Range-2 Dibrugarh Assam v. M/S Oil India Ltd. P.o. Duliajan, Dist. Dibrugarh, Assam

GAHC010202772016 THE GAUHATI HIGH COURT (HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH) Case No. : ITA 7/2016 1:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR, GOVT. OF INDIA, MINISTRY OF FINANCE, DIBRUGARH C.R. BUILDING, DIBRUGARH 786003, ASSAM 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN, DIST. DIBRUGARH, ASSAM. Advocate for the Petitioner : MR.S SAIKIA Advocate for the Respondent : SC, OIL Linked Case : ITA 9/2016 1:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR GOVT.OF INDIA MINISTRY OF FINANCE DIBRUGARH C.R. BUILDING DIBRUGARH-786003 ASSAM. 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUGARH ASSAM. Advocate for the Petitioner : MR.P SAIKIA Advocate for the Respondent : MR.A SARMA Linked Case : ITA 10/20161:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR GOVT. OF INDIA MINISTRY OF FINANCE DIBRUGARH C.R. BUILDING DIBRUGARH-786003 ASSAM. 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUGARH ASSAM. Advocate for the Petitioner : MR.P SAIKIA Advocate for the Respondent : SC OIL Linked Case : CO 11/2017 1:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR GOVT. OF INDIA MINISTRY OF FINANCE DIBRUGARH C.R. BUILDING DIBRUGARH-786003 ASSAM. 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUARH ASSAM. Advocate for the Petitioner : MR.A J MAHANTA Advocate for the Respondent : MR.S SAIKIA Linked Case : CO 9/20171:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR GOVT. OF INDIA MINISTRY OF FINANCE DIBRUGARH C.R. BUILDING DIBRUGARH 786003 ASSAM. 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUGARH ASSAM. Advocate for the Petitioner : MR.S CHOUDHURY Advocate for the Respondent : Linked Case : CO 10/20171:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR GOVT. OF INDIA MINISTRY OF FINANCE DIBRUGARH C.R. BUILDING DIBRUGARH-786003 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUGARH ASSAM. Advocate for the Petitioner : MR.S CHOUDHURY Advocate for the Respondent : Linked Case : CO 12/20171:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR GOVT. OF INDIA MINISTRY OF FINANCE DIBRUGARH C.R. BUILDING DIBRUGARH 786003 ASSAM. 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUGARH ASSAM. Advocate for the Petitioner : MR.A J MAHANTA Advocate for the Respondent : Linked Case : ITA 8/20161:PRINCIPAL COMMISSIONER OF INCOME TAX and ANR GOVT. OF INDIA MINISTRY OF FINANCE DIBRUGARH C.R. BUILDING DIBRUGARH 786003 ASSAM. 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUGARH ASSAM. Advocate for the Petitioner : MR.P SAIKIA Advocate for the Respondent : MR.K KALITA P R E S E N T HON’BLE THE CHIEF JUSTICE MR. A.S. BOPANNA HON’BLE MR. JUSTICE ARUP KUMAR GOSWAMI For the Appellants : Mr. S. Saikia, and Ms. P. Tamuli, Advocates For the Respondent : Mr. Ajay Vohra, Senior Advocate Mr. Gaurav Jain, andMr. Anshuman Sarma, AdvocatesMr. Anshuman Sarma, Advocates Date of Hearing : 24.01.2019 Date of Judgment & Order : 20.02.2019 JUDGMENT AND ORDER(CAV) (A.S. BOPANNA, C.J.) 2: ADDITIONAL COMMISSIONER OF INCOME TAX RANGE-2 DIBRUGARH ASSAM. VERSUS 1:M/S OIL INDIA LTD. P.O. DULIAJAN DIST. DIBRUGARH ASSAM. Advocate for the Petitioner : MR.P SAIKIA Advocate for the Respondent : MR.K KALITA P R E S E N T HON’BLE THE CHIEF JUSTICE MR. A.S. BOPANNA HON’BLE MR. JUSTICE ARUP KUMAR GOSWAMI For the Appellants : Mr. S. Saikia, and Ms. P. Tamuli, Advocates For the Respondent : Mr. Ajay Vohra, Senior Advocate Mr. Gaurav Jain, andMr. Anshuman Sarma, AdvocatesMr. Anshuman Sarma, Advocates Date of Hearing : 24.01.2019 Date of Judgment & Order : 20.02.2019 JUDGMENT AND ORDER(CAV) (A.S. BOPANNA, C.J.) The issue in all these appeals and the cross-objections relates to the returns filed bythe respondent assessee for the Assessment Years 2005-06 and 2006-07. The assessee havingfiled its return of income had claimed deduction under Section 80 IC(2)(b)(iii) of Income Tax Act(Act for short) by describing itself as a mineral based industry as contained in Part-A of 14[th]Schedule, Item 16, being an industry situated in the North Eastern Region. The claim to thateffect was made in respect of 59 oil wells. The Assessing Officer through his assessment orderdated 29.11.2007 rejected the claim seeking for such deduction. The rejection, however, was onthe ground that though each oil well is claimed to be an undertaking, a combined Form in 10CCBis filed instead of separate Form in respect of each oil well. Though the issue as to whether theassessee is a mineral based industry, was not specifically analyzed, the Assessment Officer had assumed it to be correct and proceeded further, but rejected the claim on the technical non-compliance of filing separate Forms. 2. The assessee being aggrieved by the said assessment order dated 29.11.2007 filedappeals to the Commissioner of Income Tax (Appeals), for short “CIT (A)”, in Appeal Nos.23-24-Dib/2005-2006 and 28-29-Dib/2007-2008. The appeals related to the returns for the year 2005-2006 and 2006-2007 also. The CIT (A) by the order dated 29.2.2008, on consideration of theappeals, allowed the same and the benefit of deduction under Section 80IC was allowed. Whenthis was the position, the Commissioner of Income Tax (for short “CIT”) assumed jurisdictionunder Section 263 of the Act and a revision proceedings was initiated suo-moto. In the noticeissued to the assessee, the CIT had indicated that the Assessing Officer had not examined orapplied his mind on the basic issue as to whether the assessee is actually a mineral basedindustry or not. It is in that view, the revision of the assessment was proposed. The assesseehad, in their reply, indicated reasons to claim benefit under Section 80 IC(2)(b)(iii) by contendingthat they are a mineral based industry. The threshold contention raised by the assessee, however,was to question the authority of CIT to initiate a revision under Section 263 of the Act when thesaid issue had already been concluded on the consideration made by the CIT(A) through its orderdated 29.2.2008. It was further contended that the revision under Section 263 is permissible onlyin respect of an issue which was not considered earlier before the CIT(A) and wherein the orderpassed by the Assessing Officer is erroneous and it is also prejudicial to the interest of therevenue. It was contended that in the present circumstance when the issue was considered andone of the plausible views is already taken and also when the order of the Assessing Officer hasmerged in the order passed by the CIT (A), there was no scope for re-examination of the same ina revision under Section 263 of the Act, where the scope is limited. 3. In that background, the CIT on adverting to the issue, through the order dated22.3.2010 has held that the assessee is not a mineral based industry. Accordingly, the AssessingOfficer was directed to modify the assessment in terms of the order passed in the said proceedingunder Section 263 of the Act. Pursuant thereto, the Assessing Officer by the order dated 7.4.2010modified the assessment order and rejected the claim of the assessee under Section 80 IC. Theassessee, in that circumstance, preferred another appeal before the CIT (A) against suchmodified assessment order dated 7.4.2010. The CIT (A), by the order dated 22.7.2013, rejectedthe appeal filed by the assessee. It is in that light, the assessee filed the appeal before theIncome Tax Appellate Tribunal, Kolkata (for short “ITAT”), both against the order dated 22.3.2010passed in proceedings under Section 263 of the Act as also the consequential assessment orderswhich had been upheld by the CIT(A) through the order dated 22.7.2013. Since the issue wascommon and the consequence of the consideration of the order dated 22.3.2010 under Section263 of the Act would befall on the subsequent orders passed by CIT(A) dated 22.7.2013, the ITATclubbed all the appeals and made a common consideration of the same. Though an independentconsideration as to whether the assessee is a mineral based industry was not made by the ITAT,the consideration was to the effect as to whether the proceedings under Section 263 of the Actwas sustainable. The ITAT has, accordingly, through its order dated 7.5.2015 allowed the appealsfiled by the assessee and the order passed under Section 263 of the Act was set aside. TheRevenue, therefore, claiming to be aggrieved by the order dated 7.5.2015 has filed these appeals,while the assessee has filed the cross-objections/cross appeals raising the grounds insofar as theaspects that were not adverted to by the ITAT, more particularly with regard to the deductions asclaimed under Section 80 IC which would become necessary for consideration if the revisionproceedings under Section 263 of the Act is held to be sustainable. 4. In that light, this Court while admitting the appeals, had framed the followingsubstantial questions of law :- i) Whether the Tribunal is correct in law in cancelling the order passed by theCommissioner by holding that the learned Commissioner had illegally invokedjurisdiction under Section 263 of the Act, 1961 ?Commissioner by holding that the learned Commissioner had illegally invokedjurisdiction under Section 263 of the Act, 1961 ? ii) Whether the Tribunal has correctly held that allowance of relief under Section 80IC of the Act to the assessee on the ground that it is a mineral based industry eventhough it is engaged in the business of refining mineral oil ?IC of the Act to the assessee on the ground that it is a mineral based industry eventhough it is engaged in the business of refining mineral oil ? iii) Whether the view taken by the Tribunal is not sustainable in law keeping in viewthe scheme of the Act read with the Union, Concurrent and State Lists of theConstitution of India ?the scheme of the Act read with the Union, Concurrent and State Lists of theConstitution of India ? 5. From a perusal of the contentions urged, the sequence of events that have followedand the first substantial question of law raised for consideration being, as to whether thejurisdiction invoked by the CIT under Section 263 of the Act is justified, the said aspect is to betaken note at the outset and the other questions would arise only as a consequence thereto. Inthat light, since the consideration is common to all these appeals and cross-objections, they aretaken up together and considered through this common order. 6. Heard Mr. S.Saikia, learned counsel for the Revenue and Mr. Ajay Vohra, learned senior counsel for the assessee and perused the appeal papers. 5. From a perusal of the contentions urged, the sequence of events that have followedand the first substantial question of law raised for consideration being, as to whether thejurisdiction invoked by the CIT under Section 263 of the Act is justified, the said aspect is to betaken note at the outset and the other questions would arise only as a consequence thereto. Inthat light, since the consideration is common to all these appeals and cross-objections, they aretaken up together and considered through this common order. 6. Heard Mr. S.Saikia, learned counsel for the Revenue and Mr. Ajay Vohra, learned senior counsel for the assessee and perused the appeal papers. 7. In the present facts, the issue also is when the order of the Assessing Officer dated29.11.2007 was subjected to appeal and had concluded with the order dated 29.2.2008 passedby the CIT (A), whether in that circumstance the order of the Assessing Officer had merged in theorder passed by the CIT (A) and, in that light, was the order of the Assessing Officer dated29.11.2007 still open and available to be revised by the CIT under Section 263 of the Act ? 8. A perusal of the provisions as contained under Section 263 of the Act wouldindicate that it provides for the Commissioner to call for and examine the records of anyproceeding under the Act and, if he considers that any order passed therein by the AssessingOfficer is erroneous and it is prejudicial to the interest of the Revenue, the Commissioner mayafter giving the assessee an opportunity of being heard, and after making such inquiry, pass orderthereon including to enhance or modify or cancel an assessment and direct fresh assessment.Clause (c) to Explanation-1 to sub-section (1) of Section 263 further reads as hereunder :- “(c) Where any order referred to in this sub-section and passed by the AssessingOfficer had been subject matter of any appeal filed on or before or after the firstday of June, 1988, the powers of the Principal Commissioner or Commissionerunder this sub-section shall extend and shall be deemed always to have extendedto such matters as had not been considered and decided in such appeals.” 9. In the present facts, the provision as contained in Clause (c) would also becomerelevant since apart from the Commissioner having the power to invoke the jurisdiction underSection 263 of the Act, it is clarified that he can invoke such powers only in respect of erroneousportion of the order of the Assessing Officer causing prejudicial interest to the Revenue and suchportion of the order not being a part of the consideration in any appeal, having been filed inrespect of such assessment order to the CIT (A) and the matter not being concluded therein.Therefore, in the instant facts, what is also required to be taken note of is whether in theAssessment Order dated 29.11.2007 and the order dated 29.2.2008 passed by the CIT (A) inrespect of the said assessment, the issue as to assessee claiming to be a mineral based industrywas also an issue which was raised and taken note of in the proceedings whereunder thededuction was sought. In order to take note of the same, a close scrutiny of the assessmentorder dated 29.11.2007 would disclose that deduction under Section 80 IC was an issue whichhad arisen for consideration since the deduction was sought on that basis. The relevant portion ofthe contention and the reply of the assesee as taken note in the assessment order, is ashereunder :- “ It is seen that in the return of the income filed on 31.10.2005deduction u/s 80-IC has been claimed by way of a note in respect of fiftyone new wells successfully drilled for production of crude oil (includingsixty-eight wells completed in earlier last seven years). The amount of theclaim was not quantified and no deduction has been made from the grosstotal income in the computation of income. Audit report in Form No.10CCBwas also not submitted along with the return of income. The amount ofdeduction claimed u/s 80-IC was subsequently quantified asRs.369,60,15,777/- and communicated vide the company’s letter dated30.03.2006. From No.10CCB was also submitted later on in the course ofassessment proceedings. In the Annexure attached to the form it is seen that deduction has been claimed for 59 wells. The assessee was asked tojustify its claim of deduction u/s 80-IC vis-à-vis the provisions of the Act.The assessee stated that the detailed reply given for A.Y. 2006-07 vide letterdated 15.10.2007 may be treated as the reply given for A.Y. 2005-06 also asthe facts and circumstances of the case are the same. The assessee’s replyvide letter dated 15.10.2007 is reproduced as verbatim below : (a) Evidence of fulfilling the conditions laid down U/S 80IC(2)(a) of 80IC(b)as the case may be : M/s Oil India Ltd. (Assessee), is engaged in business of Exploration,Production & sale of crude Oil & natural gas. In the course of such abusiness activities assessee running/increasing its business strength by wayof existing/new eligible Production Centres (Oil/Gas Wells) producingarticles as specified in part A of the Schedules XIV of the Income Tax Act1961 i.e. Gas Based Intermediate Products under Items No.13 and MineralBased Industry under Item of 16, are mostly spread over the North EastRegion as well as some part of the India with its Regional Office Situated atDuliajan in the district of Dibrugarh.” 10. The Assessing Officer after taking note of the reply and the contention hasconcluded as hereunder : “ It may be true that the assessee’s wells are spread over the NorthEastern States and that these wells are producing articles of things specifiedin the Fourteenth Schedule of the I T Act. The issue is whether these wellswould qualify as ‘undertakings’ or ‘enterprises’ as envisaged in section 80-IC. The assessee has claimed deduction u/s 80-IC in respect of 59 wells bytreating each well as a new independent production centre. A single Form10CCB has been submitted wherein all the profits of these so calledindependent production centres have been clubbed together. The profits of these wells have been computed by taking the sales value of the outputfrom these wells and reducing therefrom the drilling costs and proportionateproduction costs. These wells started production on various different datesstarting from the year 1997-98 till upto 2004-05. Just because the profits ofa plant can be proportionately worked out does not necessarily mean that itbecame an ‘undertaking’ or ‘enterprise’.” ……. They are not undertakings or enterprises. The assessee’s claim fordeduction u/s 80-IC by treating these oil/gas wells as undertakings orenterprises is, therefore, not allowable. …… The requirement of accounts of the undertaking to be audited by anaccountant in order to be admissible for deduction u/s 80-IC is also notsatisfied. ….. For all these reasons discussed above the assessee’s claim fordeduction u/s 80-IC is disallowed.” 11. It is against such conclusion of the Assessing Officer in not allowing the deductionwhich was claimed under Section 80 IC, the assessee was before the CIT (A). The CIT (A) tooknote of the claim for deduction as provided in Section 80 IC and, in that light, having consideredeach oil well as an enterprise, has given the benefit of the deduction as claimed under Section 80IC, by concluding as hereunder : …… The requirement of accounts of the undertaking to be audited by anaccountant in order to be admissible for deduction u/s 80-IC is also notsatisfied. ….. For all these reasons discussed above the assessee’s claim fordeduction u/s 80-IC is disallowed.” 11. It is against such conclusion of the Assessing Officer in not allowing the deductionwhich was claimed under Section 80 IC, the assessee was before the CIT (A). The CIT (A) tooknote of the claim for deduction as provided in Section 80 IC and, in that light, having consideredeach oil well as an enterprise, has given the benefit of the deduction as claimed under Section 80IC, by concluding as hereunder : “ Applying the above tests, each oil well appears to satisfy the test of‘undertaking’ for the purpose of Section 80IB/80IC of the Act. Each oil wellis a distinct, separate and integrate unit for which capital is separatelyemployed and the expenses incurred are separately accounted for. Each oil well produces crude oil and natural gas and therefore it satisfies also one ofthe tests for the purpose of claiming the benefit of Section 80IB & 80IC. ……….. For the reasons aforesaid it was submitted by the AR that the benefitunder Section 80IB for the assessment years 2003-04 and 2004-05 andbenefit u/s 80IC for the assessment years 2005-06 and 2006-07 are to beallowed. ………… I have considered both the assessment order of the A.O. as well as thewritten submissions and arguments of the Ld. A/R. The written submissionsof the appellant are specific and deal with each issue as raised by the A.O.The two(2) grounds of appeal, pressed by the appellant regardingdisallowance of the claim of the Appellant u/s 80IB and 80IC of the Act forthe A.Y. 2003-04, 2004-05, 2005-06, 2006-07 and also disallowance ofdiscount allowed by the Appellant on account of under-recovery of the oilmarketing company for A.Y. 2005-06 and 2006-07 have been factuallyexplained by the appellant and buttressed by relevant case law on the issuesraised. I have gone through the assessment order of the A.O. and put acrossthe revenues point of view as well as the issues involved to the A/R’s of theappellant company. They were asked to submit a para-wise rebuttal of theA.O’s observations etc. Their written submissions dated 27.2.06 explains theappellant’s the appellant’s position and clarifies the issues involved. Thishave been summarized by me above. The arguments of the appellant as wellas the case law cited by the A/R’s are persuasive and factual and aftercareful consideration of the merits of both sides I am of the consideredopinion that the grounds relating to disallowance of the claim of theAppellant u/s 80IB and 80IC of the Act for the A.Y. 2003-04, 2004-05, 2005-06, 2006-07 and disallowance of discount allowed by the Appellant on account of under-recovery of the oil marketing company for A.Y. 2005-06and 2006-07 have been adequately explained by the appellant company andare deserving of relief. In the circumstances, the appellant succeeds on boththe above mentioned grounds. The other grounds being withdrawn theappeal is treated as allowed.” 12. The learned senior counsel for the assessee in order to substantiate the contentionthat the power under Section 263 of the Act cannot be invoked when the order of the AssessingOfficer has merged in the order in appeal, has relied on the decision in the cases of :- (1) Oil India Limited Vs. Commissioner of Income-tax, 138 ITR 836 (Calcutta), account of under-recovery of the oil marketing company for A.Y. 2005-06and 2006-07 have been adequately explained by the appellant company andare deserving of relief. In the circumstances, the appellant succeeds on boththe above mentioned grounds. The other grounds being withdrawn theappeal is treated as allowed.” 12. The learned senior counsel for the assessee in order to substantiate the contentionthat the power under Section 263 of the Act cannot be invoked when the order of the AssessingOfficer has merged in the order in appeal, has relied on the decision in the cases of :- (1) Oil India Limited Vs. Commissioner of Income-tax, 138 ITR 836 (Calcutta), wherein while considering the claim of the assessee regarding depreciation onbungalows, which was disallowed by the Assessing Officer, and on appeal, the appellateauthority allowed the appeal, but had not given any direction as to the quantum ofdepreciation and when the Commissioner subsequently issued a show cause notice underSection 263 inviting the assessee’s objection to his proposal to set aside the assessmentorder insofar as it was prejudicial to the interest of the Revenue, an issue arose as towhether the order passed by the Commissioner under Section 263 of the Act wassustainable. In that context, it was held that in an appeal preferred before the appellateauthority, the whole assessment is open for review and when the matter raised in theappeal is the subject matter before the Commissioner in the revision, the Commissionerhas no jurisdiction to issue the notice under Section 263 of the Act and to pass any order.As such, it was held that where an appeal is preferred and the subject matter of appeal,particularly raised, is the subject matter before the AAC, that order cannot be the subjectof an order of revision by the Commissioner. Such conclusion was reached as what was urged was the quantum of the depreciation which was the subject matter of appeal and, inthat circumstance, the Commissioner had no jurisdiction in the facts and circumstance ofthe case. (2) Commissioner of Income-tax –Vs.- Shashi Theatre (P) Ltd., 248 ITR 126 (Gujarat), wherein the assessee had claimed investment allowance and the AssessingOfficer had allowed the claim on the plant and machineries, but had not grantedinvestment allowance for the remaining items. The assessee had preferred an appeal andthe same was decided in his favour and the investment allowance was granted on allitems. Subsequently, another Commissioner took up the matter in revision under Section263 of the Act and ordered that the grant of investment allowance by the Assessing Officerwas erroneous. On appeal, it was held that the revision under Section 263 of the Act wasnot justified as the order of the Assessing Officer had merged in the appellate order. TheGujarat High Court in addition to the question of merger had also kept in view Clause (c)of Explanation to Section 263(1) and has held that Section 263 could not have beeninvoked. (3) Commissioner of Income-tax Vs.- Mehsana District Co-op. Milk Producers Union Ltd., 263 ITR 645 (Gujarat), wherein the similar issue as to whether powersunder Section 263 can be invoked when order sought to be revised was already subjectedto appeal was considered and it was held that the power under Section 263 cannot beexercised. 13. The learned senior counsel for the Revenue, on the other hand, has relied on the (3) Commissioner of Income-tax Vs.- Mehsana District Co-op. Milk Producers Union Ltd., 263 ITR 645 (Gujarat), wherein the similar issue as to whether powersunder Section 263 can be invoked when order sought to be revised was already subjectedto appeal was considered and it was held that the power under Section 263 cannot beexercised. 13. The learned senior counsel for the Revenue, on the other hand, has relied on the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax,Gujarat-I, Ahmedabad –Vs.- Shri Arbuda Mills Ltd., Ahmedabad, (1998) 9 SCC 702, wherein on the issue of merger, it has been held that the powers of the Commissioner underSection 263 of the Act shall extend to such matters as has not been considered and decided inthe appeal. In the facts therein, the ITO while making certain additions and disallowances, alsoaccepted the claim of the assessee in respect of three items. In the appeal filed by the assessee,the three items were not the subject matters of the appeal. In respect of those three items, theCIT exercised his powers under Section 263. It is in that context, it was held that in respect of thesaid three items, there was no merger. 14. From the decisions cited on either side, the law as enunciated would be clear thatin order to consider the position as to whether the order of the Assessing Officer had merged inthe order of CIT (A) and, in that context, whether the subject matter which was the issue in theassessment proceedings as also in the appellate proceedings before the CIT (A), and that in therevision proceedings before the CIT is the same, the facts involved in each case will have to betaken note so as to arrive at a conclusion whether the invocation of the power under Section 263of the Act to revise such assessment order is in respect of the same subject matter and the issuewhich had concluded in the assessment as also the appellate proceedings. In that background,the present facts will have to be noticed. 15. The extracted portion supra relating to the contention and consideration of theassessment proceedings leading to the Assessment Order dated 29.11.2007 will disclose that theclaim for deduction as contemplated under Section 80 IC of Act was predicated on the claim that the assessee is a mineral based industry located in North Eastern State and reference was alsomade to Item 16 in Part-A of Schedule XIV of the Act. The Assessing Officer during the course ofthe consideration has stated that it may be true that it is producing articles specified in ScheduleXIV of the Act. However, the claim was disallowed since the Assessing Officer was of the viewthat the wells regarding which claim for deduction was made cannot be considered as‘undertaking’ or ‘enterprise’ and despite claiming that wells to be independent production centre,single Form 10 CCB was submitted. Hence, the claim for deduction under Section 80 IC as madeby the assessee was disallowed. When the appeal was filed to the CIT(A) against suchdisallowance, the CIT(A) has reversed the conclusion of the Assessing Officer and allowed theclaim by accepting that each oil well appear to satisfy the test and it is further held that each oilwell produces crude oil and natural gas and, therefore, it satisfies also one of the tests for thepurpose of claiming benefit of Section 80 IB and 80 IC. Accordingly, the claim was allowed. 16. In that backdrop, a perusal of the revision proceedings under Section 263 of the Actwill disclose that the very issue which was considered by the CIT(A) and concluded was re-opened, which is indicative by the observation of CIT, wherein he has stated that the perusal ofthe record shows that the Assessing Officer had not examined or applied his mind on the basicissue as to whether the assessee is actually a mineral based industry or not. As noticed, thequestion of considering the wells of the assessee as an undertaking was not accepted by theAssessing Officer though the claim of mineral based industry was not rejected. Whether suchacceptance was erroneous and whether the CIT(A) has committed an error in allowing the claimwill lose its relevance when it is to be noticed only to the extent of finding out whether the sameissue could have been examined in a subsequent revision proceeding under Section 263 of theAct. When in the revision proceedings the CIT accepts during the course of the order that the assessee had claimed deduction under Section 80 IC claiming to be a mineral based industry andin that background when the claim was disallowed by the Assessing Officer but allowed by theCIT(A), the issue would stand concluded and there would be no scope for re-examination in thejurisdiction under Section 263 of the Act as the assessment order has merged in the appellateorder. The matter not having been examined in the same manner or to the same extent anddepth is immaterial. When the claim for deduction was on that basis, the exception as containedin Clause-(c) to Explanation-1 to sub-section (1) of Section 263 of the Act would not apply norwill the circumstance stated by the Hon’ble Supreme Court in the case of Shri Arbuda MillsLtd., Ahmedabad (supra) be relevant to the present fact situation. In that view, the revisionproceedings under Section 263 of the Act in the present context was not sustainable. 17. The contention urged on behalf of the assessee is also that the ITAT hasappropriately decided the issue of proceeding under Section 263 of the Act not beingmaintainable and it is contended that it does not satisfy the twin test of the Assessment orderbeing erroneous and also being prejudicial to the interest of revenue. The learned SeniorAdvocate for the assessee has relied on the decision of the Hon’ble Supreme Court in the case ofMalabar Industrial Co. Ltd. Vs. Commissioner of Income Tax (243 ITR 83-SC) =(2000) 2 SCC 718, which was also relied upon by the learned Advocate for revenue. In the saiddecision, it is held as hereunder : 5. 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 Commissionermay call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officeris erroneous insofar as it is prejudicial to the interests of the Revenue, hemay, after giving the assessee an opportunity of being heard and aftermaking or causing to be made such inquiry as he deems necessary, passsuch order thereon as the circumstances of the case justify, including anorder enhancing or modifying the assessment, or cancelling theassessment and directing a fresh assessment. Explanation.- * * *” 5. 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 Commissionermay call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officeris erroneous insofar as it is prejudicial to the interests of the Revenue, hemay, after giving the assessee an opportunity of being heard and aftermaking or causing to be made such inquiry as he deems necessary, passsuch order thereon as the circumstances of the case justify, including anorder enhancing or modifying the assessment, or cancelling theassessment and directing a fresh assessment. Explanation.- * * *” 6. A bare reading of the provision makes it clear that the prerequisite toexercise of jurisdiction by the Commissioner suo motu under it, is that theorder of the Income Tax Officer is erroneous insofar as it is prejudicial to theinterests of the Revenue. The Commissioner has to be satisfied of twinconditions, namely, (i) the order of the Assessing Officer sought to berevised is erroneous; and (ii) it is prejudicial to the interests of the Revenue.If one of them is absent – if the order of the Income Tax Officer is erroneousbut is not prejudicial to the Revenue or if it is not erroneous but isprejudicial to the Revenue – recourse cannot be had to Section 263(1) of theAct. 7. There can be no doubt that the provision cannot be invoked to correcteach and every type of mistake or error committed by the Assessing Officer;it is only when an order is erroneous that the section will be attracted. Anincorrect assumption of facts or an incorrect application of law will satisfythe requirement of the order being erroneous. In the same category fallorders passed without applying the principles of natural justice or withoutapplication of mind. 8. The phrase “prejudicial to the interest of the Revenue” is not anexpression of art and is not defined in the Act. Understood in its ordinarymeaning it is of wide import and is not confined to loss of tax. The HighCourt of Calcutta in Dawjee Dadabhoy & Co. V. S.P. Jain, the High Court of Karnataka in CIT v. T. Narayana Pai, the High Court of Bombay in CIT v.Gabriel India Ltd. and the High Court of Gujarat in CIT v. Minalben S. Parikhtreated loss of tax as prejudicial to the interests of the Revenue. 9. Mr. Abraham relied on the judgment of the Division Bench of the HighCourt of Madras in Venkatakrishna Rice Co. v. CIT interpreting “prejudicialto the interests of the Revenue”. The High Court held : “in this context, (it must) be regarded as involving a conceptionof acts or orders which are subversive of the administration ofrevenue. There must be some grievous error in the order passed bythe Income Tax Officer, which might set a bad trend or pattern forsimilar assessments, which on a broad reckoning, the Commissionermight think to be prejudicial to the interests of the RevenueAdministration.” In our view this interpretation is too narrow to merit acceptance. Thescheme of the Act is to levy and collect tax in accordance with the provisionsof the Act and this task is entrusted to the Revenue. If due to an erroneousorder of the Income Tax Officer, the Revenue is losing tax lawfully payableby a person, it will certainly be prejudicial to the interests of the Revenue.” “in this context, (it must) be regarded as involving a conceptionof acts or orders which are subversive of the administration ofrevenue. There must be some grievous error in the order passed bythe Income Tax Officer, which might set a bad trend or pattern forsimilar assessments, which on a broad reckoning, the Commissionermight think to be prejudicial to the interests of the RevenueAdministration.” In our view this interpretation is too narrow to merit acceptance. Thescheme of the Act is to levy and collect tax in accordance with the provisionsof the Act and this task is entrusted to the Revenue. If due to an erroneousorder of the Income Tax Officer, the Revenue is losing tax lawfully payableby a person, it will certainly be prejudicial to the interests of the Revenue.” 18. The learned Advocate for the Revenue has relied on the decision of the Hon’bleSupreme Court in the case of Commissioner of Income Tax, Mumbai Vs. AmitabhBachchan, (2016) 11 SCC 748, wherein the revision proceeding under Section 263 of the Actwas upheld. It is noticed that the decision in the case of Malabar Industrial Co. Ltd. (supra)was referred therein. The issue considered therein was whether the revision of assessment was inviolation of natural justice and was it beyond the scope of show cause notice. In the instant case,it is noticed that the Assessment Officer had in fact disallowed the claim. Even if the order was erroneous in so far as considering or not considering the aspect of mineral based industry, thesame did not suffer from the second vice of causing financial prejudice to the revenue, which wasin fact disallowed by the Assessing Officer but ultimately allowed by the CIT(A) which in anyevent cannot be corrected in a revision proceeding under Section 263 of the Act. 19. Though elaborate contentions have been addressed by the learned senior counselon either side with regard to the other aspects including to contend with regard to the postulatesof mineral based industry, in view of the above conclusion, the other aspects need not to beadverted to in detail by us. 20. In view of the above discussion, the order passed by the ITAT does not call for anyinterference. Accordingly, the substantial questions of law raised herein are answered against theRevenue. 21. In the result, the appeals bearing Income Tax Appeal Nos.7/2016, 8/2016, 9/2016and 10/2016 are dismissed. Consequently, the C.O. Nos. 9/2017, 10/2017, 11/2017 and 12/2017are disposed of without specific order. There shall be no order as to costs. JUDGECHIEF JUSTICE Comparing Assistant