TaxTMI 
TaxTMI 
TaxTMI 
2012 (12) TMI 1120
X X X X Extracts X X X X
X X X X Extracts X X X X
....oil and gas in India. It had acquired participating interest in the following oil and gas blocks:- Sl.No. Block of Oil and Gas Field Area 1. Ravva Krishna Godavari 2. CB-OS/2 Cambay Offshore 3. KG-OS/6 Krishna Godavari 4. RJ/OS/90/1 Rajasthan 5. KG/DWN/98-2 Krishna Godavari For acquiring such participating interest, assessee had entered into production sharing contracts with Government of India and joint operating agreement with other joint venturers involved in exploration of oil and operation of oil fields. As per the joint venture agreements, assessee had to operate each of the block. 3. Assessee filed its return for the impugned assessment year declaring an income of Rs. 49,16,89,833/-. Assessee had also sought deduction of Rs. 68,55,77,018/- under Section 80-IB(9) of the Act. Returned income was after claiming such deduction. As per the assessee, during the course of assessment proceedings, Assessing Officer had sought justification for claiming of deduction under Section 80-IB of the Act. On 3rd November, 2006, assessee had submitted a letter to Assessing Officer giving details of certain claims. Copies of the production sharing contracts, in relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns (7) to (12) of Section 80-IA, assessee submitted that Assessing Officer had duly examined its claim and allowed it after such examination. Relying on the decision of Hon'ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 assessee argued that DIT could not substitute his judgment with that of Assessing Officer and could also not say that the order ought have been written more elaborately. Reliance was also placed on the decision of Hon'ble jurisdictional High Court in the case of Silver Cloud Estates (P.) Ltd. v. State of Tamil Nadu [1996] 219 ITR 244 (Mad.) in support of its contention that if there was any proposal to revise an order of subordinate authority, it was obligatory on the part of revisional authority to put forward all the relevant materials before the assessee and giving it an opportunity for rebuttal. Further reliance was also placed on the decision of Hon'ble Allahabad High Court in the case of CIT v. Taj Printers [1989] 178 ITR 384 for arguing that DIT was under an obligation to cite the points and record the reason why he considered the order of Assessing Officer erroneous and prejudicial to the interests of Revenue. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Silver Cloud Estates (P.) Ltd. (supra) and that of Hon'ble Allahabad High Court in the case of Taj Printers (supra) had no applicability on facts here. On the other hand, as per DIT (International Taxation), decision of Hon'ble jurisdictional High Court in the case of Ashok Leyland Ltd. v. CIT [2003] 260 ITR 599 squarely applied on facts. There was failure on the part of the Assessing Officer to examine in depth the claim of the assessee. Such a failure was, according to him, erroneous and prejudicial to the interests of Revenue. He, therefore, set aside the assessment done by the A.O. and directed him to examine the allowability of deduction under Section 80-IB, recompute such deduction and make a fresh assessment. 9. Now before us, learned senior counsel appearing for the assessee, submitted that in the first place, the reasons given in the order passed by DIT (International Taxation) were at variance from what was stated in the show cause notice. According to him, DIT (International Taxation) never mentioned in the show cause notice issued that assessee was not entitled for deduction under Section 80-IB of the Act. His only objection was that computation of deduction a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction under Section 80-IB(9) was not in accordance with Section 80-IB(13) read along with Section 80-IA(5) of the Act. According to him, assessee was not confronted with the fundamental reason why an adverse inference was drawn against it. Without giving any reason as to how the computation of the claim made by the assessee was incorrect, ld. DIT (International Taxation) had reached an adverse conclusion. 11. Again, as per the learned A.R., DIT (International Taxation)'s order was equally and if not more vague and contradictory. It had at two places mentioned that assessee was not eligible for deduction under section 80-IB(9) of the Act, whereas, in the last para, he directed the A.O. to examine the allowability of deduction and recompute such deduction. Further, according to him, allegation that the Assessing Officer had not conducted enquiries, was not based on any material but purely an assumption taken by the DIT (International Taxation). There was no mention by the DIT(International Taxation) in the notice issued to the assessee under Section 263 of the Act that there was any failure on the part of the Assessing Officer to make a proper enquiry. According to him, asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ravva block and CBOS2 block respectively. As for the observation of the ld. DIT (International Taxation) that for claiming deduction under Section 80-IB of the Act, separate accounts had to be maintained from inception, ld. senior counsel submitted that there was no such requirement under the Act or Rules. Reliance was placed on the decision of Hon'ble Andhra Pradesh in the case of CIT v. Sree Krishna Pulverising Mills [2000] 241 ITR 262, that of Hon'ble Allahabad High Court in the case of CIT v. Hind Lamps Ltd. [1991] 190 ITR 553, that Hon'ble Madhya Pradesh in the case of CIT v. Prakash Chandra Basant Kumar [2005] 276 ITR 664, that of Hon'ble Karnataka High Court in the case of International Instruments (P) Ltd. v. CIT [1980] 123 ITR 11 and that of Hon'ble Bombay High Court in the case of Mahindra Sintered Products Ltd. v. CIT [1989] 177 ITR 111. 13. As to the conclusion of the DIT (International Taxation) that earlier losses of Ravva block was not carried forward and set off against the profits before claiming deduction under Section 80-IB(9), ld. senior counsel submitted that this was against the law laid down by Hon'ble jurisdictional High Court in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., claim of the assessee that similar deductions were given to it in earlier years was also incorrect since assessee was not having any positive gross total income for earlier years. Thus, according to him, DIT (International Taxation) was justified in invoking revisonary power vested on him under Section 263 of the Act. 15. We have perused the orders and heard the rival submissions. We are in full agreement with the argument of the learned A.R. that in a proceeding under Section 263 of the Act, CIT cannot travel beyond the show cause notice and if he travels beyond the show cause notice, principles of natural justice demanded an opportunity to be given to the assessee before an order is finally framed. Additional ground taken by the assessee in this regard is definitely admissible, being a question of law and all facts necessary to decide that same is on record. Hence what is to be seen here is whether the DIT (International Taxation) had travelled beyond the notice under Section 263 of the Act while framing the order under Section 263 of the Act. We have reproduced the pertinent part of the notice at para four of our order above. What was stated in the said notice is that the cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was undertaken for the 80IB unit. The assessing officer in the impugned order however has allowed the deduction U/s 80IB(9) without examining the issue in the manner narrated above. To that extent the action of the Assessing Officer is erroneous in as much as it is prejudicial to the interests of the Revenue. Laxmi Gas field This block comprises of various units - Amba, Gowri, Parvathy, Lakshmi and others. The assessee company has claimed that the Laxmi Gas Field has commenced its commercial production only from assessment year 203-04 onwards. Deduction u/s 80IB(9) of Rs. 4,46,72,736 and Rs. 48,39,66,673 relating to profits from Laxmi Gas Field was claimed and allowed during assessment year 2003-04 and 2004-05 respectively. It has been stated in the financial statement for the A.Y. 2001-02 vide para 3 of the note to the Financial Statements that "On 20th January 2001 the discovery of gas within the CBOS 2 Contract area called "Laxmi Gas Field was declared commercial by joint venture. The development area of Laxmi is being developed into a producing field." From this statement it is clear that Laxmi Gas Field as such is not a separate undertaking distinct from CBOS 2 block but it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial to the Revenue. 8. From the above, it is held that the assessment order u/s 143(3) dated 28.12.2006 in which the deduction u/s 80IB was allowed by the assessing officer is erroneous and prejudicial to interests of the Revenue and is, therefore, set aside. The assessing officer is directed to examine the allowability of deduction and recompute the deduction u/s 80IB of the Act as per the provisions of I.T. Act and recompute the total income for the assessment year 2004-05 and make a fresh assessment order after giving the assessee adequate opportunity of being heard." 16. There is no dispute that assessee had claimed deduction under Section 80-IB(9), supported by audit report required under Section 80-IA(7) in Form No.10CCB, both with respect to Satellite Gas Field and also with respect to Lakshmi Gas Field. In fact, there were two separate audit reports for these. It is also true that along with such audit reports, assessee had also filed a computation as to how it arrived at the claim for deduction under Section 80IB(9) of the Act. In such annexures, assessee had given a short narration of the basis for allocation of its expenses to the units enjoying the tax holiday, out of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such audit in the prescribed form duly signed and verified by such accountant. (8) Where any goods [or services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods [or services] as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. [Explanation.-For the purposes of this sub-section, "market val....
X X X X Extracts X X X X
X X X X Extracts X X X X
....years to be set off and even otherwise, there was no requirement of such set off, which is a view affirmed by Hon'ble jurisdictional High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. (supra). Further, according to assessee, it had provided audit report as required under sub-section (7) and other sub-sections (8) to (12) had no applicability. Ld. DIT (International Taxation) has held that Satellite Gas Field was only a part of Ravva block, which was operating since 1994 and Assessing Officer had not examined whether it was a separate undertaking as required under Section 80-IB(5) of the Act. No doubt, in the show cause notice to the assessee, Section 80-IB(5) does not find a mention. However, it cannot be denied that if the deduction was worked out not in accordance with Section 80-IB(13) and sub-sections (7) to (12) of Section 80-IA, then a claim for deduction under Section 80-IB(9) cannot be allowed. When viewed from this angle, non-mentioning of Section 80-IB(5) in the show cause notice cannot be considered as so cardinal an error that would render the whole proceedings void or invalid. Section 292B can cure even if there was a slight lacunae of the nature men....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is evident from Auditor's report in Form No.10CCB u/s 80IB(9) read with Section 80IA(7) and, Rule 18BBB of the Income-tax Rules, 1962 (pages 65 to 75 of the paper-book-II). However, despite the aforesaid profit in assessment year 2003-04 no deduction was claimed, as deduction had to be restricted to gross total income (see page 75 of paper-book). A copy of the computation of income for the financial year 2002-03 relevant to assessment year 2003-04 is placed at pages 42 to 44 of this Synopsis." Thus, for earlier years, Assessing Officer had no occasion to examine the claim of deduction under Section 80-IB of the Act. May be it is true that assessee had worked out such deduction and filed a computation of such deduction along with return of income for such earlier, though it did not prefer such claim, on account of its gross total income being negative. Since there was no effective claim by the assessee, Assessing Officer in all probability would have considered a detailed examination of such claim a futile exercise. In our opinion, in such circumstances, Assessing Officer had no occasion to consider the correct date of commencement of commercial production in respect of two un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....son that assessee had claimed excess expenditure. As per ld. senior counsel, here also the reason cited by the DIT (International Taxation) is very similar. In the show cause notice the allegation is that claim for deduction under Section 80-IB(9) was not computed in accordance with Section 80-IB(13) read with section 80-IA(5) of the Act. The argument of the ld. senior counsel, would appear very attractive at the first blush. But the fact of the matter is that the same decision viz. that of Silver Cloud Estates Pvt. Ltd. (supra) was relied on by the assessee, in the course of its submission before DIT (International Taxation) as well. Ld. DIT (International Taxation) has also dealt with this case in his order. He has mentioned that Hon'ble jurisdictional High Court in the case of Silver Cloud Estates (P.) Ltd. (supra) was dealing with revisionary power of Commissioner where opportunity of being heard was not given to the assessee. Thus, what comes out is that even before the DIT (International Taxation), assessee had taken a plea that DIT (International Taxation) could not travel beyond what was stated in the notice under Section 263 of the Act. In other words, this can only me....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... whether the claim itself was in accordance with law. The only conclusion that can be arrived in such a situation was that there was no application of mind by the Assessing Officer with regard to such a claim. When there is non-application of mind by the Assessing Officer, we can definitely say that the order of A.O. is erroneous and prejudicial to the interests of Revenue. It is not disputed that the claim was allowed as put forward by the assessee without any variation in the amount. In such a situation, the only relevant question that has to be answered is whether DIT (International Taxation) was justified in invoking Section 263 of the Act. The merits of the case may not have much impact. Non-application of mind by the A.O., on the details submitted in the form of audit report and break-up of cost allocation, is writ large in the assessment order. The assessment order simply mentions that the claim of deduction under Section 80-IB is allowed "as made by the assessee". Failure to form an opinion is clear. This has definitely resulted in such assessment being erroneous and prejudicial to the interests of Revenue. The events which unfolded during assessment proceedings give rise t....