2006 (4) TMI 511 - AT - Income Tax

Tribunal Overturns Order: AO's Deduction Acceptance Upheld, CIT's Jurisdiction Deemed Wrongly Invoked.

ANIL SHAH Versus ASSISTANT COMMISSIONER OF INCOME-TAX, RANGE 24 (1), MUMBAI.

The Tribunal quashed the CIT's order under section 263, determining that the AO's acceptance of the assessee's claim for deduction under section 80HHC was ... Revision u/s 263 by CIT - erroneous and prejudicial Order - Include the DEPB and duty drawback income for computation deduction u/s 80HHC - HELD THAT:- The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT], has clearly held that if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the ld. CIT does not agree, the Assessing Officer’s order cannot be treated as erroneous unless the view taken by the Assessing Officer is not sustainable under law. We have already observed that in the present case, at the time when assessment was completed, the legal position was in assessee’s favour and, therefore, the deduction allowed by the Assessing Officer cannot be said to be unsustainable under law. The ld. CIT-DR has also vehemently argued that there is non-application of mind on the part of the Assessing Officer. In our view, this argument is not acceptable. As mentioned, all the relevant details were already available before the Assessing Officer when the assessment was made. It has been held in the case of Gabriel India Ltd.[1993 (4) TMI 55 - BOMBAY HIGH COURT] that if all the relevant details have been filed by the assessee and the Assessing Officer allows the claim, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make any elaborate discussion in that regard. Thus, we hold that the ld. CIT has wrongly invoked his jurisdiction u/s 263 of the IT Act. We, therefore, quash his impugned order passed u/s 263 of the Act. In the result, the assessee’s appeal stands allowed. Issues Involved:1. Whether the Assessing Officer's (AO) order was erroneous and prejudicial to the interests of the revenue under section 263 of the IT Act.2. Treatment of income from DEPB, special import licenses, and duty drawback under section 80HHC of the IT Act.Issue-wise Detailed Analysis:1. Erroneous and Prejudicial Order under Section 263:The Commissioner of Income-tax (CIT) issued a show-cause notice to the assessee, indicating that the AO's order was erroneous and prejudicial to the interests of the revenue for failing to account for certain reductions in profit due to changes in the valuation of closing stock and bifurcation of depreciation on the building. The CIT accepted the assessee's explanation for these points but held that the AO erred in allowing deductions under section 80HHC for profits derived from the sale of DEPB and special import licenses without proper verification and consideration of judicial pronouncements.The Tribunal considered whether the AO's order was erroneous and prejudicial to the revenue. The Tribunal noted that the AO had complete details regarding the deduction under section 80HHC, including the final accounts, auditor's report, and Form No. 10CCAC. The AO accepted the assessee's computation without discussion, which is common practice when claims are accepted. At the time of assessment, the legal position supported the assessee's claim, and no contrary decisions were available.The Tribunal referred to several judgments to outline the principles governing the CIT's powers under section 263, emphasizing that the CIT must record satisfaction that the AO's order is erroneous and prejudicial to the revenue. An order is not erroneous if the AO has adopted one of the permissible courses under law, even if the CIT disagrees. The Tribunal held that the CIT wrongly invoked jurisdiction under section 263, as the AO's acceptance of the assessee's claim was legally correct at the time.2. Treatment of Income from DEPB, Special Import Licenses, and Duty Drawback under Section 80HHC:The CIT argued that profits from the sale of DEPB and special import licenses are incidental income and cannot be treated as export profit under section 80HHC. The Tribunal noted that the AO had allowed the deduction under section 80HHC based on the details provided by the assessee, which were part of the record.The Tribunal referred to several ITAT decisions supporting the view that deduction under section 80HHC is available for income from DEPB, duty drawback, etc. The Tribunal emphasized that if the AO has made enquiries, examined accounts, and applied his mind to the facts, the CIT cannot substitute his estimate of income for the AO's conclusion. The Tribunal also noted that the CIT must have material on record to arrive at a satisfaction.The Tribunal held that the AO's acceptance of the assessee's claim was based on the legal position at the time, which was in the assessee's favor. Therefore, the AO's order could not be deemed erroneous or unsustainable under law. The Tribunal quashed the CIT's order under section 263, allowing the assessee's appeal.Conclusion:The Tribunal concluded that the CIT wrongly invoked jurisdiction under section 263, as the AO's order was not erroneous or prejudicial to the interests of the revenue. The AO's acceptance of the assessee's claim for deduction under section 80HHC was legally correct based on the prevailing legal position and the details provided by the assessee. The assessee's appeal was allowed.