High Court Of Gujarat
CIT vs. Mehsana District Co-Operative Milk Producers Union Ltd.
Sections 263
Asst. Year 1979-80
R.K. Abichandani & K.M. Mehta, JJ.
IT Ref. No. 155 of 1989
2nd April, 2003
Counsel Appeared
Tanvish U. Bhatt, for the Petitioner : Manish J. Shah for J.P. Shah, for the Respondent
JUDGMENT
R.K. Abichandani, J. :
The Tribunal, Ahmedabad Bench ‘B’, has referred the following question for the opinion of this Court pursuant to the directions issued under s. 256(2) of the IT Act, 1961 : “Whether, on the facts and circumstances of the case, the Tribunal has not erred in law and facts in allowing the appeal of the assessee and quashing the order of the CIT under s. 263 and restoring the order of the ITO ?” The relevant assessment year was 1979-80. For the previous year ended 31st March, 1979, the assessee filed return of income on 31st July, 1979, declaring “nil” income. The assessee was allowed deduction under s. 80HH in respect of the new industrial undertaking in the backward area. As regards the relief claimed under s. 80J of the Act in respect of its project No. 2 i.e., the powder plant which was started from 1st Nov., 1972, the ITO allowed the amount of Rs. 8,40,624 to be carried forward as the profit of the new undertaking. The decision of the ITO was taken up in revision under s. 263 of the Act by the CIT, who by order dt. 11th Sept., 1984, held that the assessment order was erroneous and prejudicial to the interest of the Revenue, and set aside the order as regards the relief granted under ss. 80HH and 80J with a direction to the ITO to make fresh assessment in accordance with law, after making necessary inquiries for determining the profits of the old and new units for the purpose of determining the quantum of deduction admissible under s. 80HH of the Act. The ITO was further directed to compute the capital for the purpose of relief under s. 80J in accordance with law. The CIT found that the relief under s. 80J was not properly worked out, because the ITO had included a sum of Rs. 49,88,158 on the head office account in computing the capital.
The Tribunal allowing the appeal of the assessee held that since the ITO had made an order pursuant to the direction of the IAC under s. 144B(4) of the Act, the CIT could not have exercised his revisional powers under s. 263 of the Act. The Tribunal upheld the preliminary objection of the assessee against the exercise of powers under s. 263 by the CIT on that ground. As regards the relief under s. 80J, the Tribunal held that the order of the ITO was carried in appeal and had merged with the order of the CIT(A) dt. 31st Jan., 1984, which was passed prior to the making of the order by the CIT on 11th Sept., 1985, under s. 263 of the Act. The Tribunal noted that the question of computation of relief under s. 80J was the subject-matter of the appeal before the CIT (A), who had dealt with that aspect in para. 8 of the appellate order. The CIT, therefore, could not have exercised his revisional powers in respect of the relief granted under s. 80J of the Act to the assessee. As regards the relief granted under s. 80HH of the Act, the Tribunal found that a consistent approach was adopted in respect of the earlier previous years by the assessee who divided the expenses on a rational basis of proportion of milk used in production of the two plants, new and old. It was held that when a consistent basis was adopted and it was a rational basis, the fact that any other order could also be passed would not mean that the order of the ITO was erroneous and prejudicial to the interest of the Revenue. The Tribunal, therefore, set aside the order of the CIT made under s. 263 of the Act and restored the order of the ITO.
5. It is obvious that when the decision of the ITO on the aspect of deduction granted under s. 80J was already considered by the CIT(A), who had made an order earlier than the revisional order made by the CIT under s. 263, the order of the ITO as regards such deduction under s. 80J had already merged in the appellate order. There was, therefore, no order of the ITO which could have been revised by the CIT under s. 263 on the question of grant of benefit of s. 80J of the Act to the assessee. The Supreme Court in the case of CIT vs. Shri Arbuda Mills Ltd. (1998) 147 CTR (SC) 474 : (1998) 231 ITR 50 (SC), in the context of the provisions of s. 263(1) of the Act, referring to Explanation cl. (c) thereof, held that powers of the CIT under sub-s. (1) of s. 263 extended to such matters as had not been considered and decided in appeal. It, therefore, necessarily follows that the powers under s. 263 could not have been invoked when the order taken in revision was already subjected to appeal and the appellate order was made in respect thereof as was made in the instant case. The Division Bench of this Court in CIT vs. Shashi Theatre (P) Ltd. (2000) 164 CTR (Guj) 415 : (2001) 248 ITR 126 (Guj) has in terms held that the revisional powers under s. 263 did not extend to matters on which the appellate authority had bestowed consideration and given a decision. It is thus clear that the CIT could not have exercised his revisional powers under s. 263 against the order of the ITO granting deduction under s. 80J of the Act, which order was appealed against and had merged in the order of the CIT(A), which was made on 31st Jan., 1984, prior to making of the revisional order.
The Tribunal upheld the preliminary objection of the assessee that the revisional power under s. 263 could not have been exercised in cases where the order was made by the ITO pursuant to the direction issued by the IAC under s. 144B(4) of the Act. This finding of the Tribunal is clearly contrary to the decision of the Supreme Court in T.N. Civil Supplies Corporation Ltd. vs. CIT (2003) 180 CTR (SC) 307 : (2003) 260 ITR 82 (SC), in which the Supreme Court referring to the uniformity of interpretation given by several High Courts to the provisions of s. 263 r/w s. 144B, upheld the decision of the High Court that the order made by the ITO on the basis of directions given by the IAC under s. 144B was revisable by the CIT. The Supreme Court held that in its view, having regard to the subsequent amendments to the Act issued from time to time there was no scope for limiting the phrase “order passed by the ITO” in s. 263 to exclude orders passed by the ITO on the directions of a superior authority either under s. 144A or 144B of the Act. In our view, therefore, the Tribunal committed an error in upholding the preliminary objection of the assessee. The learned counsel for the assessee very fairly submitted that the decision of the Tribunal upholding the preliminary objection of the assessee on this count cannot be sustained, being contrary to the decision of the Supreme Court in T.N. Civil Supplies Corporation Ltd. (supra) and also against the decision of this Court rendered in CIT vs. Shreyas Land Development Corporation (IT Ref. No. 120 of 1986 decided on 9th July, 2001) [reported at (2003) 184 CTR (Guj) 607—Ed.], which has followed the decision of the Andhra Pradesh High Court in the case of CIT vs. East Coast Marine Products (P) Ltd. & Anr. (1990) 88 CTR (AP) 156 : (1990) 181 ITR 314 (AP). The only question that now remains to be considered is whether the Tribunal was justified in setting aside the order of the CIT in respect of deduction granted under s. 80HH of the Act. The Tribunal has found as a matter of fact that the assessee has adopted consistent approach in the earlier years for apportioning the expenditure between the two units, old and new, which was accepted by the Department. In para. 9 of its order, the Tribunal has, in terms, observed that the method followed by the assessee of dividing the overhead expenses on a proportionate basis in the proportion of 5.5 : 4.5 was adopted for the asst. yr. 1978-79 and as well as 1980-81.
It was held that when such consistent basis was adopted there was no reason to interfere in the matter when it was not shown to be irrational. It is well settled that the provisions of s. 263(1) cannot be invoked to correct each and every type of mistake or error committed by the AO, and it is only when the order is erroneous that the section will be attracted. The Supreme Court in Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) has observed that the phrase “prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the AO”. It was held that when two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue unless the view taken by the ITO is unsustainable in law. It is not shown how the method followed by the assessee to divide the expenses for the purpose of claiming relief under s. 80HH was improper or unacceptable. The ITO as well as the Tribunal has found that the expenses were apportioned on a rational basis and it would not be open for this Court to go beyond that finding which appears to have been reached on the basis of the material on record which showed that in the earlier years same proportion for dividing the expenses was consistently followed. The Department has not been able to show that for those earlier two years any objection was raised against such apportionment.
8. For the foregoing reasons, while holding that the Tribunal had committed an error in upholding the preliminary objection of the assessee against the revisional exercise of powers under s. 263 of the Act in the context of the order made by the ITO pursuant to the direction issued by the IAC under s. 144B(4) of the Act, we hold that the Tribunal has not committed any error in allowing the appeal of the assessee and quashing the order of the CIT passed under s. 263 of the Act and in restoring the order of the ITO. The question referred to us is, therefore, answered in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no orders as to costs.
[Citation : 263 ITR 645]
