TaxTMI 
TaxTMI 
2018 (10) TMI 1443
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....s for power generation for captive purpose. It has filed its return of income on 29.11.2013 declaring total income at Rs. 76,03,79,800/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued on 4.9.2014. It was duly served upon the assessee. The ld.AO has passed an assessment order under section 143(3) of the Act on 21.1.2016. He determined taxable income of the assessee at Rs. 81,21,02,510/- as against Rs. 76,13,79,802/- declared by the assessee. On scrutiny of the records, the ld.Commissioner formed an opinion that the assessment order is erroneous and prejudicial to the interest of Revenue. Hence, action under section 263 of the Act required to be taken against the assessee. He issued show cause notice dated 26.3.2018. Copy of the show cause notice is available at page no.231 of the paper book. It reads as under: OFFICE OF THE PR.COMMISSIONER OF INCOME-TAX -2, AHMEDABAD 1s' Floor, Navjeevan Trust Building, B/H Gujarat Vidyapith, Ahmedabad- 380 014, Telefax-079-27542603 No.Pr.CIT- 2/ABD/Tech/263/17-18 Date: 26.3.2018 To, The Principal Officer Gujarat Ambuja Exports Ltd Opp. Mem....
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....equipments were purchased and installed in the second half of the assessment year. In the absence of such equipments plant could not become operational independently. Hence, the ld.AO did not examine the issue properly whether the plant was operational in the absence of certain parts, which have been installed in the latter half of the year. If not, how it can be construed that the plant was put to use? In the opinion of the Commissioner, the AO failed to conduct inquiry on this aspect, and therefore, his order is erroneous, which deserves to be set aside. 5. The assessee raised multi fold of objections before the ld.Commissioner viz. that the assessee is entitled for deduction under section 80IA/80IC. In case depreciation is disallowed, then its eligible profit would increase and it will get higher deduction under section 80IA/80IC. There is no prejudice to the Revenue because this exercise will be revenue neutral. On the one hand, disallowance will be made out the depreciation, on the other hand, deduction under section 80IA/80IC would be granted. Somehow, the ld.Commissioner dealt with the issue in para 3.2, but failed to record any logical finding. The finding recorded by th....
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....e the dispute relating to computation of deduction under section 80IA/80IC travelled to the ld.CIT(A), then according to the Explanation 1 of clause (c) of section 263, the issue would be merged before the ld.CIT(A) and no independent action required to be taken by the administrative Commissioner. He placed reliance upon the order of the Hon'ble Gujarat High Court in the case of CIT Vs. Nirma Chemicals Works P.Ltd., 309 ITR 67 (Guj). He also placed on record copy of the order passed in SCA No.2818 of 2018 (Guj) in the case of Haryana Paper Distributors P.Ltd. 9. In his next fold of contentions, he submitted, the ld.AO has conducted proper inquiry, and thereafter took one of the possible views, therefore, no action under section 263 ought to be taken. For buttressing his contentions, he took us through copy of show cause notice issued by the AO under section 142(1) of the Act. He specifically drew our attention towards page no.80 of the paper book wherein at serial no.5 of the show cause notice, the ld.AO has called for following information: "5. Complete details of additions made to fixed assets, including work in progress during the financial year 2012-13 along with th....
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.... sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) "record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this subsection shall extend and shall be deemed always to have extended to such matters as....
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....lmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in vari....
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....f the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. 15. Main thrust of arguments at the end of the assessee is that even if the depreciation is being disallowed, then also there is no prejudice to the Revenue, because whole exercise at the end of the Commissioner would revenue neutral. The moment addition on account of disallowance of the deprecation would be made to the income of the assessee, it will be allowed as deduction under section 80IA/80IC. If that be so, then where is the prejudice ? It is settled position that unless twin conditions are fulfilled i.e. erroneous of the impugned order before the ld.Commissioner, as well as prejudice to the Revenue on account of such error are available, action under section 263 is not permissible. 16. The Hon'ble Karnataka High Court in the case of CIT Vs. Shri D.G. Gopala Gowda, 354 ITR 501 (Kar) had an occasion to examine similar aspect, i.e. if after exercise of power u/s.263, no taxable income is unearthed in the hands of the assessee, then, action u/s.263 should not be upheld. The facts in that case are noticed by Hon'ble Court in para-2 which read as unde....
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....d, the amount that is ordered to be refunded to the assessee is not the amount, which is lawfully due to the Revenue at all, it was an amount which is Revenue legitimately should have refunded if only the claim had been in the return enclosing the certificates under Section 203. the said amount should have been refunded to the assessee. Because he was handicapped by such certificates not being forwarded to him, consequently not able to make the claim, such a claim was not made. The moment he got possession of those certificates on 12.02.2001, within two years from the date of the end of the assessment year he has put forth the claim. The said amount was not a lawful amount to the Government. It was an amount which should have been refunded to the assessee. Therefore, the condition precedent for exercising the revisional power under Section 263 of the Act is that the order under revision should not only be erroneous, but such erroneous order should result in prejudice to the interest of the revenue. Mere error would not confer jurisdiction to exercise revisional power under Section 263 of the Act. We have gone through the order passed by the revisional authority. It is a very crypti....
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....der was not prejudicial. Therefore, the order passed by the revisional authority is illegal and rightly it has been set aside. In the light of what we have stated above, the substantial question of law is answered in favour of the assessee and against the revenue." 18. The Hon'ble High Court has held that fulfillment of twin condition is must i.e. assessment order should be erroneous and it should cause a prejudice to the Revenue. If any one condition is lacking, then action u/s 263 would not be justified. In the above case, the assessment order was erroneous because the learned Assessing Officer failed to compute the long term capital gain and short term capital gain separately. But the Tribunal ultimately arrived at a conclusion that even if this exercise is being done, then there will not be any tax liability and therefore, there is no need to set aside the assessment order. The Hon'ble High Court has upheld this finding of the Tribunal. 19. In the light of the above, if we consider the facts and circumstances of the present case, then it would reveal that the assessee is entitled for deduction under section 80IA/80IC. The moment depreciation is being disallowed, i....