TMI Blog2012 (10) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... said that the order passed by him is a reasoned order conforming to the principles of natural justice. Therefore, we are of the considered view that it cannot be said that the AO has allowed the claim of deduction u/s.10A after application of mind as the application of mind is best reflected in the finding recorded in the assessment order. - Decided against assessee - ITA No.2745/Mum/2012 - - - Dated:- 10-10-2012 - SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI RAJENDRA (ACCOUNTANT MEMBER) For the Appellant: Shri M.M.Golvala Sandeep Chetiwal For the Respondent: Shri Surinder Jit singh ORDER Per B.R.Mittal, JM: The assessee has filed this appeal for assessment year 2007-08 against order dated 9.3.2012 of ld CIT-3 passed under section 263 of the I.T.Act, 1961. 2. In the grounds of appeal, assessee has contended that the order passed by ld CIT under section 263 of the Act is erroneous and is required to be cancelled. 3. The relevant facts are that assessee is a company engaged in the business of back-office operations by way of business and market research and financial analytics. Assessee company is having one undertaking, the profit of which, is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme is from the taxable income, which is otherwise the adjusted book profit. The deduction/exemption under section 10A is in that way given out of the gross total income in the cases falling under MAT, which means 10A exemption is to be computed on the basis of adjusted book profit. Assessee placed reliance on the decision of ITAT Mumbai (SB) in the case of DCIT vs. Syncome Formulations (I) Pvt Ltd., 106 ITD 193(Mum), which was decided in the context of section 80 HHC of the Act, wherein, it was held that the deduction under section 80 HHC in a case of MAT assessment is to be worked out on the basis of the adjusted book profit and not on the basis of the profit computed under regular provisions of law applicable to the computation of profit and gains of business or profession. Assessee stated in the said letter that the said decision of ITAT (SB) in the case of Syncome Formulations (I) Pvt Ltd(supra) has been approved by Hon ble Supreme Court in the case of CIT vs. Bhari Information Tech Systems (P)Ltd., 340 ITR 593 (SC). Assessee also referred to the decision of Hon ble Supreme Court in the case of Ajanta Pharma Limited vs CIT, 327 ITR 311(SC) and submitted that Hon ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the computation of book profit, there is no separate method prescribed u/s. 115JB. Further, in Form No.56F, the tax auditor of the assessee has certified that ₹ 63,10,165/- as an amount eligible for exemption u/s 10A for the assessment year under consideration and he has not certified any separate amount for working out Book Profit u/s. 115JB. Thus there is no provision in the Act, either u/s l0A or u/s. 115JB to re-compute exemption u/s.10A for computation of the book profit. 8. In view of above, ld CIT has held that AO has not applied his mind and has failed to make enquiry with regards to the allowability of the claim of exemption u/s.10A, while computing book profit u/s.115JB. Hence the assessment order is erroneous and prejudicial to the interest of revenue. Ld CIT has also referred the decision of ITAT Chennai in the case of Rajya Laxmi Mills Ltd., and also the decision of Hon ble Allahabad High Court in the case of Jagdish Kumar Gulati, 269 ITR 71 and has stated that if the assessment order is made without prior enquiries before accepting the claim of the assessee, the assessment order can be held to be erroneous and prejudicial. Ld CIT has also stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld CIT. He submitted that ld CIT failed to consider the cases referred by the assessee in letter dated 13.2.2012. He submitted that order of ld CIT should be quashed as AO has rightly taken a view to allow the claim of the assessee u/s.10A of the Act while computing income under section 115JB of the Act. 10. On the other hand, ld D.R. while supporting the order of ld CIT, submitted that AO did not make any enquiry. He has not taken any view but accepted the claim of the asssessee whatever was claimed in the return filed. He referred assessment order and submitted that the assessment order does not talk about claim of the assessee u/s.10A of the Act in the light of section 115JB of the Act and, therefore, AO did not apply his mind while allowing deduction u/s.10A for computing book profit u/s.115JB of the Act. Ld D.R. submitted that the decisions cited by assessee in its letter dated 13.2.2012 and have also been considered by ld CIT in the impugned order relate to section 80HHC and not section 10A of the Act. Therefore, said decisions are not relevant while exercising the power by ld CIT under section 263 of the Act. Ld D.R. referred para 3 of the notice issued by ld CIT u/s.263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if order is erroneous but no prejudice is caused to the revenue, ld CIT cannot invoke his jurisdiction u/s.263 of the Act. He submitted that ld CIT while passing the impugned order ignored the said decision of Hon ble Jurisdictional High Court (supra) and, therefore, the said order is liable to be set aside. 14. Ld A.R. relying on the decision of Hon ble Gujarat High Court in the case of Garden Silk Mils ltd vs CIT, 221 ITR 861 (Guj) submitted that ld CIT cannot ignore the decision of Hon ble Jurisdictional High Court as the decisions laid down by Hon ble Jurisdictional High Court are binding on him. Ld A.R. submitted that there is no loss to the revenue as the entire income of the assessee is eligible for deduction u/s.10A of the Act. 15. Ld A.R. referred to the decision of ITAT Delhi in the case of DCIT vs. Roxy Investments (P) Ltd., 24 SOT 227(Mum) and submitted that it was held that the amount of income which is to be reduced for computing book profit under clause (ii) of Explanation to Section 115JB(2) is the amount which is credited to profit and loss account and not the amount of income which is claimed by the assessee or determined by the Assessing Officer while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued on 24/9/08 duly served on the Assessee Company on 26/9/08. Notice u/s 142 (1) along with questionnaire was issued on 9/7/09 duly served on the Assessee Company on 14/7/09. In response to the above Notice, Mr. Sandeep Chetiwal, CA, from M/s Kalyaniwalla Mistry, CA s, attended and furnished the details called for from time to time. The main business of the company is to carry on business intelligence service in the field of Customised Research Analysis, including Financial Modelling Statistical Analysis, specific technical know-how analysis tailored to specific needs of the clients. Subject to above remarks the total income of the Assessee is computed as under:- Business Income : (Rs.) Net Profit as per P a/c 7894092 Add: Disallowed / considered separately: 1) Loss on sale of fixed assets: 1361134 2) Amount disallowed u/s 40(a) (1a): 523209 3) Amount disallowed u/s 40 (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 of PB, and the contents of which have also been mentioned by ld CIT in the impugned order. During the course of hearing, ld A.R. emphasized that AO allowed the deduction to the assessee in accordance with law after considering computation filed by the assessee. During the course of hearing and in reply to a query by Bench, ld A.R. submitted that it is a fact that AO has not whispered in the assessment order a single word of computation and allowed the deduction u/s.10A while computing book profit under section 115JB of the Act though assessee filed computation of book profit. Ld A.R. submitted that it cannot be a fault of the assessee if the AO does not pass selfcontained speaking order. In the light of above submissions and also considering the assessment order passed by the AO which is the subject of scrutiny by ld CIT u/s.263 of the Act, we refer to decision of Hon ble Apex Court in the case of Malbar Industrial Co.(supra) for the purpose of principles governing the exercise of jurisdiction u/s.263 of the Act. In the case of Malbar Industrial Co.(supra), AO accepted the claim of the assessee without any enquiry. Ld CIT noted in that case that ITO had passed the assessment as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under section 143(3) after scrutiny and not in a summary manner as contemplated by sub-section (1) of section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me category fall orders passed without applying the principles of natural justice or without application of mind. 15 . It is the duty of the Assessing Officer to adequately protect the interest of both the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. The underlying philosophy of section 263 is the removal of the prejudice caused to the revenue by the erroneous orders of the Assessing Officer. In CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.), the Hon ble Allahabad High Court has held as under : 14. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irection. We have reproduced above the relevant portion of the observations made by the learned Judges. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case. 21. Therefore, there is no dispute to the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed view that it cannot be said that the AO has allowed the claim of deduction u/s.10A after application of mind as the application of mind is best reflected in the finding recorded in the assessment order. 23. The Hon ble Delhi High Court has also held in the case of Duggal and Co. v. Commissioner of Income-tax, 220 ITR 456(Del) that AO is not only an adjudicator but also an investigator and if he fails to make enquiries which is necessary to ascertain the true facts the assessment order is erroneous and prejudicial to the interest of revenue. 24. In the light of our above discussion, we are of the considered view that cases cited by ld A.R. (supra) are not relevant to the facts of the case before us. Therefore, we do not consider it necessary to discuss those cases and we hold that ld CIT has rightly held, in the facts and circumstances of the case that AO has passed the assessment order for the assessment year under appeal without proper application of mind and witho0ut making proper enquiries and AO is therefore, erroneous and prejudicial to the interest of revenue. Moreover, ld CIT has only set aside the assessment order, which we hold rightly so, with a direction to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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