Loading judgment…
Facts
The Assessing Officer (AO) allowed a deduction under Section 36(1)(viii) based on a prior ITAT order for the appellant's own case. The Principal Commissioner of Income Tax (PCIT) issued a revision order under Section 263, holding the AO's order erroneous and prejudicial to the revenue's interest, as the AO allegedly did not conduct proper inquiries.
Held
The Tribunal held that the AO followed a plausible view by adhering to the ITAT's order in the appellant's own case. The PCIT's revision order was found to be incorrect as it did not satisfy the twin conditions of 'erroneous' and 'prejudicial to the interest of the revenue'.
Key Issues
Whether the PCIT's revision order under Section 263 was justified when the AO followed a prior ITAT decision, and if the AO's order was erroneous and prejudicial to the revenue's interest.
Sections Cited
263, 36(1)(viii), 36(1)(viia)(c), 36(1)(vii)
AI-generated summary — verify with the full judgment below
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, Mumbai “B” Bench, Mumbai.
Before: Smt. Beena Pillai(JM) & Shri Omkareshwar Chidara(AM)
Revision Order passed by Ld. PCIT under section 263 of the I.T. Act is correct in the eyes of law where it was held that Ld. Assessing Officer (AO) did not conduct enquiries/applied his mind while allowing the correct deduction under section 36(1)(viii) of the Act.
In this impugned case, the Ld. AO followed the order of ITAT in appellant’s own case and computed the deduction under section 36(1)(viii) of the Act, where it was held as follows :- “In view of the provisions of section 36(1)(viia)(c) produced above, it can be seen that the amount of deduction is computed by viewing the total income computed before making any deduction under this clause and Chapter VIA. On the other hand, Section 36(1)(viii) refers to eligible business income and does not envisage to reduce the deduction allowable u/s.36(1)(viia)(c). Hence, total income can be computed only after
2 Small Industries Development Bank of India computing deduction u/s.36(1)(viii). Therefore, deduction u/s.36(1)(viii) will precede the deduction u/s. 36(1)(viia)(c). In other words, in order to determine deduction correctly allowable u/s 36(1)(viia)(c) it would be essential to first compute deduction u/s 36(1) (viii). Thus, provision of section 36(1)(viia)(c) comes into operation at a stage subsequent to the computation of business income i.e. after allowing the deduction u/s.36(1)(viii). Further, time and again it has been consistently held by the judicial authorities that if a particular deduction is of wider scope, then, first the effect is to be given to deduction narrower in scope and thereafter on the income computed as such, the benefit of the deduction wider in scope should be allowed.”
In fact, the Ld. AR of the appellant has submitted to Ld. PCIT, by way of reply to notice issued under section 263 of the I.T. Act, that the issue is now covered by the decision of Hon'ble Apex Court in the case of CIT Vs. Kerala State Industrial Development Corporation (1998) 96 Taxmann.com 641 (SC) and further held that the decision of Karnatak State Financial Vs. CIT 174 ITR 206 was not correct. The Ld. PCIT at para 6 and 7, page 7 of his order has mentioned as follows :-
The submissions of the assessee have been considered very carefully but the same is not acceptable. The assessee has relied on decision of ITAT in its own case for AY 2004-05, 2006-07, 2007-08 & 2008-09 dated 23.08.2018 with regard to re-working of deduction allowable u/s 36(1)(vii) of the Act after reducing the deduction u/s 36(1)(viia) of the Act, however, the department has not accepted the decision and is in appeal before Bombay High Court and the same is pending. Further assessee has relied on CIT(A) order for AY 2017-18 in which it is held that deduction u/s 36(1)(viii) has to be calculated after making deduction under all other clauses of 36(1) which includes the claim of deduction u/s 36(1)(viia)(c) also. Further while calculating deduction 36(1)(viii) of the Act, the deduction for the current year has to be computed on the adjusted profit which would be arrived after reducing income not related to long term financing from the profit and gains of the business or profession which includes Upfront and processing fees, commission and brokerage charges and other income has to be taken into account. The department has not accepted the decision of CIT(A) for earlier AY 2017-18 and has filed appeal before the ITAT and the same is pending.
7. In view of the above, since the departments appeals is pending before the High Court for the years AY 2004-05, 2006-07, 2007-08 & 2008-09
3 Small Industries Development Bank of India and pending before ITAT for AY 2017-18 and has not reached finality and the AO has not looked into the issues during the current year with reference to the above, the order of the AO is held to be erroneous in so far as it is prejudicial to the interest of the revenue.
From the above, it is seen that the Ld. AO has followed the Order of ITAT in its own case for earlier years. The Revenue has not accepted the decision of ITAT and an appeal was filed which is pending with High Court.
The Ld. DR relied on the Order of PCIT under section 263 of the Act.
6. The Ld. AR of the appellant has submitted that in order to invoke the revisional jurisdiction under section 263 of the Act, the Hon'ble Apex Court in the case of M/s. Malabar Industrial Company Vs. Ld. CIT(A) 243 ITR 83 and M/s. Max India Ltd. 295 ITR 282, laid down the law that twin conditions of “erroneous” and “prejudicial to interest of Revenue”, should be fulfilled. In other words, the assessing officer should have committed an “error” and that error should consequently result in prejudice to the interest of Revenue and then only Revisional jurisdiction under section 263 of the Act can be invoked by Ld. PCIT. By taking this as yardstick, the Ld. AR of the appellant has submitted that the Ld. AO followed the order passed by the ITAT which is in consonance with the case of Karnataka State Industrial Development Corporation (supra) and hence the order of PCIT under section 263 of the Act to set aside the assessment order is correct and legally valid.
Rival submissions are heard. As mentioned above in this order, the Ld. AO has only followed the order of ITAT in his own case and computed the deduction under section 36(1)(viii) of the Act. The Revenue might have 4 Small Industries Development Bank of India contested the case in High Court. As the Ld. AO has taken one of the plausible view, there is no “error” in the assessment order and the PCIT lacks jurisdiction in invoking section 263 of the Act and set aside the assessment order in view of the above decisions of Hon'ble Supreme Court.
Hence, the order of PCIT is incorrect as it does not satisfy twin conditions.
In view of the above, the order of PCIT is quashed.
The appellant’s appeal is allowed. Order pronounced in the open Court on 22/05/2025.