2006 (9) TMI 125 - HC - Income Tax

Jurisdiction by the Commissioner under section 263 - Commissioner of Income-tax, directing the jurisdictional Assessing Officer to work out the deductions under sections 80HH and 80 - petitioner was served with the notice u/s 263 issued by the Commissioner mentioning that the Assessing Officer had allowed excess deduction to it thereby rendering the assessment erroneous and as such prejudicial to the interests of the Revenue - direction in the form issued by the Commissioner has the effect of predetermining the issue so much so that the proceeding before the Assessing Officer would be reduced to a formality - Assuming that the course sanctioned in the provisos to sections 80HH(6) and 80-I(8) is adoptable in the instant case, the direction specifying the mode to be inflexibly observed by the Assessing Officer cannot be judicially countenanced, the same being in excess of the powers scrutable in section 263 order of commissioner is set aside

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961.
2. Requirement of audited accounts for deductions under Sections 80HH and 80-I.
3. Validity of the Commissioner's direction to bifurcate profits based on turnover.
4. Maintainability of the writ petition despite the availability of alternative remedies.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax under Section 263:
The primary issue was whether the Commissioner of Income-tax (CIT) had the jurisdiction to revise the assessment order under Section 263 of the Income-tax Act, 1961. The court emphasized that for the CIT to exercise this power, the assessment order must be both erroneous and prejudicial to the interests of the Revenue. The court cited multiple precedents, including *Rajendra Singh v. Superintendent of Taxes* and *State of Kerala v. K. M. Cheria Abdulla and Co.*, to underline that the CIT's revisional power is limited and cannot be used to substitute the judgment of the Assessing Officer unless there is a jurisdictional error or patent illegality. The court concluded that the CIT had overstepped his jurisdiction by reappraising the facts and substituting his view for that of the Assessing Officer.

2. Requirement of Audited Accounts for Deductions under Sections 80HH and 80-I:
The petitioner contended that as a company, it was not required to submit audited unitwise profit and loss accounts for claiming deductions under Sections 80HH and 80-I. The court referred to Sections 80HH(5) and 80-I(7) of the Act, which support the petitioner's contention. The court noted that the petitioner had submitted unitwise profit and loss statements based on actual workings and had also provided audited unitwise balance sheets and profit and loss accounts when requested by the CIT. The court found that the CIT's insistence on bifurcating profits based on turnover was not justified under the provisions of the Act.

3. Validity of the Commissioner's Direction to Bifurcate Profits Based on Turnover:
The CIT had directed the Assessing Officer to bifurcate the profits of the petitioner's units based on turnover, which was challenged by the petitioner. The court noted that the CIT's direction was identical to a previous direction that had been set aside by the Income-tax Appellate Tribunal (ITAT). The court held that the CIT's direction was beyond his jurisdiction under Section 263, as the power to compute profits on a reasonable basis is vested in the Assessing Officer under Sections 80HH(6) and 80-I(8), and only if there are exceptional difficulties in computation. The court found that the CIT had improperly assumed the role of the Assessing Officer and conducted a reappraisal of the facts, which was not permissible.

4. Maintainability of the Writ Petition Despite the Availability of Alternative Remedies:
The Revenue argued that the writ petition should be dismissed because the petitioner had not exhausted alternative remedies available under the Act. The court, however, decided to entertain the writ petition on merits, noting that it had already been admitted for hearing. The court emphasized that while alternative remedies should generally be exhausted, there is no absolute bar to exercising writ jurisdiction, especially when the petition raises substantial questions of law and jurisdiction.

Conclusion:
The court allowed the petition and set aside the order dated February 5, 2001, passed by the CIT, Guwahati. The court held that the CIT had exceeded his jurisdiction under Section 263 of the Act and that his direction to bifurcate profits based on turnover was not legally sustainable. The court also noted that its previous decision in *Bongaigaon Refinery and Petrochemicals Ltd. v. CIT* had already settled the questions referred under Section 256(2) of the Act in favor of the petitioner, further invalidating the CIT's order.

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