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TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 798
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....he assessee was selected for scrutiny u/s. 143(2) of the Act. In the return of income, the assessee company had claimed deduction u/s. 80IC and 80IA of the Act of Rs. 3,48,57,221/- and Rs. 26,08,253/- respectively. In the course of assessment the AO had issued several requisitions u/s 142(1) asking the assessee to furnish the details on various issues, which was furnished by the assessee from time to time. After examining the replies furnished, the AO finally show caused the assessee on several other issues viz. disallowance of forward contract loss of Rs. 39,19,130/-, employee's contribution towards PF/ESIC of Rs. 1,91,996/- and disallowance of expenses u/s. 14A of the Act, requiring it to explain as to why these items of expenditure should not be disallowed. In response to the same the assessee filed its written reply dated 14.03.2016. Thereafter, the AO completed the assessment u/s. 143(3) of the Act on 28.03.2016 determining total income of Rs. 22,96,82,980/-. 3. Subsequently, the Ld. Pr. CIT in exercise of his powers u/s. 263 of the Act was of the view that order of the AO dated 28.03.2016 passed u/s. 143(3) of the Act was erroneous and prejudicial to the interest of the reve....
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....amined and applicability of case law cannot be decided. Similarly no enquiry has been made by the AO under the head provision for doubtful receivable/advances recovered/written back to determine whether the same is eligible for deduction u/s. 80IC. The amount under the head unclaimed balance adjusted also call for further enquiry to determine its nature and determine its allowability/includibility in the income eligible for deduction u/s. 80IC. Similarly the treatment for 'unclaimed balance adjusted' also needs further enquiry and examination to ascertain whether the same is includible in the income derived from eligible business in terms of provision u/s. 80IC. Needless to say the issue of applicability of various case law relied upon by the Ld. AIR could be examined only after enquiring the nature of the transaction under the head "unclaimed balance adjusted". The other items under the head 'Insurance and other claims' and 'Export incentives also need to be examined and enquired into in order to determine the exact nature of receipt and to check whether the same is includible in. the income derived from eligible business in terms of provision u/s. 80IC. The ....
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....e Income Tax Act. It is well settled that incorrect assumption of facts or application of law satisfies the requirement of law i.e. order being erroneous & prejudicial to the 'interest of revenue. The order passed by the A.O. without application of mind or order showing apparent error of reasoning or the order where the A.O. simply accepts where the assessee stated in his return of income and fails to make the enquiries which are called for in the facts and circumstances of the case will also call for intervention u/s 263 of the Act by the CIT/Pr. CIT. It is a trite law that the disclosure of facts by the assessee in the return of income and for in the course of assessment proceedings cannot give immunity from revisional jurisdiction of the CIT/Pr. CIT u/s. 263. In this context, it *may be 'mentioned here that in the' case of Commissioner of Income tax, Centrall Kolkata Vs Maithan International, it was held by Calcutta High Court [2015] 56 taxmann.com 283(Calcutta) that "it is not the law that the Assessing. Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to....
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.... income and if he does not make an inquiry as expected, that would be a ground for the Commissioner to interfere with the order passed by the Officer since such an order passed by the Officer is erroneous and prejudicial to the interests of the Revenue (K.A. RamaswamyChettiar V. CIT, (1996) 220 ITR 657). 6. I have carefully considered the submission made on behalf of the assessee and perused the material available on record and found that the issues pointed out in the show cause needs verification as merely accepting' submission without calling for relevant material/evidences during the course of assessment proceedings the A.O. failed to examine the above referred issue. After having considered the position of law and facts and circumstances of the instant case, I am of the. considered opinion that the assessment order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue in accordance with the Explanation 2(c ) below section 263 (1) of the Act. Accordingly, the issue is set aside to the table of A.O on specific point mentioned in para 2 above. The A.O. is directed to provide reasonable opportunity to the assessee company to produce documen....
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....uce any article or thing not being article or thing specified in the 13th Schedule and undertakes substantial expansion during the period beginning - On the 7th day of January and ending before the 1st day of April 2012 in any Industrial park as notified by the board in accordance with the scheme framed and notified by the 'Central Government in this regard, in the State of Uttranchal. [sec.80-IC 2(a)(ii)]. In relation to this we are attaching herewith the approval certificate of DIC bearing number 1163-64 dated 21-08-2008 and marked as Annexure-D/l. Moreover undertaking also fulfils the conditions mentioned in section 80- IC(4). ii) Conditions - For Deduction Claim under section 80IA The company claiming deduction under section 80-IA (7) as it operates Wind Mill generating Wind power by satisfying conditions mentioned in the section 80-IA(2) i.e. 'generates power' and conditions mentioned in section 80- IA(4)(iv) i.e. undertaking set up in any part of India for generation or generation and distribution of power during the period beginning on the 1st day of April 1993 and ending on the 31st day of March 2017" In relation to this we attaching herewith commissioning cer....
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....ining the jurisdictional condition precedent for invoking revisional jurisdiction under section 263 0f the Act, the expression "erroneous & prejudicial to the interest of revenue" has observed as under:- "The phrase "prejudicial to the interest of the revenue" is not an expression of art and is not defined in the Act. 'Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the Revenue. The phrase "prejudicial to the interest of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Incometax....
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....ote that the AO has passed the assessment order after calling for details on the issues found fault by the PCIT and after considering the reply and documents filed before him passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. CIT's finding fault with the order of the AO as erroneous as well as prejudicial to the interest of revenue on account of lack of inquiry has to fail. 10. Now we proceed to answer the question as to whether the decision of the AO, after perusal of the reply of the assessee in respect of deduction u/s. 80IC of the Act, can be held to be unsustainable in law or whether can it be said to be a plausible view. We note that in the notice issued u/s. 263, the Ld. CIT has alleged that the assessee has claimed excess deduction u/s. 80IC of the Act on certain items of 'other income' which were not derived from the eligible business of the assessee and hence were required to be disallowed for working out the sum eligible for deduction u/s 80IC of the Act. We note the details of other income and export incentive are as under: Particulars Amount (Rs.) Interest Rs. 4,64,496/- Exchange Differenc....
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....; "Both, in the case of CIT Vs. Sterling Foods (supra) and in the case of liberty India Vs. CIT (supra), Their Lordships have laid emphasis to find out whether there is a direct nexus between the money earned and the activity pursued by the assessee. In the case of Pandian Chemicals (supra), interest was earned by the assessee from out of deposits made with the electricity board. It could, therefore, be said that the income arising out of interest did not have any direct nexus with the industrial undertaking of the assessee. In the case of CIT vs. Sterling Foods (supra), the assessee was engaged in the business of sea foods. The income in question was derived from out of sale of the import entitlements. It was, therefore, possible to say that the income was not or did not have any direct nexus with the activity of the assessee. Similarly, in the case of Liberty India (supra) the income in question was the amount of drawback incentives received by the assessee which did not have any direct nexus with the export made by the assessee. But, in the present case it is difficult to say that the interest earned by the assessee from the buyers of the goods on account of delayed payment of....
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.... has been included in profits of business of assessee as computed under head 'Profits and Gains of Business or Profession' is to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining profits of business Held,- yes [In favour of assessee]" (ii) CIT Vs. Bulher India Ltd. in (2012) 206 Taxmann 62 Hon'ble High Court of Karnataka; "Section 80IA of the Incometax Act 1961 Deductions Profit and gains from infrastructure undertakings Assessment year 199798 Whether for purpose of computation of deduction under section 80IA interest income earned by assessee after deducting interest payments on borrowed tunas should be taken into account Held, yes [In favour of assessee]" (iii) CIT Vs. Shri Ram Honda Power Eguip. In (2007) 289 ITR 475 Hon'ble High Court of Delhi . " Whether where, as a result of computation of profits and gains of business and profession, Assessing Officer treats interest receipt as a business income, deduction under section 80HHC would be permissible in terms of Explanation (baa) to section 80HHC, of net interest, i.e. gross interest less expenditure incurred for purposes of earning such interest Held, yes" (b) Exchange Dif....
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....ence on account of exchange rate fluctuation is entitled to deduction under section 80IB of the Act. No contrary decision was brought to my notice. Respectfully following the judgment of the Hon'ble Bombay High Court in the case of CIT Vs. RachnaUdyog (supra), 1 hold that the difference on account of exchange rate fluctuation is entitled to deduct ion under sect ion 80IC of the Act. This ground of appeal is allowed. " (iii) M/sAnsysco Vs. ACIT in ITA 895/Chd/2012 Hon'ble ITAT Chandigarh; "However in respect of Foreign Exchange Fluctuation Gain of Rs. 35,432/, hold that the same is directly linked to the business activity and consequently, the assessee is entitled to the claim of deduction under section 80IC of the Act. The ground of appeal raised by the assessee is, thus partly allowed." (iv) M/s Hycron Electronics Vs. ITO inITA 798/Chd/2012 Hon'ble ITAT Chandigarh; "61. As far as the amount received on foreign exchange fluctuation is concerned, though in case of Ansysco (supra) it was held that gain from Foreign Exchange Fluctuations was directly related to the business activity therefore assessee was entitled to deduction. However the details are not incorpo....
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....herefore held to be eligible for deduction u/s.80IC of the Act. Some of the relevant decisions in this regard is discussed hereunder:- (i) CIT Vs. Metalman Auto (P) Ltd. in (2011) 336 ITR 434 Punjab &. Haryana High Court; ''Appeal (High Court) Substantial question of lawDeduction under s. 80IB Tribunal is justified in law in allowing deduction under s. 80IB on labour job receiptsMiscellaneous receipts from rebate, discount and balances written off are incidental to the profits and gains derived from eligible business under s. 80IB No substantial question of law arisesCIT vs. Impel Forge & Allied Industries Ltd. (IT Appeal No. 543 of 2008, dt 5th Dec., 2008) followed." (ii) M/s.Ansysco Vs. ACIT in ITA 895/Chd/20l2 Hon'ble ITAT Chandigarh; ''However, the claim of the assessee was allowed on the amount received on scrap sales, credit balances written off the parties and insurance claim received towards material damage. We have already in the paras herein above, while deciding appeal of the revenue upheld the order of Commissioner of Income Tax (Appeals) in allowing deduction under sec 80IC of the Act on Miscellaneous Income, Insurance Claim, and income from....
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....had received any real income on this account and to restrict the disallowance accordingly. No infirmity has been pointed out in the order of the Id. CIT(Appeals), therefore, we do not find any justification to interfere with the order of Id. CIT(Appeals). This ground is accordingly, dismissed. 28. In the result, departmental appeal is dismissed." (f) Export Incentive: It is noted that the assessee had received export incentives from the Government in the form of Duty drawback, Focus product license and Status holder license etc. in respect of the export sales made by the eligible unit. The nature of each of the export incentive as explained by the Ld. AR of the assessee is discussed as under: (i) DEPB License is received for the export of the goods and the same is used for subsidising the cost of Raw Material as payment of the custom duty. There is sale of DEPB License and the same is used only for the payment of custom duty on Import of Raw Material. Thus, on the cost of DEPB License, custom duty gets rebated on import of Raw Materials. As such, there is no profit element is involved in DEPB License received by the assessee and the same is nothing but subsiding the cost of t....