2012 (10) TMI 1048 - AT - Income Tax

Tribunal upholds CIT's order, finding Assessing Officer's assessment erroneous.

The Tribunal upheld the CIT's order, finding the Assessing Officer's assessment erroneous and prejudicial to revenue due to lack of proper enquiry and ... Revision u/s 263 - deduction u/s 10A admissibility - Held that:- AO has not at all examined as to how the assessee has computed the claim u/s.10A in relation to normal provisions of the Act and also while computing the book profit for the purpose of section 115JB of the Act. AO, it appears, has mechanically accepted the claim of the assessee. There is no material before us that AO has scrutinized the claim of the assessee which he was required to scrutinize in the facts and circumstances of the case. AO is not expected to act mechanically or put blinkers on his eyes. The Apex Court has held in the case of Malbar Industrial Co. (2000 (2) TMI 10 - SUPREME Court) and the other authorities referred to above that an order passed without applying the principles of natural justice or without application of mind renders the order erroneous and prejudicial to the interest of the revenue. In the case before us, AO has not even discussed whatsoever briefly about the claim of deduction of the assessee It cannot, therefore, be said that the order passed by him is a reasoned order conforming to the principles of natural justice. Therefore, we are of the considered view that it cannot be said that the AO has allowed the claim of deduction u/s.10A after application of mind as the application of mind is best reflected in the finding recorded in the assessment order. - Decided against assessee Issues Involved:1. Legitimacy of the CIT's order under Section 263 of the I.T. Act.2. Correctness of the Assessing Officer's (AO) computation of exemption under Section 10A while computing income under Section 115JB.3. Whether the AO's order was erroneous and prejudicial to the interest of revenue.Issue-wise Detailed Analysis:1. Legitimacy of the CIT's Order under Section 263 of the I.T. Act:The assessee challenged the CIT's order under Section 263 of the I.T. Act, arguing that it was erroneous and should be canceled. The CIT issued a notice under Section 263, stating that the AO allowed an exemption under Section 10A of Rs. 78,93,531, which should have been restricted to Rs. 64,60,154 while computing income under Section 115JB. The CIT contended that the AO did not apply his mind to this issue, making the assessment order erroneous and prejudicial to the interest of revenue. The CIT directed the AO to make a fresh assessment after detailed verification of the submissions given by the assessee in the return and the statements filed, ensuring proper opportunity for hearing and examination of all submissions and evidence.2. Correctness of the AO's Computation of Exemption under Section 10A while Computing Income under Section 115JB:The assessee argued that the computation of exemption under Section 10A is governed by Section 10A(4) related to export turnover, not income. They contended that Section 115JB is a self-contained code, and the book profit, as defined in Section 115JB(2) read with Explanation (1), means the net profit as shown in the profit and loss account, adjusted by specified amounts. The entire income of an eligible undertaking, as per its books of account, should be reduced while calculating book profit. The assessee cited the ITAT Mumbai decision in DCIT vs. Syncome Formulations (I) Pvt Ltd., which was approved by the Supreme Court in CIT vs. Bhari Information Tech Systems (P) Ltd., and the Supreme Court's decision in Ajanta Pharma Limited vs. CIT, asserting that the computation of book profit is different from normal computation, and the deduction under Section 10A should be computed on the basis of adjusted book profit.3. Whether the AO's Order was Erroneous and Prejudicial to the Interest of Revenue:The CIT argued that the AO did not enquire into the aspect of the assessee's claim of exemption under Section 10A while computing income under Section 115JB, nor did he verify or make any enquiry regarding the set-off of unabsorbed depreciation of earlier years. The CIT stated that there is no provision in the Act to work out deduction under Section 10A separately for computing book profit. The CIT relied on the first proviso to sub-Section (2) of Section 115JB and noted that the tax auditor certified Rs. 63,10,165 as the amount eligible for exemption under Section 10A, without certifying any separate amount for computing book profit under Section 115JB. The CIT concluded that the AO failed to apply his mind and make necessary enquiries, rendering the assessment order erroneous and prejudicial to the interest of revenue.Conclusion:The Tribunal upheld the CIT's order, agreeing that the AO's assessment order was erroneous and prejudicial to the interest of revenue due to the lack of proper enquiry and application of mind. The Tribunal emphasized that the AO must act as both an adjudicator and an investigator, ensuring a fair assessment by making necessary enquiries and examining the genuineness of claims. The Tribunal confirmed the CIT's direction for the AO to pass a fresh assessment order after detailed verification and proper opportunity for hearing, ensuring compliance with the principles of natural justice. The appeal filed by the assessee was dismissed.