THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 05.07.2010
+ ITA 1376/2009
COMMISSIONER OF INCOME-TAX DELHI-IV ... Appellant
versus
HONDA SIEL POWER PRODUCTS LTD. ... Respondent
AND
+ ITA 1382/2009
COMMISSIONER OF INCOME-TAX DELHI-IV … Appellant
versus
HONDA SIEL POWER PRODUCTS LTD. … Respondent
Advocates who appeared in this case:-
For the Appellant : Mr N.P. Sahni and Ms Prem Lata Bansal with Mr P.C. Yadav
For the Respondent : Mr Ajay Vohra with Ms Kavita Jha and Mr Sriram Krishna
CORAM:-
HON’BLE MR JUSTICE BADAR DURREZ AHMED
HON’BLE MR JUSTICE V.K. JAIN
1. Whether Reporters of local papers may be allowed to
see the judgment ? YES
2. To be referred to the Reporter or not ? YES
3. Whether the judgment should be reported in Digest ? YES
BADAR DURREZ AHMED, J
1. These appeals were heard together and are being disposed of by
this common judgment inasmuch as the question of law framed in both the
appeals is identical and the circumstances are also virtually identical. The
question of law that has been framed in these appeals is as under:-
ITA Nos.1376/09&1382/09 Page No.1 of 20
“Whether the Income Tax Appellate Tribunal was correct
in law in cancelling the order passed by the Commissioner
of Income Tax under Section 263 and in restoring the
order of the Assessing Officer by holding that the
Assessing Officer had taken a possible view at the relevant
point of time?”2. ITA 1376/2009 relates to the assessment year 2001-02 and is
directed against the Income-tax Appellate Tribunal‟s order dated
12.09.2008 passed in ITA No.1675/Del/2006, which, in turn, arose from the
order dated 07.03.2006 passed by the Commissioner of Income-tax under
Section 263 of the Income-tax Act, 1961 (hereinafter referred to as „the said
Act‟).
3. ITA No1382/2009 is in respect of the assessment year 2002-03
and is directed against the Tribunal‟s order dated 30.01.2009 in ITA
No.715/Del/08. The appeal before the Tribunal was in respect of the order
dated 22.03.2007 passed by the Commissioner of Income-tax under Section
263 of the said Act. The Tribunal‟s order dated 30.01.2009 in respect of the
assessment year 2002-03 merely follows the Tribunal‟s earlier order dated
12.09.2008 in respect of the assessment year 2001-02. In both these
decisions, the Tribunal has set aside the order passed by the Commissioner
of Income-tax holding that the assessment orders passed by the Assessing
Officer, in the facts and circumstances of the case, could not be the subject
matter of an order under Section 263 inasmuch as the view taken by the
Assessing Officer in respect of both the years was a possible view.
4. Since the circumstances in both the assessment years in question
are virtually identical, for the sake of convenience, we shall only refer to the
ITA Nos.1376/09&1382/09 Page No.2 of 20
factual position in respect of the assessment year 2001-02, which is thesubject matter of ITA No.1376/2009. In this case, the assessment under
Section 143(3) of the said Act was completed on 18.03.2004 on an income
of Rs 18,74,31,920/-. The Assessing Officer had arrived at the said figure
of total income after allowing deductions under Section 80HHC to the
extent of Rs 2,70,48,517/- and under Section 80IB to the extent of Rs
3,04,15,236/-.
5. The Commissioner of Income-tax called for the records in
respect of the assessment year 2001-02 and was, prima facie, of the view
that the assessment was erroneous insofar as it was prejudicial to the
interests of the revenue since the deduction under Section 80HHC was
allowed on the whole profit of the business, including the profits derived
from the Pondicherry unit and the deduction already allowed under Section
80IB to the extent of Rs 3,04,15,236/- was not reduced in terms of Section
80IB(13) read with Section 80IA(9) of the said Act. Consequently, the
Commissioner of Income-tax issued a notice under Section 263 on
15.02.2006 and after receiving the written submissions from the respondent
/ assessee and hearing the representatives of the respondent / assessee, the
Commissioner of Income-tax, by virtue of his order dated 07.03.2006, held
that the assessment order passed by the Assessing Officer under Section
143(3) on 18.03.2004 was erroneous insofar as it was prejudicial to the
interests of the revenue inasmuch as the Assessing Officer had not applied
the provisions of Section 80IB(13) / 80IA(9) of the said Act and had
wrongly calculated the deduction under Section 80HHC without reducing
ITA Nos.1376/09&1382/09 Page No.3 of 20
from the profits and gains computed for allowing such deduction, the claimalready allowed as deduction to the extent of such profits and gains under
Section 80IB of the said Act. The Commissioner of Income-tax directed the
Assessing Officer to re-calculate the allowable deduction under Section
80HHC after reducing from the profits and gains calculated for the purposes
of allowance under Section 80HHC, such profits and gains to the extent of
Rs 3,04,15,236/-, which had been claimed and allowed as deduction under
Section 80IB of the said Act.
6. In the order dated 07.03.2006 passed by the Commissioner of
Income-tax under Section 263 of the said Act, it was mentioned that there
was no question of there being any two views since the Assessing Officer
had not, at all, considered the embargo placed by Section 80IA(9) /
80IB(13). According to the Commissioner of Income-tax, it was not a case
where two views of a situation were reflected, but a case where the
Assessing Officer did not, at all, apply his mind to the applicability of
Section 80IA(9)/80IB(13) of the said Act.
7. At this juncture, it ought to be pointed out that the Assessing
Officer, in the assessment order dated 18.03.2004, had dealt with the claim
of deduction under Section 80HHC as well as the claim of deduction under
Section 80IB separately in great detail. The deduction under Section
80HHC claimed by the assessee was to the extent of Rs 3,41,60,544/-,
whereas the deduction allowed by the Assessing Officer was only to the
extent of Rs 2,70,48,517/-. Similarly, the assessee had claimed an amount
ITA Nos.1376/09&1382/09 Page No.4 of 20
of Rs 3,19,74,289/- as deduction under Section 80IB. However, theAssessing Officer had allowed an amount of Rs 3,04,15,236/- as deduction
under Section 80IB. It is true that while allowing the aforesaid deduction
under Section 80HHC, the Assessing Officer did not compute the deduction
under Section 80HHC after reducing the deduction claimed under Section
80IB of the said Act.
8. Being aggrieved by the order dated 07.03.2006 passed by the
Commissioner of Income-tax under Section 263 of the said Act, the
respondent / assessee preferred an appeal (ITA No.1675/Del/06) before the
Income-tax Appellate Tribunal. The question which fell for consideration
before the Tribunal was whether the order passed by the Assessing Officer
was erroneous insofar as it was prejudicial to the interests of the revenue for
the reason that the deduction under Section 80HHC had been allowed
without reducing from the profit and gains, the deduction already allowed
under Section 80IB of the said Act. It was contended before the Tribunal
that since the issue of deduction under Section 80HHC, with or without
reducing the profits and gains by the deduction already allowed under
Section 80IB of the said Act, was debatable and more than one view was
possible, the Commissioner of Income-tax could not have resorted to the
corrective mechanism under Section 263 of the said Act. The Income-tax
Appellate Tribunal referred to the Supreme Court decision in the case of
CIT v. Max India Ltd: (2007) 295 ITR 282(SC) as also to the decision in
the case of CIT v. G.M. Mittal Stainless Steel Pvt. Ltd: 263 ITR 255. The
Tribunal held that on the question of allowability of deduction under
ITA Nos.1376/09&1382/09 Page No.5 of 20
Section 80HHC on the profits without reducing it by the amount ofdeduction allowed under Section 80IB, there was a difference of opinion
amongst the various benches of the Tribunal and the same continued till the
decision of the Special Bench (Chennai) of the Income-tax Appellate
Tribunal on 27.04.2007 in the case of ACIT v. Rogini Garments: 108 ITD
49 (Chennai) (SB). In order to examine as to whether there were two
different views on the aforesaid issue on 17.03.2006, when the
Commissioner of Income-tax passed the order under Section 263 of the said
Act, the Tribunal referred to various decisions of different benches of the
Tribunal prior to 17.03.2006. The decisions were in respect of Section
80IA(9), which is applicable in view of Section 80IB(13). The following
decisions, all prior to 17.03.2006, were in favour of the assessee:-
1) Decision of the Bangalore bench of the Tribunal in the case
of Mittal Clothing Co.: (2005) 4 SOT 626 decided on
20.06.2005;2) Decision of the Jaipur bench of the Tribunal in the case of
Toshica Creation v. ITO: 96 TTJ 651 (ITA
No.613/Jpr/2005, decided on 19.07.2005);3) Decision of the Bangalore bench of the Tribunal in the case
of Irfan Sheriff v. ACIT: (2006) 7 SOT 57 (ITA No.115
Bang, decided on 18.11.2005);4) Decision of the Delhi bench SMC of the Tribunal in the
case of ITO v. RV Diamond Jewellers Pvt. Ltd: (ITA
2252/D/05, decided on 30.11.2005); and5) Decision of the Delhi bench of the Tribunal in the case of
Bharat Heavy Electricals Ltd v. DCIT: 98 TTJ 565 (ITA
No.6146/Del/1997, decided on 22.07.2005).ITA Nos.1376/09&1382/09 Page No.6 of 20
9. The tribunal also noted the decisions rendered after 17.03.2006,
which were all (except one) in favour of the assessee. The decisions
referred to by the Tribunal were:-
1) Decision of the Delhi bench of the Tribunal in the case of
DCIT v. Eltek SGS (P) Ltd: (ITA Nos.3646 and
3669/Del/03, decided on 30.06.2006);2) Decision of the Madras High Court in the case of SCM
Creations v. ACIT: 218 CTR 126 (Mad) (ITA Nos.310 and
311 of 2008, decided on 06.03.2008);3) Decision of the Chandigarh bench of the Tribunal in the
case of DCIT v. Glaxo Smithkline Consumer Healthcare
Ltd: (ITA No.145/Del/07, decided on 28.05.2008);4) Decision of the Delhi bench of the Tribunal in the case of
ACIT v. Gold Star Industries: [11 DTR 238 (Tribunal),
decided on 06.06.2008); and5) Decision of the Delhi bench of the Tribunal in the case of
Nodi Exports v. ACIT: (ITA Nos.1439 and 1440/Del/04,
decided on 25.07.2008).10. All the above decisions, except the decision in the case of Nodi
Exports (supra) were in favour of the assessee. Consequently, the Tribunal
came to the conclusion that the Assessing Officer had taken a view in
consonance with the decisions of the Tribunal referred to above. The same
position existed on the day when the Commissioner of Income-tax passed
the order under Section 263 of the said Act. Consequently, the Tribunal
was of the view that the Assessing Officer‟s action could not be said to be
“erroneous inasmuch as it was prejudicial to the interests of the revenue”.
The Assessing Officer had taken one of the possible views prevailing at the
relevant point of time. The Tribunal also placed reliance on its earlier
decision in the case of Anil Kumar Rastogi v. Commissioner of Income-
ITA Nos.1376/09&1382/09 Page No.7 of 20
tax: decided on 08.02.2008 in ITA Nos.2627 and 2628/Del/2005 pertainingto the assessment years 2001-02 and 2002-03 where the Tribunal had, inter
alia, held that on the allowability in deduction under Section 80HHC on the
profits without reducing it by the amount of deduction under Section 80IB,
there was a cleavage of opinion and that this position continued till the
decision in the case of Rogini Garments (supra) was delivered by the
Special Bench of Chennai. Consequently, the Tribunal in Anil Kumar
Rastogi‟s case concluded that when the Commissioner passed the order
dated 31.03.2005 under Section 263, there were two different possible
views on the issue and, therefore, the provisions of Section 263 could not be
invoked.
11. As a result, the Tribunal, without entering into the question of
applicability of the provisions of sub-section (9) of Section 80IA and
deciding as to which view was sustainable in law, cancelled the order
passed by the Commissioner of Income-tax under Section 263 and restored
the order of the Assessing Officer on the issue involved in the appeal for the
reason that the view taken by the Assessing Officer was a possible view at
the relevant point of time.
12. Being aggrieved by the said decision of the Tribunal, the revenue
is in appeal before us in both these appeals. The learned counsel for the
appellant / revenue submitted that the impugned decisions of the Tribunal
were liable to be set aside in view of the fact that the Tribunal ignored a
very important circumstance and that is that the Assessing Officer in making
ITA Nos.1376/09&1382/09 Page No.8 of 20
the assessment order made no reference to two possible views. The learnedcounsel submitted that, in fact, the Assessing Officer made no mention of
the provisions of Section 80IB(13) read with Section 80IB(9) of the said
Act and the assessment order was passed in complete ignorance of the said
provisions. According to the learned counsel, the situation in these appeals
was not one where the Assessing Officer, faced with two different but
plausible views, adopted one of them, but, the position was that the
Assessing Officer did not at all refer to two different views or even to the
relevant provisions and was thus a case of clear non-application of mind.
Such a situation was clearly correctible by the Commissioner of Income-tax
in exercise of his powers under Section 263 of the said Act. In aid of the
aforesaid submission, the learned counsel for the appellant placed reliance
on the following decisions:-
1) Gee Vee Enterprises v. Additional Commissioner of Income-
tax, Delhi: 99 ITR 375(Del);2) Malabar Industrial Company Ltd v. Commissioner of
Income-tax: 243 ITR 83 (SC);3) Commissioner of Income-tax v. Deepak Kumar Garg:
[2008] 299 ITR 435 (MP);4) Deepak Kumar Garg v. Commissioner of Income-tax:
SLP(C) Nos.4814-16/2008 dismissed by the Supreme Court
on 10.03.2008: 299 ITR 91 (Journal).13. On the other hand, Mr Ajay Vohra, the learned counsel
appearing on behalf of the respondent / assessee, supported the decision of
the Tribunal in both the appeals and submitted that the Assessing Officer
had taken a plausible view based on various decisions of the Tribunal. Even
ITA Nos.1376/09&1382/09 Page No.9 of 20
on the dates on which the Commissioner of Income-tax passed the ordersunder Section 263 in the two respective appeals, the view taken by the
Assessing Officer was a plausible one inasmuch as the issue was debatable.
It was also submitted that it was not a case of non-application of mind on
the part of the Assessing Officer inasmuch as the Assessing Officer had
considered the claim of deduction of the respondent / assessee under both
Sections 80HHC and 80IB in great detail. It was also submitted that the
assessee has no control over the manner in which the Assessing Officer
makes his order of assessment and that merely because the deduction
allowed under Section 80IB was not reduced from the profits and gains
while computing the deduction under Section 80HHC, it cannot be said that
the Assessing Officer had not applied his mind to the provisions of Section
80IB(13) read with Section 80IA(9). The learned counsel for the
respondent / assessee placed reliance on the following decisions:-
1) Commissioner of Income-tax v. Max India Ltd: 268 ITR
128(P&H);2) Commissioner of Income-tax v. Max India Ltd: 295 ITR
282(SC);3) Hari Irion Trading Company v. Commissioner of Income-
tax: 263 ITR 437 (P&H);
4) Commissioner of Income-tax v. Eicher Limited: 294 ITR
310 (Delhi);5) Commissioner of Income-tax v. Kelvinator of India
Limited: 256 ITR 1 (FB) (Del);6) Godrej Agrovet Limited v. Assistant Commissioner of
Income-tax and Others: 290 ITR 252 (Bom).ITA Nos.1376/09&1382/09 Page No.10 of 20
14. Let us first examine the decisions cited by the learned counsel
for the respondent / assessee. The Punjab & Haryana High Court in the case
of Max India Limited (supra) took the position that if the view expressed
by the Assessing Officer was a possible view, the Commissioner of Income-
tax would have no jurisdiction to interfere with such a view by exercising
his powers under Section 263 of the said Act. The decision of the Punjab &
Haryana High Court in the case of Max India Ltd (supra) was carried to the
Supreme Court and the view taken by the Punjab & Haryana High Court
was confirmed in CIT V. Max India Ltd: ITR 295 ITR 282 (SC). The
Supreme Court also clarified its earlier decision in the case of Malabar
Industrial Company Ltd (supra), which has been strongly relied upon by
the learned counsel for the revenue, that the phrase “prejudicial to the
interest of the revenue” in Section 263 had to be read in conjunction with
the expression “erroneous”. The Supreme Court further clarified that every
loss of revenue as a consequence of an order of the Assessing Officer
cannot be treated as prejudicial to the interest of the revenue. As an
example, the Supreme Court noted that when an Income-tax Officer adopts
one of the courses permissible in law and it results in loss of revenue, then it
cannot be treated as an erroneous order prejudicial to the interest of revenue.
Furthermore, where two views are possible and the Income-tax Officer has
taken one view with which the Commissioner of Income-tax does not agree,
it cannot, once again, be treated as an erroneous, order prejudicial to the
interest of the revenue unless, of course, the view taken by the Income-tax
Officer is unsustainable in law. The Supreme Court in the case of Max
ITA Nos.1376/09&1382/09 Page No.11 of 20
India Ltd (supra) also noted, with reference to Section 80HHC that the saidprovision has been amended 11 times and that the mechanics of the Section
have become too complicated over the years that “two views were
inherently possible” and, therefore, the subsequent amendment in 2005,
even though it was retrospective, would not attract the provisions of Section
263, particularly because it is the position of law as it stood on the date
when the Commissioner passed the order under Section 263, which is to be
taken into account in testing whether the Commissioner of Income-tax
correctly exercised his powers under Section 263 of the said Act.
15. Hari Irion Trading Company (supra) was another case which
was decided by the Punjab & Haryana High Court. In this decision, the
Punjab & Haryana High Court took the view that the Commissioner of
Income-tax, while exercising his powers under Section 263, has to look into
not only the assessment order, but the entire record of the proceedings
before arriving at a conclusion as to whether the Assessing Officer had
examined any issue or not. This is so because the assessee has no control
over the way the assessment order is drafted. It was further observed that
during the course of assessment proceedings, the Assessing Officer
examines numerous issues and, generally, the issues which are accepted, do
not find mention in the assessment order and only such points are taken note
of on which the assessee‟s explanations are rejected and additions /
disallowances are made. The said High Courts observations to this effect
were as under:-
ITA Nos.1376/09&1382/09 Page No.12 of 20
“A bare perusal of the aforesaid provisions shows that the
CIT can exercise powers under sub-s. (1) of s. 263 of the
Act only after examining “the record of any proceedings
under the Act”. The expression ‘record’ has also been
defined in cl. (b) of the Explanation so as to include all
records relating to any proceedings available at the time of
examination by the CIT. Thus, it is not only the
assessment order but the entire record which has to be
examined before arriving at a conclusion as to whether the
AO had examined any issue or not. The assessee has no
control over the way an assessment order is drafted. The
assessee on its part had produced enough material on
record to show that the matter had been discussed in detail
by the AO. The least that the Tribunal could have done
was to refer to the assessment record to verify the
contentions of the assessee. Instead of doing that, the
Tribunal has merely been swayed by the fact that the AO
has not mentioned anything in the assessment order.
During the course of assessment proceedings, the AO
examines numerous issues. Generally, the issues which are
accepted do not find mention in the assessment order and
only such points are taken note of on which the assessee’s
explanations are rejected and additions / disallowances are
made.(underlining added)
The view taken by the Punjab & Haryana High Court in Hari Iron Trading
Company (supra) was accepted by this court in Eicher Limited (supra) in
the following words:-
“15. In Hari Iron Trading Co. v. CIT: (2003) 263 ITR 437,
a Division Bench of Punjab and Haryana High Court observed
that an assessed has no control over the way an assessment order
is drafted. It was observed that generally, the issues which are
accepted by the Assessing Officer do not find mention in the
assessment order and only such points are taken note of on which
the assesse’s Explanations are rejected and additions /
disallowances are made. We agree.”16. In Kelvinator of India (supra), a Full Bench of this court held
that when a regular order of assessment is passed under Section 143(3), a
presumption can be raised that such an order has been passed upon an
ITA Nos.1376/09&1382/09 Page No.13 of 20
application of mind. It was further observed that a presumption could alsobe raised to the effect that in terms of clause (3) of Section 114 of the Indian
Evidence Act, judicial and official acts have regularly been performed.
17. The last decision referred to by the learned counsel for the
assessee was that of the Bombay High Court in the case of Godrej Agrovet
Limited (supra). This decision had been referred to in the context of the
controversy with regard to the scope of Section 80IB(13) read with Section
80IA(9), wherein the Bombay High Court observed as under:-
“20. The next contention of the Revenue is that in
the regular assessment, the Assessing Officer has not
discussed the provisions of section 80-IB(13) read with
section 80-IA(9) of the Act and if those provisions were
taken into consideration, there would be negative profit
and consequently deduction under Section 80HHC could
not be granted. This argument is also without any merit
because, in the affidavit in reply filed on behalf of the
Revenue it is admitted that the assessee had not made
exports of the goods manufactured in the industrial units
eligible for deduction under section 80-IB. If the goods
manufactured in the units availing of deduction under
section 80-IB were not exported, then obviously the goods
manufactured in those units would not be taken into
account for computation of deduction under section
80HHC. In that event, the question of applying the
principles laid down in section 80-IA(9) while computing
the deduction under section 80HHC does not arise at all.”18. From the aforesaid discussion, it is apparent that the expression
prejudicial to the interest of revenue appearing in Section 263 has to be read
in conjunction with the expression “erroneous” and that every loss of
revenue as a consequence of an order of the Assessing Officer cannot be
treated as prejudicial to the interest of the revenue. In cases where the
Assessing Officer adopts one of the courses permissible in law or where two
views are possible and the Income-tax Officer has taken one view, the
ITA Nos.1376/09&1382/09 Page No.14 of 20
Commissioner of Income-tax cannot exercise his powers under Section 263to differ with the view of the Assessing Officer even if there has been a loss
of revenue. Of course, if the Assessing Officer takes a view which is
patently unsustainable in law, the Commissioner of Income-tax can exercise
his powers under Section 263 where a loss of revenue results as a
consequence of the view adopted by the Assessing Officer. It is also clear
that while passing an order under Section 263, the Commissioner of
Income-tax has to examine not only the assessment order, but the entire
record of the profits. Since the assessee has no control over the way an
assessment order is drafted and since, generally, the issues which are
accepted by the Assessing Officer do not find mention in the assessment
order and only those points are taken note of on which the assessee‟s
explanations are rejected and additions / disallowances are made, the mere
absence of the discussion of the provisions of Section 80IB(13) read with
Section 80IA(9) would not mean that the Assessing Officer had not applied
his mind to the said provisions. As pointed out in Kelvinator of India
(supra), when a regular assessment is made under Section 143(3), a
presumption can be raised that the order has been passed upon an
application of mind. No doubt, this presumption is rebuttable, but there
must be some material to indicate that the Assessing Officer had not applied
his mind.
19. We now examine the decisions upon which reliance was placed
by the learned counsel for the revenue. The first is the case of Gee Vee
Enterprises (supra). The Delhi High Court in that case observed as under:-
ITA Nos.1376/09&1382/09 Page No.15 of 20
“… The Income-tax Office is not only an adjudicator but
also an investigator. He cannot remain passive in the face
of a return which is apparently in order but calls for further
inquiry. It is his duty to ascertain the truth of the facts
stated in the return when the circumstances of the case are
such as to provoke an inquiry. The meaning to be given to
the word “erroneous” in section 263 emerges out of this
context. It is because it is incumbent on the Income-tax
Officer to further investigate the facts stated in the return
when circumstances would make such an inquiry prudent
that the word “erroneous” in section 263 includes the
failure to make such an inquiry. The order becomes
erroneous because such in inquiry has not been made and
not because there is anything wrong with the order if the
facts stated therein are assumed to be correct.”(underlining added)
20. The Supreme Court in Malabar Industrial Company Ltd
(supra), with reference to the powers exercised under Section 263 of the
said Act, observed as under:-
“A bare reading of this provision makes it clear that the
prerequisite to 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.There can be no doubt that 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.”(emphasis supplied)
ITA Nos.1376/09&1382/09 Page No.16 of 20
In the context of the factual matrix of the case before it, the Supreme Court,in Malbar Industrial Company Ltd (supra), concluded as under:-
“In the instant case, the CIT noted that the ITO passed
the order of nil assessment without application of mind.
Indeed, the High Court recorded the finding that the ITO
failed to apply his mind to the case in all perspective and
the order passed by him was erroneous. It appears that the
resolution passed by the board of the appellant-company
was not placed before the AO. Thus, there was no material
to support the claim of the appellant that the said amount
represented compensation for loss of agricultural income.
He accepted the entry in the statement of the account
filed by the appellant in the absence of any supporting
material and without making any inquiry. On these
facts the conclusion that the order of the ITO was
erroneous is irresistible. We are, therefore, of the opinion
that the High Court has rightly held that the exercise of the
jurisdiction by the CIT under s. 263(1) was justified.”(emphasis supplied)
21. The High Court of Madhya Pradesh in the case of Deepak
Kumar Garg (supra) held that from the order of the Assessing Officer, it
was clear that for want of time, the Assessing Officer had done only a
semblance of an inquiry and, that too, in a very slip shod manner. The
Assessing Officer accepted the version of the assessee without a proper
enquiry and as a result, a substantial amount of taxable income was not
brought to tax. The court held that in such a case, the assessment order
would be erroneous and prejudicial to the interest of the revenue because
the law enjoins upon the Assessing Officer to make the assessment order
bringing all taxable income to tax and that an enquiry held in a perfunctory
manner could not be said to be a proper enquiry before passing the
assessment order. It is also relevant to point out that the Madhya Pradesh
High Court also noted that no thumb rule of universal application can be
ITA Nos.1376/09&1382/09 Page No.17 of 20
evolved or laid down for the exercise of revisional power under Section 263of the Act and that it would depend on the facts of each case. However, the
Commissioner of Income-tax must be satisfied of the existence of the twin
conditions, that is, that the order of the Assessing Officer is erroneous and
that it is prejudicial to the interest of the revenue. The decision of the
Madhya Pradesh High Court was challenged before the Supreme Court by
way of a Special Leave Petition being SLP (C) 4814-16/08, but the same
was dismissed by the Supreme Court by its order dated 10.03.2008.
22. From the decisions cited by the learned counsel for the revenue,
it is apparent that failure to make an enquiry on the part of the Assessing
Officer would be a ground for invoking the powers under Section 263. The
Supreme Court in Malabar Industrial Company Ltd (supra) also noted that
the cases which fell in the category of non-application of the principles of
natural justice or non-application of mind would also satisfy the requirement
of the order being erroneous and would, therefore, be amenable to
correction under the revisional jurisdiction of Section 263 of the said Act.
In the case of Gee Vee Enterprises (supra), the Assessing Officer‟s order
was held to be erroneous because the relevant enquiry was not made.
Again, in Malabar Industrial Company Ltd (supra), the Assessing
Officer‟s order was held to be erroneous because it had been made without
application of mind and the Assessing Officer had merely accepted the
entries in the statement of accounts filed by the assessee in the absence of
any supporting material and without making any enquiry. Similarly, in
Deepak Kumar Garg (supra), the Assessing Officer accepted the version of
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the assessee and for want of time did not conduct any proper enquiry. On
these facts, it was found that the order passed by the Assessing Officer was
erroneous and prejudicial to the interest of the revenue.
23. In the facts of the present case, we find that there is no material
to indicate that the Assessing Officer had not applied his mind to the
provisions of Section 80IB(13) read with Section 80IA(9). The
presumption that the assessment orders passed under Section 143(3) passed
by the Assessing Officer had been passed upon an application of mind, has
not been rebutted by the revenue. No additional facts were necessary before
the Assessing Officer for the purpose of construing the provisions of
Section 80IB(13) read with Section 80IA(9). It was only a legal
consideration as to whether the deduction under Section 80HHC was to be
computed after reducing the amount of deduction under Section 80IB from
the profits and gains. There is no doubt that the Assessing Officer had
allowed the deduction under Section 80HHC without reducing the amount
of deduction allowed under Section 80IB from the profits and gains. He did
not say so in so many words, but that was the end result of his assessment
order. Since he was holding in favour of the assessee, as has been observed
in Hari Iron Trading Company (supra) and Eicher Limited (supra),
generally, the issues which are accepted by the Assessing Officer, do not
find mention in the assessment order, it cannot be said that the Assessing
Officer had not applied his mind. It cannot also be said that the Assessing
Officer had failed to make any enquiry because no further enquiry was
necessary and all the facts were before the Assessing Officer.
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Consequently, we are of the view that the decisions cited by the learned
counsel for the revenue, wherein assessment orders were found to be
erroneous for want of an enquiry or proper enquiry, would have no
application to the present appeals. It is also true that the validity of an order
under Section 263 has to be tested with regard to the position of law as it
exists on the date on which such an order is made by the Commissioner of
Income-tax. From the narration of facts in the Tribunals order, it is clear
that on the date when the Commissioner of Income-tax passed his orders
under Section 263, the view taken by the Assessing Officer was in
consonance with the views taken by several benches of the Income-tax
Appellate Tribunal. Therefore, the conclusion of the Tribunal that the
Commissioner of Income-tax could not have invoked his jurisdiction under
Section 263 of the said Act was correct. As a result, we answer the question
against the revenue and in favour of the assessee by holding that the
Income-tax Appellate Tribunal was correct in law in cancelling the order
passed by the Commissioner of Income-tax under Section 263 and in
restoring the order of the Assessing Officer by holding that the Assessing
Officer had taken a possible view at the relevant point of time. The appeals
are accordingly dismissed. There shall be no order as to costs.
BADAR DURREZ AHMED, J
V.K. JAIN, J
JULY 05, 2010
dutt
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