ORDER
K.C. Singhal, J.M.
The issue arising out of this appeal relates to the validity of the jurisdiction assumed by the CIT under section 263 pertaining to assessment year 1998-99.
2. The brief facts of the case are these : The assessed had claimed deduction under section 80-IA at Rs. 2,47,87,500. In the course of assessment proceedings, it was seen that the credit side of the P&L a/c included the interest income of Rs. 3,01,04,374 from customers on delayed payments, Rs. 4,76,739 on account of interest on margin money deposits and Rs. 5,58,568 on account of interest on deposits with Maharashtra State Electricity Board and interest on other deposits amounting to Rs. 75,29,794 totalling Rs. 3,86,69,475. The assessed was asked to explain as to how it was entitled to deduction under section 80-IA in respect of the aforesaid interest income. After considering the submissions of assessed in the light of the Supreme Court judgment in the case of CIT v. Govincla Choudhary & Sons (1994) 116 CTR (SC)) 61 : (1993) 203 ITR 881 (SC)) and the decision of the Tribunal in the case of Rollatainers ITD., it was held by the assessing officer that assessed was entitled to deduction in respect of interest received from customers on delayed payments as well as interest on deposits with MSEB and margin money deposits. However, the assessed was not allowed deduction with reference to interest earned on deposits out of surplus funds following the judgment of Madras High Court in the case of CIT v. Rane (Madras) ITD. (1998) 148 CTR (Mad) 404 (1999) 238 ITR 377 (Mad).
3. On examination of the record, the CIT was of the view that assessed was not entitled to deduction under section 80-IA with reference to interest from customers on late payment, interest on margin money deposits and interest from MSEB deposit. Accordingly, a show-cause notice was issued. In response to the same, the following arguments were made by the assessed.
(i) The receipt of interest in question is clearly derived from carrying out of industrial activity and hence, it qualifies for deduction under section 80AA.
(ii) The requisite conditions in section 263, i.e., the order should be erroneous and prejudicial to the interest of revenue, do not exist in the present case. The order passed under section 143(3) by the assessing officer is neither erroneous nor prejudicial to the interest of revenue. Hence, the assumption of jurisdiction by CIT under section 263 is not warranted.
(iii) There is merger of the assessment order under reference with the order of Commissioner (Appeals) and in view of ExpIn. (c) to section 263(1) CIT is precluded to proceed under section 263.
However, the CIT was not satisfied with the submissions made by the assessed. According to him, the words ‘derived from’ used in section 80-IA could not have a wider import so as to include any income which can in some manner be attribute to the business. So there must be a direct link between the income earned and the industrial undertaking in the sense that the industrial undertaking itself must be the immediate source of income. In support of this legal position, he relied on the following judgments :
(i) CIT v. Raja Bahadur Kamakhya Narain Singh (1948) 16 ITR 325 (PC)
(ii) CIT v. Cochin Refinery ITD. (1982) 27 CTR (Ker) 147 : (1982) 135 ITR 278 (Ker)
(iii) Cambay Electric Supply Inclustiial Co. ITD. v. CIT 1978 CTR (SC) 50: (1978) 113 ITR 84 (SC))
(iv) CIT v. Sterling Food (1999) 153 CTR (SC)) 439: (1999) 237 ITR 579 (SC))
4. Coming to the merits, he was of the view that the interest earned on deposits with MSEB and with the bank as margin money did not have any direct link with the industrial undertaking in as much as direct source was the deposit itself and not the industrial undertaking. Reliance was placed on the decision of Madras High Court in the case of CIT v. Pandian Chemicals (1998) 147 CTR (Mad) 5 : (1998) 233 ITR 497 (Mad). Accordingly, it was held by him that order of assessing officer was erroneous and prejudicial to the interest of revenue.
5. Regarding the theory of merger, it was observed by him that the interest learned on these items was not the subject-matter of appeal before Commissioner (Appeals) as the assessing officer had allowed deductions on these items. Further, neither there was any scope for agitation on this issue before the Commissioner (Appeals) nor did the Commissioner (Appeals) consider this issue suo moto in the appellate order. Hence, ExpIn. (c) to section 263(1) did not come into play in this case.
6. In view of the above discussion, the CIT set aside the order of assessing officer with the direction to reframe the assessment in accordance with law. Aggrieved by same, the assessed is in appeal before the Tribunal.
7. The learned counsel for the assessed has assailed the order of Commissioner (Appeals) by raising various submissions. The first submission was that CIT had no jurisdiction to revise an assessment order where the assessing officer had passed his order after due application of mind. He took us through the assessment order to point out that the assessing officer had considered this issue in detail and then had come to the conclusion that assessed was entitled to deduction. It was also submitted by him that if the assessing officer has applied his mind then CIT cannot substitute his own opinion in place of the assessing officer. Reliance was placed on the Bombay High Court judgment in the case of CIT v. Gabriel India ITD. (1993) 114 CTR (Bom) 81 : (1993) 203 ITR 108 (Bom) and Gujarat High Court judgment in the case of CIT v. Arvind Jewellers (2002) 177 CTR (Guj) 546 : (2003) 259 ITR 502 (Guj). The second contention was that if the assessing officer has taken a possible view then CIT cannot assume jurisdiction under section 263. Reliance was placed on the Supreme Court judgment in the case of Malabar Industrial Co. ITD. v. CIT (2000) 159 CTR (SC)) 1 : (2000) 243 ITR 83 (SC)). It was also submitted that where the order of the assessing officer is in accordance with the decision of higher authorities then it cannot be said that the order of assessing officer was erroneous. Reliance was placed on various Tribunal decisions, namely, Super Cassette Industries (P) ITD. v. CIT (1992) 41 ITD 530 (Del), Jhule Lal Land Development Corpn. v. Dy. CIT (1996) 56 ITD 345 (Bom), Machino Techno Sales (P) ITD. v. Dy CIT (1996) 56 7TJ (Cal) 613 : (1996) 59 ITD 303 (Cal), Patel J Co. ITD. v. Asstt. CIT (1998) 64 ITD 273 (Mumbai) and Kelvinator of India ITD. (ITA 3148/Del/1994). The third submission was that order of assessing officer had been merged with the order of Commissioner (Appeals) qua the matter relating to deduction under section 80-IA in all respects and therefore, CIT had no jurisdiction under section 263. Reliance was placed on various judgments, namely, Oil India ITD. v. CIT (1982) 27 CTR (Cal) 259 : (1982) 138 ITR 836 (Cal), CIT v. Salonah Tea Co. ITD. (1992) 62 Taxman 51 (Cal), Mrs. Sulata Grover v. Dy. CIT (2002) 74 TTJ (Del) 347 and some other cases which are mentioned in the synopsis given by the assessed. The learned counsel for the assessed has also referred to various decisions where it has been teld that such interest income is entitled to deduction under section 80-IA. ,
8. On the other hand, the learned departmental Representative had relied on the reasonings given by the CIT. In support of his proposition, he relied on the decision of the Supreme Court in the case of Pandian Cheinicals ITD. v. CIT (2003) 183 CTR (SC)) 99 : (2003) 262 ITR 278 (SC)) wherein it has been held that interest on deposits with MSEB does not qualify for deduction under section 80-1/80HH. He also referred to another decision of the Supreme Court in the case of Hindustan Lever ITD. v. CIT (1999) 156 CTR (SC)) 506 : (1999) 239 ITR 297 (SC) wherein it has been held that the words “derived from” should be understood in the restricted sense.
9. In reply, it was submitted by the assessed that subsequent decision of the Supreme court in the case of Pandian Chemicals (supra) is not relevant in deciding the issue regarding the validity of assessment of jurisdiction under s. 263. In this connection, he drew our attention to the recent decision of the Supreme court in the case of CIT v. G.M. Mittal Stainless Steel (P) ITD. (2003) 179 CTR (SC) 533 wherein it has been held that assumption of jurisdiction cannot be held to be valid on the basis of subsequent judgment of Supreme Court.
10. After considering the rival submissions, we are of the view that the order of CIT under section 263 cannot be upheld. It is not necessary for us to deal with all the contentions of the parties since, in our view, the issue is squarely covered by the judgment of the Hon’ble Supreme Court in the case of Malabar Industlial Co. ITD. v. CIT (supra) wherein it has been held that where the view taken by the assessing officer is one of the possible views then the CIT cannot assume jurisdiction under section 263. There were various decisions of the Tribunal and High Court to support the view taken by the assessing officer. Regarding the interest received from customer on delayed payments, the issue is almost covered by the ratio laid down by the Hon’ble Supreme Court in the case of CIT v. Govinda Choudhaiy & Sons (supra) wherein it has been held that interest partakes the same character as the payment on which interest Was made. On this theory, interest was nothing but part of the sale price. Further, Madras High Court in the case of Rane (Madras) ITD. (supra) has held that interest received from customers is eligible for deduction under section 80-L The Tribunal also in the case of Rollantainers ITD. v. Dy. CIT (2000) 69 TTJ (Del) 8, Kinetic Honda Motors ITD. v. A. CIT (2001) 72 TTJ (Pune) 72 and Inductotherm (India) ITD. v. Dy. CIT (2002) 75 TTJ (Ahd) 728 has held that interest received from customers is eligible for deduction under sections 80-I/80-IA/80HH. Regarding the interest on deposits as margin money with the banks and interest on deposits with State Electricity Board, various benches of the Tribunal have held that such interest was income derived from industrial undertaking. Reference can be made to the various decisions, namely, Dy. CIT v. Jagdish Electronics (P) ITD. (1998) 66 ITD 542 (Pun e), Viksh ara Tra din g Co. & In v. L td. v. Dy. CIT (1998) 61 ITJ (Ah d) 6 (1998) 99 Taxman 229 (Ahd)(Mag), R. Prakash v. Assistant Commissioner (2002) 75 TTJ (Coch) 2 546 and Ambika Cotton Mills v. A. CIT (2001) 71 ITJ (Mad) 871 : (2003) 86 ITD 240 (Mad). The above decisions clearly showed that the decision of assessing officer was in accordance with the views expressed by various Benches of the Tribunal and High Court. It is to be noted that there is no contrary decision regarding the interest received from customers. Even the CIT has not whispered a word about such interest income. Regarding other, interest income, no doubt there are decisions to the contrary but on that account, in our opinion, revisionary jurisdiction could not be assumed by the CIT in view of the Supreme Court judgment in the case of Malabar Industrial Co. (supra). Hence, it is held that the order of the CIT under section 263 was without jurisdiction.
11. Before parting with this order, we may mention that recently the Supreme Court in the case of Pandian Chemicals (supra) has held that interest on deposits with MSEB could not be said to be an income derived from industrial undertaking. So a query was raised as to whether jurisdiction of CIT can be justified with reference to the interest on such deposits. The learned counsel for the assessed has brought to our notice the recent judgment of the Supreme Court in the case of G.M. Mittal Stainless Steels (P) ITD. (supra) wherein it was held that validity of jurisdiction under section 263 has to be seen with reference to the date when he assumed jurisdiction and if such assumption was without jurisdiction then the same cannot be held to be valid on the basis of subsequent judgment of the Supreme Court. Respectfully following the same, it is held that the decision of Supreme Court in the case of Pandian Chemicals (supra) would not help the revenue.
12. In view of the above discussion, the impugned order of the CIT is hereby quashed. The appeal of the assessed is, therefore, allowed.