TTK LIG Ltd. vs Asstt. Commissioner of Income Tax

M.M. Sundresh, J.—The Assessee has come up on appeal challenging the order passed by the CIT exercising the power u/s 263 of the IT Act, which has been confirmed by the Tribunal, by formulating the following substantial questions of law:

Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the jurisdiction of the CIT u/s 263 of the Act, in revising the assessment order?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessment order is erroneous and prejudicial to the interests of the Revenue when the assessment was completed after considering the reply filed by the Appellant in response to the query raised by the AO?

Facts in brief:

(i) An order of assessment was passed on 21st Dec, 2006 for the asst. yr. 2004-05. The said order was passed in pursuance of the notice issued u/s 143(2) of the Act and after the scrutiny u/s 143(3) of the Act. Before passing the order, the AO has called for the particulars, which were provided by the Assessee.

(ii) Subsequently, the CIT, in exercise of the power u/s 263 of the Act, has issued a notice stating that the order passed by the AO is both erroneous and prejudicial to the interests of the Revenue. Pursuant to the said notice, the Assessee gave a reply for the following issues, viz., exclusion of interest income from computation u/s 80HHC of the Act, logo and royalty charges and closing stock of Pondicherry unit.

(iii) After considering the reply, the CIT has held that insofar as the inclusion of interest income for the purpose of computation u/s 80HHC of the Act is concerned, it is erroneous and prejudicial to the interests of the Revenue, in as much as the AO after treating the interest income as income from other sources, has failed to exclude the same for the purpose of computation.

(iv) Similarly, insofar as the logo and royalty charges as well as the closing stock of Pondicherry unit are concerned the CIT has set aside the order passed by the AO and remanded the matter back to him for reconsidering the same, in as much as the AO has not taken into consideration the materials available on record. The CIT has also taken into consideration the further fact that insofar as the logo and royalty charges are concerned, the AO has not taken into consideration the earlier assessment order for the asst. yr. 2001-02 wherein the same has been treated as capital. The said decision was made for the asst. yr. 2001-02 by the AO in the reassessment order while exercising the power u/s 147 of the Act.

(v) Challenging the same, the Assessee filed a further appeal to the Tribunal. The Tribunal has in turn dismissed the appeal by holding that the assessment order in question is erroneous and prejudicial to the interests of the Revenue. Not satisfied with the said orders, the Assessee has filed the present appeal.

The learned Counsel appearing for the Appellant/Assessee submitted that there is no specific finding to the effect that the assessment order is prejudicial to the interests of the Revenue. Learned Counsel has made strong reliance on the judgment of the Apex Court in MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, and submitted that in the absence of any specific finding that the assessment order in question is prejudicial to the interests of the Revenue, the power u/s 263 of the Act, cannot be invoked.

We are not persuaded by the submissions made by the learned Counsel for the Appellant. In the case on hand, the CIT while invoking the power u/s 263 of the Act, has clearly stated that the order passed by the AO is both erroneous and prejudicial to the interests of the Revenue. Further, a perusal of the order dt. 27th March, 2009 passed by the CIT would clearly disclose that the assessment order is erroneous and prejudicial to the interests of the Revenue. Even while discussing the exclusion of interest income for computation u/s 80HHC of the Act, the CIT was pleased to hold that the assessment order passed is both erroneous and prejudicial to the interests of the Revenue. Insofar other issues are concerned, the CIT after holding that the orders are erroneous in as much as the earlier order passed by the AO and the materials placed before him have not been considered for coming to such a conclusion and consequently the assessment order on those issues has been set aside and remanded back to the AO for reconsideration. Therefore, the above facts would clearly indicate that the CIT has exercised the power u/s 263 of the Act, by holding that the assessment order is both erroneous and prejudicial to the interests of the Revenue. For passing an order of remand after holding that the order is erroneous, no specific finding will be required to show that the same is prejudicial to the interests of the Revenue. As observed earlier, the CIT has already held that the order is both erroneous and prejudicial to the interests of the Revenue and after holding so, he was proceeding to give reasons for the same. Further, the Tribunal while upholding the order of the CIT has also given a specific finding that the assessment order is both erroneous and prejudicial to the interest of the Revenue.

In Malabar Industrial Co. Ltd. v. CIT (cited supra), the Honble Apex Court has clearly held that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It was further observed that if due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. We further find that the facts involved in the case dealt with by the Honble apex Court are more or less similar to the facts of the present case on hand. The Konble Apex Court was pleased to observe that the AO has come to the conclusion and passed an erroneous order without considering the materials available on record and in such a case, exercise of power by the CIT u/s 263 of the Act, is just and proper and since that would amount to erroneous order, it is prejudicial to the interests of the Revenue. The observation made by the Honble Apex Court is extracted hereunder:

...Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is unsustainable in law....

Applying the ratio laid down by the Apex Court to the present case on hand, we do not find that any question of law would arise for consideration. We do not find any illegality in the exercise of power by the CIT u/s 263 of the Act. Hence the appeal fails and the same is dismissed. No costs.