M/S. ALLIED GLASSES,ROORKEE vs. PR. CIT, DEHRADUN

IN THE INCOME TAX APPELLATE TRIBUNAL DEHRADUN CIRCUIT BENCH, DEHRADUN BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER

ITA No. 3204/Del/2017 Assessment Year: 2012-13 Allied Glasses, C/o Tilak Raj & Versus Principal CIT, Associates, Gandhi Vatika, Dehradun Roorkee. PAN: AAMFA7220L (Appellant) (Respondent) Assessee by : Sh. Tilak Raj, Advocate Revenue by : Sh. N.S. Jangpangi, CIT/DR Date of hearing : 19.06.2023 Date of pronouncement: 23.06.2023 ORDER Assessee has filed the present appeal, assailing the order

dated 01.03.2017 passed by learned Principal Commissioner of Income-tax (PCIT), Dehradun under section 263 of the Income-tax Act, 1961 for the assessment year 2012-13.

glasses. For the assessment year under dispute, the assessee filed

ITA No. 3204/Del/2017

its return of income on 24.09.2012 declaring nil income, after claiming

deduction under section 80IC of the Act. Assessee’s case was

selected for scrutiny. In course of assessment proceedings, the

Assessing Officer enquired into assessee’s claim of deduction under

section 80IC of the Act. After examining the documents furnished by

the assessee and submissions made, the Assessing Officer found

that certain interest income received during the year have been

considered as part of business profits and deduction under section

80IC of the Act has been claimed on them. Being of the view that the interest income earned cannot be considered as part of the business

profit, the Assessing Officer disallowed the deduction claimed under

section 80IC of the Act in respect of interest income. Accordingly, he

completed the assessment u/s. 143(3) of the Act. Post completion of

assessment, learned PCIT received a proposal from Income-tax

Officer ward 1, Roorkee for revising the assessment order u/s. 263 of

the Act, reason being, deduction u/s. 80IC of the Act has been

erroneously allowed on insurance claim of Rs.6,67,038/-. Based on

such proposal, learned PCIT exercised his powers u/s. 263 of the Act

by issuing a show cause notice to the assessee to explain why the

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assessment order should not be considered as erroneous and

prejudicial to the interests of revenue for allowing deduction under

section 80IC of the Act on insurance claim. Though, the assessee

objected to initiation of proceedings under section 263 of the Act by

submitting that the assessment order cannot be considered to be

erroneous and prejudicial to the interest of revenue, however, learned

PCIT was not convinced. Ultimately, he passed an order u/s. 263 of

the Act setting aside the assessment order with a direction to Assessing Officer to disallow deduction under section 80IC of the Act.

is two-fold. Firstly, learned PCIT has not exercised the powers under

section 263 of the Act independently, but at the behest of a

subordinate authority. Secondly, at the time of assessment, the

Assessing Officer has conducted full-fledged enquiry and after

examining the issue at length has allowed the claim of deduction in

respect of insurance charges. Whereas, learned Departmental

Representative strongly relied upon the observations of learned PCIT

and submitted that the insurance charges, being not directly derived

from or attributed to the business of the assessee, cannot be

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ITA No. 3204/Del/2017

considered for deduction under section 80IC of the Act. Further, he

submitted, though a proposal was received from the ITO to initiate

proceedings under section 263 of the Act, however, learned PCIT has exercised his powers after independent application of mind.

materials on record. In so far as the first contention of learned

counsel for the assessee that learned PCIT has initiated proceedings

under section 263 of the Act at the behest of a subordinate officer, on

examination of materials on record, it is observed that in the opening

paragraph of the impugned order passed under section 263 of the

Act, learned PCIT has clearly and categorically observed that a

proposal was received from Income-tax Officer, Roorkee for initiating

proceedings under section 263 of the Act. Thus, the trigger point of

initiation of proceedings under section 263 of the Act is the proposal

received from the Income-tax Officer. Keeping in perspective the

aforesaid factual position, if we read section 263 of the Act, it

becomes clear that learned PCIT or the Commissioner may call for

and examine the record of any proceeding under this Act, and if on

such examination, he finds that any order passed in such

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proceedings by the Assessing Officer is erroneous and prejudicial to

the interests of the revenue, he may initiate proceedings under section 263 of the Act.

that the revisionary authority has to independently apply his mind to

the materials on record before coming to a conclusion that the order

sought to be revised is erroneous and prejudicial to the interests of

revenue. The decision making process under section 263(1) of the

Act has to be that of the revisionary authority and cannot be at the

behest of some other subordinate authority. In the facts of the present

appeal, it is abundantly clear that the exercise of powers under

section 263 of the Act is not due to any independent application of

mind by the revisionary authority, but at the behest of the Income-tax

Officer. Had the ITO not sent any proposal for initiating proceedings

under section 263 of the Act, it is quite probable, the revisionary

authority may not have exercised his powers under section 263 of the

Act. That being the factual and legal position, in our view, the

exercise of powers under section 263 of the Act in the present case

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has to be declared invalid. In support of our conclusion, we rely upon the following decisions :

(i) Vinay Pratap Thacker (ITA No. 2939/Mum/2011 dated 27.02.2013 (ii) Ashok Kumar Shivpuri (ITA No. 631/Mum/2014 dated 07.11.2014 (iii) Shanti Exim Lt. Vs. CIT (2017) 88 taxmann.com 361(Ahmedabad) 6. Thus, considering the totality of facts and circumstances of the

case, we hold that the impugned order passed under section 263 of

the Act is unsustainable. Accordingly, the order passed under section 263 of the Act is quashed and the assessment order is restored.

appropriate to deal with second contention of the assessee.

Undisputedly, the assessment order has been revised under section

263 of the Act to disallow assessee’s claim of deduction under

section 80IC of the Act in respect of insurance charges. As could be

seen, in course of assessment proceedings, the Assessing Officer

has specifically enquired into and examined the validity of assessee’s

claim of deduction under section 80IC of the Act. After detailed

enquiry on the issue, the Assessing Officer has disallowed

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assessee’s claim of deduction under section 80IC of the Act in

respect of interest income earned of Rs.2,20,813/-. In so far as

insurance claim is concerned, it is observed that such claim is in

respect of damages to the toughened glasses manufactured by the

assessee. Whether the insurance claim received in respect of such

damage to the manufactured products is to be considered as profits

of business or not, is highly debatable issue, on which more than one

view is possible. In case, the Assessing Officer has adopted one of

the possible view while allowing assessee’s claim of deduction of insurance claim, the assessment order cannot be treated as

erroneous and prejudicial to the interest of Revenue.

assessee’s eligibility to claim deduction u/s. 80IC of the Act. The

doubt, if any, is with regard to a small part of the income, which,

according to the assessee, has to be considered as business profit.

In such a scenario, if the Assessing Officer has taken a view that the

insurance claim is integrally connected to assessee’s manufacturing

activity, in our view, there cannot be any error in forming such view,

though it may be prejudicial to the interest of revenue. Therefore, one

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of the conditions of section 263 of the Act is not satisfied. For the

aforesaid reasons, we hold that the assessment order passed u/s.

143(3) of the Act cannot be considered to be erroneous and

prejudicial to the interest of revenue. As a natural corollary, the

impugned order of learned PCIT passed under section 263 of the Act

deserves to be set aside. Accordingly, we do so.

the assessee, having been reduced to mere academic interest, is not

required to be adjudicated upon.

In the result, appeal is allowed.

Order pronounced in the open court on 23/06/2023. Sd/- Sd/- (M. BALAGANESH) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT

Dated:23.06.2023 *aks/-

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