High Court Of Madras
CIT vs. MEPCO Industries Ltd.
Section 263
Asst. Year 1999-2000
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 2581 of 2006
2nd November, 2006
Counsel Appeared
J. Narayanasamy, for the Appellant
JUDGMENT
P.D. DINAKARAN, J. :
The above tax case appeal is directed against the order of the Tribunal dt. 25th Nov., 2005 made in ITA Nos. 1901/Mds/2003 for the asst. yr. 1999-2000 and the following substantial questions of law have been raised for consideration :
Whether in the facts and circumstances of the case, the Tribunal was right in holding that the order under s. 263 is ambivalent as to whether the order is erroneous and prejudicial or not merely because the CIT sent back the matter to the AO to pass fresh orders after giving opportunity to the assessee ?
Whether in the facts and circumstances of the case, an order of revision under s. 263 should come to a final conclusion and should not remit the matter to the AO ?
2. The brief facts of the case, as stated, are as follows : 2.1. The relevant assessment year with which we are concerned is 1999-2000. The assesseecompany filed its return of income admitting the income of Rs. 39,36,400. The return was processed under s. 143(1)(a) of the IT Act, 1961 (hereinafter referred to as ‘the Act’). The case of assessee was selected for scrutiny, notice under s. 143(2) of the Act was issued and after hearing the assessee, the assessment was completed accepting the return filed by the assessee. 2.2. The CIT, finding that inter-unit loss was not adjusted against the profit for the purpose of allowing deduction under s. 80-IA of the Act, issued a notice under s. 263 of the Act to the assessee. The assessee objected to the same contending that as per the provisions of s. 80AB of the Act, the only rider is that the deductions contemplated under Chapter VI-A cannot be carried forward to succeeding years and the quantum of deduction shall be computed as if such eligible business is the only source of income of the assessee and hence, s. 80AB of the Act will not restrict the relief under s. 80-IA of the Act. 2.3. The CIT, considering the objection raised by the assessee, remitted the matter to the AO for fresh assessment. The relevant portion of the order of the CIT dt. 2nd Sept., 2003 reads as under : “It would appear that since the issues raised before me by the CA have not been considered at any stage by the AO, the matter has to go back to him for appropriate adjudication as per law. The AO should give fresh opportunity to the assessee before restricting the claim of the assessee under s. 80-IA by relying upon the decisions of the Hon’ble Supreme Court and the High Court in CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC) and CIT vs. Sundaravel Match Industries (P) Ltd. (2000) 163 CTR (Mad) 625 : (2000) 245 ITR 605 (Mad) and he should also duly weigh the averments of the assessee in the matter. The AO should pass fresh assessment order with regard to the issue of disallowing the excess claim of the deduction under s. 80-IA which works out to Rs. 35,81,202.” Exasperated by the said order of CIT, the assessee preferred an appeal before the Tribunal, which, by order dt. 25th Nov., 2005, following the unreported judgment of this Court in CIT vs. Smt. D. Valliammal dt. 27th June, 1996 [reported at (1997) 140 CTR (Mad) 433—Ed.], set aside the order of CIT holding that the CIT has committed an error in invoking the jurisdiction under s. 263 of the Act. Hence, the present appeal by the Revenue raising the questions of law referred to above. Both the questions, in our considered opinion, revolve on the power of the CIT in invoking jurisdiction under s. 263 of the Act which reads as follows : “263. Revision of orders prejudicial to Revenue.—(1) The CIT may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after 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 subsection,— (a) an order passed on or before or after the 1st day of June, 1988, by the AO shall include— (i) an order of assessment made by the Asstt. CIT *or Dy. CIT or the ITO on the basis off the directions issued by the *Jt. CIT under s. 144A; (ii) an order made by the *Jt. CIT in exercise of the powers or in the performance of the functions of an AO conferred on, or assigned to him under the orders or directions issued by the Board or by the Chief CIT or Director General or CIT authorised by the Board in this behalf under s. 120; (b) ‘record’ shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the CIT; (c) where any order referred to in this sub-section and passed by the AO had been the subject-matter of any appeal, filed on or before or after the 1st day of June, 1988 the powers of the CIT 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. (2) No order shall be made under sub-s. (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-s. (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub-s. (2), the time taken in giving anopportunity to the assessee to be reheard under the proviso to s. 129 and any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded.”
4. The apex Court in Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC), after considering the power and jurisdiction of CIT under s. 263 of the Act and the meaning of the phrase, ‘prejudicial to the Revenue’ found in s. 263 of the Act, held as follows : “A bare reading of s. 263 of the IT Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to s. 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase ‘prejudicial to the interests of the Revenue’ is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, 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 AO. Every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where 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 interests of the Revenue unless the view taken by the ITO is unsustainable in law.” As held by the apex Court in Malabar Industrial Co. Ltd. case, cited supra, every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where 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 interests of the Revenue unless the view taken by the ITO is unsustainable in law.
In the instant case, the CIT, while exercising power under s. 263 of the Act, had not rendered an independent finding to the effect that the course adopted by the AO is neither permissible, nor the view taken by the AO resulted in the loss of revenue which is prejudicial to the interest of the Revenue. In the absence of any such finding, the Tribunal, in our considered opinion, is right in setting aside the order of the CIT. Even on merits, on the point that inter-unit loss was not adjusted against the profit for the purpose of allowing deduction under s. 80- IA of the Act, there are two views possible; one in favour of the Revenue and the other in favour of the assessee. (i) in favour of the Revenue : (a) CIT vs. Kotagiri Industrial Co-operative Tea Factory Ltd. (1997) 139 CTR (SC) 359 : (1997) 224 ITR 604 (SC)
In this case, the Supreme Court, while interpreting the expression, ‘gross total income’ in cl. (5) of s. 80B of the Act for the purpose of Chapter VI-A of the Act, held that it is necessary, for the purpose of making deduction under s. 80P of the Act, to determine the gross total income in accordance with the other provisions of the Act, which means that the gross total income must be determined by setting off against the income the business losses of the earlier years as required under s. 72 of the Act, before allowing deduction under s. 80P. (b) CIT vs. Sundaravel Match Industries (P) Ltd. (2000) 163 CTR (Mad) 625 : (2000) 245 ITR 605 (Mad) In this case, this Court held that losses should be set off against the profits of the industrial undertaking before granting the deduction under s. 80HH of the IT Act, 1961, in view of the specific provision found in s. 80AB of the Act. (ii) in favour of the assessee : CIT vs. Canara Workshops (P) Ltd. (1986) 58 CTR (SC) 108 : (1986) 161 ITR 320 (SC) In this case, the apex Court held that in the application of s. 80E of the IT Act, 1961, the profits and gains earned by one priority industry (mentioned in that section) cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. Therefore, on the facts of the case, when two views are possible and it is not the case of the Revenue that the view taken by the AO is not permissible in law, the CIT is not justified in invoking the jurisdiction under s. 263 of the Act. Hence, we do not find any question of law, much less a substantial question of law that arises out of the order of the Tribunal. Accordingly, the tax case appeal stands dismissed. No costs.
[Citation : 294 ITR 121]
