TMI Blog2013 (12) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... g the deduction under section 80-IA of the Act, both on the profits of the business and also on the interest income and other income earned by the assessee – The order of the Assessing Officer did not show the verification of closing stock, purchases and transportation and other items mentioned above – Decided against assessee. - ITA No.706 /Chd/2010 - - - Dated:- 18-9-2012 - SHRI T.R. SOOD AND MS.SUSHMA CHOWLA, JJ. For the Appellant : S/Sh Percy Pardiwala , Rishab Singla Aseem Mowar For the Respondent : Shri Manjeet Singh, DR ORDER PER SUSHMA CHOWLA, J .M,: The appeal filed by the assessee is against the order of the Commissioner of Income-tax, dated March 30, 2010 passed under section 263 of the Income-tax Act relating to the assessment year 2005-06. 2. The grounds of appeal raised by the assessee read as under : "1. On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax-I, Chandigarh (hereinafter referred to as the "learned CIT"), erred in initiating proceedings under section 263 of the Income-tax Act, 1961 ("Act") by wrongly assuming jurisdiction under section 263 of the Act and hence, the order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile provisions of section 80-IA of the Act, that were applicable when the appellant commenced providing cellular mobile telephony services, and not the new section 80-IA (introduced by the Finance Act, 2001). 3.4 Without prejudice to grounds 3.3 and in the alternative, even if it is presumed that the erstwhile provisions of section 80-IA of the Act were applicable to the appellant, the learned Commissioner of Income-tax erred in holding that the appellant is necessarily required to claim deduction for full ten consecutive years under section 80-IA of the Act, beginning from the assessment year in which the appellant started providing telecommunication services and thereby holding that the appellant is not eligible for 100 per cent. deduction during the assessment year 2005-06. 3.5 On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax erred in holding that the appellant is necessarily required to claim deduction for full ten consecutive years under section 80-IA of the Act, beginning from the assessment year in which the appellant started providing telecommunication services, in complete disregard to the non-obstante provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80-IA (100 per cent.) amounting to Rs. 307,93,70,059 and the taxable income has been shown as nil. These are certain issues which have not been examined by the Assessing Officer. 1. As per note given below the computation sheet, the profit of the company includes interest income amounting to Rs. 6,09,99,174 and this interest is earned on temporary deploying of surplus funds generated out of the business of telecommunication services. This interest has been regarded, for the purpose of computation, as income derived from the undertaking carrying on telecommunication business and thereby claimed as eligible for deduction under section 80-IA of the Act. The Assessing Officer did not make any inquiry as to whether the interest earned is directly attributable to the business activities of telecommunication and as to how it pertains to the investment activities. As per the details on record, the assessee seems to be not eligible for claiming deduction under section 80-IA of the Income-tax Act. on the said interest income. Besides the interest income, the assessee has shown in the total income, other income of Rs. 11,08,53,363 which includes miscellaneous receipts amounting to Rs. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... man probabilities. The principle has been succinctly exposited by the apex court in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) at pages 545, 547 and Sumati Dayal v. CIT [1995] 214 ITR 801 (SC). 5. Likewise it is also very important to keep in mind that unlike a civil court which is neutral to give decisions on the basis of evidence produced before it an Assessing Officer is not only an adjudicator but he is also an investigator. He cannot remain passive in the face of the return which is apparently in order but endeavours further inquiry. It is the duty of the Assessing Officer to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke inquiry. The meaning to be given to the word 'erroneous' in section 263 emerges out of this context. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong in the order if all the facts stated therein are assumed to be correct. It is well-settled that the Commissioner may consider an order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or fact on the face of it but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 263 of the Act. In respect of the satisfaction of the Commissioner, it was pointed out that the same should objectively be arrived and not merely based on unproven assertions of unsupported statements. Reliance was placed on the ratio laid down by the hon'ble apex court in CIT v. G. M. Mittal Stainless Steel (P) Ltd [2003] 263 ITR 255 (SC). 7. The Commissioner of Income-tax vide para 6.3 observed that the prerequisite to exercise the jurisdiction by the Commissioner suo motu is on satisfaction of two conditions namely (i) the order of the Assessing Officer sought to be revised is erroneous ; and (ii) it is prejudicial to the interests of the Revenue. The twin conditions had to be satisfied. The Commissioner of Income-tax vide para 6.4 further observed that it was undisputed that the provision could not be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only where order is erroneous that section will be attracted. The Commissioner of Income-tax held "an incorrect assumption of facts or incorrect application of law will satisfy the requirement of order being erroneous". Similarly, the orders passed without applying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer had not applied the provisions of section 80-IA correctly while computing the quantum of deduction, as the Assessing Officer had failed to determine the eligible amount of deduction, whether 100 per cent. or 30 per cent. or nil deduction. As per the Commissioner of Income-tax, the Assessing Officer had failed to appreciate that the deduction under section 80-IA of the Act was not allowable on other income like interest and miscellaneous income, as these were not derived from the eligible business. Accordingly, the order passed by the Assessing Officer of nil assessment, without application of mind was as per the Commissioner of Income-tax not only erroneous but to that extent prejudicial to the interests of the Revenue. Reliance was placed on Malabar Industrial Company Ltd. v. CIT [2000] 243 ITR 83 (SC) and Swarup Vegetable Products Industries Ltd. v. CIT (No. 1) [1991] 187 ITR 412 (All). The show-cause notice was thus issued to the assessee. 8. The learned authorised representative for the assessee made elaborate submissions on the issue of allowability of deduction under section 80-IA of the Act. The first plank of submissions of the assessee was that the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is provision of telecommunication services post April 1, 1995 it is amply evident from the assessment order of 1995-96 that the extract of the assessment order that the business for VEL was to be set-up till the assessment year 1995-96 and hence, the question of commencement provision of telecom services prior to April 1, 1995 does not arise. Though VEL had contended that it had set-up its operations in the assessment year 1992-93, nowhere had it claimed that it had commenced its telecom operations in the assessment year 1995-96. In any case, the position of set-up of operations by VEL post assessment year 1995-96, as upheld by the Assessing Officer was duly accepted by VEL and not contested further. With respect to condition 2, we wish to submit that while conducting the assessment proceedings for the assessment year 1995-96, the Assessing Officer had examined the facts of VEL in details, including review of memorandum and articles of association, bid/tender documents, etc. It was amply clear and evident before the Assessing Officer that VEL was a new company and not formed by splitting up or reconstruction of a business already in existence. This fact is also evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that the conditions were satisfied in the case of the assessee and hence it was eligible for deduction claimed under section 80-IA of the Act. It was also pointed out that it was not correct to state that the conditions prescribed for claiming deduction under section 80-IA of the Act were not examined by the Assessing Officer. The assessee further submitted, the evidence was already available with the office of the Assessing Officer and hence, need to re-examine the same did not arise for the subject assessment year. 12. The Commissioner of Income-tax vide para 8 considered the admissibility of deduction under section 80-IA of the Act in view of the various factual aspects pointed out by the learned authorised representative for the assessee and observed as under: (i) From the perusal of assessment record relating to the assessment year 2005-06, it was noted by the Commissioner of Income-tax that date of commencing of operation/activity to the undertaken had been left blank. (ii) As per the Commissioner of Income-tax, the Assessing Officer had finalised the assessment without placing any document on record as to when the business had commenced or/and to whether the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the assessment year 1995-96 shown income from "sale of hardware" amounting to Rs. 14,50,617 which represented the profit from sale of pagers. On the basis of material on record, it is held that the assessee-company has started its infrastructure facility during the assessment year 1995-96. (d) As per the information available on the web site of M/s. Vodafone-Essar Ltd., which exists on the path http://www.vodafone.in/existingusers/pages/aboutus.aspx, the assessee-company commenced its business operation in the year 1994 i.e., during the assessment year 1995-96. As per the information on the web site of "money control" available on the path http://www.moneycontrol.com/company-facts/maxindia/history/MI the cellular service was started by the assessee-company in Mumbai by the name "Max Torch" in the year 1994. Further in the year 1994, 17 paging networks of the assessee-company were commissioned. This clearly reflects that the assessee-company has commenced its business activities and started giving services to its customers in the year 1994. (e) Further information on the web reveals that the assessee-company has merged its cellular and paging divisions, Max ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-97 100% 3 1997-98 100% 4. 1998-99 100% 5. 1999-2000 100% 6 2000-01 30% 7. 2001-02 30% 8. 2002-03 30% 9. 2003-04 30% 10 2004-05 30% 13. The Commissioner of Income-tax concluded by holding that : To summarise, it is held that the assessee-company is not eligible for any deduction under section 80-IA as the block period of 10 years has already expired in the assessment year 2004-05. Alternatively the deduction under section 80-IA is to be restricted to 30 per cent. only as the current assessment year 2005-06 falls in the last 5 years of the block of 10 years as per the provisions of sub-section (5) of section 80-IA. 14. The Commissioner of Income-tax further noted that the assessee to have claimed deduction under section 80-IA of the Act on the interest income and other income. The interest income of Rs. 6.09 crores was earned on temporary deployment of surplus funds generated out of business of telecommunication services. The assessee had recorded the said as income derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide the service were agreed upon and under which it had stipulated that the licensee, i.e., the assessee shall install/run applicable infrastructure within 12 months of the effective dates and the effective date was November 29, 1994. As per para 1.3 it was stipulated that for the purpose of providing the services, the licensee was to install equipment conforming to the GSM standards and to meet the technical specifications of the tendered document issued in the name. A reference was made to the definition of effective date vide clause (ad) in Schedule "C", Part-I to the licence agreement wherein the effective date was the date by which the licence agreement comes into the effect i.e., from which date it is signed and appropriate component licence fee is paid whereas as per para 1.1 of the terms of conditions in Schedule "C", Part-III to the licence agreement as the effective date was November 29, 1994. The learned authorised representative pointed out that the assessee commenced the operations of providing cellular service on November 16, 1995, for which provisional approval dated October 13, 1995 was received on October 20, 1995 as per the letter of the Government of India place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned authorised representative pointed out that the assessee had filed an appeal against the order relating to the assessment year 1995-96 which was later withdrawn and no appeal was filed against the order passed relating to the assessment year 1996-97. In respect of the present year under consideration, the learned authorised representative pointed out that the deduction under section 80-IA of the Act was claimed in the assessment year 200506. A reference was made to the audit report at page 1 of the paper book and the notes on accounts placed at pages 15 and 16 of the paper book. As per notes of the financial statement No. 3, it was reported that the company engaged in the business of providing telecom services had started availing of the same with effect from the financial year beginning from April 2004. It was further reported that though the section entitles the company to 100 per cent. deduction on the profit earned on such business, however, the company was required to pay tax as under the minimum alternate tax provisions of the of the Act. The learned authorised representative thereafter pointed out that the audit report placed at page 27 onwards of the paper book in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d", Note No. 4, it was reported that as per order under section 143(3) relating to assessment year 1995-96 regarding date of set up of business, certain expenses were disallowed and on which depreciation was not claimed by the assessee-company and thereafter the same was considered for the claim of additional depreciation, which was allowed to the assessee. As per Note No. 9, the assessee made the declaration of its eligibility for deduction under section 80-IA of the Act for the year under appeal. It was pointed out that the 15 years period of being eligible to claim deduction under section 80-IA started with previous year ending March 31, 1996 up to previous year March 31, 2010 as per section 80-IA(2) of the Act. The said deduction was allowable to the assessee at 100 per cent. for the first five assessment year commencing at any time during the period of 15 years at the option of the assessee-company and 30 per cent. for the further five assessment years. It was further reported that the assessee had opted for the deduction under section 80-IA from the assessment years 2005-06 to 2010-11 and for the assessment years 2005-06 to 2009-10, the assessee was entitled to deduction at 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the amended provisions of the Act were applicable and under section 80-IA(4)(ii) of the Act, the requirement is "has started or starts". As per the learned authorised representative for the assessee, the said provisions apply to undertaking which had started or would start operations. Reliance was placed on the undermentioned decisions : (i) Asst. CIT v. Vodafone Essar Gujarat Ltd. [2010] 38 SOT 51 (Ahd) ; (ii) ITC Ltd. v. Deputy CIT (ITA/475/Kol/2010) ; Deputy CIT v. ITC Ltd. (ITA/476/Kol/2010) ; and (iii) Circular No. 5 of 2005, dated July 15, 2005 ([2005] 276 ITR (St.) 151). 19. It was stressed by the learned authorised representative for the assessee that the Commissioner of Income-tax findings that old law was applicable were incorrect. Further plea of the learned authorised representative for the assessee was that the findings of the Commissioner of Income-tax were on the basis of draft assessment order relating to the assessment year 2006-07. The next aspect considered by the Commissioner of Income-tax was interest income and other income, and admittedly no enquiries were made by the Assessing Officer. The conclusion of the Commissioner of Income-tax holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the records. The original assessment in the case was completed under section 143(3) of the Act, vide order dated September 3, 2007. The Assessing Officer held as under : "2. As per profit and loss account for the year ended March 31, 2005 the assessee-company has shown profit at Rs. 3,56,98,42,888. After making various adjustments, the net income has been shown at Rs. 3,43,51,89,619. Against this income the assessee-company has claimed brought forward unabsorbed depreciation for the earlier years amounting to Rs. 35,58,19,560 and shown net assessable income at Rs.3,07,93,70,059 against which the assessee has claimed deduction under section 80-IA (100 per cent.) amounting to Rs. 3,07,93,70,059. Thus, taxable income has been shown at nil." 23. Vide para 3, the computation of book profits under section 115JB of the Act was worked out by the Assessing Officer. 24. The assessee had claimed deduction under section 80-IA of the Act amounting to Rs. 3,07,93,70,059 which was allowed as per order passed under section 143(3) of the Act. The Commissioner of Income-tax on perusal of assessment records noted several facts as referred to by us in paras hereinabove and passed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the High Court of Karnataka in CIT v. T.Narayana Pai [1975] 98 ITR 422 (Karn), the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom) and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 (Guj) treated loss of tax as prejudicial to the interests of the Revenue. Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 (Mad) interpreting 'prejudicial to the interests of the Revenue'. The High Court held (page 138) : 'In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration.' In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntries in the statement of accounts filed by the assessee in the absence of any supporting material and without making any enquiry. Similarly, in Deepak Kumar Garg [2008] 299 ITR 435, the Assessing Officer accepted the version of the assessee and for want of time did not conduct any proper enquiry. On these facts, it was found that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the Revenue."(underline provided by us) The hon'ble Delhi High Court had held that the order of the Commissioner of Income-tax to be invalid as the order of the Assessing Officer found to be passed on due application of mind. 28. Section 263 of the Act is to be invoked where the order passed by the Assessing Officer is erroneous and an order passed without application of mind would fall under the category of erroneous order. Though every loss of Revenue cannot be treated as prejudicial to the interests of the Revenue, however, loss of tax lawfully payable pursuant to an erroneous order passed by the Authority has been held to be prejudicial to the interests of the Revenue by the hon ble Bombay High Court in CIT v. Gabrial India Ltd. [1993] 203 ITR 108 (Bom), an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer, i.e., the fulfilment of the various conditions laid down under section 80-IA of the Act including the provisions of sub-sections (2), (2A) and (4)(ii) of section 80-IA of the Act, were not considered and adjudicated upon by the Assessing Officer. The learned authorised representative for the assessee argued at length on the merits regarding the issue of allowability of deduction in the hands of the assessee for the relevant year under appeal. However, for the purpose adjudicating the issue of exercise of power of revision under section 263 of the Act by the Commissioner of Income-tax, we do not deem it necessary to address the issue on the merits of claim of deduction under section 80-IA of the Act. We find that the Assessing Officer completed the assessment without looking into the merits of the claim of the assessee in relation to its eligibility of deduction available under section 80-IA of the Act. The assessment order passed by the Assessing Officer is without making any investigation and without application of mind in granting the deduction under section 80-IA of the Act, both on the profits of the business and also on the interest income and other income earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. It is not necessary for the Commissioner of Income-tax to make further inquiries before cancelling the assessment order of the Assessing Officer." 33. Considering the facts of the present case and respectfully following the ratio laid down by the jurisdictional High Court in CIT v. Assam Tea House [2012] 344 ITR 507 (P H) and the hon'ble Rajasthan High Court in Smt. Renu Gupta v. CIT [2008] 301 ITR 45, we confirm the order of the Commissioner of Income-tax in setting aside and restoring the matter back to the file of the Assessing Officer for fresh adjudication in accordance with law. However, we find that the Commissioner of Income-tax had deliberated upon the issues at length and had directed the Assessing Officer to pass fresh assessment order after carefully looking into and critically examining all the aforementioned issues raised in the assessment order for the assessment year 2006-07. The learned authorised representative for the assessee placed reliance on the ratio laid down by the hon'ble apex court in Maruti Suzuki ..... X X X X Extracts X X X X X X X X Extracts X X X X
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