2013 (1) TMI 90 - HC - Income Tax

High Court overturns ITAT decision, upholds CIT order, cites AO's errors under Section 80IA(9) and affirms Section 263 revision.

The High Court allowed the appeal, setting aside the ITAT's order and restoring the CIT's order. It held that the AO's actions were erroneous and ... Revision of orders prejudicial to revenue by CIT(A) - relief granted u/s 80 IA was not deducted from the profits and gains of the business before computing relief u/s 80 HHC - ITAT quashed the orders of CIT(A) passed u/s 263 - Held that:- As decided in Asstt. CIT Vs. Rogni Garments & Ors [2007 (4) TMI 122 - ITAT, CHENNAI] Section 80HHC is part of Chapter VI-A. CIT v. Sharon Vancers P. Ltd.(2007 (2) TMI 121 - HIGH COURT , MADRAS) has made it clear that it is not correct to say that Section 80HHC is a self contained provision. The deduction cannot be allowed ignoring the restrictive clause contained in Section 80-IA(9). The restrictive clause in Section 80-IA makes it abundantly clear that wherever deduction under any other section of Chapter VI-A(C) is claimed, the computation will be subject to the restrictions laid down in Section 80-IA (9). It precludes 'pro tanto', all the deductions of such profits and gains claimed under Chapter VI-A(C). Section 80HHC is part of Chapter VI-A(C). The respondent-assessee, in the present case, had in its return of income tax, claimed deduction under Section 80IA at Rs. 12.01 crores and Section 80HHC at Rs. 5.75 crores and declared the total income of Rs. 82.47 lacs. The AO allowed the deduction under Section 80IA to the tune of Rs. 14.04 crores and deduction under Section 80HHC to the tune of Rs. 2.42 crores. The CIT on perusal of the assessment order found the assessment order to be both erroneous and prejudicial to the interest of Revenue and rightly so as deduction under Section 80HHC was allowed on eligible profits of business without reducing the profits of business on which deduction under Section 80IA had been allowed. There was, thus, contravention of Section 80IA(9), which clearly indicates the extent of restriction to which the deduction under other provision of Chapter VI-A of IT Act can be allowed in cases where relief has been given on the profits and gains under Section 80IA. As decided in Malabar Industrial Co. Ltd. v. CIT [2000 (2) TMI 10 - SUPREME COURT] an incorrect assumption of facts or an 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. Thus set aside the order of ITAT and restore that of CIT-I - against assessee. Issues Involved:1. Whether the relief granted under Section 80IA should be deducted from the profits and gains of the business before computing relief under Section 80HHC.2. Whether the Commissioner of Income Tax (CIT) can exercise revisional powers under Section 263 of the Income Tax Act, 1961, when two views are possible on the interpretation of relevant provisions.3. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of revenue.Issue-wise Detailed Analysis:1. Deduction under Section 80IA and 80HHC:The core issue revolves around the interpretation of Section 80IA(9) of the Income Tax Act, 1961, which states that where any amount of profits and gains is claimed and allowed under Section 80IA, deduction to the extent of such profits and gains shall not be allowed under any other provisions of Chapter VI-A, including Section 80HHC. The CIT found that the AO had allowed deductions under both Sections 80IA and 80HHC without reducing the profits and gains on which deduction under Section 80IA had been allowed, resulting in excess deduction under Section 80HHC. This was deemed erroneous and prejudicial to the interest of revenue as it contravened the provisions of Section 80IA(9).2. Revisional Powers under Section 263:The ITAT had allowed the appeal of the assessee by concluding that the AO had taken one of the possible views, which was in consonance with the views taken by several Benches of the Tribunals at the relevant time. The ITAT relied on the judgment of the Delhi High Court in CIT Vs. Honda Siel Power Products Ltd., which held that if the AO adopts one of the courses permissible in law, the CIT cannot exercise his powers under Section 263 to differ with the view of the AO, even if there has been a loss of revenue. The Delhi High Court had emphasized that the mere absence of discussion in the assessment order does not imply that the AO had not applied his mind to the provisions.3. Erroneous and Prejudicial Order:The High Court examined whether the order passed by the AO was erroneous and prejudicial to the interest of revenue. The Court noted that the assessment order dated 28.12.2006 allowed deductions under both Sections 80IA and 80HHC without reducing the profits and gains on which deduction under Section 80IA had been allowed. This was found to be in contravention of Section 80IA(9). The Court emphasized that the CIT's revisional powers under Section 263 were justified as the AO's order was erroneous and prejudicial to the interest of revenue. The Court further referenced the judgment in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, which held that an incorrect application of law satisfies the requirement of the order being erroneous.Conclusion:The High Court allowed the appeal, set aside the order dated 29.04.2011 of the ITAT, and restored the order of the CIT dated 18.03.2009. The Court held that the AO's order was erroneous and prejudicial to the interest of revenue due to the incorrect application of Section 80IA(9), and the CIT was justified in exercising revisional powers under Section 263 of the Income Tax Act, 1961.