COMMISSIONER OF INCOME TAX Vs. MEPCO INDUSTRIES LIMITED

JUDGEMENT

(1.) THE above tax case appeal is directed against the order of the Income-tax Appellate Tribunal dated 25.11.2005 made in ITA Nos.1901/Mds/2003 for the assessment year 1999-2000 and the following substantial questions of law have been raised for consideration: 1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the order under section 263 is ambivalent as to whether the order is erroneous and prejudicial or not merely because the CIT sent back the matter to the assessing officer to pass fresh orders after giving opportunity to the assessee?

(2.) WHETHER in the facts and circumstances of the case, an order of revision under section 263 should come to a final conclusion and should not remit the matter to the assessing officer? 2. The brief facts of the case, as stated, are as follows:- 2.1. The relevant assessment year with which we are concerned is 1999-2000. The assessee company filed its return of income admitting the income of Rs.39,36,400/-. The return was processed under section 143(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). The case of assessee was selected for scrutiny, notice under section 143(2) of the Act was issued and after hearing the assessee, the assessment was completed accepting the return filed by the assessee. 2.2. The Commissioner of Income-tax, finding that inter-unit loss was not adjusted against the profit for the purpose of allowing deduction under section 80 IA of the Act, issued a notice under section 263 of the Act to the assessee. The assessee objected to the same contending that as per the provisions of section 80 AB of the Act, the only rider is that the deductions contemplated under Chapter VIA cannot be carried forward to succeeding years and the quantum of deduction shall be computed as if such eligible business is the only source of income of the assessee and hence, section 80 AB of the Act will not restrict the relief under section 80 IA of the Act. 2.3. The Commissioner of Income-tax, considering the objection raised by the assessee, remitted the matter to the assessing officer for fresh assessment. The relevant portion of the order of the Commissioner of Income-tax dated 2.9.2003 reads as under: "It would appear that since the issues raised before me by the CA have not been considered at any stage by the assessing officer, the matter has to go back to him for appropriate adjudication as per law. The assessing officer should give fresh opportunity to the assessee before restricting the claim of the assessee u/s.80 IA by relying upon the decisions of the Honourable Supreme Court and the High Court in 224 ITR 604 and 245 ITR 605 and he should also duly weigh the averments of the assessee in the matter. The assessing officer should pass fresh assessment order with regard to the issue of disallowing the excess claim of the deduction under Sec.80 IA which works out to Rs.3581202." 2.4. Exasperated by the said order of Commissioner of Income-tax, the assessee preferred an appeal before the Appellate Tribunal, which, by order dated 25.11.2005, following the unreported judgment of this Court in Commissioner of Income-tax v. Smt.D.Valliammal dated 27.6.1996, set aside the order of Commissioner of Income-tax holding that the Commissioner of Income-tax has committed an error in invoking the jurisdiction under section 263 of the Act. Hence, the present appeal by the Revenue raising the questions of law referred to above.

(3.) EVEN on merits, on the point that inter-unit loss was not adjusted against the profit for the purpose of allowing deduction under section 80 IA of the Act, there are two views possible one in favour of the Revenue and the other in favour of the assessee. (i) In favour of the Revenue: (a) Kotagiri Industrial Co-operative Tea Factory Ltd. (224 ITR 604) In this case, the Supreme Court, while interpreting the expression, 'gross total income' in clause (5) of section 80B of the Act for the purpose of Chapter VI-A of the Act, held that it is necessary, for the purpose of making deduction under section 80P of the Act, to determine the gross total income in accordance with the other provisions of the Act, which means that the gross total income must be determined by setting off against the income the business losses of the earlier years as required under section 72 of the Act, before allowing deduction under section 80P. (b) C.I.T. v. Sundaravel Match Industries (P) Ltd. (245 ITR 605) In this case, this Court held that losses should be set off against the profits of the industrial undertaking before granting the deduction under section 80HH of the Income-tax Act, 1961, in view of the specific provision found in section 80AB of the Act. (ii) in favour of the assessee: Canara Workshops P. Ltd. (161 ITR 320) In this case, the Apex Court held that in the application of section 80E of the Income-tax Act, 1961, the profits and gains earned by one priority industry (mentioned in that section) cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.