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2017 (11) TMI 643

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..... Accordingly, question No.2 is also answered in favour of the Revenue, and against the Assessee. Nothing on record to suggest that at any stage, which is at the show cause stage or at the time, when, hearing was held before the DIT, adequate opportunity was given to the Assessee to rebut the concerns and/or underlying material, if any, that the DIT, had in his possession. - Decided in favour of assessee. Tribunal could not have come to a conclusion that the Assessee had not worked out the deductions in accordance with the provisions of Section 80IB(13), without the DIT giving adequate opportunity to the Assessee. As noted by the Tribunal and also by us, the relevant material required for claiming deduction under Section 80IB had been placed on record by the Assessee before the Assessing Officer. The only reason that the DIT and the Tribunal came to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue, was, that, according to them, the Assessing Officer had not applied his mind to the materials placed on record by the Assessee. In so far as the Assessee was concerned, it claimed that it had worked out the deduction in accordance .....

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..... approval in November, 1994. 2.3. The primary business of the Assessee is to carry on exploration and production of oil and gas in India. For this purpose, it had acquired participating interest in the following oil and gas blocks. The participating interest was granted by the Government of India (GOI) : Sl. No. Oil and Gas Field Block Location (i) Ravva Krishna Godavari (ii) CB-OS/2 Cambay Offshore (iii) KG-OS/6 Krishna Godavari (iv) RJ/OS/90/1 Rajasthan (v) KG/DWN/98-2 Krishna Godavari 2.4. The participating interest acquired by the Assessee was taken forward by entering into Production Sharing Contract (in short, PSC) qua each block with GOI along with other Joint Venturers, who were likewise involved in the exploration and production of oil and gas. In respect of each of the oil and gas blocks referred to above, the Assessee entered into a Joint Operating Agreement (in short, JOA), with other Joint Ventur .....

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..... in the said reply. Along with the reply, inter alia, copies of the PSCs, of the relevant gas blocks, as also the break-up of exploration and development expenses was also provided. The Assessee made it a point to advert in the reply that the computation of the deduction claimed under Section 80IB of the 1961 Act had been made on the same basis as was done in the preceding AYs. The Chartered Accountant's (CA's) certificate dated 13.10.2004, for each of the two gas fields, i.e., SGF unit and LGF unit, the Audit Report in the prescribed form i.e., 10CCB, and the Profit and Loss Account, were also filed by the Assessee. 3.6. The Assessing Officer, thereafter, passed an Assessment Order dated 28.12.2006, albeit, under Section 143(3) of the 1961 Act. The Assessing Officer, while, passing the Assessment Order, recomputed the income of the Assessee and pegged it at ₹ 109,59,99,910/-, as against declared income of ₹ 49,16,89,883/-. While, recomputing the income, the Assessing Officer disallowed the claims, inter alia, worth ₹ 8,66,77,608/- under the following heads : (i) provision made with respect to site restoration cost; (ii) purchase of software; and (iii) c .....

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..... forementioned date, i.e., 05.03.2009, via its representative, one, Mr.P.R.Prasanna Varma, Chartered Accountant. The written submissions dated 25.02.2009, as indicated above, were placed on record on that date. 4.2. No further hearing was held, thereafter. The DIT passed the order under Section 263 of the 1961 Act on 12.03.2009, which was, as indicated above, assailed before the Tribunal by the Assessee. 4.3. The DIT, in his order dated 12.03.2009, has made observations with regard to SGF unit and LGF unit, which can be, broadly, paraphrased as follows : SGF Unit: (i) The Assessee had not declared as to whether or not AY 2003-2004, was the first year of commercial production. This declaration was necessary as deduction under Section 80IB of the 1961 Act, could be claimed only from the year, in which, commercial production commenced. (ii) In terms of Section 80IB(13) read with Section 80IA(7), the undertaking claiming deduction has to get its accounts audited and file a report in that behalf in the prescribed form. (iii) It is imperative on the part of the undertaking claiming deduction to maintain separate accounts right from the date of its inception in res .....

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..... the ground that they had no applicability to the facts, which obtained in the instant case. The DIT, on the other hand, relied upon the decision in the matter of : Ashok Leyland V. CIT, 260 ITR 599, which according to him, applied squarely in the fact situation obtaining in the present case. The assessment made was, consequently, set aside and a direction was issued to the Assessing Officer to examine the allowability of deduction under section 80IB of the 1961 Act and to recompute the same. In other words, a direction was issued to make a fresh assessment keeping in mind the observations made by the DIT, in his order. 4.5. As indicated at the outset, the Tribunal, however, dismissed the appeal via the impugned judgement and order. It is important to note that the Assessee, during the pendency of the appeal, had moved an application, it appears, for taking on record, an additional ground, which was that the DIT could not travel beyond the SCN, and that, if, he chose to travel beyond the SCN, adequate opportunity had to be given before passing a final order. The Tribunal observed in the impugned judgement and order that it agreed with the proposition of law as conceived in the a .....

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..... ) could not be considered as a cardinal error, as the defect, if any, can be cured, by having recourse to Section 292B of the 1961 Act. (iii) The conclusion reached by the DIT that the Assessing Officer had not examined as to whether the SGF unit was a separate undertaking, and that, commercial production had commenced on the date mentioned by the Assessee, was correct, as for the earlier years the Assessing Officer had no occasion to examine the Assessee's claim for deduction under Section 80IB of the 1961 Act. The year in issue was the first year, in which, the Assessee had claimed deduction under Section 80IB of the 1961 Act qua the SGF Unit. (iv) Though, the DIT in paragraph 6 of its order had observed that the Assessee was not eligible for claiming deduction under Section 80IB, however, the final direction issued by him to the Assessing Officer was to examine the allowability of the deduction and recompute the same under Section 80IB in accordance with law. Therefore, such an observation in the DIT's order was only passing remarks, which could not bind the Assessing Officer. (v) There was no effective variance as between the SCN and the final order pa .....

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..... It is not disputed that the claim for deduction as put forward by the Assessee was accepted without any variation in amount by the Assessing officer. The assessment order simply allowed the claim under Section 80IB, by observing as made by the Assessee. There was, thus, clearly, a failure on the part of the Assessing Officer to form an opinion. While, it may be true that whenever a claim is allowed, the Assessing Officer need not elaborately deal with it in the Assessment Order, the chain of events as they transpired in the instant case would show that there was no application of mind by the Assessing Officer vis-a-vis the veracity of the claim made by the Assessee. (xii) Lastly, while it is true that an eligible undertaking need not maintain separate accounts for claiming deduction under Section 80IB of the 1961 Act, but the aspects, which we understand, were raised by the DIT were not verified by the Assessing Officer, while, completing the assessment. 4.8. It is in this background, that the instant appeal has been preferred by the Assessee. Submissions of Counsels 5. In support of the appeal, on behalf of the Assessee, arguments were addressed by Mr.C.S.Agarwal .....

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..... flected in the order of the Tribunal. The fact that elaborate reasons were not given in the assessment order could not be the basis for the DIT to come to the conclusion that the order is erroneous and prejudicial to the interest of the Revenue. In support of this submission reliance was placed on the judgment of the Bombay High Court in : CIT Vs. Gabriel India Ltd., 203 ITR 108 (Bom.). (vii) There was an inherent contradiction in the order of the DIT. On one hand, DIT held that the Assessee was not eligible to claim deduction under Section 80IB, on the other hand, in the same breath, he has directed the Assessing Officer to examine the allowability of the deduction and recompute the same in accordance with the provisions of Section 80IB of the 1961 Act. This observation shows that the DIT was unsure both with regard to the eligibility, as also the computation made by the Assessee, and therefore, could not have initiated action under Section 263 of the 1961 Act. The action under Section 263 of the 1961 Act could only have been initiated, upon due consideration of the matter, and not based on a hypothetical assessment and that the assessment order was both erroneous and prejudi .....

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..... f this Court in Silver Cloud Estates Pvt. Ltd., it had notice of the fact that its eligibility to claim deduction was in issue, was perverse. The reason being that the said judgement had been relied upon by the Assessee to emphasise the fact that the issue raised in the SCN that the computation was not in accordance with the provisions of Section 80IB(13) read with Section 80IA(5), was not correct, as there was no material put to the Assessee with regard to the same. In other words, the judgement in Silver Cloud Estates Pvt. Ltd., was not cited, at least, at that stage to advance the submission that the issue with regard to the eligibility was not put to the Assessee by the DIT via his SCN. (xii) The observation of the Tribunal that non-computation of deduction in the manner specified under the Act could only result in denial of deduction under Section 80IB of the Act, was erroneous, as such an observation/finding read much more into what was not stated either in the SCN or, even in the order passed under Section 263 of the 1961 Act. These findings were recorded by the Tribunal in order to overcome the ratio rendered in the judgement of this Court in : CIT Vs. PVP Ventures Lt .....

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..... respect of the earlier years. (xv) The provisions of Section 80IB(5) were not relevant, and therefore, the observation of the Tribunal that failure to advert to that Section was not fatal, was, clearly, erroneous. (xvi) The further observations of the Tribunal that this defect could be cured by referring to Section 292B of the 1961 Act, was also flawed. (xvii) The Tribunal failed to appreciate that the Assessee had commenced preparing its audited accounts in respect of its claim for deduction - from the year, when, commercial production began, in consonance with the decision rendered by this Court in : Velayudhswamy Spinning Mills (P) Ltd. Vs. CIT, 340 ITR 477 (Mad). The obligation to prepare the audited accounts fastens only, when, commercial production of a given undertaking commences. It is also for this reason that the Assessee had not carried forward its loses of earlier years to be set off against the profits of the SGF unit qua the relevant AY. This methodology was in sync with the ratio of the judgement in Velaydhswamy. These are aspects, which were lost sight of both by the DIT and the Tribunal. (xviii) The DIT failed to appreciate that there was no r .....

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..... ssessment order if the twin conditions provided in the Act are fulfilled, that is, that the assessment order is not only erroneous but is also prejudicial to the interest of the Revenue. The fulfilment of both the conditions is an essential prerequisite. [See Malabar Industrial Co. Ltd Vs. CIT (2000) 243 ITR 83(SC)] (iii) An order is erroneous when it is contrary to law or proceeds on an incorrect assumption of facts or is in breach of principles of natural justice or is passed without application of mind, that is, is stereo-typed, in as much as, the Assessing Officer, accepts what is stated in the return of the assessee without making any enquiry called for in the circumstances of the case, that is, proceeds with undue haste . [See Gee Vee Enterprises vs ACIT, Delhi-I Ors. (1975) 99 ITR 375] (iv) The expression prejudicial to the interest of the Revenue while not to be confused with the loss of tax will certainly include an erroneous order which results in a person not paying tax which is lawfully payable to the Revenue. [See Malabar Industrial Co. Ltd.]. (v) Every loss of tax to the Revenue cannot be treated as being prejudicial to the interest of the Revenue .....

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..... agraph 2, that the total income declared by the Assessee was ₹ 3,34,20,644/-. A perusal of the return for AY 2004-2005, would show that the Assessee had, in fact, declared the total income in the sum of ₹ 49,16,89,883/-. (v) The Assessee was issued a notice for scrutiny under Section 143(2) of the 1961 Act, whereupon, the hearing was held on 16.10.2006, calling upon the Assessee to give information, inter alia, with respect to the deduction claimed under Section 80IB. (vi) This information was supplied by the Assessee vide communication dated 03.11.2006. (vii) The said information was given, apart from the material, which the Assessee had supplied along with its return of income. The material furnished was in the form of: (a) the annual audited accounts for the year ending on 31.03.2004; (b) the audit report; and (c) the certificate of the concerned Chartered Accountant with regard to the SGF and LGF units, which, inter alia, indicated that the conditions stipulated for claiming deduction under Section 80IB stood satisfied. (See the audit report in the prescribed form, i.e., Form No.10CCB). (viii) The audit report, which, the Assessee submitted with .....

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..... record, it is clear that even according to the Tribunal, the Assessee had furnished the relevant material, which was necessary to claim the deduction under Section 80IB qua the SGF unit and LGF unit. In fact, the material furnished, which included the audit report, clearly, provides in no uncertain terms the requisite information. The information, as noted by us above, inter alia, detailed out : the date of commencement of operation; the initial assessment year; when, the deduction was claimed; the quantum of deduction claimed; whether or not the profit and loss account qua the said activity in order to claim deduction under Section 80IB had been filed, for the first time ; and, lastly, the basis, on which, common expenses had been allocated, as the said units, that is, SGF and LGF units, were part of the Ravva Joint Venture Gas Block and CB-OS/2 Joint Venture Gas Block respectively. 9.2. The Assessing Officer, thus, having been supplied with the information and the documents, allowed the deduction vis-a-vis the claim made under Section 80IB in totality, and while doing so, made a rather prosaic observation as admitted by the Assessee. The DIT seems to have taken umbrage to thi .....

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..... nses had been shared between SGF and LGF units, it demonstrated that no separate and independent exercise had been undertaken as to what expenses were, exclusively, attributable to the two units. (v) Likewise, based on the statement made by the Assessee in paragraph 3 of the financial statement for AY 2001-2002, the DIT concluded that the LGF unit was not an undertaking separate from the gas block, in which, it resided, i.e., the gas block referred to as CB-OS/2. 9.6. On the other hand, Mr.Agrawal, placed reliance on the judgement rendered in Niko Resources Ltd. to buttress his argument that each well was to be construed as a separate undertaking. In other words, the contention was that the deduction qua the units in issue had been, correctly, claimed. 9.7. Similarly, with regard to the DIT's observation that the Assessee had not carried forward losses incurred in the period prior to the year, in which, commercial production had commenced, reliance was placed by Mr.Agrawal, on the judgement of this Court rendered in Velayuthaswamy case. The argument advanced was that the Assessee was prohibited in such like cases, from carrying forward losses incurred prior to the y .....

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..... to put to the Assessee areas of concern and/or objection and underlying material, if any, that the DIT may have in his possession would turn the exercise of granting an oral hearing an empty formality. 11.3. To satisfy ourselves, we had called for the Revenue's record concerning the case at hand. The record disclosed that the proposal to exercise power under Section 263 emanated from an audit objection. Based on the audit objection SCN was issued to the Assessee. The record further showed that the SCN, which is dated 21.01.2009, in the first instance, fixed the date of hearing as 13.02.2009, which was adjourned to 05.03.2009, at the request of the Assessee. The record also disclosed that the one and only time the Assessee's representative was called for hearing was on 05.03.2009. On that date, the Assessee filed, via its representative, one, Mr.P.R.Prasanna Varma, Chartered Accountant, written submissions dated 25.02.2009. There is nothing on record to suggest that the concerns and/or objections that the DIT may have had vis-a-vis the assessment order were put to the Assessee. There is nothing on record which would suggest that the DIT had confronted the Assessee with an .....

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..... s that, the record did not show that the revisional authority had not given an opportunity to the Assessee to controvert, the facts on the basis of which it had concluded that the order of the Assessing Officer was erroneous and prejudicial to the interest of the Revenue. As noted above by us, the departmental file produced before us did not show that the concerns raised by the DIT, in his order dated 12.03.2009, or the material, if any, that he had in his possession were put to the Assessee. Therefore, in our view, as rightly contended by Mr.Agrawal, there has been a breach of the principles of natural justice. 11.7. As noted above by us, the order of the DIT consists of several factual errors, which ignores, completely, the material placed on record by the Assessee. Aspects as to whether or not SGF and LGF units were separate undertakings and as to why SGF unit ought to have carried forward the losses of the period prior to the date of commencement of commercial production and have it set it off against profits derived from the said unit, were, evidently, not put to the Assessee. The Tribunal, in the impugned judgement and order, skirts this vital issue. In our opinion, there .....

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..... pportunity was given to the Assessee to rebut the concerns and/or underlying material, if any, that the DIT, had in his possession. Question No.4 :4 13.4. In so far as answer to question No.4 is concerned, the same will have to be in favour of the Assessee, and against the Revenue, as the Tribunal could not have come to a conclusion that the Assessee had not worked out the deductions in accordance with the provisions of Section 80IB(13), without the DIT giving adequate opportunity to the Assessee. As noted by the Tribunal and also by us, the relevant material required for claiming deduction under Section 80IB had been placed on record by the Assessee before the Assessing Officer. The only reason that the DIT and the Tribunal came to the conclusion that the assessment order was erroneous and prejudicial to the interest of the Revenue, was, that, according to them, the Assessing Officer had not applied his mind to the materials placed on record by the Assessee. In so far as the Assessee was concerned, it claimed that it had worked out the deduction in accordance with the provisions of Section 80IB(13) of the 1961 Act, which, in turn, referred to sub-section (7) to (12) of Secti .....

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