2019 (11) TMI 877 - HC - Income Tax

Revision u/s 263 - computation of deduction under Section 80-HHC - 90% of the interest was excluded from the business profits - AO had not applied his mind as to the nature of the interest received to see if it is to be taxed as income from business or income from other sources - HELD THAT - Section 263 of the Income Tax Act, 1961 is not intended to be invoked for every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous, it is attracted. Though the phrase prejudicial to the interests of the revenue in Section 263 is of wide import and is not confined to loss of tax, it has been held by the Honourable Supreme Court in Malabar Industries Co Ltd 2000 (2) TMI 10 - SUPREME COURT that every loss of revenue as a consequence often order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. The scheme of computing of total income under various heads in Chapter IV of the Income Tax Act, 1961 reveals that Income from Other Sources is only those income which cannot be brought to tax under any of the specific heads of income in the provisions preceding Section 56 in chapter IV of the Income Tax Act, 1961. An income received in the ordinary course of business is an integral part of the regular income of the assessee. Since there is no infirmity in the calculations made by the Assessing Officer while computing the deductions in view of the above decisions cited on behalf of the assessee, the view of the Commissioner of Income Tax that the Assessing Officer committed an error while passing the respective Assessment Orders which resulted in loss of revenue prejudicial to interest of revenue cannot be sustained. Assessing Officer to compute deduction under Section 80 HHC in the order of the Commissioner of Income Tax is without any basis. We are therefore of the view that the Commissioner of Income Tax erred in invoking the revisional powers under Section 263 of the Income Tax Act, 1961 in the facts of the present cases.- Decided in favour of assessee

Summary

Issues Involved:
1. Whether the assessment order was erroneous or prejudicial to the revenue due to the exclusion of 90% of the interest from business profits.
2. Whether the assessment order was erroneous as it followed a judicial pronouncement without the assessing officer applying his mind to the nature of the interest received.

Issue-wise Detailed Analysis:

1. Erroneous or Prejudicial Assessment Order:
The High Court examined whether the assessment order was erroneous or prejudicial to the revenue due to the exclusion of 90% of the interest from business profits. The Appellate Tribunal had allowed the respondent-assessee's appeals, noting that the assessment order was not erroneous or prejudicial since it followed the decision in the case of Chinnapandi, which required 90% of the interest to be excluded from business profits for the purpose of deduction under Section 80-HHC. The Tribunal also noted that on the date of the assessment order, the decision in Chinnapandi was binding, and the assessing officer had diligently followed it. The High Court upheld this view, stating that the assessment order could not be deemed erroneous or prejudicial to the revenue as it adhered to a legally permissible course.

2. Application of Mind by Assessing Officer:
The High Court addressed the issue of whether the assessment order was erroneous due to the assessing officer not applying his mind to the nature of the interest received. The Tribunal found that the assessing officer had followed the jurisdictional High Court's decision in Chinnapandi, which was the prevailing law at the time. The Tribunal emphasized that the assessing officer had not committed an error by adhering to this decision. The High Court supported this conclusion, referencing the Supreme Court's ruling in Malabar Industries Co. Ltd., which stated that an order is not erroneous if the assessing officer adopts one of the permissible legal courses. The High Court concluded that the assessment order was neither erroneous nor prejudicial to the revenue, as the assessing officer had followed a judicial pronouncement.

Conclusion:
The High Court dismissed the appeals filed by the Commissioner of Income Tax, affirming the Tribunal's decision that the assessment orders were not erroneous or prejudicial to the revenue. The Court emphasized that the assessing officer had followed the binding judicial precedent at the time, and the orders were therefore legally sound. The questions of law raised by the appellant were answered against the Commissioner of Income Tax, and the appeals were dismissed with no cost.