Common expense apportionment between old and new units for s.80J deduction, upheld; s.263 revision quashed as unsustainable

The dominant issue was whether the Commissioner validly invoked revision under s.263 to withdraw relief (under s.80J/related deduction) on the ground that the assessment was "erroneous and prejudicial to the interests of the Revenue." Applying SC law that s.263 lies only where the AO's view is unsustainable in law and not merely because another view is possible, the HC held that the assessee's consistent, departmentally accepted method of apportioning common expenses between old and new units was rational and not shown to be improper; concurrent factual findings on apportionment could not be disturbed. Consequently, the Tribunal's quashing of the s.263 order and restoration of the AO's assessment was upheld, and the reference was answered for the assessee.

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Issues:
1. Interpretation of section 263 of the Income-tax Act, 1961
2. Revisional powers of the Commissioner under section 263
3. Merger of orders by the appellate authority
4. Deduction under sections 80HH and 80J of the Act
5. Consistency in apportioning expenses for deduction under section 80HH
6. Application of section 144B(4) of the Act in revisional proceedings

Interpretation of section 263 of the Income-tax Act, 1961:
The High Court analyzed the Tribunal's decision regarding the interpretation of section 263 of the Income-tax Act, 1961. It was held that the Commissioner's revisional powers under section 263 could not be invoked when the order had already been considered and decided in appeal. The court referred to previous judgments, including the case of CIT v. Shri Arbuda Mills Ltd., emphasizing that the Commissioner cannot revise an order that has already been appealed against and merged with the appellate order.

Revisional powers of the Commissioner under section 263:
The court examined the Tribunal's decision on the exercise of revisional powers under section 263 by the Commissioner. It was established that the Commissioner could not revise an order that had already been appealed against and merged with the appellate order, as per legal precedents and the provisions of section 263(1) of the Act.

Merger of orders by the appellate authority:
The judgment discussed the concept of merger of orders by the appellate authority. It was clarified that when an order has been considered and decided by the appellate authority before a revisional order is made, the Commissioner cannot revise the same order under section 263. Legal references and previous court decisions were cited to support this interpretation.

Deduction under sections 80HH and 80J of the Act:
The court examined the Tribunal's decision regarding deductions under sections 80HH and 80J of the Act. It was observed that the Tribunal found the Income-tax Officer's orders to be consistent and rational in granting deductions under these sections. The court emphasized that section 263 cannot be invoked to correct every mistake by the Assessing Officer unless the order is erroneous and prejudicial to the Revenue's interests.

Consistency in apportioning expenses for deduction under section 80HH:
The judgment analyzed the Tribunal's findings on the consistency in apportioning expenses for claiming deductions under section 80HH. It was noted that the Tribunal upheld the method adopted by the assessee for dividing expenses between old and new units, as it was consistent and rational. The court highlighted that unless the method was shown to be irrational, section 263 could not be applied to correct such assessments.

Application of section 144B(4) of the Act in revisional proceedings:
The court addressed the Tribunal's decision on the application of section 144B(4) of the Act in revisional proceedings. It was concluded that the Tribunal erred in upholding the preliminary objection of the assessee against the revisional exercise of powers under section 263, as the Income-tax Officer's order based on directions from a superior authority was revisable by the Commissioner, as per legal precedents and interpretations of the Act.

In conclusion, the High Court ruled in favor of the assessee, holding that the Tribunal did not commit any error in quashing the Commissioner's order under section 263 and restoring the Income-tax Officer's order. The judgment provided a detailed analysis of various legal issues, interpretations of relevant sections of the Income-tax Act, and precedents to support the decision.

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