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2022 (11) TMI 1555 - AT - Income TaxRevision u/s 263 - deduction u/s 80IC has been wrongly allowed to the assessee - HELD THAT - We observe that the issue raised by the ld. Pr. CIT in the impugned order u/s 263 of the Act was adjudicated by this Tribunal in the assessee s own case for the Assessment Year 2013-14 2019 (11) TMI 798 - ITAT KOLKATA and the ld. D/R being unable to bring any contrary fact on this aspect we therefore following the order of this Tribunal hold that the ld. Pr. CIT erred in invoking the revisionary powers u/s 263 of the Act on the said issue of deduction u/s 80IC of the Act since the ld. AO while allowing the assessee s claim adopted one of the permissible view as held by Hon ble Courts and to this extent we find that the assessment order u/s 143(3) dt. 21/12/2019 is neither erroneous nor prejudicial to the interest of the revenue. Hence Ground No. 1 2 raised by the assessee are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of invoking revisionary jurisdiction under section 263 of the Act Relevant legal framework and precedents: Section 263 empowers the Commissioner to revise an assessment order if it is "erroneous in so far as it is prejudicial to the interests of the revenue." The Supreme Court in Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) clarified that the order must be both erroneous and prejudicial, and that a difference of opinion or an alternative view taken by the AO does not suffice to invoke this power unless the view is unsustainable in law. The Delhi High Court in CIT v. Sunbeam Auto Ltd. (227 CTR 133) distinguished "lack of inquiry" from "inadequate inquiry," holding that revision cannot be based on mere inadequacy of inquiry. Court's interpretation and reasoning: The Tribunal observed that the AO had conducted detailed inquiries, issued notices under section 142(1), and examined all relevant documents and explanations furnished by the assessee before framing the assessment order under section 143(3). The Tribunal held that the AO had applied his mind and taken a plausible view supported by judicial precedents. Therefore, the order could not be termed erroneous or prejudicial to revenue. The ld. Pr. CIT's action was held to be without jurisdiction and thus null and void. Key evidence and findings: The Tribunal referred to the detailed replies and annexures submitted by the assessee during the assessment proceedings, including audited accounts, certificates, and explanations on the deduction claimed under section 80IC. The AO's queries and the assessee's responses demonstrated that the AO had not failed in inquiry. Application of law to facts: Since the AO had examined the claim and allowed the deduction after due application of mind, and since the view taken was sustainable in law, the revisionary jurisdiction under section 263 could not be invoked merely because the ld. Pr. CIT disagreed with the AO's view. Treatment of competing arguments: The ld. Pr. CIT argued that the assessment order was erroneous and prejudicial because the AO did not disallow certain incomes while computing deduction under section 80IC. The assessee relied on the Tribunal's earlier decision for AY 2013-14 and judicial precedents emphasizing the limits of section 263. The Tribunal accepted the assessee's submissions and rejected the ld. Pr. CIT's invocation of section 263. Conclusion: The Tribunal quashed the order passed under section 263, holding that the AO's assessment order was neither erroneous nor prejudicial to the revenue, and that the revisionary powers were wrongly exercised. Issue 2: Allowability of deduction under section 80IC of the Act on certain items of income Relevant legal framework and precedents: Section 80IC provides deduction on profits and gains derived from eligible business undertakings. The term "profits and gains derived by an undertaking" is not explicitly defined, but the Supreme Court in Liberty India Ltd. v. CIT (317 ITR 218) held that only items having a first degree nexus with the business qualify for deduction. Various High Court and Tribunal decisions have considered whether specific incomes such as interest, exchange differences, export incentives, and insurance claims qualify for deduction under similar provisions. Court's interpretation and reasoning: The Tribunal conducted a detailed item-wise analysis of the disputed income components included in the eligible profits for deduction under section 80IC:
Key evidence and findings: The Tribunal extensively reviewed the assessee's audited accounts, detailed explanations, certificates, and prior judicial pronouncements. It also considered the nature and purpose of each income item and the nexus test established by the courts. Application of law to facts: Applying the principle that only items with a direct nexus to the eligible business are includible for deduction under section 80IC, the Tribunal found that the AO's allowance of deduction including these items was a plausible and sustainable view in law. Treatment of competing arguments: The ld. Pr. CIT contended that non-operating incomes and export incentives should not be included for deduction, alleging violation of section 80IC(2). The assessee countered with detailed explanations and judicial precedents. The Tribunal favored the assessee's interpretation, holding that the AO's approach was legally tenable. Conclusion: The Tribunal upheld the AO's allowance of deduction under section 80IC on the disputed income items, rejecting the ld. Pr. CIT's contention of erroneous allowance. Issue 3: Disallowance of provision for excise duty This issue was initially raised by the ld. Pr. CIT on the ground that provision for excise duty was not an actual expenditure incurred and thus disallowable under section 37(1) of the Act. The assessee contended that the provision was created as per ICAI guidance note and was added back to the value of closing stock, resulting in no impact on profit and loss account and being revenue neutral. At the hearing, the assessee chose not to press this ground, and accordingly, the Tribunal dismissed this ground as not pressed, thereby confirming the ld. Pr. CIT's finding on this issue. 3. SIGNIFICANT HOLDINGS "The phrase 'prejudicial to the interest of the Revenue' has to be read in conjunction with an 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 interest of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." (Malabar Industrial Co. Ltd. v. CIT) "In view of aforesaid, it is reiterated that the Assessing Officer called for certain clarifications through the questionnaire of the assessee and that the same were furnished with the required details. This fact is even taken note of by the Commissioner himself in his order. The only grievance of the Commissioner was that the Assessing Officer should have made further enquiries rather than accepting the explanation given by the assessee. It cannot be said to be a case of lack of enquiry." (Fab India Overseas (P) Ltd. v. CIT) "Items of income which have first degree nexus with the business of the industrial undertaking can be held to be profits & gains derived from the undertaking in order to avail the profit-linked deduction u/s 80IA of the Act." (Liberty India Ltd. v. CIT) "Interest earned by the assessee from security deposits compulsorily maintained with electricity board has direct nexus with the business and is eligible for deduction under section 80IC." (Following CIT v. Nagreeka Foils Ltd.) "Exchange rate fluctuation gains arising out of export sales and import purchases of raw materials are directly related to business activity and qualify for deduction under section 80IC." (Following CIT v. Rachna Udyog and JCBL India Pvt. Ltd. v. ACIT) "Export incentives such as DEPB license, Focus Product License, and Status Holder License are subsidies to reduce cost of production and have direct nexus with the eligible undertaking, qualifying for deduction under section 80IC." (Following CIT v. Meghalaya Steels Ltd. and Topman Exports v. CIT) Final determinations:
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