TaxTMI 
TaxTMI 
TaxTMI 
2011 (10) TMI 154
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....gether for consideration and disposal. 3. Heard Sri M.V. Seshachala, learned counsel appearing for Revenue and Sri Shankar, learned counsel appearing for respondent assessee. 4. ITA No. 1282/2006 was admitted by this Court to consider the following substantial questions of law: "1. Whether the Tribunal was right in holding that the income derived by the assessee from manufacturing of seeds and sale of the same would amount to agricultural income which would be exempted u/s. 10(1) of the Income-tax Act ? 2. Whether the Tribunal was right in not taking into consideration of the fact that the assessee could not have held the agricultural land in view of the provisions of the section 79A of the Karnataka Land Reforms Act, 1961.?" 5. ITA Nos.1283 and 1284 of 2006 came to be admitted on 20.8.2007 to consider the substantial questions of law as framed in ITA No.1282/2006. 6. ITA No.71/2008 came to be admitted on 15.1.2009 to consider the following substantial question of law: "Whether the Appellate Authorities were correct in holding that the activity carried on by the assessee by trading in imported seeds would amount to agricultural activity on land taken on lease and....
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....ct when all aspects are considered by the Assessing Officer. He would further contend that in respect of M/s. Namdhari Seeds Pvt. Ltd., it was reopened u/s.148 of the Act and not u/s.263 of the Act and both sections operate in different ways. He would further submit that on the date of passing of the order i.e., 31.3.2005, two views were already there namely the order of the Tribunal in the case of M/s. Namdhari Seeds Pvt. Ltd., (dated 11.8.2004) and as such, Section 263 of the Act is not attracted and every loss of revenue as a consequence order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue since if one possible course if adopted by the Assessing Officer, which is permissible under law has resulted in loss of revenue cannot be ground for exercise of revisional jurisdiction. He would submit that if two views are possible and the Commissioner does not agree with the view of the Assessing Officer, it cannot be treated as an erroneous order prejudicial to the interests of Revenue. He would elaborate his submission to contend that neither change of opinion by reappraisal of evidence nor substitution of the opinion of that of the Commissioner ....
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....e interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." 12. At this juncture it would of benefit to extract the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) 5. To consider the first contention, ** ** ** Explanation: ** ** A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is, not erroneous but is prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act....
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.... paragraph 10 of the judgment in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 this court has taken the view that the phrase "prejudicial to the interests of the Revenue" under section 263 has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer.. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner was right in invoking section 263 of the Income-tax Act. In this connection, he has further submitted that in fac....
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.... 2007, is that at the time when the commissioner issued the notice under section 263 and passed the order dated March 23, 2004, the contemporaneous understanding was that two views were possible and the question of surcharge on undisclosed income was a debatable one. It: is different matter that today the supreme court has settled that issue and has held that surcharge is leviable on undisclosed income and that the amendment to section 113 of the said Act by introduction of the provision was only clarificatory in nature. The position is very clear that when an issue is debatable, the provision of section 263 cannot be invoked. We are of the view that the issue was clearly debatable at the time when the notice and the order under section 263 were issued and passed. Consequently, the only conclusion that can be arrived at is that the initiation of proceedings under section 263 without jurisdiction. (4) The Hon'ble Delhi High Court in the case of CIT v. Vikas Polymers reported in 47 DTR 348 at page No. 355 has held as follows: It is also trite that there is a fine though subtle distinction between "lack of inquiry" and "inadequate inquiry". It is only in cases of "lack of inquiry" t....
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....dance with law. Moreover, in the instant case the commissioner himself, even after initiating proceedings for revision an hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to reexamine the matter that, in our opinion, is not possible. Further enquiry or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income tax officer was erroneous and prejudicial to the interest of the revenue. Without doing so, he does not get the power to set-aside the assessment.................... (7) The Hon'ble Madras High Court in the case of CIT v. Mepeo Industries reported in 294 ITR 121 at page No 126 has held as follows: As held by the apex court in Malabar industries Co., Ltd's case [2001] 243 ITR 83 every loss of revenue as a consequence of an order of the assessing officer, cannot be treated as prejudicial to the interest of the revenue, for example when an income tax officer adopts one of the possible courses permissible in law and it has resulte....
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..... In our view it cannot be said that the Assessing Officer has not applied his mind while granting deduction to the assessee under section 80HHC as regards net profit earned by the assessee pertaining to its export business. In our view, the Tribunal is correct in its view that the view taken by the Assessing Officer was a possible view and that the condition precedent for invoking jurisdiction under section 263 by the Commissioner of Income-tax did not exist. 10. The Hon'ble P & H High Court in the case of CIT v. Deepak Mittal reported in 324 ITR 411 at page No. 414 has held as follows: Having heard the learned counsels at a considerable length, we are of the view that the order of the Tribunal does not suffer from any legal infirmity or give raise to any such substantive question of lay which may warrant admission of the appeal. The exercise of revisional jurisdiction by the Commissioner of Income Tax wholly without any justification, it is rightly been held that change of opinion by reappraising the evidence is not within the parameters of revisional jurisdiction of the Commissioner of Income Tax under section 283 of the Act. 11. Commissioner of Income-Tax v. Max India Ltd. [....
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.... the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s.263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate....
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.... makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The CIT, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the CIT he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the CIT with power to reexamine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.......... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed........ We may now examine the facts of the present case in the light of the powers of the CIT set out above. The ITO in this case had made enquiries in....
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....er which is not favourable to the Revenue or to bring more money to the Revenue. The prejudice must be actual prejudice to the Revenue. Such revisional power is an extraordinary power required to be employed not as a jurisdictional corrective or as a review of a subordinate's order in exercise of supervisory power. It is invoked and employed only for the purpose of setting right distortions and prejudices caused to the Revenue. Thus, the two ingredients essential for invoking of this power are: "erroneous" and "prejudicial" order which must go hand in hand. In other words, both conditions must co-exist. 15. In the instant case, it is noticed that assessee is a partnership firm carrying on the activity of import and export of Hybrid seeds of vegetables, fruits, flowers and etc., Assessee had claimed certain amounts earned as agricultural income and claimed exemption u/s. 10(1) of the Act, which was allowed by the Assessing Officer. Admittedly, the assessee had declared the income from seeds production as business income and had claimed exemption u/s. 80HHC. It is also not in dispute that activity of the assessee continued to be the same, but the head of income changed from "busines....
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....s to be answered in the negative and the order passed by the Tribunal requires to be set aside and the order passed by the Commissioner for Income Tax is to be restored. Re: ITA 71/2008, 75 & 76/2008 18. The above appeals came to be admitted for considering the substantial question of law formulated which is extracted above. 19. On the return of incomes filed by the assessee for the assessment years 2000-01. 2001-02 & 2002-03, the assessing officer has passed order which came to be revised by the Commissioner of income tax in exercise of the power under section 263 of the Income Tax Act, vide orders dated 31.03.2005. The said order passed by the Commissioner in exercise of revisional jurisdiction was subject matter of challenge by the assessee before the Tribunal in ITA Nos.664-666/BANG/2005. The Tribunal by order dated 29.03.2006 set aside the revisional order of the Commissioner. Aggrieved by the said order of the Tribunal, Revenue has come up in appeal in ITA Nos. 1282/2006, 1283/2006 & 1284/2006 referred to above. In the said appeals we have set aside the orders passed by the Tribunal by answering the substantial question of law in favour of the Revenue and against the asses....