Commissioner Of Income Tax Madurai v. M/S.mepco Industries Limited, Madurai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 2.11.2006 CORAMTHE HON'BLE MR.JUSTICE P.D.DINAKARANAND THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA Commissioner of Income TaxMadurai...Appellant /RespondentVs. M/s.Mepco Industries Limited, Madurai...Respondent /Applicant Appeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Madras 'C' Bench dated25.11.2005 in ITA Nos.1901/Mds/2003, for the assessment year 1999-2000against the order of Commissioner of Income tax-II, Madurai dt. 2.9.03in Proceedings No.C.No. 401/2003-04/CIT/I for the assessment year 1999-2000 against the assessment order dt. 29.1.02 PA 49-003-CX-6668 on thefile of the Deputy Commissioner of INcome-tax company circle I, Maduraifor the assessment year 1999-2000. (Delivered by P.D.DINAKARAN, J.) The above tax case appeal is directed against the order of theIncome-tax Appellate Tribunal dated 25.11.2005 made in ITANos.1901/Mds/2003 for the assessment year 1999-2000 and the followingsubstantial questions of law have been raised for consideration: 1. Whether in the facts and circumstances of the case, theTribunal was right in holding that the order under section 263is ambivalent as to whether the order is erroneous andprejudicial or not merely because the CIT sent back the matterto the assessing officer to pass fresh orders after givingopportunity to the assessee? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether in the facts and circumstances of the case, anorder of revision under section 263 should come to a finalconclusion and should not remit the matter to the assessingofficer? 2. The brief facts of the case, as stated, are as follows:-2.1. The relevant assessment year with which we are concerned is1999-2000. The assessee company filed its return of income admittingthe income of Rs.39,36,400/-. The return was processed under section143(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as 'theAct'). The case of assessee was selected for scrutiny, notice undersection 143(2) of the Act was issued and after hearing the assessee, theassessment was completed accepting the return filed by the assessee. 2.2. The Commissioner of Income-tax, finding that inter-unit losswas not adjusted against the profit for the purpose of allowingdeduction under section 80 IA of the Act, issued a notice under section263 of the Act to the assessee. The assessee objected to the samecontending that as per the provisions of section 80 AB of the Act, theonly rider is that the deductions contemplated under Chapter VIA cannotbe carried forward to succeeding years and the quantum of deductionshall be computed as if such eligible business is the only source ofincome of the assessee and hence, section 80 AB of the Act will notrestrict the relief under section 80 IA of the Act. 2.3. The Commissioner of Income-tax, considering the objectionraised by the assessee, remitted the matter to the assessing officer forfresh assessment. The relevant portion of the order of the Commissionerof Income-tax dated 2.9.2003 reads as under: " It would appear that since the issues raised before meby the CA have not been considered at any stage by theassessing officer, the matter has to go back to him forappropriate adjudication as per law. The assessing officershould give fresh opportunity to the assessee beforerestricting the claim of the assessee u/s.80 IA by relyingupon the decisions of the Hon'ble Supreme Court and the HighCourt in 224 ITR 604 and 245 ITR 605 and he should also dulyweigh the averments of the assessee in the matter. Theassessing officer should pass fresh assessment order withregard to the issue of disallowing the excess claim of thededuction under Sec.80 IA which works out to Rs.3581202." " It would appear that since the issues raised before meby the CA have not been considered at any stage by theassessing officer, the matter has to go back to him forappropriate adjudication as per law. The assessing officershould give fresh opportunity to the assessee beforerestricting the claim of the assessee u/s.80 IA by relyingupon the decisions of the Hon'ble Supreme Court and the HighCourt in 224 ITR 604 and 245 ITR 605 and he should also dulyweigh the averments of the assessee in the matter. Theassessing officer should pass fresh assessment order withregard to the issue of disallowing the excess claim of thededuction under Sec.80 IA which works out to Rs.3581202." 2.4. Exasperated by the said order of Commissioner of Income-tax,the assessee preferred an appeal before the Appellate Tribunal, which,by order dated 25.11.2005, following the unreported judgment of thisCourt in Commissioner of Income-tax v. Smt.D.Valliammal dated 27.6.1996,set aside the order of Commissioner of Income-tax holding that theCommissioner of Income-tax has committed an error in invoking thejurisdiction under section 263 of the Act. Hence, the present appeal bythe Revenue raising the questions of law referred to above. 3. Both the questions, in our considered opinion, revolve on thepower of the Commissioner of Income-tax in invoking jurisdiction undersection 263 of the Act which reads as follows: "263. Revision of orders prejudicial to revenue.--(1) TheCommissioner may call for and examine the record of anyproceeding under this Act, and if he considers that any orderpassed therein by the Assessing Officer is erroneous in so faras it is prejudicial to the interests of the revenue, he may,after giving the assessee an opportunity of being heard andafter making or causing to be made such inquiry as he deemsnecessary, pass such order thereon as the circumstances of thecase justify, including an order enhancing or modifying theassessment, or cancelling the assessment and directing a freshassessment. Explanation.--For the removal of doubts, it is hereby declaredthat, for the purposes of this sub-section,-- (a) an order passed on or before or after the 1st day ofJune, 1988, by the Assessing Officer shall include-- (i) an order of assessment made by the AssistantCommissioner *or Deputy Commissioner or the Income-tax Officeron the basis off the directions issued by the *JointCommissioner under section 144A ; (ii) an order made by the *Joint Commissioner in exercise ofthe powers or in the performance of the functions of anAssessing Officer conferred on, or assigned to him under theorders or directions issued by the Board or by the ChiefCommissioner or Director General or Commissioner authorised bythe Board in this behalf under section 120 ; (b) "record" shall include and shall be deemed always tohave included all records relating to any proceeding underthis Act available at the time of examination by theCommissioner ; (c) where any order referred to in this sub-section andpassed by the Assessing Officer had been the subject matter ofany appeal, filed on or before or after the 1st day of June,1988 the powers of the Commissioner under this sub-sectionshall extend and shall be deemed always to have extended tosuch matters as had not been considered and decided in suchappeal. (2) No order shall be made under sub-section (1) afterthe expiry of two years from the end of the financial year in https://hcservices.ecourts.gov.in/hcservices/ which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section(2), an order in revision under this section may be passed atany time in the case of an order which has been passed inconsequence of, or to give effect to, any finding or directioncontained in an order of the Appellate Tribunal, the HighCourt or the Supreme Court. (2) No order shall be made under sub-section (1) afterthe expiry of two years from the end of the financial year in https://hcservices.ecourts.gov.in/hcservices/ which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section(2), an order in revision under this section may be passed atany time in the case of an order which has been passed inconsequence of, or to give effect to, any finding or directioncontained in an order of the Appellate Tribunal, the HighCourt or the Supreme Court. Explanation.--In computing the period of limitation for thepurposes of sub-section (2), the time taken in giving anopportunity to the assessee to be re-heard under the provisoto section 129 and any period during which any proceedingunder this section is stayed by an order or injunction of anycourt shall be excluded." 4. The Apex Court in Malabar Industrial Co. Ltd. v. C.I.T. (243 ITR83), after considering the power and jurisdiction of Commissioner ofIncome-tax under section 263 of the Act and the meaning of the phrase,'prejudicial to the Revenue' found in section 263 of the Act, held asfollows: "A bare reading of section 263 of the Income-tax Act,1961, makes it clear that the prerequisite for the exercise ofjurisdiction by the Commissioner suo motu under it, is thatthe order of the Income-tax Officer is erroneous in so far asit is prejudicial to the interests of the Revenue. TheCommissioner has to be satisfied of twin conditions, namely,(i) the order of the Assessing Officer sought to be revised iserroneous; and (ii) it is prejudicial to the interests of theRevenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenueor if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. Theprovision cannot be invoked to correct each and every type ofmistake or error committed by the Assessing Officer, it isonly when an order is erroneous that the section will beattracted. An incorrect assumption of facts or an incorrectapplication of law will satisfy the requirement of the orderbeing erroneous. In the same category fall orders passedwithout applying the principles of natural justice or withoutapplication of mind. The phrase "prejudicial to the interestsof the Revenue" is not an expression of art and is not definedin the Act. Understood in its ordinary meaning it is of wideimport and is not confined to loss of tax. The scheme of theAct is to levy and collect tax in accordance with theprovisions of the Act and this task is entrusted to theRevenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by aperson, it will certainly be prejudicial to the interests ofthe Revenue. The phrase "prejudicial to the interests of theRevenue" has to be read in conjunction with an erroneous orderpassed by the Assessing Officer. Every loss of revenue as aconsequence of an order of the Assessing Officer, cannot betreated as prejudicial to the interests of the Revenue, forexample, when an Income-tax Officer adopted one of the coursespermissible in law and it has resulted in loss of revenue, orwhere two views are possible and the Income-tax Officer hastaken one view with which the Commissioner does not agree, itcannot be treated as an erroneous order prejudicial to theinterests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. (Emphasis supplied) (Emphasis supplied) 5. As held by the Apex Court in Malabar Industrial Co. Ltd. Case,cited supra, every loss of revenue as a consequence of an order of theAssessing Officer, cannot be treated as prejudicial to the interests ofthe Revenue, for example, when an Income-tax Officer adopted one of thecourses permissible in law and it has resulted in loss of revenue, orwhere two views are possible and the Income-tax Officer has taken oneview with which the Commissioner does not agree, it cannot be treated asan erroneous order prejudicial to the interests of the Revenue unlessthe view taken by the Income-tax Officer is unsustainable in law. 6. In the instant case, the Commissioner of Income-tax, whileexercising power under Section 263 of the Act, had not rendered anindependent finding to the effect that the course adopted by theassessing officer is neither permissible, nor the view taken by theassessing officer resulted in the loss of revenue which is prejudicialto the interest of the Revenue. In the absence of any such finding, theAppellate Tribunal, in our considered opinion, is right in setting asidethe order of the Commissioner of Income-tax. 7. Even on merits, on the point that inter-unit loss was notadjusted against the profit for the purpose of allowing deduction undersection 80 IA of the Act, there are two views possible; one in favourof the Revenue and the other in favour of the assessee.(i) In favour of the Revenue:(a) Kotagiri Industrial Co-operative Tea Factory Ltd. (224 ITR 604)In this case, the Supreme Court, while interpreting theexpression, 'gross total income' in clause (5) of section 80B ofthe Act for the purpose of Chapter VI-A of the Act, held that itis necessary, for the purpose of making deduction under section 80Pof the Act, to determine the gross total income in accordance withthe other provisions of the Act, which means that the gross totalincome must be determined by setting off against the income the https://hcservices.ecourts.gov.in/hcservices/ business losses of the earlier years as required under section 72of the Act, before allowing deduction under section 80P. (b) C.I.T. v. Sundaravel Match Industries (P) Ltd. (245 ITR 605) In this case, this Court held that losses should be set offagainst the profits of the industrial undertaking before grantingthe deduction under section 80HH of the Income-tax Act, 1961, inview of the specific provision found in section 80AB of the Act. (ii) in favour of the assessee:Canara Workshops P. Ltd. (161 ITR 320) In this case, the Apex Court held that in the application ofsection 80E of the Income-tax Act, 1961, the profits and gainsearned by one priority industry (mentioned in that section) cannotbe reduced by the loss suffered by any other industry or industriesowned by the assessee. 8. Therefore, on the facts of the case, when there are two viewsare possible and it is not the case of the Revenue that the view takenby the assessing officer is not permissible in law, the Commissioner ofIncome-tax is not justified in invoking the jurisdiction under section263 of the Act. 9. Hence, we do not find any question of law, much less asubstantial question of law that arises out of the order of theAppellate Tribunal. Accordingly, the tax case appeal stands dismissed.No costs. na. Sd/Asst. Registrar /true copy/ Sub Asst.Registrar To 1.The Assistant Registrar,Income Tax Appellate Tribunal,III Floor, Besant Nagar, Rajaji bhavan,Madras Bench "C"., Madras-90.Income Tax Appellate Tribunal,III Floor, Besant Nagar, Rajaji bhavan,Madras Bench "C"., Madras-90. 2.The Commissioner of Income-Tax-I, Madurai.Tax-I, Madurai. 3.The Deputy Commissioner of Income-tax, Company Circle-1,Madurai-2.of Income-tax, Company Circle-1,Madurai-2. 4.The Commissioner of INcome TAx, Madurai. Madurai. 1 cc to m/s pushya sitaraman, sr.s.c. for IT dept. sr no 52105 TC (A) No.2581 of 20062-11-2006 rs(co)bp