2015 (12) TMI 839 - HC - Income Tax

Deductions under Sections 80-IB and 80HHC - whether Tribunal is justified in holding that the deduction u/s 80-HHC and 80-IB on the same figure of profit without reducing deduction allowed u/s 80-HHC ? - revision u/s 263 - Held that - It is not a case where the assessment order is based on incorrect assumption of fact. We also find that it is not a case where the Assessing officer has not applied its mind to the provision of Section 80-IB (13) read with Section 80-IA(9) of the Act. The Assessing Officer after considering the matter in detail has passed an assessment order by applying its mind. The Assessing officer had allowed the deduction under Sections 80 HHC and under Section 80-IB of the Act to the extent of the amount of profits and gains as contemplated under Section 80-IA(9) of the Act. The question as to whether the deduction under Section 80HHC was to be computed after reducing the deduction under Section 80-IB of the Act from the profits and gains is a legal consideration. The Assessing Officer allowed the deduction in terms of Section 80 IA(9) of the Act and, therefore, it cannot be said that the Assessing Officer had not applied its mind and had failed to make an enquiry. We are of the view that there was no material to indicate that the Assessing Officer had not applied its mind to the provisions of Section 80IB(13) of the Act and Section 80IA(9) of the Act nor we find that the Assessing Officer had passed the order without application of mind or the assessment order was based on incorrect application of law. The assessment order, on the other hand, was passed under Section 143(3) of the Act by the Assessing Officer on applying its mind and after due discussion and enquiry. From the aforesaid discussion, it is apparent that the expression prejudicial to the interests of revenue appearing in Section 263 of the Act has to be read in conjunction with erroneous and that every loss of revenue as a consequence of the assessment order could not be treated as prejudicial to the interest of the revenue. Where the Assessing Officer has adopted a view, which is permissible in law or where two views are possible and the Income Tax Officer has taken one view, we are of the view that the Commissioner of Income Tax could not exercise its power under Section 263 of the Act to differ from the view of the Assessing Officer even if there was a loss of revenue. There is no doubt that the provision cannot be invoked on each and every type of error committed by the Assessing Officer. It is only when an order is erroneous then Section 263 of the Act could be invoked. In the light of the aforesaid, we are of the opinion that the Tribunal was justified in setting aside the order of the Commissioner of Income Tax passed under Section 263 of the Act. The appeal fails and is dismissed. - Decided in favour of the assessee

Summary

Issues Involved:
1. Justification of the Tribunal in holding that the deduction under Sections 80-HHC and 80-IB on the same figure of profit without reducing deduction allowed under Section 80-HHC.
2. Justification of the Tribunal in holding that the Duty Draw Back received by the assessee is the income derived from the Industrial Undertaking and eligible for deduction under Section 80-IB.
3. Justification of the Commissioner of Income Tax in revising the order of the Assessing Authority under Section 263.

Detailed Analysis:

Issue 1: Justification of the Tribunal in holding that the deduction under Sections 80-HHC and 80-IB on the same figure of profit without reducing deduction allowed under Section 80-HHC

The Tribunal's decision was challenged on the grounds that the Assessing Officer adopted the same profit figures for deductions under Sections 80HHC and 80-IB without considering Section 80-IA(9). The Assessing Officer computed the total income at nil after allowing deductions under Sections 80-IB and 80HHC. The Commissioner of Income Tax argued that this approach was incorrect and prejudicial to the revenue's interest. However, the Tribunal upheld the Assessing Officer's order, stating that the deductions were granted as per Section 80-IA(9) and restricted to 100% of the profits and gains.

Issue 2: Justification of the Tribunal in holding that the Duty Draw Back received by the assessee is the income derived from the Industrial Undertaking and eligible for deduction under Section 80-IB

The Tribunal's decision included the Duty Draw Back received by the assessee as income derived from the Industrial Undertaking, making it eligible for deduction under Section 80-IB. This was contested by the Department, but the Tribunal's stance was that the Assessing Officer had correctly included this income in the deductions allowed.

Issue 3: Justification of the Commissioner of Income Tax in revising the order of the Assessing Authority under Section 263

The core issue was whether the Commissioner of Income Tax was justified in revising the Assessing Officer's order under Section 263. The Supreme Court's judgment in Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax was referenced, which clarified that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the revenue's interests. The Court found that the Assessing Officer had applied his mind and made a detailed assessment, limiting deductions to 100% of the profits and gains as per Section 80-IA(9). The Court concluded that the absence of specific mention of Sections 80-IB(13) and 80-IA(9) did not render the order erroneous or prejudicial to the revenue.

Conclusion:

The High Court concluded that the Tribunal was justified in setting aside the Commissioner of Income Tax's order under Section 263. The assessment order was not erroneous or prejudicial to the revenue's interest, as it was based on a permissible view in law. The appeal was dismissed, and the questions of law were answered in favor of the assessee and against the Department.