Facts

Assessee was eligible for claiming deduction under section 80HHC of the Income- tax Act as it was engaged in export of goods. At one stage of computation of such deduction it had incurred a loss which it ignored for further computation. In the assessment order passed by the AO this position stood accepted. Commissioner exercised revisionary jurisdiction under section 263 of the said Act and directed  the AO to set off the loss and hence compute the income eligible for deduction      at  a  lower amount. According to  him, ignoring theloss in  the computation   of deduction had rendered the assessment order to be erroneous insofar as  it  was prejudicial to the interests of the revenue. Subsequently, by Finance Act, 2005 with retrospective effect from 01.04.1992, a proviso was insertedbelow section 80HHC(3) of the said Act to provide that the loss has to be set off. The Tribunal and the High Court had held the assumption of revisionary jurisdiction  by the Commissioner to be invalid.

Issue

Whether the jurisdictional pre-conditions in section 263 i.e., the assessment order being erroneous and prejudicial to the interests of the revenue were fulfilled in    the present case.

Views

Relying on earlier judgment in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83  (SC), the Court has held that when the AO  adopted one    of the courses permissible in law and it has resulted in loss of revenue; or where two views were possible and the AO  has taken one view with which   the Commissioner does not agree it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view is  unsustainable in  law. It has further observed that existence of two views has to be seen when the Commissioner passed the revision order. For existence of two views reference has also been made to thefact that section 80HHC stood amended several times.

Held

Based on the above, it is held that it is not permissible to the Commissioner to exercise revisionary jurisdiction under section 263 of the Income-tax Act when,

at the time of passing the revision order, two views were possible on  an  issue  and the AO had adopted one of the views. (AY. 1992-93) (CA Nos. 5555-55556 of 2005, dt. 1-11-2007)

Editorial: The aforesaid view has been subsequently taken by the Supreme Court  in CIT v. Kwality Steel Suppliers Complex 395 ITR 1/157 DTR 1/297 CTR 553/250 Taxman 23 (SC). Further, in CIT v. G. M.  Mittal Stainless Steel (P.)  Ltd. 263 ITR 255, the Supreme Court has held that the assessment order cannot    be held to be erroneous even when the AO has followed a High Court judgment which has been subsequently reversed by the Supreme Court.

“Always aim at complete harmony of thought and word and deed. Always aim at purifying your thoughts and everything will be well.”

– Mahatma Gandhi