TMI Blog2023 (8) TMI 759X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10 of section 80IA cannot be accepted or subscribed to, because, if the interest expenditure incurred on funds granted as loan to the associate company are not added back to the taxable income of the company, it would have been a reduction of the taxable income, which would lead to a wrong or inaccurate presentation of the facts by the assessee. This was also according to the instructions issued by CBDT vide its Circular 37/2016 - The same has also confirmed by the PCIT by dropping the revisionary proceedings u/s 263 on this issue. Thus, the contention of the revenue that the deduction claimed by the assessee was excessive by disallowance of the interest to increase the eligible profit u/s 80IA, so as to claim higher amount of deduction u/s 80IA than the same is available ordinarily on eligible business, is unsustainable. CIT(A) had correctly, appropriately and categorically decided the issue, thus we found no infirmity in the order of Ld CIT(A), the same deserves to be upheld and we do so. Validity of Revision u/s 263 - fresh issue raised - HELD THAT:- PCIT has raised a fresh issue which was neither a part of the notice under section 263 nor it was confronted to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case, the Ld.CIT(A) having concurrent power of the AO as per the due provisions of law u/s 250(4) of the IT Act, was justified in giving the finding that, the impugned disallowance of Rs. 13,90,58,404/- is eligible for deduction u/s 80IA of the Act which is contrary to the finding of the AO, that the addition made by the assessee to the income eligible for deduction u/s 80IA of the Act on account of disallowance of interest have been so far arranged, that the profit of eligible business is arrived at in a quantum, more than the profit derived in the ordinary course of such eligible business? 4. The order of Ld. CIT(A) is erroneous both in law and on facts . 5. Any other ground that may be adduced at the time of hearing . 3. Brief facts of the case are that, the assessee company has filed its return of income for AY 2012-13 on 28.09.2012 declaring income of Rs. 1,13,53,104/-. The company is engaged in the business of infrastructure development on BOT basis and has built and is operating Durg by-pass road on National Highway No. 7. Profit of this activity is eligible for deduction u/s. 80IA of the I T Act, the same has been claimed since A Y 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80IA the portion of the interest attributable on the bank loan used for granting of ICD of Rs. 107.70 Crore for which no interest was either stipulated or being charged was added back to the income by the assessee suo moto. According to Ld CITDR, Ld CIT(A) was wrong in not considering the correct view taken by the AO that the interest on borrowed loan which was not used for the business is not an allowable expenditure and is required to be disallowed and added to the income of the appellant. The Appellant had devised the transaction in such a way that profit of eligible business for deduction under provisions of section 80IA(10) of the Act arise more than the profit derived in the ordinary course of such eligible business. Ld CIT(A) had not appreciated the facts of the case in correct perspective and thus have reached on a wrong and unjust finding by allowing the assessee s excessive claim of Rs. 13,90,58,404/- towards deduction u/s 80IA. Ld CITDR vehemently supported the order of Ld AO and prayed to restore the same on this issue by reversing the finding of the Ld CIT(A). 7. On the other hand, ld. AR of the assessee submitted that Ld CIT(A) has understood the issue very logica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee has been claiming deduction under section 80lA for the past many years as well which has also been allowed by the Department on same facts of the case. 6. The case of the Appellant was selected for scrutiny. The Appellant during the course of assessment proceedings provided all the details as desired by the Assessing Officer ( AO ) including furnishing of statutory form 10CCB in support of deduction claimed u/s 80lA as well as the computation of book profits u/s 115JB of the Act. The assessment was completed u/s .143(3) of the Act by making an addition of Rs. 13,90,58,404 representing the amount of interest paid to bank and which is attribute to the loan amount utilised for giving interest-free ICD loan to the sister concern by the Assessee on the ground as under: Therefore addition on account of this allowance of interest of Rs. 13,90,58,404 made to the profit of business eligible for deduction under section 80lA is withdrawn from profit of eligible business in view of sub- section 10 read with sub-section 1 of section 80lA of the IT Act and added to the total income not eligible for deduction under section 80IA. Accordingly, deduction of Rs. 9,98,29,094 (Rs. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misplaced. The Appellant argued that the said amount is not to notional interest but the actual interest paid by the Appellant to the bank on loans borrowed. It was submitted that this was an actual expenditure and taxing the same could be tax on expenditure. 9. The CIT(A) further observed that while the contentions of the Assessee have force, the AO has not brought on record any credible instances in support of his observations of the business arrangement being such between the Assessee and the associate concern that produces more than ordinary profits which might be expected to arise in such eligible business. 10. The CIT(A) also at paragraph 2.1 of the order referred to the order of the PC IT passed under section 263 for the immediately preceding previous year i.e AY 2011-12 wherein the PCIT despite having initiated 263 proceedings on identical ground which is the subject matter of dispute in the impugned appeal, dropped the same holding that the working of eligible profit u/s 80lA of the Act as done by the Assessee was proper and that there was no loss of revenue. 11. The CIT(A) further referred to and relied upon CBDT circular No. 37/2016 dated 2.11.2016 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the above, the Assessee added back and disallowed the interest amount of Rs. 13,90,58,404/- pertaining to the interest-free advance given, to the net profit as derived in the profit and loss account of the Assessee to arrive at the correct figure of profit of eligible business. By adding the interest pertaining to the interest free advance, the net profit thus had the effect of only the interest paid pertaining to the bank finance utilized for the purpose of the eligible business of the Assessee and the resultant net profit reflected the correct figure of the profit pertaining to the eligible business of the Assessee. 13.1.5. The resultant profit amounting to Rs. 23,88,87,498 from the eligible business of the Assessee was accordingly claimed deduction under section 80lA of the Act in accordance with the scheme and the provisions of section 80IA. 13.1.6. Reliance placed on: 13.1.6.1. CIT Vs. Bannari Ammhn Sugars Ltd. (2019) TaxPub(DT) 1697 (Madras HC) - held that for determining the quantum of deduction under section BOIA, the eligible business should be treated as the only source of income of the Assessee during the previous gear relevant to the initial a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been the same as claimed by the Assessee in its return of income. 13.4. Section 80IA(10) is not applicable to the facts of the case as has been wrongly applied by the AO 13.4.1. In A.T Kearney India Pvt. Ltd. Vs. Additional Commissioner of Income Tax (2014) 60 (11) ITCL 521 (Delhi 'I' - ITAT), it was held that the provisions of sub-section (10) of section 80lA is a deeming provisions and it must be strictly construed. The assessing officer must show at the first instance that the course of business between the closely connected persons was arranged so as to produce more than ordinary profits in the hands of a person carrying on the eligible business. 13.4.2. In the present case the Assessee having not charged any interest from its sister concern, it can by no stretch of imagination be held that the course of business between the Assessee and its sister concern has resulted in more than ordinary profits in the hands of a person carrying on the eligible business. 13.4.3. The Assessee having not charged any interest from its sister concern it has not resulted in any profit much less more than ordinary profits making the provisions of section 80IA( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 80IA. 13.6.5. The action of the Assessee was thus as per the scheme of section 80lA and the addition made by the AD was rightly deleted by the CIT(A). 13.7. Similar working by the Assessee has been allowed by the AO in the immediately preceding previous year which has further been confirmed is allowable in section 263 proceedings. 13.7.1. The interest free ICD of Rs. 107.70 Crores was granted by the Assessee in the immediately preceding year i.e AY 2011-12 and not in the current year. 13.7.2. Accordingly, even in AY 2011-12, the Assessee had added back the proportionate interest attributable to the interest-free advances given to its book profit in the computation of income to arrive at the eligible profit under section 80IA. 13.7.3. The said calculation was approved by the AO in scrutiny proceedings completed under section 143(3) of the Act. 13.7.4. The PCIT then proposed section 263 proceedings proposing to bring to tax the said interest added back to the profit in the profit and loss account but during the course of section 263 proceedings dropped the same holding that the same is proper and it does not cause any loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is admissible and should be allowed to the assessee. Ld CIT(A) has discussed the provision of section 80IA(10), which the AO has relied upon for making the impugned disallowance. Ld CIT(A) has also considered the findings of Ld PCIT on this issue, while conducting revisionary proceedings u/s 263 for a year just before the relevant AY 2012-13 being AY 2011-12, wherein, under the identical situation, except the figure of the interest suo moto disallowed by the assessee, the proceedings on this issue were dropped after giving a thoughtful consideration to the facts of the issue, inlight of the provisions of section 80IA. Ld PCIT has concluded that it is a matter of quantum of amount of claim and it does not make a difference in deduction as it is eligible deduction @ 100 % of eligible profit. thus factually there is no loss of revenue. Ld CIT(A) also considered the directions of CBDT vide its circular no. 37/2016 dated 02.11.2016, wherein it has been clarified that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance. With a mindful discussion of the PCIT s order u/s 263 on the issue in AY 2011-12, a categorical observations and decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted between two entities section 80IA(10) could not be invoked. The hon‟ble Allahabad High Court in Commissioner of Income Tax Meerut vs. Translam ltd. Reported in 52 taxmann.com 357 (Allahabad) held that where assessee company had maintained separate accounts for each unit and further assessing officer could not prove that business between eligible unit and other units of the assessee were so arranged that business transactions between them produced more profit to eligible business, assessee would be entitled for deduction u/s. 80lA of the Act. 2.1 It was also brought to my notice that for the assessment year 2011-12 in the order u/s. 263 of the Act dated 31.03.2016 of the Principal Commissioner of Income tax-2, Raipur in the appellant‟s own case wherein it was held, Considering the above facts and circumstances of the case written submission of the assessee the relevant provisions of income tax for deduction of 80IA and facts of inter corporate deposits it is observed that there is no loss or irregularity in working of eligible profits of eligible enterprises for deduction u/s. 80IA of the Act 1961. It is a matter of fact that the assessee had given loan of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nality as these judgements of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. Lll. In view of the above, the Board has accepted the settled position that the disallowance made u/s. 32, 40(a) (ia), 40A(3), 43B etc of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed result in enhancement of the profits of the eligible business and that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance. 2.3 In view of the above discussions I find that the AO is not justified in denying the claims of the appellant u/s 80lA relating to disallowance of Rs. 13,90,58,404/- u/s. 80lA of the Act which is accordingly allowed and deduction claimed u/s. 80lA for Rs. 23,88,87,498/- is restored. Accordingly grounds no. 1 3 are allowed. 10. Further, on perusal of the computation of the total income of the assessee it is observed that the interest attributable to the ICD loan extended by the assessee to its associate concern for Rs. 13,90,58,404/- was added back to the taxable income since the same has no connection with the eligible bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n time. The books of accounts of the Appellant are duly audited under the provisions of The Companies Act, 1956 as well as under section 44AB of the Income Tax Act, 1961 ( Act ). 13. The assessee filed its original return of income for the AY under appeal electronically on 29.9.2011. However, due to some technical fault all the entries in the return were shown as NIL. Accordingly a revised return was filed on the same day declaring a total income of Rs. 73,66,990/- comprising of interest income and Short Term Capital Gains. Income under the head business and profession was fully claimed as deduction U/s 80lA for Rs. 19,17,84,203/-. Tax was paid U/s 115JB of the Act. The Appellant had during the year utilized bank loan for granting Inter Corporate Deposit ( ICD ) of Rs. 1,07,70,00,000/- on which no interest was charged by the Appellant. The Appellant accordingly suo moto added back in its computation of income the interest of Rs. 10,28,97,008/- being interest paid on bank loan utilized for grant of ICD. 14. Subsequently, the case of the Appellant was selected for scrutiny. The Appellant during the course of assessment proceedings provided all the details as desired by the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 2 to drop the revisionary proceedings initiated U/s 263.The PCIT-2 accepted the contention of the Appellant in relation to both the grounds on which section 263 proceedings were initiated accordingly dropped the revision proceedings on those original grounds. 17. The CIT however, held the order of the AO to be erroneous and prejudicial to the interest of the revenue on a new ground that the AO ought to have examined whether the Book Profit disclosed at Rs. 9,29,14,553/- is correct in accordance to part-II of Schedule VI to the Companies Act, 1956 for the purpose of determination of tax payable under MAT U/s 115JB of IT, Act, 1961. The said new ground was taken and adjudicated without giving any notice to the assessee and without giving any opportunity of hearing rebuttal to the assessee against the same. The CIT unilaterally and thus illegally held that the interest of Rs. 10,28,97,008/- ought to have been added to the calculation of book profit for the purpose of calculation of MAT and accordingly restored the matter to the file of the AO for determination of the same after considering the facts of the case. 18. Aggrieved by the order of the Ld PCIT in the revisionary proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erified by the AO. The issue having already been verified by the AO, the same cannot be the subject matter of section 263 proceedings. Further, even if it is presumed that there was inadequate enquiry by the AO, still it is not sufficient for section 263 revision. Reliance placed on CIT Vs. Vikas Polymers (2012) 341 ITR 537 (Del) CIT Vs. Sunbeam Auto Ltd. (2010) 332 ITR 167 (Delhi) Further, the CIT having issued a Show Cause Notice U/s 263 stating the reasons for invoking the section, has no authority to travel beyond the reasons issued in the Notice as has been done in the present case. Reliance placed on Geometric Software Solution Co. Ltd. Vs. ACIT (2009) 32 SOT 428 CIT Vs. Contimeteres Electricals Pvt. Ltd. (2009) 317 ITR 249 (Delhi) Without prejudice, the Minimum Alternative Tax [MAT] provisions as contained in section 115JB, as per well-settled law, are a complete code in itself and create a deeming fiction which is to be construed strictly and therefore, whatever computations/adjustments are to be made, they are to be made strictly in accordance with the provisions provided in the code itself. As per the provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for order of the PCIT deserves to be upheld. 21. We have considered the rival submissions. The PCIT has raised two issues for invoking his revisionary powers conferred upon him by the statute under section 263 of the Act. The Issues raised under notice dated 29.02.2016 were as under: 1. The P L Alc for the said assessment year reveals that the interest of Rs. 10,28,97,008/- on bank loan for granting ICD [inter corporate deposit] of Rs. 1,07,70,00,000/- in which interest was neither stipulated nor charged, was added to the net profit of business Vis 80lA of the IT Act. The said amount is not eligible for deduction Vis 80lA and is to be added as income 10,28,97,008/-. 2. The associate concern M/s SMS Toll and Developers Ltd. had 25% shareholding in the above company. As the assessee co. accumulated profit of Rs. 8.85 crores, advanced Rs. 107.70 crores to the associate concern. The associate concern had income on deemed dividend of Rs. 8,85,90,903/- during the FY 2010-11 as per section 2(22)(e) of the IT Act. Income escaped assessment Rs. 8,85,90,903/-. 22. On the issues raised u/s 263, assessee has made its submission vide its reply dated 22.03.2016. Cognizance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, the ITAT gave a finding of fact that no such issue was ever raised by CIT in the notice served upon the assessee and the assessee was not even confronted by the CIT before passing the Order dated 20th March, 2013. ITAT concluded that the said ground therefore cannot form the basis for revision of assessment order under Section 263 of the Act. It is only this finding of ITAT which is impugned in this Appeal. On the other two points, revenue has accepted the findings of ITAT that the Order under Section 263 was not warranted. 6. Mr. Suresh Kumar submitted that Apex Court in its Judgment dated 11 th May, 2016 (after the impugned order was pronounced by ITAT) in Commissioner of Income-Tax, Mumbai v. Amitabh Bachchan , has held that the provisions of Section 263 does not warrant any notice to be issued and what is required is only to give the assessee an opportunity of being heard before reaching his decision and not before commencing the enquiry. Mr. Suresh Kumar submitted that therefore, the ITAT has erred in setting aside the Order of CIT on this issue. 7. It is true that the Apex Court in Amitabh Bacchan (supra) has held, all that CIT is required to do before reach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed. Such a notice is not required. What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. CIT [1970] 76 ITR 496 and in CIT v. Electro House [1971] 82 ITR 824 (SC). Paragraph 4 of the decision in Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder: This section unlike Section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The section does not speak of any notice. It is unfortunate that the High Court failed to notice the difference in language between Sections 33- B and 34. For the assumption of jurisdiction to proceed under Section 34, the notice as prescribed in that section is a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise is felt necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of course, there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision. 13. The above ground which had led the learned Tribunal to interfere with the order of the learned C.I.T. seems to be contrary to the settled position in law, as indicated above and the two decisions of this Court in Gita Devi Aggarwal (supra) and M/s Electro House (supra). The learned Tribunal in its order dated 28th August, 2007 had not recorded any finding that in course of the suo motu revisional proceedings, hearing of which was sprea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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