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TMI Blog2003 (7) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... not exempt under section 80P(2)(e). The issue is directly covered by the order of the Hon'ble ITAT, Delhi Bench. 3. That the learned Commissioner was not justified in holding that the order of Assessing Officer was prejudicial to the interest of revenue and setting aside the same for fresh assessment. It is, therefore, prayed that the order of the learned Commissioner be quashed". Thus, the issue disputed by the assessee relates to action of the Commissioner of Income-tax under section 263 of the Income-tax Act. The facts of the case are that the assessee is a federation of co-operative societies whose members are district wholesale societies and other co-operative unions who did not possess any agricultural land of their own. In the return of income filed for the assessment year under reference, the assessee had claimed deduction in respect of its entire income under section 80(2)(a)(iii) of the Income-tax Act. The Assessing Officer completed the original assessment under section 143(3) on 16-3-1995 disallowing the claim of the assessee for deduction under section 80P(2)(a)(iii) on the ground that assessee was not marketing the agricultural produce produced by the member soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf by the Assessing Officer. This issue was not raised before the Assessing Officer. However, the issue deserves to be considered now as there was reasonable cause for not raising this issue before the Assessing Officer as entire income arising from the agricultural produce including rent of godowns and warehouses was being claimed as exempt and also treated as exempt upto the assessment year 1991-92. In view of these observations, the Assessing Officer is directed to consider this claim of the appellant now as per law. Thus, the additional ground is admitted and the issue is referred to the Assessing Officer for fresh consideration". 3.1 Thereafter, the Assessing Officer considered this claim during the course of completing the set-aside assessment. Details of rental income were called for and examined. The Assessing Officer held that assessee was indeed entitled to deduction of income of Rs. 5,83,75,805 under section 80P(2)(e) of the Income-tax Act. The relevant finding of the Assessing Officer as recorded in the assessment order is extracted below : ". . . The assessee appeared before me with all the details of storage charges received from Food Corporation of India on wheat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an opportunity to the assessee. The relevant findings of the CIT, as recorded in paras 6 and 7 of the impugned order, are reproduced hereunder : "6.I have carefully considered the arguments of the assessee. As I have stated above this issue has not been adjudicated upon by the CIT(A). At the time when the appeal was heard by the CIT(A), no such addition had been made. The CIT(A) had only given her comments on the additional grounds raised and the matter was restored to the Assessing Officer for fresh adjudication. 7. At the time of passing the order on 15-11-1995, the Assessing Officer did consider the ground and allowed the deduction. She however made a mistake in the computation by stating that the same was being allowed under the direction of the CIT(A). In this order it has to be examined whether her order was in conformity with law or was an order that was erroneous in so far as it is prejudicial to the interest of the revenue. In the decision quoted by Sh. M.L. Garg, the IT AT,. Delhi Bench-B has taken a decision in the case of Haryana Warehousing Corporation whose objective is warehousing i.e., the letting out of premises on rent. In the case of the assessee, the obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived from FCI and Rs. 57,88,204 was in respect of other parties. The Assessing Officer had himself allowed deduction under section 80P(2)(e) in respect of rental income from other parties. The claim for deduction of rental income of Rs. 5,83,75,805 had not been made before the Assessing Officer because the deduction in respect of the entire income was claimed under section 80P(2)(a)(iii). Taking into account the fact that there was a bona fide reason for not claiming the deduction under section 80P(2)(e) before the Assessing Officer, the ld. CIT(A) admitted the claim of the assessee and restored the issue to the file of the Assessing Officer for deciding the same in accordance with law. 4.1 He drew our attention to para 3.2 of the order of the CIT(A), Chandigarh dated 28-9-1995, a copy of the same was also placed on our file. He further drew our attention to the subsequent assessment dated 15-11-1995 completed by the Assessing Officer in compliance with the directions of the CIT(A). He submitted that during the course of set-aside assessment proceedings, the claim was examined by the Assessing Officer and allowed after verifying the facts. He drew our attention to the finding re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om rental from letting out of warehouse and godowns. (iii) ITAT, Delhi Bench in the case of Haryana Warehousing Corpn. v. Dy. CIT [1997] 61 ITD 420. Where by referring to the judgment of Rajasthan High Court in the case of Rajasthan State Warehousing Corpn. the income derived from letting of godowns or warehouses for storage, processing or facilitating marketing of commodity was held to be exempt under section 10(29) of the Income-tax Act. He submitted that provisions of section 10(29) are analogous to the provisions of section 80P(2)(e) of the Income-tax Act. Thus, the ld. counsel submitted that the order of the Assessing Officer cannot be considered erroneous or prejudicial to the interests of the Revenue. Rather, he contended that it is the order of the CIT, which is erroneous and contrary to the provisions of the Act. 5. The ld. D.R., Shri S.S. Kemwal, heavily relied on the order of CIT. He drew our attention to the relevant paragraph of ld. CIT(A)'s order as extracted in the order under section 263 and submitted that the ld. CIT(A) had merely set aside the assessment for deciding the claim of the assessee afresh after affording a reasonable opportunity of being heard. He s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) (b) (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal". A bare reading of section 263(1) shows that the CIT has wide powers to examine the record of any proceeding and exercise jurisdiction in respect of any order passed by the Assessing Officer if he considers that the said order is erroneous insofar as it is prejudicial to the interest of the revenue. However, Explanation (c) to section 263(1) restricts the power of the CIT in respect of issues, which have been considered and decided in appeal by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision under section 263 because the CIT(A) has not decided the issue in appeal ? We feel that since the issue was not decided by ld. CIT(A) but was only restored to the file of the Assessing Officer, it could not be said that the same was decided by the CIT(A). There is nothing in the order of CIT(A) which would suggest that CIT(A) had allowed relief to the assessee. The Assessing Officer was free to consider such claim as per law and if he was of the view that assessee was not entitled to the deduction, he was at liberty to disallow such claim. Therefore, the CIT(A) has not decided the issue. This condition restricting the power of the CIT(A) is not fulfilled. Therefore, until all the three limbs of the Explanation are found applicable to the case, the CIT would be competent to exercise jurisdiction under section 263. 6.3 Besides, we have also referred to the provisions of section 80P(2)(e) of the Income-tax Act. The same provides deduction in respect of income derived by the cooperative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities the whole of such income. The various courts have also held that only such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer sought to be revised is erroneous (ii) it is prejudicial to the interests of the Revenue. Both the conditions must be satisfied. In case the order of the Assessing Officer is erroneous but is not prejudicial to the interests of Revenue, or if it is not erroneous but is prejudicial to the interests of the Revenue the CIT would not be competent to exercise jurisdiction under section 263 of the Income-tax Act. Now, the question arises is as to what is the meaning of order being erroneous ? The order under section 263 could be considered as erroneous if such order is based on wrong assumption of facts or incorrect application of law. Even the order could be said to be erroneous if it has been passed without proper application of mind, in undue haste without making proper inquiry warranted by the facts of the case. Even if the order is erroneous, this by itself would not be sufficient for invoking the power under section 263. The other condition, which requires to be satisfied for assumption of jurisdiction under section 263, is that the order should also be prejudicial to the interests of Revenue. The order could be said to be prejudicial to the interests of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law". 8. The present case also requires to be decided by applying the above tests laid down by the Hon'ble Supreme Court. We observe from the assessment order that the Assessing Officer has not allowed the claim under section 80P(2)(e) without making further inquiries. He called for the details of the total charges received from the FCI as sanctioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the order passed by the Assessing Officer could not be considered as erroneous. Likewise, the order passed by the Assessing Officer could also not be considered prejudicial to the interests of the Revenue merely because the CIT did not agree with the view taken by the Assessing Officer. We may further point out that this is a case of a Government undertaking. The assessee had made purchases of wheat and rendered various services on behalf of FCI and the State Government. The amounts received from the FCI were sanctioned by the Government of India. The same included not only the support price but also various other charges like Mandi charges, Mandi labour charges, internal movements, storage charges, establishment charges, interest charges etc. Thus, the assessee had not only purchased wheat but had rendered various other services also. It is also not denied that assessee owned warehouses and godowns where the wheat purchased was stored. Storage charges of such a huge amount of Rs. 5.87 crores were paid by the Government for providing storage facilities. Had the FCI owned its own godowns, the Government would have not paid such storage charges. The object of providing deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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