Madhya Pradesh High Court
Simran Farms Ltd. vs Commissioner Of Income Tax on 28 June, 2006
Equivalent citations: [2008]300ITR270(MP)
Author: A.M. Sapre
Bench: A.M. Sapre, J.K. Maheshwari
ORDER A.M. Sapre, J.
1. This is an appeal filed by assessee under Section 260A of the IT Act against an order dt. 30th Dec, 2003, passed by Tribunal, Bench Indore, in ITA No. 174/Ind/2001. This appeal was admitted for final hearing on following substantial question of law:
Whether Tribunal was justified in upholding the order passed by the CIT in its revisional jurisdiction under Section 263 of the IT Act which had resulted in revising the assessment order, dt. 28th Aug., 1998 which according to the assessee had merged into an order passed by the CIT (A) on 28th April, 1999?
2. Facts relevant for the disposal of appeal which lie in a narrow compass need mention infra.
3. The assessee (appellant) is a limited company. It is engaged in the business of what is called "hatching eggs" by scientific methods. The assessee for the asst. yr. 1996-97 filed return of its income and inter alia claimed deductions under Sections 80HHA, 80I and 80JJ. In addition, the assessee also claimed deduction of interest income earned on certain loan amount invested in some concern, treating the said income to be an income from industrial undertaking. The AO by order dt. 28th Aug., 1998 (Annex. 8) allowed the deduction claimed by assessee insofar as it related to claim under Sections 80HHA, 80I and 80JJ i.e., Rs. 26,22,622 under Section 80HHA, Rs. 26,22,622 under Section 80I and Rs. 43,70,599 under Section 80JJ. However, AO declined to grant any benefit so far as interest amount of Rs. 7,27,591 was concerned as in the opinion of AO, the claim of interest made by assessee could not be regarded as income derived from business undertaken by industrial undertakings (assessee).
4. The assessee felt aggrieved by an assessment order insofar as it related to claim of assessee of interest amounting to Rs. 7,27,591 filed an appeal to CIT (A). By order dt. 28th April, 1999 (Annex. D), the CIT (A) allowed the appeal and in consequence allowed the deduction claimed by the assessee on the income earned by way of interest on loan advanced to certain parties by the assessee.
5. On 12th March, 2001 (Annex. E), the CIT invoked its jurisdiction conferred upon him under Section 263 of the Act against the assessee. According to CIT, the AO committed an error of law in granting benefit of deduction claimed by the assessee under Sections 80HHA and 80I. In the opinion of CIT, since the assessee was not engaged in any industrial activity as held by Supreme Court in the case of CIT v. Venkateshwara Hatcheries (P) Ltd. and hence, no benefit of these two sections (Section 80HHA/Section 80I) was available to the assessee treating themselves to be an industrial undertaking. The CIT was, therefore, of the view that order passed by AO insofar as it relates to granting the benefit to assessee under Section 80HHA and Section 80I the same was erroneous and equally prejudicial to the interest of Revenue. A notice was, therefore, issued as to why the order of AO to this extent be not set aside. The assessee replied and contested the notice. The CIT by order dt. 26th March, 2001 (Annex. F), did not accept the explanation offered by assessee and set aside the order of AO insofar as it related to grant of benefit to assessee under Section 80HHA/80I ibid. It is against this order of CIT, the assessee felt aggrieved and filed appeal to Tribunal. However, by impugned order, the Tribunal dismissed the appeal and upheld the order of CIT. It is this order of Tribunal which is sought to be impugned by the assessee in this appeal. As stated supra, the appeal was admitted for hearing on aforementioned substantial question of law.
6. Heard Shri S.C. Bagadia, learned senior counsel with Shri D.K. Chhabra, learned Counsel for the appellant and Shri R.L. Jain, learned senior Counsel with Ku. V. Mandlik, learned Counsel for the respondent.
7. Shri Bagadia, learned senior Counsel appearing for appellant principally urged one contention. According to him, once the assessment order dt. 28th Aug., 1998 passed by AO merged in the appellate order passed by CIT (A) dt. 28th April, 1999, then in such circumstances, the CIT had no jurisdiction to invoke suo motu revisionary powers under Section 263 ibid. In other words, the submission was that proceedings under Section 263 can be initiated by the CIT against the assessee only in respect of those issues decided by AO in his order which were not the subject-matter of appeal at the instance of assessee but when the assessee carried the matter in appeal to CIT (A) and the CIT (A) dealt with those issues, the principle of merger comes into being resulting in denuding the power of CIT to invoke revisionary powers under Section 263 ibid against the assessee. Learned Counsel maintained that it was for CIT (A) to have taken note of law laid down by Supreme Court in the case of Venkateshwara Hatcheries (supra) when the appeal was being heard by him at the instance of assessee and then deny the relief to the assessee but in no case CIT could invoke revisionary jurisdiction under Section 263 against the assessee on the strength of law laid down subsequently in Venkateshwara (supra) for recalling the order of AO which stood merged in the order of CIT (A). In reply, learned Counsel for Revenue placing reliance on Explanation to Section 263 of the Act supported the impugned order of Tribunal.
8. Having heard learned Counsel for the parties and having persued record of the case, we are inclined to dismiss the appeal by upholding the order of Tribunal impugned in this appeal thereby upholding the order of CIT passed in exercise of powers conferred under Section 263 ibid.
9. In our considered view, the CIT was well within his jurisdiction to invoke his suo motu revisional powers under Section 263 ibid. It is not in dispute as the law now stands settled by the decision of Supreme Court in the case of Venkateshwara Hatcheries (supra) that business undertaken by the assessee i.e., hatching of eggs is not an industrial activity and hence, those assessees who are engaged in this business are not eligible to claim any benefit available to assessee under Sections 80HHA and 80I. In other words, benefit of these two sections is available to only industrial undertaking and since "hatching of eggs" was not regarded as an industrial undertaking within the meaning of these two sections and hence, any assessee who was engaged in the business of "hatching of eggs" was not held carrying on any industrial activity so as to claim the benefit of deductions available under Section 80HHA/80I of the Act. True it is that law on this issue was not settled on the date when AO passed an order because the decision of Supreme Court was rendered subsequent to the order of AO, but the fact remains that no sooner the order of Supreme Court was passed, the CIT was well within his jurisdiction under Section 263 ibid to see that order of AO is made in conformity with the law laid down by Supreme Court. This could be done by him under Section 263 of the Act. Indeed, it must be the sincere endeavour of all the authorities, Tribunals and Courts while deciding the cases to ensure subject to any legal limitation, if there are, that their conclusion is in conformity with the law laid down by Supreme Court. This is what Article 141 of Constitution of India provides for. Non-observance of law laid down by apex Court vitiates the order. It is an error apparent on its face.
10. In view of aforesaid, we do not find any error of law in the action initiated by CIT under Section 263 against the assessee for setting aside of the order of AO insofar as it dealt with the claim of assessee under Section 80HHA/80I. In view of Supreme Court's decision in Venkateshwara's case (supra), the order of AO to this extent was or had become erroneous and prejudicial to the interest of Revenue. The assessee was, therefore, not entitled to claim any deduction under any of these two sections because firstly, they were not carrying on any industrial activity and secondly-what was being carried on by them did not satisfy the attributes of industrial activity for the purpose of claiming deductions under Section 80HHA/80I. In such circumstances, the AO was not justified in granting such benefit. In our humble view, it could be set aside only by the order of CIT by taking recourse to the provisions of Section 263 ibid.
11. We do not agree to the submission urged by learned Counsel for the appellant when he contended that since order of AO, dt. 28th Aug., 1998 was subject-matter of appeal before CIT (A) and hence, it merged in the appellate order dt. 28th April, 1999. In our humble view, there lies a fallacy in this submission. In the first place, it was not a case where the benefit of deduction was disallowed by AO and was later awarded by CIT (A) in an appeal filed by the assessee, but it was a case where benefit was granted by AO itself in the first instance to assessee. Secondly, the issue of deduction under Section 80HHA/80I was not the subject-matter of appeal at the instance of assessee, nor it could be made subject-matter for the simple reason that the same having been already granted to the assessee by AO, there was no occasion for CIT (A) to have gone into this question. Thirdly, assessee had gone up in appeal to CIT (A) on other issues and not on the issue which was subject-matter of revisionary proceedings by CIT under Section 263 ibid. Fourthly, by virtue of Expln. (c) to Section 263, the CIT was well within his powers to set aside that part of order of AO which was (not) subject-matter of appeal because admittedly, the case in question fell within the four corners of Expln. (c) to Section 263 and lastly, it was not a case of merger as contended by the assessee so as to divest the CIT from invoking the powers of suo motu revision under Section 263 ibid.
12. In view of foregoing discussion, we are unable to take any other view than the one taken by the Tribunal and finding no merit in this appeal, dismiss the same. No costs.