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Deep Industries Ltd. Versus The Commissioner of Income Tax

2015 (4) TMI 667 - ITAT AHMEDABAD

Revision of assessment order - Deduction u/s 35D and disallowance u/s 14A - AO had verified the issues at the time of assessment proceedings - Held that:- In the present case, it is seen that Section 263 has been invoked on two grounds namely deduction u/s. 35D and disallowance u/s. 14A. With respect to deduction u/s. 35D it is an undisputed fact that the expenses were incurred by the Assessee in the year ending 31st March, 2007 relevant to assessment year 2007-08 and the first year of claim was .....

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ble to the A.O and he therefore granted the deduction as per the original claim made by the Assessee. With respect to the disallowance u/s. 14A, it is seen that the query was raised during the course of assessment proceedings to which the Assessee had replied and after considering the reply of the Assessee, A.O had considered the disallowance u/s. 14A at ₹ 10,43,772/-. Thus it can be seen that both the issues on which ld. CIT has reported to revisionary proceedings u/s. 263 has been examin .....

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ivity of the Assessee cannot be regarded as an industrial undertaking and therefore not eligible for deduction u/s. 35D. We find that prior to A.Y. 2009-10, deduction with respect to 35D with respect to certain specified preliminary expenses was available to an industrial undertaking or unit. However, the word “industrial” were omitted by Finance Act, 2008 with effect from 01.04.2009.

Thus it can be seen that after the amendment made by Finance Act 2008, benefit of 35D was also availa .....

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e Ld. CIT was not justified in resorting to revisionary powers u/s. 263 of the Act, we therefore set aside the order of CIT cancelling the order dated 26.12.2011 passed u/s. 143(3) of the Act.- Decided in favour of assessee. - I.T. A. No. 350/AHD/2014 - Dated:- 20-3-2015 - Shri Mukul Kr. Shrawat And Shri Anil Chaturvedi JJ. For the Appellant : Shri Ketan H. Shah, A.R. For the Respondent : Shri T.P. Krishnakumar, Sr. D.R. ORDER Per Shri Anil Chaturvedi,A.M. 1. This appeal filed by the Assessee is .....

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section 143(3) vide order dated 26.12.2011 and the total income was determined at ₹ 4,34,81,062/-. Subsequently, on examining the records of assessment proceedings, ld. CIT noticed that (i) Assessee has wrongly claimed deduction of ₹ 61,21,968/- u/s. 35D towards public issue expense incurred after commencement of business and according to him, as per provisions of Section 35D(ii) for A.Y. 08-09 such deduction is only available to an Assessee for extension of its industrial undertaki .....

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the initiation of proceedings u/s. 263 and on merits submitted that no error was committed by the A.O while computing the assessment. The submissions of the Assessee were not found acceptable to the ld. CIT. He was of the view that (i) A.O had erred in allowing deduction of IPO expense of ₹ 61,21,968/- in contravention of provisions of 35D(1) & (ii) A.O had also erred in considering the interest expenses of ₹ 41,32,115/- instead of 2,62,65,901/- while quantifying disallowance u/ .....

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t even though the Assessing Officer's order has merged with the order of Id. CIT. The order passed by him is without jurisdiction and bad in law which may be set aside. 2. The Id. Commissioner of Income Tax has erred in law and on fact in canceling the entire assessment order' and direction to make fresh assessment order of the appellant even though he discussed the various judicial pronouncements. 3. The Id. Commissioner of Income Tax has erred in law and on fact that the Assessing offi .....

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proceedings u/s. 263 cannot be initiated merely on the basis of audit objection, if any, and therefore, the present revision proceedings, is itself bad in law, void ab initio, illegal and liable to be quashed. 5. Before us, ld. A.R. submitted that in the present case the pre-requisite conditions specified u/s. 263 were not satisfied and therefore the proceeding, u/s. 263 lacks jurisdiction and are bad in law. He further submitted that CIT has stated in the order passed u/s. 263 that Assessee is .....

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ntrary to show cause notice and therefore bad in law and void. With respect to the claim u/s. 35D, he submitted that it is allowable for 10 successive previous years as per the proviso to Section 35D(1). The first year of such claim was assessment year 2007-08 which has been accepted u/s. 143(1) and no action u/s. 147 or 263 has been taken in A.Y. 2007-08 or in A.Y. 2008-09. He therefore submitted that when the claim has been allowed in initial years and without any change in facts, the claim ca .....

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to explain as to why Rule 8D not be applied to disallow the expenses u/s. 14A. He pointed to the relevant show cause placed at page 109 of the paper book. In response to the query raised by the A.O ld. A.R. submitted that, Assessee had submitted its reply vide letter dated 13th October, 2011 which is placed at page 115 and 116 of the paper book. He further submitted that the A.O after considering the submissions of the Assessee and the various decisions cited in the order, computed the disallow .....

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, after considering the submissions of the Assessee and after application of mind, the issue was decided. He therefore submitted that since the issue has been examined by A.O. ld. CIT cannot resort to revisionary proceeding u/s. 263. He further placed reliance on the decision of Gabrial India Pvt. Ltd. 203 ITR 103, decision of Ahmedabad Tribunal in the case of Cadila Healthcare and Innovative Securities. He therefore submitted that the order of CIT needs to be set aside both on the ground of jur .....

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about the invoking of provisions of Section 263 by ld. CIT. 7. S. 263(1) of the Act, the powers under which ld. CIT has assumed power for revision reads as under: The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inq .....

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er to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous prejudice has been caused to the interests of the Revenue. 9. In the present case, it is seen that Section 263 has been invoked on two grounds namely deduction u/s. 35D and disallowance u/s. 14A. With respect to deduction u/s. 35D it is an undisputed fact that the expenses were incurred by the Assessee in the year ending 31st March, 2007 relevant to assessment year 2007-08 and the first .....

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not found acceptable to the A.O and he therefore granted the deduction as per the original claim made by the Assessee. With respect to the disallowance u/s. 14A, it is seen that the query was raised during the course of assessment proceedings to which the Assessee had replied and after considering the reply of the Assessee, A.O had considered the disallowance u/s. 14A at ₹ 10,43,772/-. Thus it can be seen that both the issues on which ld. CIT has reported to revisionary proceedings u/s. 26 .....

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more elaborately. This section does not visualise a case of substitution of judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimates himself. The Commissioner, on perusal of the records, may b .....

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to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, namely, the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interest of the Revenue, then al .....

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stainable in law. We further find that ld. CIT was of the view that Section 35D was only applicable to an industrial undertaking and activity of the Assessee cannot be regarded as an industrial undertaking and therefore not eligible for deduction u/s. 35D. We find that prior to A.Y. 2009-10, deduction with respect to 35D with respect to certain specified preliminary expenses was available to an industrial undertaking or unit. However, the word industrial were omitted by Finance Act, 2008 with ef .....

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