JUDGMENT K.S. Jhaveri, J. - By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assesses. 2. This court while admitting the appeal on 18.07.2017 framed the following question of law:- "Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in setting aside the order of Principal CIT-I passed under section 263 of the I.T. Act, holding that the law did not permit the Pr.CIT to replace the view of the AO without appreciating the fact that the assessment order was set-aside on the ground that the AO had passed the order without making enquiries or verification, which should have been made?" 3. The brief facts of the case are that the assesses is engaged in the business of real estate i.e. purchase and sale of land. During the assessment proceedings it was found that assesses has sold two properties amounting to Rs. 30,00,000/- and Rs. 23,00,000/-on 28/12/2010 total amounting to Rs. 53,00,000/- out of his business stock of Rs. 57,51,720/-. The Assessing Officer during the assessment proceedings accepted the returned income as declared by assesses is and assessed the income of assesses under section 143(3) of the Income Tax Act, 1961, at Rs. 27,93,750/-. 4. The property was never shown in stock in trade and it was never shown in the capital account. The Assessing Officer passed an order dated 24.03.2014 wherein it has been observed as under:- "2) Assesses is engaged in the business of real estate i.e. purchase and sale of land. Apart from the above assesses has also shown income from job work. 3) During assessment proceedings it is found that during the year assesses has sold two properties amounting to Rs. 30,00,000/- and Rs. 23,00,000/- on 28/12/2010 total amounting of Rs. 53,00,000/- out of his business of Rs. 57,51,720/-." 5. Taking into consideration, he further contended that the CIT(A) while considering the matter held as under:- "4. I have gone through the written submission of the assesses and available records. It is seen that no closing stock or opening stock, as claimed by the assesses, was appearing in the balance sheet of AY. 2007-08 to 2009-10. 57,51,720/-." 5. Taking into consideration, he further contended that the CIT(A) while considering the matter held as under:- "4. I have gone through the written submission of the assesses and available records. It is seen that no closing stock or opening stock, as claimed by the assesses, was appearing in the balance sheet of AY. 2007-08 to 2009-10. Though the AR in the letter dated 28.01.2015 has mentioned that the balance sheets of these years were attached, however, no such attachment was enclosed with the said letter. 5. The assesses furnished trading account for the year ended on 31.03.2010, which shows that the assess has converted the land to stock on DLC rate of rS. 4,42,12,500/- on 01.04.2009 and mentioned in the footnotes as short term capital gain of Rs. 4,17,23,850/-. However, at the same time in the letter dated 28.01.2015, the assesses has categorically stated that he had purchased 44 bigha and 2 biswa land in the financial year 2006-07 during the course of business. The assesses has further stated that the land was purchased by him in course of business activity and it had been held as stock in trade. These two things are contradictory in nature. If the claim of the assesses that the land was purchased during the course of business and was held as stock since its purchases in the year 2006-07, the trading account discussed above is incorrect. If it was purchased during the course of business, why assess needed to convert it into stock at DLC rate of Rs. 4,42,12,500/- on 01.014.2009 and arrived at STGC of Rs. 4,17,23,850/- 6. He contended that the Tribunal has committed serious error in allowing the appeal of the assesses. 7. Counsel for the respondent Mr. Sanjay Jhanwar has taken us to the order of the Tribunal wherein it has been observed as under:- 2.4 We have heard the parties and perused the material available on record. We have also considered the facts of the case and case laws relied on by both the sides. The records shows that the assesses had purchased the land measuring 61,500 Sq. meter. The magnitude was so much that it cannot be for capital investment. The assesses got the land use conversion from agriculture to residential and paid the necessary fee to the concerned authorities. The records shows that the assesses had purchased the land measuring 61,500 Sq. meter. The magnitude was so much that it cannot be for capital investment. The assesses got the land use conversion from agriculture to residential and paid the necessary fee to the concerned authorities. Since the acquisition of the said land and converting the same into residential was shown in the accounts as stock in trade which is evident from the financial statements available in the paper book as submitted before the AO. Further it is seen that ld. Pr.CIT1 has also observed the fact that as on 1-4-2009 the land was disclosed as opening stock for F.Y. 2009-10 i.e. relevant to AY 2010- 11. The issue before us is for AY 2011-12. Thus in the previous year relevant to the assessment year before us the subject land was business asset of the assesses. The ld. Pr.CIT-1 has also ignored this fact. This issue has been examined by the AO and assesses had made submission during the course of assessment proceedings. These details are available in the paper book. The AO after examining these details and after going through these financial statements proceeded to complete the assessment by accepting the business profit declared by the assesses. The assesses has been able to demonstrate that the land sold during the assessment year was the business asset (stock in trade) in the financial statements and duly appearing in the return of income filed. The AO accepted the contentions of the assesses and adopted a view. Now Pr. CIT does not agree with the view adopted by the AO then the law does not permit him to replace the view. Thus in our considered view the ld. Pr.CIT-1 is not justified to set aside the order of the AO. We set aside the revision order passed by the ld. Pr.CIT-1 and direct to restore the assessment order passed by the AO dated 24-03-2014. We also agree with the alternate argument of the ld. AR of the assesses that the order passed by the AO should satisfy the twin conditions as prescribed in section 263 that the assessment order should not only be the erroneous but also prejudicial to the interest of revenue. As per the ld. We also agree with the alternate argument of the ld. AR of the assesses that the order passed by the AO should satisfy the twin conditions as prescribed in section 263 that the assessment order should not only be the erroneous but also prejudicial to the interest of revenue. As per the ld. Pr.CIT-1 the date of conversion of the investment in the subject land to the stock in trade was 1.4.2009, as appearing in the return of income for AY 2010-11, even then this preposition will not make any adverse effect to the assessed income for the year before us in terms of provisions of section 45(2), according to which the fair market value as on the date of transfer has to be taken to compute the deemed capital gains as on the date of such conversion and by taking such value the business profit is computed. In this regard our attention was drawn by the ld. AR to the argument put forth before the ld. Pr.CIT-1 vide paper book pages 106 & 107 wherein it was established that there was no loss to revenue if the provisions of section 45(2) are applied and deemed capital gains as on the date of conversion of investment into stock in trade was computed. Further business profit is computed in the impugned year when actual sale takes place by taking the fair market value as on the date of such conversion as cost of acquisition. This view is duly supported by the order of the Hon'ble Apex court in the case of Commissioner of Income Tax v. Max India Ltd., (2007) 295 ITR 282 (SC) wherein it has been held that 'every loss of revenue cannot be said to be prejudicial to the interests of revenue'. As observed above in the present case , there has been no loss to the revenue and it cannot be said that the order passed by the AO was prejudicial to the interest of revenue. For this proposition reliance is also placed on the following decisions of the jurisdictional high court: 1. Commissioner of Income Tax v. M/s Chambal Fertilizers & Chemicals Ltd. (Raj HC) (2014) 51 TW157 2. Commissioner of Income Tax v. M/s Deepak Real Estate Developers P. Ltd. (Raj HC) (2014) 51 TW 186 With the above observations, we are setting aside the revision order passed by the Id. Commissioner of Income Tax v. M/s Chambal Fertilizers & Chemicals Ltd. (Raj HC) (2014) 51 TW157 2. Commissioner of Income Tax v. M/s Deepak Real Estate Developers P. Ltd. (Raj HC) (2014) 51 TW 186 With the above observations, we are setting aside the revision order passed by the Id. Pr.CIT-1, Jaipur and restore the assessment order passed under section 143(3) of the Act by AO dated 24-03-2014. Accordingly the appeal of the assessee is allowed. 8. He relied upon the decision of Karnataka High Court in Commissioner of Income Tax v. Gokuldas Exports, [2011] 333 ITR 214, (KARHC) : wherein it has been held as under:- 28. Further the Delhi High Court in the matter of Commissioner of Income Tax v. Shri Ram Honda Power Equip [2007] 289 ITR 475 has taken a contra view after elaborately discussing the judgments of various High Courts and the Supreme Court on the point In the aforesaid case it has been held as under (headnote): The idea of section 80HHC is to ensure that the exporter gets the benefit of the profits derived from export and not to depress the profit further. Therefore, it can only be the net interest which can be included in the profits. If netting were not to be permitted the result would be that the profits of the exporter would be depressed by an item that is expenditure incurred on earning interest, which does not form part of the profit at all. This could not have been the intention of the Legislature. Explanation (baa) is relatable only to clause (a) of section 80HHC(3) and not to clause (b) thereof. These operate in distinct areas and no inter-mixing is contemplated. Hence the word 'interest' in clause (baa) to the Explanation in section 80HHC is indicative of 'net interest', i.e., gross interest less the expenditure incurred by the assesses in earning such interest. To summarise the conclusions : (i) In computing what the profits derived from exports for the purposes of section 80HHC(1) read with section 80HHC(3) are, the nexus test has to be applied to exclude that which does not partake of profits that can be said to have been derived from the business of exports. To summarise the conclusions : (i) In computing what the profits derived from exports for the purposes of section 80HHC(1) read with section 80HHC(3) are, the nexus test has to be applied to exclude that which does not partake of profits that can be said to have been derived from the business of exports. (ii) In the specific context of clause (baa) of the Explanation to section 80HHC, while determining the 'profits of the business', the Assessing Officer has to undertake a two step exercise in the following sequence. He has to first 'compute' the profits of the business under the head 'Profits and gains of business or profession.' In other words, he will have to compute business profits, in terms of the Act, by applying the provisions of sections 28 to 44 thereof. (iii) In arriving at the profits of the business by the above method, the Assessing Officer will exclude all such incomes which partake of the character of 'income from other sources' which in any event are treated under sections 56and 57 of the Act and are therefore not to be reckoned for the purposes of section 80HHC. (iv) Where surplus funds are parked with the bank and interest is earned thereon it can only be categorised as income from other sources. This receipt merits separate treatment under section 56 of the Act which is outside the ring of profits and gains from business and profession. It goes entirely out of the reckoning for the purposes of section 80HHC. (v) Interest earned on fixed deposits for the purposes of availing of credit facilities from the bank, does not have an immediate nexus with the export business and therefore has to necessarily be treated as income from other sources and not business income. (vi) Once business income has been determined by applying accounting standards as well as the provisions contained in the Act, the assesses would be permitted, in terms of section 37 of the Act, to claim as deduction, expenditure laid out for the purposes of earning such business income. (vi) Once business income has been determined by applying accounting standards as well as the provisions contained in the Act, the assesses would be permitted, in terms of section 37 of the Act, to claim as deduction, expenditure laid out for the purposes of earning such business income. (vii) In the second stage, the Assessing Officer will deduct from the profits of the business computed under the head 'Profits and gains of business or profession' the following sums in order to arrive at the 'profits of the business' for the purposes of section 80HHC(3): (a) 90 per cent., of any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28, i.e., export incentives; (b) 90 per cent., of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (c) profits of any branch, office, warehouse or any other establishment of the assessee situate outside India. (viii) The word 'interest' in clause (baa) of the Explanation connotes 'net interest' and not 'gross interest'. Therefore, in deducting such interest, the Assessing Officer will take into account the net interest, i.e., gross interest as reduced by expenditure incurred for earning such interest. (ix) Where, as a result of the computation of profits and gains of business and profession, the Assessing Officer treats the interest receipt as business income, then deduction should be permissible, in terms of Explanation (baa) of the net interest i.e., the gross interest less the expenditure incurred for the purposes of earning such interest. The nexus between obtaining the loan and paying interest thereon (laying out the expenditure by way of interest) for the purpose of earning the interest on the fixed deposit, to draw an analogy from section 37, will require to be shown by the assesses for application of the netting principle. 39. Similarly in the matter of Hero Exports, the Supreme Court was essentially dealing with section 80HHC(3)(b) and Explanation (e). It did not have the occasion to consider clause (baa) of the Explanation appended to section 80HHC. Thus the aforesaid two judgments of the Supreme Court do not render help to the Revenue, to arrive at a conclusion in its favour. 40. It did not have the occasion to consider clause (baa) of the Explanation appended to section 80HHC. Thus the aforesaid two judgments of the Supreme Court do not render help to the Revenue, to arrive at a conclusion in its favour. 40. The relevant part of the order of the Supreme Court in the matter of Hero Exports : [2007] 295 ITR 454 is reproduced hereinbelow, which makes it clear that it was not dealing specifically with clause (baa) appended to the Explanation: "We make it clear that we are not reading Explanation (baa) into section 80HHC(3) (b). What we say is as a guidance value/factor, 10 per cent., of the total other income of Rs. 1,60,000 would be fair estimate. This guidance value is not flowing from clause (baa) but from the scheme of section 80HHC read with the Memorandum to the Finance Act of 1991. Take a reverse case, if allocation of expenses is to be done on actual basis, it would not only be very difficult but in some cases actual apportionment may not be in the interest even of the Department. In conclusion, we may state that under section 80HHC(3)(b) one has to balance the 'principle of attribution' with the concept of 'allocation'. The concept of allocation is meant to reduce the incentive. However, when 'allocation' has to be balanced with the 'principle of attribution', the object is to reduce the incentive and not to eliminate it. 41. In the light of the foregoing discussion, we are of the considered opinion that the sheet anchor to the facts of this case is the Delhi High Court judgment in the matter of Shri Ram Honda Power Equip (supra). We say so as that was the case, wherein the direct question posed in this appeal was under consideration and has been answered as such. The reasoning and interpretation employed therein also appears to be reasonable and plausible." 9. He also relied upon the decision of Punjab and Haryana High Court in Commissioner of Income Tax v. Nahar Exports Ltd. [2008] 173 Taxman 3 (PHHC) wherein, it has been held as under:- "9. We find no merit in the contentions raised by the learned Counsel for the appellant. He also relied upon the decision of Punjab and Haryana High Court in Commissioner of Income Tax v. Nahar Exports Ltd. [2008] 173 Taxman 3 (PHHC) wherein, it has been held as under:- "9. We find no merit in the contentions raised by the learned Counsel for the appellant. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word "profits" in that section and different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, the subsequent amendment in 2005 even though retrospective, will not attract the provisions of Section 263 of the Act, particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated 18-2-1998, in purported exercise of powers under Section 263 of the Act. 11. In the case of Malabar Industrial Co. Ltd. v. Commissioner of Income Tax : (2000) 243 ITR 83 , the Hon'ble Apex Court has taken the view that the phrase "prejudicial to the interests of the revenue" under Section 263 of the Act has to be read in conjunction with the expression "erroneous" order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible or the Income Tax Officer 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. 12. In view of the above settled proposition of law and following the law laid down by the Hon'ble Apex Court in Commissioner of Income Tax v. Max India Ltd.'s case (supra) and the Malabar Industrial Company Ltd.'s case (supra), we find that no questions of law survive for determination of this Court. Thus, there being no merit in the appeals of the revenue, the same are hereby dismissed." 10. Thus, there being no merit in the appeals of the revenue, the same are hereby dismissed." 10. He further relied upon the decision of Supreme Court of India in Commissioner of Income Tax v. Max India Ltd. [2007] 295 ITR 282 (01.11.2007 - SC), wherein it has been held as under:- 1. In our view at the relevant time two views were possible on the word "profits" in the proviso to Section 80HHC(3). It is true that vide the 2005 amendment the law has been clarified with retrospective effect by insertion of the word "loss" in the new proviso. We express no opinion on the scope of the said amendment of 2005. Suffice it to state that in this particular case when the order of the Commissioner was passed under Section 263 of the Income Tax Act, 1961, two views on the said word "profits" existed. In our view the matter is squarely covered by the judgment of this Court in the case of Malabar Industrial Co. Ltd. v. Commissioner of Income Tax reported in : (2000) 243 ITR 83 ; as also by the judgment of the Calcutta High Court in the case of Russell Properties P. Ltd. v. A. Chowdhury, Addl. CIT: [1977] 109 ITR 229(Cal) . 2. At this stage we may clarify that under paragraph 10 of the judgment in the case of Malabar Industrial Co. Ltd. v. Commissioner of Income Tax : (2000) 243 ITR 83 this Court has taken the view that the phrase "prejudicial to the interests of the revenue " under Section 263 has to be read in conjunction with the expression "erroneous" order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue ; or where two views are possible and the Income Tax Officer 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 taken by the Income Tax Officer is unsustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of Section 80HHC(3) as it then stood the view taken by the assessing officer was unsustainable in law and therefore the Commissioner was right in invoking Section 263 of the Income Tax Act. In this connection, he has further submitted that in fact the 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the assessing officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word "profits" in that section. The problem with Section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of Section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5,1997, in purported exercise of his powers under Section 263 of the Income Tax Act." 11. We have heard learned counsel for the parties. 12. In our considered opinion, it is well settled legal proposition that while considering Section 263, twin conditions are to be fulfilled which in the present case has not been fulfilled. 13. Hence, we are in complete agreement with the view taken by the Tribunal. 14. The issue is answered in favour of the assesses and against the department. 15. The appeal stands dismissed.