TaxTMI 
TaxTMI 
2017 (11) TMI 643
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....ing Officer to examine as to whether the deduction claimed by the Assessee under Section 80IB of the 1961 Act, was allowable. A further direction was also issued to the Assessing Officer to recompute the deduction under Section 80IB of the 1961 Act, albeit, as per law. 2. Before we proceed to adjudicate the substantial questions of law framed in the instant appeal at the time of admission, it would be appropriate to advert to the essential facts, which led to the institution of the present appeal : 2.1. The Assessee is a company incorporated in New South Wales, Australia, and is a subsidiary of an entity by the name Cairn Energy PLC. Cairn Energy PLC. is a company incorporated in Edinburgh, UK. 2.2. The India operations are carried out via the Assessee. The Assessee was earlier known as Cairn Energy India Pty Limited. For its India operations, it, apparently, obtained Reserve Bank of India (RBI) 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 Go....
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...., a notice under Section 143(2) of the 1961 Act, for scrutiny, was issued on 20.04.2005. 3.4. This was followed by a questionnaire dated 16.06.2006. Via the said questionnaire, the Assessee was called upon to justify the claim for deduction made under Section 80IB of the 1961 Act. 3.5. The Assessee submitted a reply dated 03.11.2006. In the reply, the Assessee indicated that it operated, as on 31.03.2004, two (2) eligible tax holidays undertakings, i.e., the SGF unit in the Ravva Joint Venture Block, and the LGF unit in CB-OS/2 Joint Venture Block. Furthermore, the commercial production periods, to which we have made a reference above, were also alluded to 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....
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....pass such an order, as circumstances warrant after making or causing to be made such enquiry, as may be deemed fit in the matter. By the very same notice, an opportunity was granted to the Assessee to put forth its objections in person. The date and time for the said purpose was also intimated. 4. Accordingly, the Assessee furnished a reply dated 25.02.2009, on 05.03.2009, when, hearing in the matter was held by the DIT. It appears that, though, the SCN fixed the date of hearing as 13.02.2009, that hearing was shifted to 05.03.2009, based on the request made by the Assessee. 4.1. Thus, submissions on behalf of the Assessee were advanced on the aforementioned 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, ....
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.... by the DIT, reads as follows : ..... On 20th January, 2001, the discovery of gas within the CBOS 2 Contract area called Laxmi Gas Field was declared commercial by the joint venture. The development area of Laxmi is being developed into a producing field. .... 4.4. In sum, the DIT was of the view that the Assessing Officer had allowed the Assessee's claim for deduction under Section 80IB(9) of the 1961 Act without examining the issue, as required under law. The decisions cited by the Assessee in the matter of CIT Vs. Gabriel India Ltd., 203 ITR 108 (Bom.), and of this Court in Silver Cloud Estates Private Limited V. State of Tamil Nadu 219 ITR 244, were distinguished on 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....
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....e LGF unit. 4.7. The Tribunal, after having recorded the aforesaid findings/observations, went on to sustain the order of the DIT, albeit, on the following grounds : (i) That the Assessing Officer had not examined whether the SGF unit was a separate undertaking, as required under Section 80IB(5) of the 1961 Act, given the circumstances that the Ravva block was in operation since 1994. (ii) No doubt, the SCN does not refer to Section 80IB(5), it cannot be denied that if, the deduction is not worked out, in accordance with Section 80IB(13) and Sub-section (7) to (12) of Section 80IA, then, it cannot be allowed. Viewed from any angle, the failure to mention the provisions of Section 80IB(5) 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....
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.... could not be discerned as to how the Assessing Officer had come to a conclusion with regard to allocation of expenses, date of commencement of production, and the independent nature of the units qua which claims were preferred. (x) Since, the Assessee had given a break-up of the expenses, the Assessing Officer ought to have probed the matter further, in order to ascertain the correctness of the allocation and, whether, the claim made was, in accordance with law. The only conclusion that can be arrived at, is that, there was a non-application of mind by the Assessing Officer with regard to the claim made. Thus, the order of the Assessing Officer was both erroneous and prejudicial to the interest of the Revenue. (xi) 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 ....
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....e was a fundamental fallacy in the approach adopted by the DIT in as much as he failed to appreciate the distinction between an error, if any, made in computing the deduction and that which pertained to the eligibility of the Assessee to claim the deduction itself. The issue pertaining to error of computation would arise only, if, otherwise, the Assessee is eligible to make a claim for deduction under Section 80IB. In the SCN, DIT did not raise an issue with regard to the Assessee's eligibility to claim deduction under Section 80IB. (vi) Admittedly, the record would show that the Assessee had submitted the basis of computation of the claim made under Section 80IB(9), which was duly examined by the Assessing Officer. This aspect has also been reflected 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 contra....
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.... 547; and the judgement of the Delhi High Court in : CIT Vs. Contimeters Electricals Pvt. Ltd., 317 ITR 249. (xi) The Tribunal's observation that in effect the finding of the DIT was that the Assessing Officer had allowed the claim without examining the issue in the manner required under the 1961 Act, was perverse, as it failed to appreciate the scope and ambit of the SCN. The Tribunal's conclusion that the Assessee had been put to notice about the aspect pertaining to the eligibility of the claim made, was perverse, as this finding was not based on any material on record, which would suggest that it had knowledge of such a objection being raised by the DIT. The observation of the Tribunal, therefore, that because the Assessee had relied upon the judgement of 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 ....
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....he Assessee, as supported by the report filed in that behalf. (xiv) The observation of the Tribunal that there was no application of mind by the Assessing Officer is contrary to the facts and thus, tantamount to exercising jurisdiction, which is not vested in it. The reason being that this was not even the assertion of the DIT. The observation made by the Assessing Officer qua the deduction claimed by the Assessee under Section 80IB to the effect : "as admitted by the Assessee", showed that he had applied his mind to the submissions made before him during the course of the assessment proceedings. The Assessee had, in fact, not only supported its claim, by placing on record the Chartered Accountant's certificate, but had also placed on record the copies of computation in 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 fai....
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.... of the Assessee to claim the deduction. Reliance, in this behalf, was placed on the provisions of Sub-section (5) and (7) to (12) of Section 80IA(5) as referred to in Section 80IB(13). 7.1. Learned counsel for the Revenue, in support of his submissions, relied upon the judgement of the Supreme Court in : CIT Vs. Amitabh Bachchan, (2016) 384 ITR 200 (SC). 8. We have heard the learned counsel for the parties and perused the record. 8.1. However, before we proceed further, we may summarise the broad principles of law, which are required to be kept in mind by the Commissioner, while exercising his power under Section 263 of 1961 Act: (i) The power is supervisory in nature, whereby the Commissioner can call for and examine the assessment records. (ii) The Commissioner can revise the assessment 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 ....
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....ed on in two (2) blocks via two (2) units, i.e., SGF unit and LGF unit, it, evidently, derived profits and, thus, claimed deduction under Section 80IB of the 1961 Act. (ii) The two (2) units, qua which deduction was claimed are : SGF unit and LGF, unit located in Ravva Joint Venture Block and CB-OS/2 Joint Venture Block, respectively. (iii) The deduction claimed vis-a-vis the SGF unit was a sum of Rs. 20,16,10,345/-, while in respect of the LGF unit, the deduction claimed under Section 80IB was a sum of Rs. 48,39,66,673/-. The total deduction, thus, claimed was a sum of Rs. 68,55,77,018/-. (iv) The Assessee had filed its return of income on 28.10.2004, whereby, it declared its total income as Rs. 49,16,89,883/-. The DIT, in his order dated 12.03.2009, qua the AY in issue, has, wrongly, indicated in paragraph 2, that the total income declared by the Assessee was Rs. 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 Rs. 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.....
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.... in accordance with the provisions of Section 80IB(13) read with Section 80IA(5) of the 1961 Act. Via this SCN, the DIT gave an opportunity to the Assessee not only to prefer objections, but also to have them heard in person. The date of hearing fixed, in that behalf, was 13.02.2009. The date of hearing was, however, shifted by the DIT to 05.03.2009, albeit, at the request of the Assessee. (x) In response to the same, the Assessee filed a reply dated 25.02.2009. The record of the Revenue, furnished to us, is indicative of the fact that this reply was handed over to the DIT at the hearing held on 05.03.2009. (xi) Thereafter, the DIT, passed the order under Section 263 of the 1961 Act, on 12.03.2009. This order was sustained by the Tribunal vide order dated 20.12.2012. 9.1. Given these facts, which have emerged from the 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,....
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....spects, which, the DIT has found fault with, while, revising the Assessing Officer's order, can be, broadly, paraphrased as follows : (i) That the SGF unit could not be considered as a separate undertaking on account of the fact it was only a part of the Ravva block, which had been operating, since, 1994. (ii) That the Assessee had not carried forward all expenses incurred with respect to the SGF unit, prior to the year, in which, commercial production had commenced. (iii) Apart from the above, the DIT has also observed in the same vain, that, though, SGF had merged with other blocks, it had its expenses and losses carried forward, to have them set off in subsequent years. (iv) An observation was also made by the DIT with respect to the audit expenses. The DIT is of the view that, since, the audit expenses 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 t....
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....s long as at the time of hearing, the DIT confronts the Assessee with the concerns, and/or, objections, he has, vis-a-vis, the assessment order, and discloses to the Assessee, the material, if any, he has in his possession, which led him to believe that the assessment order passed is both erroneous and prejudicial to the interest of the Revenue. 11.2. It is our view that, if, the Assessee is not confronted with material, which is available with the DIT, which has caused him to exercise the revisional power vested in him under Section 263, the exercise of jurisdictional would be irregular. Section 263 of the 1961 Act confers powers on the DIT to revise the assessment order, albeit, after giving the Assessee an opportunity of being heard, and after making and causing such enquiry to be made, as may be deemed necessary. In our opinion, failure 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 ....
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....e 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......(emphasis is ours) 11.6. A close scrutiny of the facts obtaining in the aforementioned judgement of the Supreme Court would show that the reason the appeal of the Revenue was allowed, was 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 ....
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....s question is answered in favour of the Revenue and against the Assessee. Question No.2 :2 13.2. Our answer to question No.2 is similar to our answer to question No.1, which is that, though no SCN was issued with regard to the admissibility of the deduction claimed by the Assessee under Section 80IB(9), opportunity, in that behalf, ought to have been given by the DIT at the stage of conducting the hearing and prior to passing an order under Section 263 of the 1961 Act. Accordingly, question No.2 is also answered in favour of the Revenue, and against the Assessee. Question No.3 :3 13.3. Our answer to Question No.3 will have to be in favour of the Assessee, and against the Revenue, as there was 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. 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....