Sanjiv Khanna, J.

ITA Nos. 1179/2010 and 1366/2010

1. These two appeals by the Revenue under Section 260A of the Income Tax Act, 1961 (Act, for short) relate to Assessment Year 2000-01. We note that the name of the assessee-Goetze (India) Limited underwent a name change and is now known as Federal-Mogul Goetze (India) Limited. In ITA Nos. 1179/2010 and 1366/2010 by order dated 16th May, 2012, the following substantial question of law was framed:-

"Whether the Income Tax Appellate Tribunal was right in setting aside the order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961?"

2. The respondent-assessee for the assessment year 2000-01 had filed return of income on 31st November, 2000 declaring loss of Rs.3,05,26,654/- under normal provisions and positive book profit of Rs.2,86,09,379/- under Section 115JA of the Act. This return was subsequently revised on 28th March, 2002 and the positive book profit declared under Section 115JA was reduced to Rs.1,92,73,285/-. By assessment order dated 28th February, 2003, income declared under Section 115JA was accepted but some additions were made on income computed under the normal provisions and it was enhanced to Rs.2,45,57,950/-.

3. Commissioner of Income Tax, thereafter passed an order under Section 263 of the Act observing that income computed under Section 115JA by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue on two accounts; (a) the Assessing officer had wrongly allowed deduction of Rs.1.53 crores made in the revised return and excluded this figure from the book profits; (b) expenditure of Rs.183.63 lacs was incurred for earning of exempt dividend income under Section 14A of the Act but this expenditure was not disallowed though the respondent-assessee had earned dividend income of Rs.157.85 lacs, which was exempt under Section 10(33) of the Act.

4. Consequently, the Assessing Officer vide order dated 5th January, 2005 passed an order giving effect to the order passed by the Commissioner under Section 263 of the Act. The respondent-assessee preferred an appeal before the Commissioner of Income tax (Appeals) against the said order but the same was rejected on the two issues in question vide order dated 29th November, 2006 read with order dated 23rd June, 2008 under Section 154 of the Act.

5. The respondent-assessee preferred further appeal before the tribunal being ITA No. 409/Del/2007 and also preferred an appeal against the order of Commissioner of Income Tax under Section 263, which was registered as ITA No. 208/Del/2005. The said appeals have been allowed, with the order under section 263 being quashed/set aside.

6. The first question raised is whether the order under Section 263 of the Act is justified and in accordance with law. Section 263 has been elucidated and explained in Commissioner of Income Tax versus Nagesh Knitwears Private Limited, (2012) 345 ITR 135 (Delhi). In the said decision, reference was made to Malabar Industrial Company Limited versus CIT, (2000) 243 ITR 83 (SC) and decisions of Delhi High Court in Nabha Investments Private Limited versus Union of India, (2000) 246 ITR 41 (Delhi) and ITO versus DG Housing Projects Limited, (2012) 343 ITR 329 (Delhi). It has been observed in Nagesh Knitwears Private Limited (Supra):-

"10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression `prejudicial to the interest of the Revenue' is of wide import and is not confined to merely loss of tax. The term `erroneous' means a wrong/incorrect decision deviating from law. This expression postulates a