S. 263: AO’s acceptance of Jurisdictional High Court view may be “erroneous & prejudicial” to interests of Revenue

Star India Ltd vs. ACIT (ITAT Mumbai)

The AO passed an assessment order on 24.3.2006 in which he allowed deduction u/s 80HHF without setting off the brought forward losses. The CIT passed a revision order u/s 263 on 19.10.2007 in which he claimed that the loss had to be set-off in terms of the judgement dated 11.3.2004 of the Supreme Court in IPCA Laboratories 266 ITR 521. The assessee claimed that the action of the AO was in line with the judgement dated 24.7.2000 of the Bombay High Court in Shirke Construction 246 ITR 429 which held the field till it was overruled on 17.5.2007 (291 ITR 380 (SC)). It was pointed out that even after the SC ruling in IPCA, there were Tribunal judgements (Infocon International 2 SOT 444) which had followed Shirke Construction and held that s. 80HHF deduction was available without set-off of the losses. It was argued that (i) the law prevailing on the date of the assessment order had to be seen as per G. M. Stainless Steel 263 ITR 255 (SC) and in any event (ii) there were two views possible and the AO’s view could not be termed erroneous as per Malabar Industrial 243 ITR 83 (SC). HELD by the Tribunal upholding the revision: