2008 (2) TMI 471 - AT - Income Tax

Tribunal Confirms Commissioner's Order: Assessing Officer's Errors in Deductions Justify Corrective Action.

The Tribunal upheld the Administrative Commissioner's order under Section 263, concluding that the Assessing Officer's (AO) assessment was erroneous and ... Revision u/s 263 - Erroneous and Prejudicial Order Passed by AO - No assessment order was passed u/s 143(3) - two views possible on the date when the CIT passed his order under section 263 - HELD THAT:- The Assessing Officer has not discussed the issue of deduction of the relief allowed under section 80-IA while computing the eligible profit for the purpose of deduction under section 80HHC. In those circumstances, we may not be able to say whether the Assessing Officer had expressed any opinion at all. It is also not possible to say that the Assessing Officer had taken one of the possible views. The matter would have been entirely different in case the Assessing Officer has discussed expressly in the assessment order and concluded that there was no need for deducting the profit allowed under section 80-IA while computing deduction under section 80HHC. Unfortunately, in the case before us, the Assessing Officer has not discussed anything. Therefore, it clearly shows non-application of mind on the part of the Assessing Officer. The Apex Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007 (5) TMI 197 - SUPREME COURT] after considering the provisions of section 143(1)(a), found that when the return was processed under section 143(1) of the Income-tax Act, it cannot be said that the Assessing Officer has taken any view on the claim made by the assessee. Therefore, it is very clear that when the Assessing Officer has not applied his mind and made proper enquiry with regard to the claim of the assessee, the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. In those circumstances, we may not be able to say that the Assessing Officer has taken one of the views permissible under law. Thus, we do not find any infirmity in the order of the lower authority. In the result, the appeal of the assessee stands dismissed.   Issues Involved:1. Whether the deduction under Section 80-IA should be deducted before computing the eligible profit for the purpose of deduction under Section 80HHC.2. Whether the Administrative Commissioner correctly exercised his power under Section 263 of the Income-tax Act.Issue-wise Detailed Analysis:1. Deduction under Section 80-IA and Section 80HHC:The assessee claimed a deduction under Section 80HHC without deducting the deduction allowed under Section 80-IA. The Assessing Officer (AO) accepted this claim. However, the Administrative Commissioner, exercising his power under Section 263, found that the deduction under Section 80-IA must be deducted before computing the eligible profit for the purpose of deduction under Section 80HHC. The assessee argued that this issue was debatable and that two views were possible, citing a case where another Commissioner under Section 264 allowed relief under Section 80HHC without deducting the deduction under Section 80-IA. The assessee also referred to judgments from the Supreme Court which indicated that when two views are possible, the AO's decision should not be considered erroneous or prejudicial to the interests of the Revenue.2. Exercise of Power under Section 263:The learned departmental representative argued that the AO accepted the return of income while processing it under Section 143(1) and later reopened the assessment to deduct 90% of the interest and rental income as required by Explanation (baa) to Section 80HHC. The AO did not consider the provisions of Section 80-IA and Section 80HHC, implying that the AO did not take a possible view after considering the law. Hence, the Administrative Commissioner rightly exercised his power under Section 263, as the AO had failed to apply his mind to the claim made by the assessee, making the order erroneous and prejudicial to the interests of the Revenue.Tribunal's Analysis:The Tribunal examined the rival submissions and the material on record. It noted that the AO had not discussed the issue of deduction under Section 80-IA while computing the eligible profit for Section 80HHC in the assessment order. The Tribunal referred to several judgments to support the view that if the AO fails to make proper enquiries or record reasons for his decisions, the assessment order is erroneous and prejudicial to the interests of the Revenue. Specifically, the Tribunal cited the judgments of the Rajasthan High Court in the case of Emery Stone Mfg. Co., the Gujarat High Court in the case of Mukur Corporation, and the Bombay High Court in the case of Krishna Narayan Naik, which emphasized the necessity of proper enquiry and recording of reasons by the AO.The Tribunal also referred to the Supreme Court's judgment in Malabar Industrial Co. Ltd., which stated that an order is erroneous if the AO fails to apply his mind and make necessary enquiries. The Tribunal concluded that since the AO had not examined the provisions of Section 80-IA(9) and had not recorded any reasons for his decision, the assessment order was erroneous and prejudicial to the interests of the Revenue.Conclusion:The Tribunal upheld the order of the CIT, confirming that the AO had not applied his mind to the claim made by the assessee and had not made the necessary enquiries. Therefore, the assessment order was erroneous and prejudicial to the interests of the Revenue. The appeal of the assessee was dismissed.