Commissioner Of Income Tax, ... vs M/S Kelvinator Of India Ltd.
2011 Latest Caselaw 312 Del

 IN THE HIGH COURT OF DELHI AT NEW DELHI
%                         Judgment delivered on: 19.01.2011

                           ITA No.39/1999



COMMISSIONER OF INCOME TAX, DELHI-2           ..... APPELLANT



                                  Vs



M/s. KELVINATOR OF INDIA LTD.                 ..... RESPONDENT



Advocates who appeared in this case:
For the Appellant :  Mr. Sanjeev Sabharwal, Advocate
For the Respondent : Ms. Kavita Jha, Mr. Amit Sachdeva & Mr.
                     Somnath Shukla, Advocates
CORAM :-
HON‟BLE MR. JUSTICE SANJAY KISHAN KAUL
HON'BLE MR JUSTICE RAJIV SHAKDHER

1.     Whether the Reporters of local papers may
       be allowed to see the judgment ?

2.     To be referred to Reporters or not ?

3.     Whether the judgment should be reported
       in the Digest ?

SANJAY KISHAN KAUL, J (ORAL)

1.     The respondent filed returns for the Assessment Year

1989-90 which were assessed by the Assessing Officer vide

order dated 26.03.1992. The assessment order records that

"other income" have been shown by the assessee in Schedule

„K‟ to the balance sheet of the respondent company. The

question, inter alia, which was examined was arising from the

deposit made by the respondent under section 32 AB of the


ITA No. 39/1999                                          Page 1 of 5
 Income Tax Act, 1961 (hereinafter, referred to as the „Act‟) as

applicable in the relevant assessment year.

2.     The Assessing Officer computed the profit under the head

"profits and gains of business" at Rs.10,79,18,247/- and allowed

a deduction at Rs.2,15,83,649/- being 20% of the amount under

section 32 AB of the said Act and thus, determined the taxable

income at Rs.7,51,53,465/-.

3.     This order of the Assessing Officer dated 26.03.1992 was

challenged before the Commissioner of Income Tax (Appeal)

[hereinafter, referred to as "CIT(A)"] by the assessee raising the

issue regarding short deduction under section 32 AB of the said

Act. In the appeal, the respondent/assessee was granted relief

and in terms thereof, the deduction was recomputed against

profit and gains of business as arrived at under Schedule „VI‟ of

Companies Act, 1956 (in short, „Companies Act‟) for the purpose

of section 32 AB of the said Act. This resulted in the deduction

being enhanced to Rs.3,95,85,158/-. As a necessary corollary,

the taxable income was reduced.

4.     The CIT while making a scrutiny of the assessment record,

found that the enhancement in the said deduction had been

accorded in favour of the respondent/assessee by inclusion in

the profits and gains from business "other income" amounting to

Rs.4,14,06,000/- (as mentioned in Schedule „K‟ of its balance

sheet). In the opinion of the CIT, the approach adopted was both

erroneous         and       prejudicial   to    the     interest   of   revenue.

Consequently,           a    show   cause      notice    was   issued    to   the

ITA No. 39/1999                                                         Page 2 of 5
 respondent/assessee dated 21.02.1994 under section 263 of the

Act in respect of the same.

5.     The respondent/assessee filed a response to the show

cause notice.     After hearing the respondent/assessee, the CIT

passed an order on 25.03.1994 in terms whereof, the benefit of

deduction under section 32 AB of the said Act was allowed at

20% on profit of business of the respondent after excluding

"other income".

6.     The assessee aggrieved by this order, preferred an appeal

before the Tribunal and succeeded in terms of the order dated

05.01.1999. The department thereafter, carried the matter

further in the present appeal and the question of law was framed

by the order dated 07.09.2000. For the sake of convenience, the

question of law so framed is extracted hereinbelow:

       "Whether on the facts and in circumstances of the

       case, the Income-tax Tribunal was justified in holding

       that the CIT had no jurisdiction to exercise power under

       Section 263 of the Income-tax Act?".

7.     At the inception itself, the question which arises is whether

in the facts of the case, section 263 of the said Act could have

been invoked. It is common case of both the parties that the

scope of application of section 263 of the said Act is governed by

the principles set out in Malabar Industrial Company Ltd. Vs. CIT

2000 243 ITR Page 83 as reaffirmed in CIT Vs. Max India Limited

2007 295 ITR 282. It has been held that the phrase "prejudicial

to interest of revenue" used in section 263 of the said Act has to

ITA No. 39/1999                                            Page 3 of 5
 be read in the conjunction with an "erroneous order" passed by

the Assessing Officer. Thus, it is not, as if in every case where

there is loss of revenue, as a consequence of order passed by

the Assessing Officer, can it be treated as prejudicial to interest

of revenue. Consequently, if the Assessing Officer has adopted

one of the courses permissible in law, which resulted in loss of

revenue or where two views are possible and the Assessing

Officer has taken one view with which the CIT does not agree, it

cannot be treated as an erroneous order prejudicial to the

interest of the revenue unless the view taken by the Assessing

Officer is unsustainable in law.

8.     If the aforesaid parameters are applied in respect of

factual matrix of the present case, it is found that the view which

was prevalent at the appropriate point in time was that of the

Tribunal at Delhi taken in the case of the Assistant Commissioner

of Income Tax Vs. Northern India Theatres Pvt. Ltd. and in Indian

Transformers Ltd. Vs. TTJ 52 TTJ 654.         In terms of these

judgments, the income of the assessee, shown in its balance

sheet under the head "other income" had not to be excluded for

purposes of determining the permissible deduction under section

32 AB of the Act. The notice was issued by the CIT under section

263 of the said Act on 21.02.1994 when, the aforesaid legal

position was admittedly enuring for the benefit of the assessee.

Therefore, on the date the CIT issued the show cause notice, the

legal position which obtained supported the view taken by CIT

(A) in its order dated 07.08.1992. In these circumstances, the

ITA No. 39/1999                                           Page 4 of 5
 issuance of show cause notice to the respondent/assessee was

uncalled for.

8.     The question of law is thus answered in favour of the

respondent/assessee and the appeal is accordingly dismissed.




                                      SANJAY KISHAN KAUL, J.

JANUARY 19, 2011 RAJIV SHAKDHER, J. yg