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2015 (12) TMI 707 - ITAT AHMEDABAD

2015 (12) TMI 707 - ITAT AHMEDABAD - TMI - Revision u/s 263 - Commissioner has held that the exemption under section 80IB will not admissible on the duty draw back income and interest income because it was not derived from undertaking - Held that:- In the present case, CIT issued notice after the decision of Hon'ble Supreme Court in the case of Liberty Shoes (2009 (8) TMI 63 - SUPREME COURT ) construed the meaning of expression "profits derived from industrial undertaking". The Hon'ble Supreme C .....

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me Tax has appreciated the facts in right perspective while taking cognizance under section 263 of the Income Tax Act. - Decided against assessee. - ITA No. 1309 & 192/Ahd/2011 & 2013 - Dated:- 14-10-2015 - Rajpal Yadav, JM And Manish Borad, AM For the Appellant : Shri Rasesh Shah For the Respondent : Shri Jagdish Shah, CIT-DR ORDER Per Rajpal Yadav, Judicial Member The present two appeals are directed at the instance of the assessee. The ITA No.1309/Ahd/2011 is against the order of the ld.CIT d .....

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of the Income Tax Act, and thereby revising the assessment order dated 26.12.2008 passed under section 143(3) of the Income Tax Act. 4. Brief facts of the case are that the assessee company is manufacturing textile machinery. It has filed its return of income on 31.10.2006 declaring an income of ₹ 19,35,980/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the .....

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quiry and ultimately arrived at a conclusion that the GP in the case of the assessee, at the most, can be at 30%. The ld.AO has not disputed the admissibility of deduction under section 80IB of the Act. His only quarrel was with regard to the quantification of the deduction after calculating the GP by adopting the rate of 30%, he reworked out the exemption admissible to the assessee under section 80IB. The working of the AO narrating the deduction under section 80IB reads as under: "30. The .....

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ve remarks, income of the assessee is computed as under: Net profit as per P&L account Rs.20,58,48,748/- Less: (i) Deduction admissible u/s.40(4) for A.Y.2005-06 as per ROI ₹ 3,77,344/- (ii) Deduction u/s.80IB, as discussed in para 30 Rs.15,33,57,689/- Taxable income RS.5,21,13,715/-" 5. Aggrieved with the order of the AO, the assessee went in appeal before the CIT(A). According to the ld.counsel for the assessee, the ld.First Appellate Authority has upheld the claim of the assess .....

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terest (Other bank) 7,10,215/- TOTAL 59,89,462/- 7. After hearing the assessee, the ld. Commissioner has held that the exemption under section 80IB will not admissible on the duty draw back income of ₹ 36,76,140/- because it was not derived from undertaking. Similarly, he opined for exclusion of interest income of ₹ 3,77,342/- also, but the ld.Commissioner has set aside the assessment order with direction that these issues be re-adjudicated by the AO as per the law. 8. The ld.counsel .....

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irect nexus with the industrial undertaking for earning these receipts. He admitted that on merits the assessee cannot claim a deduction under section 80IB on the duty draw back. However, the ld.counsel for the assessee submitted that when the AO has decided this issue, the decision of the Hon'ble jurisdictional High Court was in favour of the assessee, in the case of CIT Vs. India Gelatine & Chemicals Ltd., reported in 275 ITR 284 (Guj) = . The ld.AO has adopted one of the possible view .....

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s issue merged with the order of the CIT(A). The ld.CIT while exercising power under section 263 cannot take such issue. For buttressing his contentions, he relied upon the judgment of the Hon'ble jurisdictional High Court rendered in the case of CIT Vs. Shashtri Theatre Pvt. Ltd., 248 ITR 126 (Guj). He placed on record a copy of the decisions. On the strength of this decision, he contended that once an issue merges with the order of the CIT(A), the ld.CIT cannot take cognizance under sectio .....

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ttal Stainless Steels P. Ltd., 263 ITR 255 (SC). 9. On the other hand, the ld.DR relied upon the order of the CIT. He placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT Vs. Panna Knitting Industries as well as the order of the ITAT in the case of Intellinet Technologies India P. Ltd. Vs. ITO, 5 ITR (Trib.) 96 (Bang.). 10. We have duly considered the rival contentions and gone through the record carefully. Section 263 has a direct bearing on the controversy, .....

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rcumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of th .....

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ing to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-s .....

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the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 11. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissione .....

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g Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would .....

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r judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Re .....

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cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income .....

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arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 12. Apart from the above principles, we deem it appropriate to make reference .....

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e Delhi High Court are worth to note: "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the .....

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ch and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section .....

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Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by t .....

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e case are such as to provoke an inquiry… It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word erroneous' in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct." 14. In .....

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reme Court has explained the meaning of this expression and held that expression "derived" has a narrow connotation. The duty draw back has not first degree nexus with the industrial undertaking. These are being received as incentive benefits under the incentive provisions. Thus, such amount cannot be termed as "derived from industrial undertaking", and not eligible for deduction. As far as this proposition of law is concerned, there is no dispute between the parties. The dis .....

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urt. We do not find any merit in this contention of the assessee, because a court decided a dispute between parties. The cause can involve decision on facts. It can also involve a decision on a point of law. Both may have bearing on the ultimate result of the case. When a court interprets a provision, it decides as to what is the meaning and effect of the words used by the Legislature. It is a declaration regarding the statute. In other words, the judgment declares as to what the Legislature had .....

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rovision in the Act, meaning thereby, the law construed by the Hon'ble Supreme Court was the law when the AO has decided the issue. If the assessment is being looked with that angle, then certainly it is erroneous because it is passed against the provisions of the law. As far as contentions of the ld. Counsel of the assessee is concerned, that this issue travelled to the file of CIT(A), therefore, it merged with the order of the CIT(A). We find that in the deduction computed by the AO while .....

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sed contentions that once there is a link between the issue, the CIT(A) impliedly looked into this aspect also, we are of the view that when the CIT(A) has decided the appeal, the judgment of the Hon'ble Supreme Court in the case of Liberty Indi (supra) was not available, therefore, the ld. First Appellate Authority has no occasion to look into the case with that angle. The judgment of the Hon'ble Supreme Court came on 31.8.2009 and CIT has decided the appeal on 21.5.2009. Therefore, the .....

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