2012 (12) TMI 522 - AT - Income Tax

Revision of Order by CIT u/s 263 Erroneous and prejudicial to the interest of Revenue Adjustment of unabsorbed depreciation while claiming deduction u/s 10B - Held that - Divergent views were expressed by the Hon ble Karnataka, Bombay & Kerala High Court. Following the decision in case of Malabar Industrial Co. Ltd. (2000 (2) TMI 10 - SUPREME COURT) that when two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as erroneous and prejudicial to the interest of Revenue unless the view taken by the AO is unsustainable in law. There is a contrary view expressed by the Hon ble High Courts and AO has accepted one view. Therefore order of CIT u/s 263 needs to be set aside. Issue decides in favour of assessee

Summary

Issues:
1. Correctness of order passed under section 263 of the Income Tax Act regarding deduction under section 10B before set off of unabsorbed depreciation for the assessment year 2007-08.

Analysis:
The appeal involved a dispute regarding the order passed by the Commissioner of Income Tax under section 263 of the Income Tax Act, setting aside the assessment made under section 143(3) for the assessment year 2007-08. The issue revolved around the deduction under section 10B being allowed before set off of unabsorbed depreciation. The Commissioner held the assessment order as erroneous and prejudicial to the interest of Revenue, citing precedents like the decision of the Hon'ble Karnataka High Court in Himatasingike Seide Ltd. v. ACIT. The assessee challenged this order, arguing that the decision of the Hon'ble Karnataka High Court in CIT & Anr. Vs. Yokogawa India Ltd. & Ors. supported the adjustment of unabsorbed depreciation undertaken by the Assessing Officer. The counsel contended that when two views are possible, the view taken by the Assessing Officer should not be deemed erroneous, citing the decision in Malabar Industrial Co. Ltd. The Revenue supported the Commissioner's order, relying on the decision of the Hon'ble Kerala High Court in CIT v. PATSPIN India Ltd.

The Tribunal analyzed the issue, considering the decisions of various High Courts and the Special Bench of ITAT. The Hon'ble Karnataka High Court's decision in CIT v. Yokagawa India Ltd. & Ors. emphasized the exclusion of income of the 10A unit before arriving at the gross total income. The Hon'ble Bombay High Court, in CIT vs. Black & Veatch Consulting Pvt. Ltd., held that deduction under Section 10A must be allowed before setting off losses of a non-10A unit. The Tribunal affirmed that Section 10A provides for a deduction, not an exemption, and must be given effect at the stage of computing profits and gains of business. The Tribunal dismissed the Revenue's appeal, upholding the decision that deduction under Section 10B should be allowed before setting off unabsorbed depreciation.

In conclusion, the Tribunal ruled in favor of the assessee, setting aside the Commissioner's order passed under section 263. The decision was based on the principle that when two possible views exist, the one taken by the Assessing Officer should not be considered erroneous unless it is unsustainable in law, as per the precedent in Malabar Industrial Co. Ltd.