TMI Blog2012 (12) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... RA PRASAD, JUDICIAL MEMBER Appellant by : Shri C.S. Agarwal, Advocate Respondent by : Smt. Jayanthi Krishnan, CIT ORDER Abraham P. George, Accountant Member In this appeal filed by the assessee, it challenges an order dated 12.3.2009 passed by Director of Income-Tax (International Taxation), Chennai, under Section 263 of Income-tax Act, 1961 (in short 'the Act') inter alia, setting aside the assessment for the impugned assessment year and directing the A.O. to examine the allowability of deduction claimed by the assessee under Section 80IB of the Act and further, directing him to recompute such a deduction, as per law. 2. Facts apropos are that assessee, is a company incorporated in New South Wales, Australia as a subsidiary of one M/s Cairn Energy Plc. incorporated in Edinburgh, UK. Assessee is engaged in the business of exploration and production of oil and gas in India. It had acquired participating interest in the following oil and gas blocks:- Sl.No. Block of Oil and Gas Field Area 1. Ravva Krishna Godavari 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment considering it to be erroneous and prejudicial to the interest of the Revenue. Reason mentioned by the DIT (International Taxation) in the show cause notice, is reproduced hereunder:- The assessee company claimed deduction u/s 80IB for the assessment year 2004-05 in respect of two units viz. (i) Rava Satellite Gas unit and (ii) Lakshmi Gas Field to the extent of ₹ 20,16,10,345 and ₹ 48,39,66,673 respectively. The same was allowed by the assessing officer in the assessment u/s 143(3) dated 28.12.2006. The claim of the company for deduction u/s 80IB(9) has not been computed in accordance with the provisions of section 80IB(13) read with section 80IA(5). Hence it is clear that the action of the assessing officer in computing deduction u/s 80IB in the order u/s 143(3) dated 28.12.2006 has rendered the assessment as erroneous in so far as it is prejudicial to the interest of revenue. 5. On the above notice, assessee primarily replied that the assessment was completed after due examination. As per the assessee, the deduction was computed as required under Section 80-IB(13) read along with sub-section (5) and sub-sections (7) to (12) of Section 80-IA. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a part of Ravva block, which was in operation since 1994 and was not a separate undertaking, as required under Section 80-IB(5) of the Act. Audited accounts for preferring a claim under Section 80-IB of the Act was filed for the impugned assessment year only and expenses incurred for Satellite Gas Unit, prior to year of its commercial production, were never carried forward or set off before working out the eligible deduction under Section 80-IB of the Act. Again, as per DIT (International Taxation), apportionment of expenses on a pro rata basis was itself an indicator that separate accounts for the units preferring claim under Section 80-IB of the Act, were never maintained and separate audits never done by the assessee. 7. Vis- -vis Lakshmi Gas Field, observation of DIT (International Taxation) was that it was not a distinct undertaking but only a part of CBOS 2 block. 8. In a nutshell, as per the ld. DIT (International Taxation), Assessing Officer had allowed the claim under Section 80-IB(9) without examining the issue in the manner required under law. According to him, decision of Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra), that of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ought not have proceeded further. He came to a contradictory and factually incorrect conclusion for justifying the proceedings initiated under Section 263 of the Act. As per ld. senior counsel, the findings recorded in the order under Section 263 had no relevance to the reasons mentioned in show cause notice, and hence the order deserved to be quashed. Reliance was placed on the decision of co-ordinate Bench of this Tribunal in the case of Colorcraft Kashimira Ceramic Compound v. ITO [2007] 105 ITD 599 (Mum.), that of Hon'ble Delhi High Court in the case of CIT v. Contimeters Electricals (P) Ltd. [2009] 317 ITR 249 that of Hon'ble Andhra Pradesh High Court in the case of CIT v. G.K. Kabra, Cooperative Industrial Estate [1995] 211 ITR 336, that of Hon'ble jurisdictional High Court in the case of Silver Cloud Estates (P.) Ltd. (supra), and CIT v. PVP Ventures Ltd. (TCA N0.1023 of 2005 dated 19.6.2012) and that of co-ordinate Bench of this Tribunal in the case of S.S.I. Ltd. v. Dy. CIT [2004] 85 TTJ 1049 and Sanco Trans Ltd. v. Asstt. CIT [1997] 61 ITD 317 (Mad.). 10. Further continuing his argument, ld. senior counsel submitted that notice itself was vague. It did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to him, the ld. DIT (International Taxation) was trying to substitute his views with the lawful view taken by the Assessing Officer. 12. On merits, ld. senior counsel submitted that date of commercial production was duly shown by the assessee in the audit report in Form No.10CCB placed at paper-book pages 20 to 42. The date of commercial production for Satellite Gas Unit was 19.9.2001 and Lakshmi Gas Field was 1.11.2002 as per these reports. As for the observation of DIT (International Taxation) that Satellite Gas Unit was only a part of Ravva block and not a separate undertaking, ld. senior counsel submitted that each Gas Unit was a separate undertaking though it was essentially part of a block. According to him, Hon'ble Apex Court in the case of Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 had clearly held that true test was not whether the new industrial undertaking connoted expansion of the existing business of the assessee but whether it was all the same a new and identifiable undertaking separate and distinct from existing business. As per the ld. senior counsel, Satellite Gas unit and Lakshmi Gas Field were separate undertakings and separate independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and final order passed under Section 263 of the Act. The variance pointed out by the ld. senior counsel were all perfunctory and if at all there, curable under Section 292B of the Act. The scope and substance of both, notice under Section 263 and order under Section 263 were very same. Ld. DIT (International Taxation) had in fact proposed the very same line of action which he had finally upheld in the order under Section 263. It might be true that assessee had furnished some working regarding the claim of deduction made under Section 80-IB(9), but the basis of such working and fundamental assumptions taken by the assessee was never subjected to an enquiry or verification by the Assessing Officer. Assessee had simply allocated the total cost to the units on which the claim was preferred at arbitrary ratio on 1/5. On the allocation of cost, A.O. had never made any enquiries which he ought have done at the stage of assessment. The A.O. never made enquiry whether units on which claims were preferred were separate or such undertakings were only part of the already existing blocks already having production of oil. The A.O. never made enquiries as to how assessee had worked out such dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the satellite gas field in the accounts of the Ravva block and filed consolidated profit and loss accounts and balance sheet for the blocks as a whole. The satellite gas unit is only a part of Ravva block which has been operating since 1994 onwards and is not a separate undertaking as it is required u/s 80IB(5). Further it is seen that the assessee company started preparing audited accounts only from the year in which it has started claiming deduction u/s 80IB and not from the date of inception. As a result, all the expenses incurred with respect to satellite gas unit prior to the year in which the commercial production has commenced has not been carried forward and set off from the profits against which the deduction u/s 80IB(9) has been made. On the contrary, the expenses of the gas unit having merged with the other blocks have been carried forward as the losses of the company as a whole and being set off in the subsequent years. Hence, the assessee's claim of deduction u/s 80IB with respect of Ravva Satellite Gas Unit is not admissible. That the assessee has apportioned audit expenses into expenses attributable to the satellite unit and the other blocks on pro-rata b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers of the CIT and held that an opportunity of being heard should be given to the assessee before revising the assessment. The facts of that case are different from present one and are distinguished. Therefore the ratio of that judgment is not applicable to the facts of the case. In the case of Taj Printers (supra) the Hon'ble High Court held that the CIT before assuming jurisdiction U/s 263 has to specifically state the points for enquiry and record the reasons how the order of A.O. was erroneous or prejudicial to the interest of the revenue. In the present case the issues on which it was found that the A.O. has erred by virtue of which prejudice has been caused to the revenue have been clearly stated in the how cause notice dated 21.01.09. Therefore the facts are distinguished. 7. In support of my findings as above that the impugned order is erroneous and prejudicial to the interests of the Revenue, reliance is placed on the decision of Hon'ble Madras High Court in the case of M/s Ashok Leyland Ltd. v. Commissioner of Income-tax (260 ITR 599) wherein the jurisdictional High Court held that failure on the part of the assessing officer to examine in depth the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -sections (7) to (12) of Section 80-IA of the Act so far as it could apply. This in turn necessitates a look at sub-section (5) and sub-sections (7) to (12) of Section 80-IA and these are reproduced hereunder:- (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. (7) [The deduction] under sub-section (1) from profits and gains derived from an [undertaking] shall not be admissible unless the accounts of the [undertaking] for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. (11) The Central Government may, after making such inquiry as it may think fit, direct, by notification in the Official Gazette, that the exemption conferred by this section shall not apply to any class of industrial undertaking or enterprise with effect from such date as it may specify in the notification. (12) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger- (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and (b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place. 18. As per the assessee, its computation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Rules, 1962 of the financial year 2002-03 relevant to assessment year 2003-04 at page 64 of the paper-book -II. Further, in financial year 2002-03 relevant to assessment year 2003-04, there was a profit of ₹ 13,70,77,470/- (see page 64 of paper-book-II) in Satellite Gas Field and after adjusting the loss of ₹ 7,23,45,637/- of assessment year 2002-03, there was a net profit of ₹ 6,47,37,833/-. A copy of the Auditor's Report alongwith profit and loss account for assessment year 2003-04 is placed at pages 54 to 64 of paper-book. However, despite the aforesaid profit in assessment year 2003-04, no deduction was claimed, as deduction had to be restricted to gross total income (see page 60 read with page 64 of paper-book). A copy of the computation of income for the financial year 2002-03 relevant to assessment year 2003-04 is placed at pages 42 to 44 to of this Synopsis. 7.10 It is submitted that, in the financial year 2002-03 relevant to assessment year 2003-04, there was a profit of ₹ 4,46,72,736/- (see page 75 of paper-book-II) in the undertaking namely Lakshmi Gas Field and, as such no deduction u/s 80IB(9) of the Act was claimed on account of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined the issue in the manner required under Act, but had allowed the claim. 21. Adverting to the various case laws relied on by the learned senior counsel in support of his contention that DIT (International Taxation) could not travel beyond what was mentioned in show cause notice issued under Section 263, in our opinion, none of these are relevant here, for the simple reason that there was no effective variance between what was mentioned in the notice under Section 263 and order under Section 263 of the Act. The order under Section 263 was in fact the net effect of the various lacunae in the order of the A.O. vis- -vis the claim under Section 80-IB(9) of the Act. 22. There is indeed a claim that assessee was not given a fair chance to explain its case by the DIT (International Taxation). Reliance in this regard has been placed by ld. senior counsel on the decision of Hon'ble jurisdictional High Court in the case of Silver Cloud Estates (P.) Ltd. (supra). As per the ld. senior counsel, this decision was an authority for the rule that a revisionary order has to give out the relevant materials relied on by such authority and assessee has to be given an opportunity to rebut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under Section 263 was at variance with the show cause notice. Even if there was some variance, it was as already pointed out by us, not to such an extent not curable under Section 292B of the Act. 24. As already mentioned by us, assessee had given Assessing Officer a short description of an allocation of expenses based on which it had preferred a claim under Section 80-IB, but, unless and until assessee could make a meaningful link of the basis adopted by it for such allocation of expenses, with its eventual claim of deduction under Section 80-IB of the Act, it could not be considered as a proper and sufficient submission of details enabling a rationale decision to be reached regarding the quantum or allowability of its claim. There was no linkable chain discernible from records, before the Assessing Officer pertaining to the allocation of expenses, date of commencement of production and independent nature of the units on which the claim was preferred. There is nothing to show that these were duly considered by the Assessing Officer in the original assessment proceedings. Assessee having given a break-up of the expenses allocated to the units on which it was claiming deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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