2003 (7) TMI 269 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax (CIT) under section 263 of the Income-tax Act.
2. Merits of the deduction claim under section 80P(2)(e) of the Income-tax Act.
3. Whether the CIT was justified in holding that the Assessing Officer's order was prejudicial to the interest of revenue.

Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax (CIT) under section 263:
The assessee argued that the CIT's order under section 263 was against the law and without jurisdiction because the matter had already been considered by the CIT(A) and the Assessing Officer had passed an order discussing the matter in detail. The CIT(A) had set aside the assessment to consider the claim under section 80P(2)(e) afresh. The CIT(A) directed the Assessing Officer to consider the claim of the assessee as per the law, which the Assessing Officer did by allowing the deduction after verifying the details.

The Tribunal noted that the CIT(A) had not decided the issue but had only restored it to the Assessing Officer for fresh adjudication. Thus, the CIT(A) had not given a conclusive decision on the matter, which allowed the CIT to exercise jurisdiction under section 263. The Tribunal referred to Explanation (c) to section 263(1), which restricts the CIT's power to revise an order that has been considered and decided in appeal. Since the CIT(A) had not conclusively decided the issue, the CIT was within his rights to revise the order.

2. Merits of the deduction claim under section 80P(2)(e):
The assessee claimed a deduction under section 80P(2)(e) for income derived from letting godowns or warehouses for storage, processing, or facilitating the marketing of commodities. The Assessing Officer allowed the deduction after verifying the details of storage charges received from the Food Corporation of India (FCI). The CIT, however, argued that the payment received was not for letting out premises for storage but was part of the price received for the grain supplied by the assessee.

The Tribunal examined the details and noted that the storage charges were indeed part of the payments sanctioned by the Government of India for providing storage facilities. The Tribunal found that the Assessing Officer had verified the facts and allowed the deduction correctly as per the provisions of section 80P(2)(e). The Tribunal also referred to various judgments supporting the assessee's claim that income derived from letting godowns or warehouses qualifies for deduction under section 80P(2)(e).

3. Whether the CIT was justified in holding that the Assessing Officer's order was prejudicial to the interest of revenue:
The Tribunal emphasized that for the CIT to exercise jurisdiction under section 263, the order of the Assessing Officer must be both erroneous and prejudicial to the interests of the revenue. The Tribunal found that the Assessing Officer had made proper inquiries and verified the details before allowing the deduction. The Tribunal noted that the Assessing Officer's order was based on correct facts and law, and the view taken by the Assessing Officer was reasonable. Therefore, the order could not be considered erroneous or prejudicial to the interests of the revenue.

The Tribunal referred to the Supreme Court's judgment in Malabar Industrial Co. Ltd. v. CIT, which stated that an order could be considered erroneous if it was based on incorrect facts or law, or if it was passed without proper application of mind. However, if the Assessing Officer had taken a reasonable view based on facts and law, the order could not be considered prejudicial to the interests of the revenue.

Conclusion:
The Tribunal held that the CIT was not justified in revising the order of the Assessing Officer under section 263. The Tribunal found that the Assessing Officer's order was neither erroneous nor prejudicial to the interests of the revenue. Consequently, the Tribunal canceled the CIT's order passed under section 263 and allowed the assessee's appeal.