Where two views are possible and AO had taken one view with which the CIT did not agree, it could not be treated as an erroneous order prejudicial to the interests of the Revenue

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AO had taken one view with which the CIT did not agree

Where two views are possible and AO had taken one view with which the CIT did not agree, it could not be treated as an erroneous order prejudicial to the interests of the Revenue.

Agasthiya Granite (P) Ltd. v. Asstt. CIT

Decision:    In assessee’s favour.

Fact-

The CIT revised the order of AO holding that the provisions of section 80HHC(4B) would mandate exclusion of the deduction allowed under section 80-IB while quantifying the deduction under section 80HHC.

Held:

When AO adopted one of the courses permissible in law and it had resulted in loss of revenue; or where two views are possible and AO had taken one view with which the CIT did not agree, it could not be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the AO was unsustainable in law. The fact that the two views existed was evident. Therefore, CIT could not have invoked the power under section 263, as the AO had adopted one of the two views possible.

Order is as under:

IN THE MADRAS HIGH COURT

T.S. SIVAGNANAM & N. SESHASAYEE, JJ.

Agasthiya Granite (P) Ltd. v. Asstt. CIT

T.C. (Appeal) No. 450 of 2007

16 April, 2018

Appellant by: S. Sriratnan

Respondent by: T. R. Senthil Kumar

JUDGEMENT

T.S. Sivagnanam, J.

Heard Mr. S. Sriraman, the learned counsel for the appellant-assessee and Mr. T. R. Senthil Kumar, the learned counsel for the respondent-Revenue.

2. This tax case appeal has been admitted on the following substantial questions of law :–

“(i) Whether the Tribunal is correct in confirming the order of the Commissioner passed in terms of section 263 of the Act without considering the grounds challenging the assumption of jurisdiction to pass the said revision order ?

(ii) Whether the Tribunal is correct in concluding that the provi­sions of section 80HHC(4B) of the Act would mandate exclusion of the deduction allowed under section 80-IB of the Act while quanti­fying the deduction under section 80HHC of the Act ?

(iii) Whether the Tribunal is correct in coming to the conclusion that the decision rendered by the co-ordinate Bench under identical circumstances would not be applicable to the present case in view of non-consideration of the scope of section 80HHC(4B) of the Act in the said decision even though the provisions of sections 80-IB and 80HHC of the Act are mutually exclusive and even though the deduc­tion claimed under the said sections had not exceeded the gross total income ?”

3. This case came up before us for hearing on 10-4-2018, and it was brought to the notice of this court by the learned counsel for the Revenue that an identical issue raised in this tax case appeal has been referred for consideration before the Hon’ble Full Bench. Therefore, we directed the Registry to put up the order of reference. Accordingly, when the case is heard today, we had the benefit of going through the order of reference and the order passed by the Hon’ble Full Bench, dated 1-7-2011.

4. The Hon’ble Full Bench took note of the fact that there were two conflirting decisions, viz., SCM Creations v. Asst. CIT (2008) 304 ITR 319 (Mad) and General Optics (Asia) Ltd, v. Dy. CIT (2009) 315 ITR 400 (Mad) and found that an identical issue is pending in appeal before the Hon’ble Apex Court in Special Leave Petition in C. C. No. 9649 of 2010, dt. 16-7-2010 has been admitted in the case of CIT v. MRF Ltd., Chermai. In the light of the same, the Full Bench reference was directed to be adjourned and await the result of the appeal pending before the Hon’ble Apex Court.

5. The learned counsel for the Revenue has produced the case information details from the Registry of the Hon’ble Supreme Court to show that the matter is still pending before the Hon’ble Supreme Court.

6. Be that as it may, the first question of law we are required to consider is whether the Tribunal is correct in confirming the order passed by the Commissioner passed in terms of section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) without considering the grounds challenging the assumption of jurisdiction to pass the revision order.

7. Question Nos. 2 and 3 are on the claim for deduction under sections 80HHC(4B) and 80-IB of the Act, which should await the decision of the Hon’ble Supreme Court in terms of the orders passed by the Hon’ble Full Bench. However, in the instant case, the first question of law to be con­sidered is whether the Commissioner could have exercised the powers under section 263 of the Act. The primordial requirement for exercising such a power has been explained by the Hon’ble Supreme Court in CIT v. Max India Ltd. (2007) 295 ITR 282 (SC). It was pointed out that the phrase “prejudicial to the interests of the Revenue” under section 263 has to be in conjunction with the expression “erroneous” order passed by the assessing officer.

8. It was further pointed out that 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. The Hon’ble Supreme Court, by way of illustra­tion, pointed out that when the 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. The fact that the two views existed is evident from the order of reference passed by the Hon’ble Full Bench quoted above. Therefore, the Commissioner could not have invoked the power under section 263 of the Act, as the Income Tax Officer had adopted one of the two views possible.

9. Admittedly the order of assessment was passed on 29-12-2002, much prior to the decision in SCM Creations (supra), which was rendered in the year 2008, and the decision in the case of General Optics (Asia) Ltd. (supra), which was rendered in the year 2009. The assessing officer inter­preted the provisions and passed the order of assessment. The view taken by the assessing officer is clearly supported by the decision of the High Court of Madhya Pradesh in the case of J. P. Tobacco Products (P.) Ltd. v. CIT reported in (1998) 229 ITR 123 (MP) and the decision of the Bombay-High Court in the case of CIT v. Nima Specific Family Trust (2001) 248 ITR 29 (Bom).

10. In J. P. Tobacco Products (P.) Ltd. (supra), it was held that for the pur­pose of computing relief, the relief granted under section 80HH cannot be deducted from the gross total income.

11. In Nima Specific Family Trust (supra), it was held that section 80HH(9), only talks about priority and does not refer to quantum of deduction as was the case under section 80J(1); where the assessee is entitled to deduction under section 80HH as well as section 80-1, deduction of 20 per cent of same profits has to be allowed first under section 80HH and then a further deduction of 20 per cent, of same profits has to be allowed under section 80-1 subject to overall limit under section 80A(2).

12. Thus, we are convinced that the view taken by the assessing officer was a plausible view. If it results in loss of revenue, it cannot be treated as pre­judicial to the interests of the Revenue for the purpose of invoking the power under section 263 of the Act.

13. Thus, for the above reasons, we answer question No. 1 as framed above in favour of the assessee and against the Revenue and allow the appeal in part. Question Nos. 2 and 3 are left open. No costs.


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