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TMI Blog2015 (11) TMI 1677X X X X Extracts X X X X X X X X Extracts X X X X ..... not justified to set aside the assessment order with the directions to make a fresh assessment denovo after making proper enquiry. 3. That he was not justified to observe in the order that the appellant was not entitled to claim of deduction u/s 80 1C. 4. That the Ld. CIT was further not justified to hold that the Assessing Officer failed to apply his mind in working out disallowance under section 14A. 5. That he was further not justified to hold that the appellant was not entitled to depreciation on electric installations. 5. Briefly the facts of the case are that in this case, assessee company filed its return of income for assessment year 2009-10 on 22.09.2009 showing income of Rs. 13.85 Cr. The assessment was completed under section 143(3) of the Act vide order dated 16.12.2011 at an income of Rs. 22.06 Cr after allowing deduction of Rs. 15,12,92,003/- under section 80IC of the Act. 6. In this case, show cause notice under section 263 of the Income Tax Act was issued on 05.06.2013. After search, the case was centralized with Central Circle III, Ludhiana. The assessee in response to the notice under section 263 submitted that since in this case, as a result of search as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.92 Cr were purchased in the Baddi unit on which deduction under section 80IC is not allowable. Further, the profit rate, combined for all the units as per audit report was 15.07% as against GP rate of 38% shown in Baddi unit which was found to be too much disproportionate. It was observed that all the direct and indirect expenses have not been allocated uniformly in all the units. For instance, Director's remuneration and remuneration of the Auditor has not been allocated to Baddi unit for the purpose of deduction under section 80IC of the Act which fact is not verified by the Assessing Officer. As per Audit Report for the purpose of deduction under section 80IC, assessee made purchases of Rs. 33.89 Cr from related concerns who were engaged with the similar business activities. The Assessing Officer was required to critically examine the purchases whether these purchases were made at prevailing market rates or whether any special concession was extended to this unit enjoying deduction under section 80IC. Failure to examine this issue was considered to be an order erroneous in so far as prejudicial to the interest of revenue. 7. In the Show Cause Notice also, it was noted that Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es through different letters. It was further submitted that plant and machinery added was of Rs. 29.86 lacs. The total value of plant and machinery as on 31.03.2006 was Rs. 61.71 lacs which included the value of generator set of Rs. 2,85,000/-. If the value of the generator set is excluded from the total value of Rs. 61,71,485/- of the plant and machinery, the balance works out at Rs. 58,86,485/-. The amount invested in plant and machinery during assessment year 2007-08 was Rs. 29,86,340/- which was certainly more than 50% of the total value of the Profit & Loss Account as required under the provisions of the Act. The assessee also referred to definition of Small Scale Industrial Undertaking as per provisions of Section 80IB(14)(g) of the Act and Section 11B of the Industries (Development Regulation) Act, 1955. By referring to the same, it was submitted that as per provisions of the above Acts, generator Set inter-alia do not form part of the plant and machinery in case of Small Scale Undertaking. If the value of generator set is excluded from the total value of plant and machinery, the investment made by assessee was more than 50% so as to satisfy the relevant provisions by making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the same was allocated to Baddi unit. According to the assessee, these are in the nature of fixed expenses and could not vary according to sales. The assessee company is maintaining separate books of account and gross profit of assessee was more than as compared to other units. It was also submitted that Baddi unit is a garment unit and other units are spinning units. In the case of garment unit, machinery requirement is very less and that is why it is less capital intensive unit as compared to spinning unit and therefore, profitability is high in Baddi unit. The ld. CIT, however, did not accept contention of the assessee because the expenses have not been properly allocated which resulted into higher profit in Baddi unit. The ld. CIT also noted that since expenses have not been properly allocated, therefore, this requires re-computation of deduction as Assessing Officer has failed to consider the same. The contention of assessee that separate books of account have been maintained which has given proper book results, was also rejected. The contention of the assessee that Assessing Officer issued detailed questionnaire on this issue was also rejected by ld. CIT. It was also not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 10. The Ld. Commissioner of Income Tax relied upon certain decisions in which it was held that assessment completed without necessary enquiry and application of mind is erroneous and prejudicial to the interest of revenue. The CIT, therefore, set aside the assessment order dated 16.12.2011 under section 143(3) of the Income Tax Act and directed the Assessing Officer to pass the assessment order afresh denovo after properly examining the facts and relevant legal provisions and conducting proper enquiry by giving opportunity of being heard to the assessee. 11. The assessee is in appeal on the above grounds. 12. The ld. counsel for the assessee reiterated the submissions made before ld. CIT. He has submitted that deduction under section 80IC was grated in initial assessment year 2007-08 in which substantial expansion have been carried out. The Assessing Officer accepted claim of assessee in assessment year 2007-08. The Assessing Officer raised query at assessment stage in assessment year 2007-08 vide letter dated 18/22.12.2009 (PB-77) and entire issue as have been considered by CIT in proceedings under section 263 was examined by Assessing Officer. The reply of the assessee befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the revenue with regard to restricting of manufacturing capacity of the assessee has been dismissed. The ld. counsel for the assessee also submitted that the issue of purchase of readymade garments was also explained before Assessing Officer in the reply of the assessee and it was submitted that no trading activity had been conducted in Baddi unit and as such trading is not required for Baddi unit. PB-20 is the reply filed before Ld. CIT in which also entire issue of job work conducted by assessee, higher GP rate was explained but it was not properly appreciated by the Ld. CIT. It was also explained that for Baddi unit, separate books of account have been maintained by assessee which has given proper book results but same was not properly considered by the Ld. CIT. PB-36 is the reply before Assessing Officer in assessment proceedings under appeal on which on point No. 12, the details of sister/related/associated concerns were filed with their partners, percentage of share/share profits, Directors etc. and complete business details were disclosed to the Assessing Officer. This was filed in reply to the specific query raised by the Assessing Officer. He has, therefore, submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee further submitted that the Assessing Officer raised audit objection with regard to deduction under section 80IC of the Act, grant of additional depreciation on electronic installation and deduction under section 14A. Copies of the audit objections are filed on record. He has further submitted that all the audit objections on identical issues were replied by assessee, copies of the replies are filed on record. The ld. counsel for the assessee submitted that the audit objections were not taken adverse in nature by the Assessing Officer. However, the Ld. CIT on the basis of the audit objections, initiated the proceedings under section 263 of the Act and as such, same is not in accordance with law and relied upon decision of Hon'ble Punjab & Haryana High Court in the case of CIT V Sohana Woollen Mills 296 ITR 238, in which it was held as under A reference to the provisions of section 263 of the Income-tax Act, 1961, shows that jurisdiction thereunder can be exercised if the Commissioner finds that the order of the Assessing Officer was erroneous and prejudicial to the interests of the Revenue A mere audit objection and the fact that a different view could be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined at assessment stage. The ld. DR submitted that audit objection is there in the record of assessment year 2007-08 but it pertains to the assessment year under appeal i.e. assessment year 2009-10. The Ld. CIT might not have seen it in 263 proceedings. The audit objection is for Section 80IC only and on no other issue. During the course of arguments, ld. DR was directed to explain as to how the audit objection was transferred from the record of assessment year 2009-10 to 2007-08 but no satisfactory explanation has been given. 14. The ld. counsel for the assessee in rejoinder submitted that audit objection is raised on all the issues involved in the present appeal i.e. deduction under section 80IC, depreciation on electronic installation and deduction under section 14A. Copies of the audit objection raised by Assessing Officer and replies filed by assessee are filed on record. He has submitted that Assessing Officer did not take any action after reply filed by the assessee to the audit objections except the Ld. CIT initiated proceedings under section 263 of the Income Tax Act. The ld. counsel for the assessee also submitted that in earlier year, 80IC deduction was claimed which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That was not permissible. The Tribunal was justifies in setting aside the order passed by the Commissioner of Income-tax under section 263." 18. Hon'ble Delhi High Court in the case of CIT V Anil Kumar Sharma 335 ITR 83 held as under : "There is a 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 263 of the Income-tax 1961, merely because he has a different opinion in the matter : Held, dismissing the appeal, that the present case would not be one of "lack of inquiry" even if the inquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied his mind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The Tribunal held that the commissioner in proceedings under section 263 also had all these details and material av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be held to be prejudicial to the interests of the Revenue. The opinion of the Assessing Officer in treating the expenditure as revenue expenditure was plausible and thus there was no material before the Commissioner to vary that opinion and ask for fresh inquiry" 21. Hon'ble Punjab & Haryana High Court in the case of CIT V Deepak Mittal 324 ITR 411 held as under : Change of opinion by reappraising the evidence is not within the para-meters of revisional jurisdiction of the Commissioner under section 263 of the : Act, 1961. Held, dismissing the appeal, that the Tribunal had found that the Assessing Officer had given a categorical finding that the assessee was engaged in the process of manufacturing of products and accordingly he had granted concession under section 80-IB. The claim of the assessee had been found to be genuine. The Assessing Officer had also examined the various workers of the assessee and then recorded the finding. The Assessing Officer was justified in granting the special deduction under section 80-IB. The order of revision disallowing the special deduction was not valid." 22. Hon'ble Gujrat High Court in the case of CIT V Amit Corporation 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee which followed in assessment year 200809, there is no reason for the Ld. CIT to disturb the findings of the Assessing Officer in the proceedings under section 263 in subsequent assessment year 2009-10. The decisions relied upon by ld. counsel for the assessee clearly support our view that CIT was not justified in taking such an issue in proceedings under section 263 of the Income Tax Act in respect of the matter which has reached finality pertaining to assessment year 2007-08. 23(i) It may also be noted here that the Assessing Officer examined this issue in detail at assessment stage after calling the explanation of the assessee with regard to claim of deduction under section 80IC of the Act and after detailed investigation and examination of the issue, denied part of the claim of deduction under section 80IC of the Act at assessment stage. The Ld. CIT considered the value of the plant and machinery as on 31.03.2006 which included the value of generator set. If the value of the generator set is excluded from the total value of the plant and machinery, the balance would work out at Rs. 58,86,485/-. The amount invested in plant and machinery during assessment year 2007-08 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer has not examined this issue despite the fact that Assessing Officer examined this issue in detail not only in assessment year under appeal but also in initial assessment year 207-08. The Ld. CIT also did not appreciated the explanation of the assessee with regard to allocation of the expenses with regard to auditors' remuneration and Director's remuneration because assessee maintained proper and separate books of account for unit at Baddi which clearly satisfy the requirements of law which on examination by Assessing Officer were found to be satisfactory. 23(iii) The CIT further noted that there is a higher GP rate shown in Baddi unit for which deduction under section 80IC has been claimed. The assessee, however, maintained that even earlier there was higher profit was shown and separate books of account have been maintained which have not been rejected by the Assessing Officer as well as by the CIT. Therefore, the facts and circumstances noted above clearly show that Assessing Officer made detailed investigation at assessment stage and also made detailed investigation in initial assessment year 2007-08 and granted relief to the assessee under section 80IC of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly replied. The Assessing Officer considered the issue of disallowance under section 14A in the light of various decisions and in the light of Rule 8D of the IT Rules. The Assessing Officer made calculation of disallowance under section 14A read with Rule 8D at the assessment stage, which shows that Assessing Officer in detail and critically examined this issue at the assessment stage. The CIT did not point out any error or defect in the calculation made by the Assessing Officer under section 14A read with Rule 8D of the IT Rules for the purpose of making part disallowance under section 14A of the Income Tax Act. The CIT merely referring to the audit report noted in the impugned order that disallowance was lesser/below the required figure. The assessment order, however, shows that Assessing Officer considered the balance sheet of the assessee and raised specific query on the issue of disallowance under section 14A, therefore, Assessing Officer has gone through the audited account referred to by CIT in the impugned order. It, therefore, appears that CIT in the proceedings under section 263 of the Act, did not agree with the finding of fact recorded by the Assessing Officer in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame might not have been seen by the Ld. CIT in assessment year under appeal i.e. 2009-10. However, on specific query, ld. DR was not able to answer satisfactorily as to why the audit objections in issue for assessment year 2009-10 have been kept in the folder of assessment year 2007-08. It, therefore, appears that cleverly the audit objections and replies of the assessee have been kept away from the record of the assessment year 2009-10 deliberately. Otherwise, there were no reasons to keep the part of the record of assessment year 2009-10 in the record of assessment year 2007-08. We may also note here that the audit objections so raised by the Revenue Department on all the above three issues i.e. deduction under section 80IC, deduction under section 14A and depreciation are same which have been raised in the proceedings under section 263 of the Act. Thepoints raised in the audit objections have been similarly worded in the proceedings under section 263. Therefore, these facts clearly show that Ld. CIT was simply influenced by the audit objections raised by the Revenue Department for the purpose of initiating proceedings under section 263. Such a course is not permissible under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2010-11 under section 263 of the Income Tax Act on the following grounds : 1. That order passed u/s 263 by the Ld. CIT (Central), Ludhiana is against law and facts on the file in as much as he was not justified to hold that assessment order dated 17.09.2012 passed u/s 143(3) of the Income Tax ct, 1961 was erroneous and prejudicial to the interest of revenue. 2. That he was not justified to set aside the assessment order with the directions to make a fresh assessment denovo after making proper enquiry. 3. That he was not justified to observe in the order that the appellant was not entitled to claim of deduction u/s 80 1C. 4. That the Ld. CIT was further not justified to hold that the Assessing Officer failed to apply his mind in working out disallowance u/s 14A. 5. That he was further not justified to hold that the appellant was not entitled to depreciation on electric installations." 31. The Ld. CIT followed his order for assessment year 2009-10 for the purpose of passing the similar order under section 263 of the Act. Ld. Representatives of both the parties submitted that since issue is same as is considered in assessment year 2009-10, therefore, order in that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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