2014 (7) TMI 806 - AT - Income Tax

Revision u/s 263 - 100% EOU - Claim of exemption made u/s 10B instead of 10A due to inadvertence CIT observed that, assessee had not obtained statutory approval from the Board appointed in that behalf by the Central Government as required under S.14 of the Industries (Development and Regulation) Act, 1951 for claiming status of an 100% Export Oriented Undertaking - Held that - The assessment made allowing the claim under S.10B of the Act may render the assessment to be erroneous - in the absence of any finding by the CIT that the assessee is not eligible for relief u/s 10A, under which the assessee should have made the claim, it cannot be said that the assessment is also prejudicial to the interests of Revenue. Relying upon Malabar Industrial Co. Ltd. Versus Commissioner of Income-Tax 2000 (2) TMI 10 - SUPREME Court - the pre-requisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the AO is erroneous in so far as it is prejudicial to the interests of the Revenue - Commissioner having not arrived at the conclusion that the assessment was not only erroneous but also prejudicial to the interests of the Revenue, the order of the CIT cannot be sustained Decided in favour of Assessee.

Summary

Issues:
Claim for exemption under incorrect section - S.10B instead of S.10A, Commissioner's order under S.263 of the Income Tax Act, 1961, Assessment of relief under S.10B, Eligibility for relief under S.10A, Revisionary powers under S.263, Prejudicial to the interests of Revenue.

Analysis:

Issue 1: Claim for exemption under incorrect section - S.10B instead of S.10A
The appellant, a company engaged in manufacturing, claimed exemption under S.10B instead of S.10A due to inadvertence. The Commissioner, under S.263, found the assessment erroneous and prejudicial to Revenue, directing withdrawal of relief granted under S.10B. The appellant argued that the quantum of relief remained the same, whether under S.10A or S.10B, and the error was not prejudicial. The Tribunal noted that the Commissioner should have examined eligibility under S.10A before concluding on prejudicial assessment, as the relief amount would not change. Citing precedents, the Tribunal held that for S.263 to apply, the order must be both erroneous and prejudicial to Revenue. As the Commissioner did not establish both conditions, the impugned order was set aside, favoring the appellant.

Issue 2: Commissioner's order under S.263 of the Income Tax Act, 1961
The Commissioner invoked S.263 due to the incorrect claim under S.10B, deeming the assessment prejudicial to Revenue. The Tribunal emphasized that the Commissioner must establish both error and prejudice for S.263 to apply. In this case, as the eligibility for relief under S.10A was not assessed, the Tribunal found the Commissioner's order unsustainable, favoring the appellant's argument of inadvertence in the claim under S.10B.

Issue 3: Assessment of relief under S.10B
The Assessing Officer allowed relief under S.10B, which the Commissioner sought to withdraw under S.263. The Tribunal highlighted the appellant's plea of inadvertence in claiming under S.10B instead of S.10A. While acknowledging the error in the claim section, the Tribunal stressed the importance of establishing prejudice to Revenue for S.263 to be valid. As the relief amount would not change, the Tribunal found the assessment not prejudicial, leading to setting aside the Commissioner's order.

Issue 4: Eligibility for relief under S.10A
The appellant argued that it was eligible for relief under S.10A, despite the incorrect claim under S.10B. The Tribunal noted the appellant's submission of fulfilling conditions for S.10A and the inadvertent nature of the error. Emphasizing the need for the Commissioner to assess both error and prejudice, the Tribunal found the lack of such findings unsustainable, leading to the appeal's allowance.

Issue 5: Revisionary powers under S.263
The Commissioner exercised powers under S.263 based on the incorrect claim under S.10B, deeming the assessment prejudicial to Revenue. The Tribunal highlighted the necessity for the Commissioner to establish both error and prejudice for S.263 to apply. As the eligibility under S.10A was not examined, the Tribunal set aside the Commissioner's order, favoring the appellant's argument of inadvertence in the claim under S.10B.

Issue 6: Prejudicial to the interests of Revenue
The crux of the matter was whether the incorrect claim under S.10B, instead of S.10A, was prejudicial to Revenue. The Tribunal emphasized the need for the Commissioner to establish both error and prejudice for invoking S.263. As the relief amount would not change, the Tribunal found the assessment not prejudicial, leading to setting aside the Commissioner's order and allowing the appellant's appeal.

In conclusion, the Tribunal set aside the Commissioner's order under S.263, favoring the appellant's argument of inadvertence in the claim under S.10B and emphasizing the necessity for establishing both error and prejudice for such revisionary powers to apply.