2013 (5) TMI 16 - AT - Income Tax

Tribunal allows appeal citing legal views, consistent methods

M/s. Shevie Exports Versus Jt. Commissioner of Income Tax

M/s. Shevie Exports Versus Jt. Commissioner of Income Tax - TMI Issues Involved:1. Deduction under section 80IA of the Income Tax Act.2. Disallowance of foreign travel expenses.3. Examination of generator guarantee claim receivable and other receivables.Issue-wise Detailed Analysis:1. Deduction under section 80IA of the Income Tax Act:The assessee, a partnership firm engaged in the export business and power generation through wind mills, claimed a deduction under section 80IA for the assessment year 2008-09, treating it as the initial assessment year. The Commissioner of Income Tax (CIT) issued a show cause notice under section 263, arguing that the assessment was erroneous and prejudicial to the interests of the Revenue because the assessee had not set off the loss from the wind mill division incurred in the assessment year 2007-08 against the profit claimed in 2008-09. The CIT relied on the Special Bench decision in ACIT v/s Goldmine Shares And Finance Pvt. Ltd. to support this view.The assessee contended that the initial assessment year for claiming the deduction was 2008-09, and the loss from prior years, which had already been set off, should not be brought forward. The CIT, however, held that the Assessing Officer (AO) had failed to apply the correct provisions of law, thus invoking section 263.The Tribunal analyzed section 80IA, particularly sub-section (5), which states that the profits and gains of an eligible business should be computed as if it were the only source of income from the initial assessment year. The Tribunal concluded that losses prior to the initial assessment year, which had already been set off, should not be carried forward. This interpretation was supported by the Madras High Court's decisions in Velayudhaswamy Spinning Mills Pvt. Ltd. and CIT v/s Emerald Jewel Industry Pvt. Ltd. The Tribunal found that the AO's decision to allow the deduction based on the initial assessment year 2008-09 was a possible view under the law and not erroneous or prejudicial to the Revenue's interests.2. Disallowance of Foreign Travel Expenses:The CIT also questioned the AO's disallowance of foreign travel expenses, arguing that the AO had made a negligible disallowance despite the lack of documentary evidence. The assessee argued that the AO had followed a consistent method of disallowing 4% of the expenses based on the ratio of export sales, which had been accepted in previous years.The Tribunal found that the AO's disallowance was based on a consistent and reasonable method, and there was no new evidence or change in circumstances to warrant a different view. Therefore, the Tribunal held that the AO's decision on foreign travel expenses was not erroneous or prejudicial to the Revenue's interests.3. Examination of Generator Guarantee Claim Receivable and Other Receivables:The CIT had raised concerns about the AO's failure to examine the generator guarantee claim receivable of Rs. 28,00,000 and other receivables of Rs. 30,41,000. The assessee argued that these amounts were already credited to the revenue account in the Profit & Loss Account, and there was no need for further examination.The Tribunal did not find any specific findings or directions from the CIT on this issue in the impugned order and focused primarily on the first two issues. Therefore, the Tribunal did not delve into this matter in detail.Conclusion:The Tribunal set aside the CIT's order under section 263, upholding the AO's assessment order. The Tribunal concluded that the AO's decisions regarding the deduction under section 80IA and the disallowance of foreign travel expenses were based on possible legal views and consistent methods, and thus, were not erroneous or prejudicial to the interests of the Revenue. Consequently, the assessee's appeal was allowed.