2007 (6) TMI 185 - HC - Income Tax

Court Affirms Tribunal: No Grounds for Revising Tax Assessment u/s 263; Supports Interpretation of Export Deductions.

The HC dismissed the case, upholding the Tribunal's decision that the Commissioner was not justified in revising the assessment order under Section 263 of ... Order passed by Commissioner u/s 263 - Tribunal have a right to holding the Commissioner revising the assessment order u/s 263 - export turnover - exemption on the entire profit u/s 10B - HELD THAT:- Section 263 of the Act can be invoked only if the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. The said two conditions must be satisfied before assuming jurisdiction u/s 263 of the Act. It is seen from the records that the domestic sales did not exceed 25 per cent of the total turnover. As per the second proviso to section 10B applicable for the assessment year, the profits and gains derived from such domestic sales of computer software which did not exceed 25 per cent of total sales shall be deemed to be the profits and gains from the export of computer software. The statement of computation in accordance with the proviso which would result in entire income being eligible for deduction u/s 10B was placed before the Tribunal and on this basis the Tribunal held that the assessment was neither erroneous nor prejudicial to the interests of the Revenue. It is clear that two views are possible in the matter. The Assessing Officer preferred one view against the another view. The Assessing Officer followed a particular view and hence it cannot be said that the order is erroneous or prejudicial to the interests of the Revenue. The Tribunal correctly followed the principles enunciated in the Supreme Court judgment in the case of Malabar Industrial Co. Ltd. v. CIT[2000 (2) TMI 10 - SUPREME COURT], wherein the scope of section 263 was considered. In view of the same, we find no error or illegality in the order of the Tribunal so as to warrant interference. Thus, no substantial questions of law arise for consideration of this court and accordingly the tax case is dismissed. Issues:1. Interpretation of Section 263 of the Income Tax Act, 1961 regarding revision of assessment order.2. Application of Section 10B for deduction on export profits.3. Consideration of different views in assessing the order's correctness and impact on revenue.Analysis:Issue 1: Interpretation of Section 263The High Court addressed the issue of whether the Tribunal was correct in holding that the Commissioner was not justified in revising the assessment order under Section 263 of the Income Tax Act. The Tribunal found that the order was not erroneous and prejudicial to the interest of the revenue. The Court emphasized that Section 263 can only be invoked if the order is both erroneous and prejudicial to revenue. The Court examined the applicability of the proviso under Section 10B concerning the treatment of domestic sales in export-oriented undertakings.Issue 2: Application of Section 10B for DeductionThe case involved a company engaged in export of computer software seeking exemption under Section 10B of the Income Tax Act. The Commissioner revised the assessment order under Section 263, deeming it erroneous and prejudicial to revenue. However, the Tribunal disagreed, stating that the assessment was not erroneous as the proviso under Section 10B was open to different interpretations. The Court analyzed the computation of deduction under Section 10B and upheld the Tribunal's decision, citing the possibility of multiple interpretations and the need for a sustainable legal basis for invoking Section 263.Issue 3: Consideration of Different ViewsThe Court examined the interpretation of the proviso under Section 10B, emphasizing that the Assessing Officer's choice of one view over another did not render the order erroneous or prejudicial to revenue. Referring to precedents like the Malabar Industrial Co. case, the Court highlighted that unless the Assessing Officer's view is unsustainable in law, it cannot be deemed prejudicial to revenue. The Court upheld the Tribunal's decision, concluding that no substantial questions of law warranted the Court's interference, and thus dismissed the case without costs.In conclusion, the High Court's judgment clarified the conditions for invoking Section 263, analyzed the application of Section 10B for deduction on export profits, and emphasized the importance of sustainable legal interpretations in assessing the correctness of assessment orders impacting revenue interests.