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2008 (11) TMI 612 - AT - Income TaxValidity of revisionary order passed by CIT u/s 263 - CIT held that the deduction allowed u/s 10A in respect of STP Unit-1 without setting off the loss of STP Unit-2 against the income of STP Unit-1 was not in accordance with law - CIT modified the order of the AO for the AY 2003-04 and directed the AO to allow deduction u/s 10A after setting off the loss from STP Unit-2 against the profit of STP Unit-1 - HELD THAT - The Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT had an occasion to consider the scope of section 263. The Hon'ble Apex Court held that in order to exercise power u/s 263, it is necessary that the order, which is to be revised, is erroneous as well as prejudicial to the interest of revenue. Both the conditions are to be satisfied. If one of the conditions is absent, then power u/s 263 cannot be exercised. It is settled law that when an officer adopts one of the courses permissible in law and it has resulted in a loss of Revenue or when two views are possible and the AO takes one view with which the CIT does not agree, the order cannot be treated as erroneous in so far as it is prejudicial to the interests of Revenue. Thus, when AO has taken one of the possible views then the order of AO cannot be termed as erroneous and the CIT was having no power to cancel that order u/s 263. Since we have cancelled the order of the CIT u/s 263, therefore, we are not giving any finding on the alternative submission. In the result, the appeal of the assessee is allowed.
Issues Involved:
1. Invocation of power under Section 263 of the Income Tax Act by the CIT. 2. Computation of deduction under Section 10A of the Income Tax Act for STP Unit-1 without setting off the loss of STP Unit-2. 3. Whether the order of the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue. Detailed Analysis: 1. Invocation of Power under Section 263 of the Income Tax Act by the CIT: The appellant challenged the CIT's invocation of power under Section 263 of the Income Tax Act, arguing that the AO's order was not erroneous as it accepted one of the possible views. The CIT issued a show-cause notice to the assessee under Section 263, stating that the AO's assessment order for the assessment year 2003-04 was erroneous and prejudicial to the interest of the revenue. The CIT believed that the AO wrongly allowed the deduction under Section 10A for STP Unit-1 without setting off the loss of STP Unit-2 against the income of STP Unit-1. 2. Computation of Deduction under Section 10A of the Income Tax Act: The assessee claimed deduction under Section 10A for STP Unit-1 based on its profit, without claiming any deduction for STP Unit-2, which incurred a loss. The CIT directed the AO to recompute the deduction allowable under Section 10A for STP Unit-1 after setting off the loss of STP Unit-2. The assessee argued that Section 10A is to be computed on an undertaking-wise basis, and the loss of one undertaking cannot be adjusted against the profit of another for computing the deduction under Section 10A. The assessee relied on several Tribunal decisions, including ACIT v Yokogawa India Ltd. and ITO v SCT Software Solutions India Pvt. Ltd., which supported the view that deduction under Section 10A is to be computed separately for each undertaking. 3. Whether the AO's Order was Erroneous and Prejudicial to the Interest of the Revenue: The CIT argued that the AO's order was erroneous as it allowed a higher deduction under Section 10A than what was permissible by law, thereby prejudicing the interest of the revenue. The Tribunal, however, noted that the AO had taken one of the possible views, which was supported by various Tribunal decisions. The Tribunal referred to the Supreme Court's judgment in Malabar Industrial Co. Ltd. v CIT, which held that for the CIT to invoke Section 263, the order must be both erroneous and prejudicial to the interest of the revenue. If the AO adopted one of the permissible views, the order could not be considered erroneous. Conclusion: The Tribunal concluded that the AO's order was not erroneous as it was based on one of the possible views. Consequently, the CIT did not have the authority to invoke Section 263 to revise the AO's order. The Tribunal allowed the appeal of the assessee, thereby canceling the CIT's order under Section 263 of the Income Tax Act. The Tribunal did not address the alternative submission as the primary issue was resolved in favor of the assessee. Pronouncement: The appeal of the assessee was allowed, and the judgment was pronounced in the open court on 14.11.2008.
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