TMI Blog2015 (11) TMI 1677X X X X Extracts X X X X X X X X Extracts X X X X ..... r before granting part relief under section 80IC of the Income Tax Act. Therefore, there was no justification to initiate the proceedings under section 263 of the Income Tax Act on this issue. Addition u/s 14A - Held that:- 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. 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 u/s 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 assessment order without any justification. Therefore, initiation of proceedings under section 263 of the Act on this issue is wholly unjustified. Allowing depreciation and additional depreciation - He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act vide order dated 16.12.2011 at an income of ₹ 22.06 Cr after allowing deduction of ₹ 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 assessments, for six assessment years, immediately preceding assessment year relevant to the previous year, in which search was conducted, assessments are required to be made as per provisions of Section 153A of the Income Tax Act afresh, the assessments made earlier no more subsist. It was, therefore, prayed that present proceedings under section 263 may be filed. The ld. CIT, however, rejected the contention of the assessee because the proceedings under section 263 of the Act do not get abated. The show cause notice was again issued to the assessee under section 263 of the Act in which the ld. CIT noted that on examination of the assessment record, it was noticed that assessee had claimed deduction under section 80IC of the Act which was supported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 Auditor has referred to inadmissible deduction under section 14A. The Auditor of the assessee company has himself computed the amount liable to be disallowed at ₹ 3.92 Cr. However, the Assessing Officer did not refer to the same and made the calculation of the amount liable to be disallowed in his own way and Assessing Officer took the amount of interest at ₹ 9.77 Cr whereas the amount of interest paid by assessee to the various persons as per Profit Loss Account of the e-return is ₹ 35,60,01,733/-Similarly, average value of investments and assets also were taken at wrong amounts. In this way, the amount disallowable, which has been computed by the Auditor of the assessee company at ₹ 3,92,79,427/- was com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dertaking 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 substantial expansion and as such, assessee was entitled for deduction under section 80IC of the Act. 9(i) The Ld. Commissioner of Income Tax, however, did not accept contention of assessee because when plant and machinery have not been defined under section 80IC of the Act, therefore, generator sets cannot be excluded from plant and machinery. The ld. CIT also noted that on examination of the assessment record, it was noticed that assessee has claimed deduction under section 80IC amounting to ₹ 15,12,92,003/-, Assessing Officer, however, after examining certain aspects of the case, restricted the above deduction to ₹ 8,29,40,761/-. It was noted that since the value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located 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 noted that Assessing Officer has failed to critically examine the purchases made for the units at Baddi in respect of which, deduction under section 80IC have been claimed. The ld. CIT, therefore, noted that a net profit rate of Baddi unit is exceptionally high and there is every likelihood that these transactions were not as per the prevailing market rates. Therefore, Assessing Officer should have gone into deeper investigation for making the adjustment to the profits but Assessing Officer has failed to do so. It was, therefore, held that the order of the Assessing Officer granting deduction under section 80IC is erroneous and prejudicial to the interest of revenue. 9(ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 before Assessing Officer is PB-79 and PB-83. The entire issue of deduction under section 80IC of the Act on carrying out substantial expansion was admitted by the Assessing Officer in assessment year 2007-08 and claim of assessee have been accepted. He has submitted that the claim of deduction under section 80IC in initial assessment year 2007-08 has become final. The Assessing Officer issued a query letter dated 08.06.2011 and asked for the complete details. Copy of this notice is placed on record. PB-33 and 34 is another query letter issued by Assessing Officer in assessment year under appeal asked the complete details of deduction claimed under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount 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 that deduction under section 80IC was properly enquired into and considered by Assessing Officer at assessment stage, therefore, initiation of proceedings under section 263 are not justified on the same issue. 12(ii) The ld. counsel for the assessee, with regard to disallowance under section 14A of the Income Tax Act referred to the order of the Assessing Officer and submitted that Assessing Officer has examined this issue in detail with reference to several case laws and facts available on record read with Rule 8D of the Income Tax Rules and the Assessing Officer as per rules, made calculation of deduction under section 14A and disallowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 taken, are not enough to say that the order of the Assessing officer was erroneous or prejudicial to the interests of the Revenue. Whether ^satisfaction of the Commissioner for exercising jurisdiction was called for or not, has to be decided having regard to the given fact situation. 13. On the other hand, ld. DR relied upon impugned order and relied upon decision of the Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83, decision of Hon'ble Punjab Haryana High Court in the case of CIT V Rippen Ahuja 49 Taxman.com 261 in which it was held that When the assessee did not produce any evidence to prove genuineness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues 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 was allowed by Assessing Officer after examining as per Income Tax Act. The definition of plant is to be considered as per Industries Act. The Assessing Officer is no more required to do anything. The Ld. CIT did not give any finding on the reply filed by the assessee. According to the CIT, it may be a case of improper enquiry which fact by itself is incorrect, because the Assessing Officer has examined all the issues involved in the present appeal in detail and after examining the issues on queries raised by the Assessing Officer, accepted the part claim of the assessee, therefore, it is not even a case of inadequate or improper e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder 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 available before him, but had not been able to point out defects conclusively in the material for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the Assessing Officer. The Tribunal was right and the order of revision was not valid. 19. Hon'ble Delhi High Court in the case of CIT V Hindustan Marketing Advertising Co. Ltd. 341 ITR 180 held as under : Revision-Powers of Commissioner-Assessment after enquiry-No error in order-Order cannot be revised on ground enquiry should have been more detailed-Income-tax Act, 1961, s. 263. 20. Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Taxman.com 64 held, Where Assessing Officer after detailed verification on record and making enquiries had framed assessment, the CIT could not revise the same under section 263 of the Income Tax Act . 23. Considering the above judicial pronouncements in the light of the facts of the case, we take up all the three issues. As regards deduction under section 80IC, it is admitted fact that substantial expansion was carried out by the assessee in assessment year 2007-08. The Assessing Officer raised specific query to the assessee in that assessment year calling for complete details with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage 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 ₹ 58,86,485/-. The amount invested in plant and machinery during assessment year 2007-08 was ₹ 29,86,340/- which was more than 50% of the total value of the plant and machinery 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 Industries (Development and Regulation Act), 1951, according to which the generator set would not form part of the plant and machinery in case of Small Scale Industrial Undertaking. The ld. counsel for the assessee in support of the same, filed the synopsis for the same which was also filed in assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) 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. The CIT without considering the purchases made by assessee, simply noted that purchases have not been properly and critically examined by Assessing Officer. The assessee, however, maintained that specific query was raised at assessment stage and Assessing Officer examined all the purchases critically and no defects on the same have been pointed out. The assessee explained that purchases were made at market price from the sister concern, therefore, Ld. CIT was not justified in taking any adverse action against the assessee. 24. Considering the above discussion in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 assessment order without any justification. Therefore, initiation of proceedings under section 263 of the Act on this issue is wholly unjustified. 25. With regard to issue of allowing depreciation and additional depreciation, the assessee explained that on electronic installation which are part of the plant and machinery, depreciation has been claimed at the same rate which is applicable to plant and machinery. The Ld. CIT, instead of examining this issue in proper perspective, merely stated that this issue was not examined by the Assessing Officer at assessment stage. It, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 law. The Hon'ble Punjab Haryana High Court in the case of 296 ITR 238 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 taken, are not enough to say that the order of the Assessing Officer was erroneous or prejudicial to the interests of the Revenue. Whether satisfaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 case may be followed in this assessment year as well. We find that issues are same as have been considered in assessment year 2009-10, therefore, following the reasons for decision in assessment year 2009-10 in ITA 409/2014, we set aside the impugned order under section 263 and quash the same. Original assessment order is, therefore, restored. 32. In the result, appeal of the assessee is allowed. 33. In the result, both the appeals of the assessee are allowed. Order pronounced in the Open Court. - - TaxTMI - TMITax - Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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