorder of the Joint Commissioner of Income tax Company Circle-I,Madurai dated 28.03.2006 in PAN.No.AABCM8279k for the assessmentyear 1998-1999 and 2003-2004 respectively. Page 1 of 19 For Appellant: Mr.M.Swaminathan Senior Standing Counsel Assistant by M/s.V.Puspha Junior Standing counsel in both T.C.As.For Respondent: Mr.T.Suryanarayanan for M/s.King & Partridge in both T.C.As. C O M M O N J U D G M E N T C.SARAVANAN,J. By this common Judgment, we are disposing both the Tax CaseAppeals filed by the Revenue against impugned common order dated06.02.2009 passed by the Income Tax Appellate Tribunal, ChennaiBench ‘C’ in I.T.A.Nos.1472 and 1473/Mds/2008. 2.By the impugned order, the Appellate Tribunal has allowedtwo appeals filed by the respondent-assessee against order twoseparate orders dated 31.03.2008 passed by the Commissioner ofIncome Tax-1 Madurai under Section 263 of the Income Tax Act,1961 for the Assessment Year 1998-99 and Assessment Year 2003-2004 respectively. 3.At the time of admission of these two appeals on14.12.2009, a Co-ordinate Bench of this Court had framedfollowing two substantial question of law for being answered:- “1.Whether on the facts and circumstances of thecase, the Tribunal was right in holding that theassessment order is not erroneous or prejudicialto the revenue, since 90% of the interest wasexcluded from the business profits in accordancewith the decision of this Court in the case ofChinnapandi? 2.Whether on the facts and circumstances of thecase the Tribunal was right in holding that theassessment order was not erroneous as it hadbeenrenderedfollowingajudicialpronouncement, even though it is clear that the Page 2 of 19 assessing officer had not applied his mind as tothe nature of the interest received to see if itis to be taxed as income from business or incomefrom other sources? 4.Earlier for the assessment year 1998-99, the assessmentwas completed on 29.3.2001. Later, the said assessment wasrevised under Section 154 of the Income Tax Act, 1961. Thisorder was appealed against and the effect to the said order wasgiven on 04.08.2004. While passing the said revision order, itwas noticed that the respondent had not considered certainamounts while determining profit under Section 15-JA of the Act. 5.Under these circumstances, the assessment was reopenedunder Section 147 by issuing a notice under Section 148 aftergetting due approval from the Commissioner of Income Tax-1Madurai. The said proceeding culminated in an Assessment Orderdated 28.3.2006 under section 143 (3) for the Assessment Year1998-99. 6.As per the said order, the respondent assessee was liableto pay a sum of Rs.4,85,19,047/- as deferential tax. The saidorder also enclosed a copy of computation of deduction underSection 80-HHC of the Act which reads as under:- Computation of deduction u/s 80-HHC 1. Adjusted profit as per computation30,61,70,735 Less90% of Duty Drawback as in Order5,56,64,924 : dt.22.1.2003 5.Under these circumstances, the assessment was reopenedunder Section 147 by issuing a notice under Section 148 aftergetting due approval from the Commissioner of Income Tax-1Madurai. The said proceeding culminated in an Assessment Orderdated 28.3.2006 under section 143 (3) for the Assessment Year1998-99. 6.As per the said order, the respondent assessee was liableto pay a sum of Rs.4,85,19,047/- as deferential tax. The saidorder also enclosed a copy of computation of deduction underSection 80-HHC of the Act which reads as under:- Computation of deduction u/s 80-HHC 1. Adjusted profit as per computation30,61,70,735 Less90% of Duty Drawback as in Order5,56,64,924 : dt.22.1.2003 25,05,05,811 LessProfits from Trading Goods46,95,267 : Adjusted profit of the business24,58,10,544 2.Adjusted Export Turnover203,09,43,943 3.Adjusted Total Turnover as per Order905,68,35,314 dt.22.1.2003 __________Page 3 of 19 A Profits of Manufactured Goods:Adj. Profit of Business X Adj. ETO /Adj. TTO5,51,21,62024,58,10,544 X 203,09,43,943--------------------------------------- = 905,68,35,314 B Profit on Trading Goods46,95,267 Total deduction u/s 80-HHC 5,98,16,887[5,51,21,620 plus 46,95,267] 7.Similarly, for the Assessment Year 2003-2004, therespondent had filed a return on 28.11.2003 declaring a totalincome of Rs.44,60,38,260/-. The said return was also processedunder Section 143(1). Later the return was selected for scrutinyand a notice under Section 143(2) was issued to the respondent.Meanwhile, the assessee had also entered into an internationaltransaction, a reference was also made under Section 92C to theTransfer Pricing Officer- II , Chennai. 8.By an Assessment Order dated 28.03.2006 under section 143(3), the arrears of tax for the assessment year 2003-2004 wasdetermined as Rs.3,33,81,847/-. The said order also enclosed acopy of computation of deduction under Section 80-HHC whichreads as under:Computation of deduction u/s 80-HHC Total Turnover:Total Turnover as reported Add:202302798Sales –tax162529996Excise Duty3814072Agency commission received Revised Total Turnover 705,29,99,833 Page 4 of 19 Adjusted Total Turnover:Total Turnover705,29,99,833Less: Turnover of Trading goods 41675572Less: Turnover of Trading goods 701,13,24,261Revised Total Turnover Adjusted Export Turnover: 1352147543Adjusted Profit of Business Business Profit computed 49,79,55,825 Less: 90% of the following: 1. Rent received6,26,4492. Interest received3,36,97,5163. Agency commission recd38,14,072-----------3,43,24,233 90% of Rs.4,91,69,545---3,81,38,037Profit of the Business 46,36,31,592Less: Profit from Traded goods 77,33,896Adjusted Profit of Business 45,58,97,696Export Turnover of Traded Goods41675572Direct cost of Traded Goods27516450 Page 5 of 19 Export Turnover of Traded Goods41675572Indirect cost of Traded Goods:-Total Indirect Cost x ETO ofTraded Goods----------------------------------------------------Total Turnover64,21,751i.e. 1086790398 x 41675572 /705,29,99,833 = 64,21,751IProfit on Traded Goods:Export Turnover of Traded Goods 41675572Less: Direct Cost27516450202302798162529996 Indirect Cost64252263814072Total Direct & Indirect costs 339416763394167677,33,896 II Page 6 of 19 https://hcservices.ecourts.gov.in/hcservices/ Profit on Manufactured Goods: Adj. Profit from business x Adj.ETO------------------------------------------------- Adj. TTOi.e 455897696 x 1352147543 --------------------------------8,79,20,759--- = 8,79,20,759 Total u/s 80 – HCC eligible = Rs.77,33,896 + 8,79,20,759 =9,56,54,655Allowable deduction @ 50% for the AY 2003-2004 = Rs.4,78,27,3289.The Commissioner of Income Tax- I invoked thejurisdiction vested under Section 263 of the Income Tax Act,1961 by construing that the respective assessment orders passedunder Section 143(3) dated 28.03.2006 were erroneous andprejudicial to interest of the revenue. Page 6 of 19 https://hcservices.ecourts.gov.in/hcservices/ Profit on Manufactured Goods: Adj. Profit from business x Adj.ETO------------------------------------------------- Adj. TTOi.e 455897696 x 1352147543 --------------------------------8,79,20,759--- = 8,79,20,759 Total u/s 80 – HCC eligible = Rs.77,33,896 + 8,79,20,759 =9,56,54,655Allowable deduction @ 50% for the AY 2003-2004 = Rs.4,78,27,3289.The Commissioner of Income Tax- I invoked thejurisdiction vested under Section 263 of the Income Tax Act,1961 by construing that the respective assessment orders passedunder Section 143(3) dated 28.03.2006 were erroneous andprejudicial to interest of the revenue. 10. By two separate orders dated 31.03.2008, for therespective Assessment Orders dated 28.03.2006 for the twoassessment years it was held that the Assessing Officer hadcommitted an error while passing order under section 143(3)which resulted in loss of tax and therefore they wereprejudicial to interest of the revenue. 11.It was observed that the Assessing Officer had allowedthe claim of the respondent assessee without reference to 1[st]proviso to Sub-Section (3) of Section 80-HHC and sub-clause(baa) and the explanation below Section 80-HHC of the Act. 12.It was further held that the Assessing Officer had notdiscussed the correctness of the claim and therefore by no Page 7 of 19 https://hcservices.ecourts.gov.in/hcservices/ stretch of imagination it can be held that the Assessing Officerallowed the deduction by application of mind and after dueconsideration. 13.Therefore, the Assessing Officer was directed to computethe deduction under Section 80-HHC by treating income of therespondent assessee from various sources under the head “OtherSources” in accordance with 1[st] provision to Sub-Section (3) ofSection 80-HCC and Sub-Clause (baa) under Explanation belowSection 80-HCC. 14.Aggrieved by the orders of the Commissioner of IncomeTax, the respondent-assessee preferred two separate appeals videITA Nos. 1472 and 1473 /Mds/2008 for the two assessment years inquestion before the Income Tax Tribunal, Chennai (AppellateTribunal for brevity). 15.By the impugned order the Appellate Tribunal has allowedthe respective appeals. The operative portion of the impugnedorder of the tribunal reads as under:-We have considered the rival submissions carefullyin the light of the material on record. We findthat decisions are available on both sides to theeffect that interest income should be assessed asincome from other sources or business income.Depending upon these decisions, again there arelot of decisions available on both sides wherededuction under sec . 80HHC should be available inrespect of interest income or not. Netting ofinterest is also permissible as per the decisionof the Special Bench of the Tribunal in the caseof Lalsons Enterprises (supra). However, on thedate when the Assessment Order was finalised thedecision of the Hon'ble Jurisdictional High Courtin the case of V. Chinnapandi (supra) was clearlyavailable wherein it was held that 90 % of theinterest income has to be excluded from businessincome in view of clause (baa) of Explanation tosec. 80HHC for the purpose of deduction undersec.80HHC. Later on the Hon'ble High Court hasheld in the case of Dollar Apparals (supra) that100% of the interest income has to be reduced forthe purpose of deduction under sec.80HHC. However, Page 8 of 19 Page 8 of 19 we find that this judgment was rendered on 21[st]February 2007 whereas the Assessment Order underSEC. 143(3) of the Act was passed on 28[th] March2006. We further find that the Assessing officerhas diligently followed the decision of theHon'ble Jurisdictional High Court in the case ofV. Chinnapandi (supra) and reduced 90% of theInterest income from business profits for thepurpose of deduction under sec. 80HHC of the Act.At best, the Assessing Officer has followed one ofcourses legally available and no fault can befound with his order. In fact, the Hon'ble SupremeCourt in the case of Malabar Industries Co.Ltd.,(supra) has held as under : “A bare reading of section 263 of the Income -tax Act, 1961, makes it clear that theprerequisite for the exercise of jurisdiction bythe Commissioner suo motu under it, is that theorder of the Income-tax Officer is erroneous inso far as it is prejudicial to the interests ofthe Revenue. The Commissioner has to besatisfied of twin conditions, namely, (i) theorder of the Assessing Officer sought to berevised is erroneous; and (ii) it is prejudicialto the interests of the Revenue. If one of themis absent - if the order of the Income taxofficer is erroneous but is not prejudicial tothe interests of the Revenue or if it is noterroneous but is prejudicial to the Revenue -recourse cannot be had to section 263(1) of theAct. The provision cannot be invoked to correcteach and every type of mistake or errorcommitted by the Assessing Officer, it is onlywhen an order is erroneous that the section willbe attracted. An incorrect assumption of factsor an incorrect application of law will satisfythe requirement of the order being erroneous. Inthe same category fall orders passed withoutapplying the principles of natural justice orwithout application of mind. The phrase"prejudicial to the interests of the Revenue" isnot an expression of art and is not defined inthe Act. Understood in its ordinary meaning itis of wide import and is not confined to loss oftax. The scheme of the Act is to levy and Page 9 of 19 collect tax in accordance with the provisions ofthe Act and this task is entrusted to theRevenue. If due to an erroneous order of theIncome tax Officer, the Revenue is losing taxlawfully payable by a person, it will certainlybe prejudicial to the interests of the Revenue.The phrase "prejudicial to the interests of theRevenue" has to be read in conjunction with anerroneous order passed by the Assessing Officer.Every loss of revenue as a consequence of anorder of the Assessing Officer, cannot betreated as prejudicial to the interests of theRevenue, for example, when an Income-tax Officeradopted one of the courses permissible in lawand it has resulted in loss of revenue, or wheretwo views are possible and the Income-taxOfficer has taken one view with which theCommissioner does not agree, it cannot betreated as an erroneous order prejudicial to theinterests of the Revenue unless the view takenby the Income-tax Officer is unsustainable inlaw."In view of the above we are of the view that theAssessment Order cannot be called erroneous andprejudicial to the interest of the Revenue.Therefore, we quash the revisionary order passedby the CIT and restore that of the AssessingOfficer.16.Heard learned counsel Mr Swaminathan, Senior StandingCounsel for Income Tax for the appellant revenue and Mr. SuryaNarayanan for M/s. King and Patridge for the respondentassessee. 17.The learned counsel for the appellant submits that theinterest was to be treated as income from other sources and assuch when the assessing officer had not done so, it amounted toan order which was erroneous. He further submitted that thedecision of the Court in CIT vs V.Chinnapandi (282 ITR 389) hasno application to the facts of the present case. Page 10 of 19 17.The learned counsel for the appellant submits that theinterest was to be treated as income from other sources and assuch when the assessing officer had not done so, it amounted toan order which was erroneous. He further submitted that thedecision of the Court in CIT vs V.Chinnapandi (282 ITR 389) hasno application to the facts of the present case. Page 10 of 19 18.The learned counsel for the appellant relied upon thefollowing decisions:- 19.Per contra, the learned counsel for the respondent-assessee stated that the impugned orders were well reasoned andrequire no interference and prays for dismissal of the presentappeal. Learned Counsel for the respondent assessee relied uponthe decision of the Court in the following cases:- 20.We have perused the impugned order and the orders passedby the authorities below. The Hon’ble Supreme Court inCommissioner of Income Tax vs K Ravindranathan Nair, (2007) 15SCC 1 has held that the formula in Section 80-HHC(3) of the ITAct provides a fraction of export turnover divided by totalturnover to be applied to business profits calculated afterdeducting 90% of the sums mentioned in Clause (baa) of the saidExplanation. That, profit incentives and items like rent,commission, brokerage, charges, etc. though formed part of gross Page 11 of 19 total income had to be excluded as they were “independentincomes” which had no element of export turnover. 90% of thesaid sum was be reduced from the gross total income to arrive atthe business profits and since the said processing charge was animportant component of business profits, it also had to beincluded in the total turnover in the said formula to arrive atbusiness profits in terms of Clause (baa) of the saidExplanation. In paragraph 18 to 28 the Court further heldas under:- 18.This batch of civil appeals pertains toAssessment Year 1993-1994, therefore, we havequoted the said section as it stood on thematerial date. 19.Section 80-HHC of the IT Act was not a chargingsection. It was an incentive provision. Its objectwas not to ascertain real income. Section 80-HHC(3) provided for the following formula:Export turnoverProfits of the business X --------------------Total turnover 20.Section 80-HHC had a head note. That head notesaid “deduction in respect ofprofitsretained forexport business”. The said head note was insertedby the Finance Act, 1985 w.e.f. 1-4-1986. Underthe original section as inserted by the FinanceAct, 1983, the head note stated “deduction inrespect ofexport turnover”. Therefore, the verybasis shifted from “export turnover” to “retentionof profits for export business”. 21.Under Section 80-HHC(1) of the IT Act it wasinter alia provided that in computing the “totalincome” a deduction of theprofits derivedby theassessee from the export ofgoodsshall be made.That, that the words “profits derived fromexports” in the said sub-section was substitutedfor the words “whole of income” by the Direct TaxLaws (Amendment) Act, 1989 w.e.f. 1-4-1989. Theexpression “derived from” in the said sub-sectionis narrower than the expression “attributable to”,therefore, it is only “profits derived from Page 12 of 19 21.Under Section 80-HHC(1) of the IT Act it wasinter alia provided that in computing the “totalincome” a deduction of theprofits derivedby theassessee from the export ofgoodsshall be made.That, that the words “profits derived fromexports” in the said sub-section was substitutedfor the words “whole of income” by the Direct TaxLaws (Amendment) Act, 1989 w.e.f. 1-4-1989. Theexpression “derived from” in the said sub-sectionis narrower than the expression “attributable to”,therefore, it is only “profits derived from Page 12 of 19 exports” which become the basis for working outthe said formula in Section 80-HHC(3) of the Act.Similarly, by the Finance Act, 1991 w.e.f. 1-4-1992, for the first time, the expression “profitsof the business” stood defined to mean the“profitsofthe business” as computed under thehead “profits and gains of business” underSections 28 to 44-D of the IT Act. Therefore,before giving deduction under Sections 80-HHC(3)(a), (b) or (c) of the IT Act the gross totalincome of the assessee being profits from businesshad to be arrived at in terms of Clause (baa) ofthe said Explanation. However, one point needs tobe noted, namely, while calculating “businessprofits” the same had to be done in terms ofSection 28 to Section 44-D of the IT Act alone.Other provisions like Sections 70 and 71 of the ITAct were excluded. Therefore, in our view, if thesaid processing charges were a part of gross totalincome of the taxpayer being profits from businessthen it had to be included in the total turnoverin the above formula. It is important thatdeduction has to be from profits as understood inthe commercial sense. Moreover, under Clause (baa)(1), 90% of any amount referred to in clauses(iii-a), (iii-b) and (iii-c) of Section 28 of theIT Act or any receipts by way of brokerage,commission, interest, rent, charges or any otherreceipt of a similar natureincluded in suchprofits. The said expression “included in suchprofits” indicated that the said processingcharges formed part of the gross total incomebeing business profits. This has been clarified byClause (baa) of the said Explanation whichinserted the definition of “profits from business”in the said Section 80-HHC(3) of the IT Act.22.In the present case the AO had worked outbusiness profits of Rs 1,94,08,220 as gross totalincome on the basis of income received from cashewbusiness (seepp. 50 and 52 of the SLP paperbook). Even according to the assessees, in theabove formula his business profits included theabovementioned processing charges. However,according to the assessees, the said charges werenot to be included in the total turnover. We arenot inclined to accept the contention of the Page 13 of 19 assessees. The above discussion indicates that theformula in Section 80-HHC(3) of the IT Actprovided for a fraction of export turnover dividedby total turnover to be applied to businessprofits calculated after deducting 90% of the sumsmentioned in Clause (baa) of the said Explanation.That, profit incentives and items like rent,commission, brokerage, charges, etc. though formedpart of gross total income had to be excluded asthey were “independent incomes” which had noelement of export turnover. That, the said itemsdistorted the figure of export profits. Page 14 of 19 Page 13 of 19 assessees. The above discussion indicates that theformula in Section 80-HHC(3) of the IT Actprovided for a fraction of export turnover dividedby total turnover to be applied to businessprofits calculated after deducting 90% of the sumsmentioned in Clause (baa) of the said Explanation.That, profit incentives and items like rent,commission, brokerage, charges, etc. though formedpart of gross total income had to be excluded asthey were “independent incomes” which had noelement of export turnover. That, the said itemsdistorted the figure of export profits. Page 14 of 19 variables were required to be given weightage. Thesubstitution of Section 80-HHC(3) secures profitsderived from the exports of eligible goods.Therefore, if all the four variables are kept inmind, it becomes clear that every receipt is notincome and every income would not necessarilyinclude element of export turnover. This aspectneeds to be kept in mind while interpreting Clause(baa) of the said Explanation. The said clausestated that 90% of incentive profits or receiptsby way of brokerage, commission, interest, rent,charges or any other receipt of like natureincluded in business profits, had to be deductedfrom business profits computed in terms ofSections 28 to 44-D of the IT Act. In other words,receipts constituting independent income having nonexus with exports were required to be reducedfrom business profits under Clause (baa).26.A bare reading of Clause (baa)(1) indicatesthat receipts by way of brokerage, commission,interest, rent, charges, etc. formed part of grosstotal income being business profits. But for thepurposes of working out the formula and in orderto avoid distortion of arriving at export profitsClause (baa) stood inserted to say that althoughincentive profits and “independent incomes”constituted part of gross total income, they hadto be excluded from gross total income becausesuch receipts had no nexus with the exportturnover. Therefore, in the above formula, we haveto read all the four variables. On reading all thevariables it becomes clear that every receipt maynot constitute sale proceeds from exports. That,every receipt is not income under the IT Act andevery income may not be attributable to exports.This was the reason for this Court to hold thatindirect taxes like excise duty which arerecovered by the taxpayers for and on behalf ofthe Government, shall not be included in the totalturnover in the above formula (seeCITv.LakshmiMachine Works[(2007) 11 SCC 126 : (2007) 6 Scale168] ).27.In the present case, the processing chargeswere included in the gross total income fromcashew business. That, even according to theassessee the said charges constituted an important Page 15 of 19 component of gross total income from cashewbusiness. This is not disputed. Therefore, interms of Clause (baa), 90% of the “independentincome” had to be deducted from gross total incometo arrive at business profits to which thefraction had to be applied. Since, the processingcharges constituted independent income similar torent, commission, etc., which formed part of thegross total income, the same had to be reduced by90% as contemplated in Clause (baa) to arrive atbusiness profits. Therefore, the said processingcharges were includible in the total turnover inthe formula under Section 80-HHC(3) of the IT Act. Page 15 of 19 component of gross total income from cashewbusiness. This is not disputed. Therefore, interms of Clause (baa), 90% of the “independentincome” had to be deducted from gross total incometo arrive at business profits to which thefraction had to be applied. Since, the processingcharges constituted independent income similar torent, commission, etc., which formed part of thegross total income, the same had to be reduced by90% as contemplated in Clause (baa) to arrive atbusiness profits. Therefore, the said processingcharges were includible in the total turnover inthe formula under Section 80-HHC(3) of the IT Act. 28.Before concluding we state that the nature ofevery receipt needs to be ascertained in order tofind out whether the said receipt forms part of/orthat it has an attribute of an export turnover.When an indirect tax is collected by the taxpayeron behalf of the Government the tax recovered isfor the Government. It may be an income in theconceptual sense or even under the IT Act butwhile working out the formula under Section 80-HHC(3) of the IT Act and while applying the fourvariables one has to ascertain whether the receipthas an attribute of export turnover. An indirecttax like excise duty does not have that element ofexport turnover as understood in the aboveformula. As stated above, it is recovered by thetaxpayer on behalf of the Government. Therefore,inthepresentcases,ourjudgmentinCITv.Lakshmi Machine Works[(2007) 11 SCC 126: (2007) 6 Scale 168] has no application. 21.This court while passing order dated 22.2.2019 in T.C.A.Nos.884-85 of 2005 where one of us (Hon’ble Dr.Justice VineetKothari was a party) has also observed as under:- 20.It may be stated here that Clause (baa) ofExplanation to Section 80 HHC deals with itemslike rent, commission, brokerage charges et ceterawhich though form part of the gross total income,have to be excluded from the ambit of the scope ofthe words “export profit” to the extent of 90% of Page 16 of 19 https://hcservices.ecourts.gov.in/hcservices/ such receipts, as the legislature felt that 90% ofsuch receipts are presumably not directly relatedto the export of goods and the same to that extentcannot be termed as profits from export businessand in that context, for computing the “ExportTurnover”, the Supreme Court made the aforesaidobservation and held on facts that processingcharges received by the Assessee on export of thecasual nuts and processing charges from otherexporters for processing their casual nuts in hisown factory will be export profit to the extent of10% only as per Clause (baa) of the Explanation.23. As far as the interest income is concerned,Clause (id) of Sub- section (2) of Section 56clearly provides that income by way of interest onsecurities will be taxable under Section S6, ironly such interest income is not chargeable toincome tax under the head "Profits and gains ofbusiness or Profession". Thus, Interest Incomeearned in the ordinary course of business isexcluded from Section 56 of the Act. An interestincome earned by the Assessee or received by theAssessee during the year in question, in theordinary and regular course of business is anintegral part of business income itself. Likehundreds of business decisions taken by theAssessee in its business, the deposit of moneywith the bank either under compulsion likemaintaining the margin money with the Bank or foropening of foreign letter of credit or forobtaining the loan itself or cash credit facilityor the voluntary deposits made by it of thesurplus funds, which would otherwise be lyingidle, the Assessee, in its own business orcommercial prudence, makes a deposit in Bank andincidentally earns an interest through it orinterest from staff loans or custorners on thebelated payments and such interest income isnothing but its regular business income. 24. Section 56 of the Act, providing for "Incomefrom Other Sources". cannot be applied at all tosuch interest income. The income from Businessneed not be directly related only to sale of goodsor services. It can be from the sources like Bankdeposits, which are idle or inactive sources anddo not involve any actual trading or manufacturing Page 17 of 19 activity on the part of the Assessee. Therefore,interest income earned by the Assessee in theordinary course of business, cannot be said to beexcluded from the head "Income from Business orProfession" in Part D, comprising of Sections 28to 44DB in Chapter IV, which deals withcomputation of the total income in the Heads ofIncome as per Section 14 of the Act. If by nostretch of imagination, such interest income couldbe included under the Head "Profits and gains ofbusiness or profession" only then it could fall inthe residuary clause of "Income from OtherSources" under Section 56 of the Act and nototherwise. 22.Section 263 of the Income Tax Act, 1961 is not intendedto be invoked for every type of mistake or error committed bythe Assessing Officer. It is only when an order is erroneous, itis attracted. Though the phrase “prejudicial to the interests ofthe revenue” in Section 263 is of wide import and is notconfined to loss of tax, it has been held by the HonourableSupreme Court in Malabar Industries Co Ltd 243 ITR 83 that everyloss of revenue as a consequence often order of the AssessingOfficer cannot be treated as prejudicial to the interests of therevenue. 23. The scheme of computing of total income under variousheads in Chapter IV of the Income Tax Act, 1961 reveals that“Income from Other Sources” is only those income which cannot bebrought to tax under any of the specific heads of income in theprovisions preceding Section 56 in chapter IV of the Income TaxAct, 1961. An income received in the ordinary course of businessis an integral part of the regular income of the assessee as washeld by a coordinate bench of this court in M/s. AVM CineProducts case. The learned counsel for the revenue also fairlyconceded that the issue is squarely covered by the decisioncited on behalf of the respondent assessee. 24.Since there is no infirmity in the calculations made bythe Assessing Officer while computing the deductions in view ofthe above decisions cited on behalf of the assessee, the view ofthe Commissioner of Income Tax that the Assessing Officercommitted an error while passing the respective AssessmentOrders which resulted in loss of revenue prejudicial to interest Page 18 of 19 of revenue cannot be sustained. Consequently, the direction tothe Assessing Officer to compute deduction under Section 80 HHCin the order of the Commissioner of Income Tax is without anybasis. We are therefore of the view that the Commissioner ofIncome Tax erred in invoking the revisional powers under Section263 of the Income Tax Act, 1961 in the facts of the presentcases. 25.In the light of the above discussion, we are satisfiedthat the impugned orders of the Income Tax Appellate Tribunalsetting aside the orders of the Appellant CIT require nointerference. Therefore, the questions of law raised areanswered against the Appellant CIT. 26. We therefore dismiss the two appeals filed by theCommissioner of Income Tax. No cost.-s/d- Assistant Registrar True CopySub-Assistant RegistrarjenTo1. Income Tax Appellate Tribunal, Madras 'C' Bench.2.Commissioner of Income Tax Madurai.3.The Joint Commissioner of Income TaxIncome Tax Company Circle-I 4.The Commissioner of Income Tax-1Madurai-2 +1 cc to Mr.M.Swaminathan Standing Counsel sr90517+1 cc to M/s.King & Partrige Advocate sr91051+1 cc to M/s.King & Partridge Advocate sr91050 aa04/12/2019 T.C.A.Nos.1212 & 1213 of 2009 Page 19 of 19