TaxTMI 
TaxTMI 
2019 (11) TMI 798
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....Act on 04.09.2014. Subsequently, the case of the 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 er....
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....uiring and examining the transaction details the issue. cannot be judicially examined 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 sa....
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.... in cases where the issue is debatable and such power is not comparable with the power of rectification of mistake u/s 154 of the 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 posit....
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....g and scope of Section 263 of the Income Tax Act, 1961. The aforestated decisions postulate that when the officer is expected to make an inquiry of a particular item of 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, t....
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....under this section as it manufacture opal glass in EldecoSidcul Industrial Park of Uttaranchal. The conditions as per section 80-IC 2(a) is that any undertaking or enterprise begun or begins to manufacture or produce 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 se....
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....be erroneous unless the same is patently wrong or the view taken is unsustainable in law. In this connection, we would like to note the observation made by the Hon'ble Supreme Court in the case of M/s. Malabar Industrial Co. Ltd. Vs CIT {2000} 243 ITR 83 (SC). The Hon'ble Apex court while explaining 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....
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....eduction claimed u/s 80-IC in respect of the profits derived from manufacturing unit situated in EldecoSidcul Industrial Park of State of Uttaranchal, and upon examining the reply furnished by the assessee (refer Para 5 supra), the AO framed the assessment order u/s. 143(3) dated 28.03.2016. In view of judicial pronouncements discussed supra, we thus note 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 Ac....
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....ower to the unit. He thus contended that such interest income had first degree nexus with the eligible undertaking of the assessee and accordingly the same would equally qualify for the deduction u/s 80IC of the Act. We note that this claim of the assessee is supported by the following decisions: (i) CIT Vs. Nagreeka Foils Ltd. in ITA No.99 of 2007 Hon'ble High Court of Calcutta dt.21.07.2014; "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 ....
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.... Rs. 3,12,66,009/- Interest Received Rs. 4,64,496/- Net Interest Paid Rs. 3,08,01,513/- This alternative plea of the assessee is found to be supported by the following judicial pronouncements, which are as under; (i) ACG Associated Capsules (P) Ltd. Vs. CIT, Hon'ble Supreme Court in (2012) 343 ITR 89(SC) "Whether therefore, ninety per cent of not gross rent or gross interest but only net interest or net rent, which 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....
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....f export and the date of receipt of proceeds Therefore, the difference on account of exchange rate fluctuation is entitled to deduction under sec. 80ID." (ii) JCBL India Pvt. Ltd. Vs. ACIT in ITA 368/Chd/2012 Hon'ble ITAT Chandigarh; "12. From the above, it is clear that the Hon'ble High Court has categorically held that the exchange rate fluctuation arises out of and is directly related to the sale transaction involving the export of goods of the industrial under taking and, therefore, difference 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....
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....es were accounted as expenses of the eligible undertaking in the earlier years and therefore in arriving at profits eligible for deduction u/s 80IE of the earlier years, deduction for such trading liabilities were allowed. In the year under consideration, the unpaid balances/liabilities which were found to be not payable were written back in the Profit & Loss Account. We therefore find that the unpaid balances written back related only to the business for which deduction was allowed while computing the eligible profits u/s 80IC in earlier years. Such write back of liabilities is therefore 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....
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....fficer referred to the decision of the Hon'ble Supreme Court in the case of Sterling Foods 237 ITR 597 and disallowed claim of assessee. The Id. CIT(Appeals) considering the issue directed the Assessing Officer to examine whether the assessee had received any real income on this account and to restrict disallowance accordingly..... . ... 27 After considering rival submissions, we do not find any infirmity in the order of Id. CIT(Appeals) . The Id. CIT(Appeal,) correctly considering the decisions of the Hon'ble Punjab & Haryana High Court and the Delhi High Court (supra) rightly directed Assessing Officer to examine whether assessee 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 lic....
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.... export incentives, by whatever name called, given by the Government is with a view to incentivize and reduce the effective cost of production of the assessee. There is essentially no element of profit derived from export incentives, but it is meant to reduce the cost of production. The Ld. AR invited our attention to the decision of the Hon'ble Supreme Court in the case of CIT Vs Meghalaya Steels Ltd (384 ITR 217) wherein one of the questions before the Apex Court was whether insurance subsidy received from the Government could be said to be derived from the industrial undertaking and hence considered for the purposes of computing deduction u/s 80IC of the Act. The Supreme Court observed that the insurance subsidy was given to subsidize the cost of insurance premium incurred by the assessee in relation to the premises as well the stock manufactured at the eligible Unit. Accordingly the Court observed that such subsidy being relatable to the cost of production of the Unit had direct & first degree nexus with the business of the eligible undertaking and therefore was held to be eligible for computation of deduction u/s 80IC of the Act. We find that similar view was also expressed by....
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.... the following grounds:- It is noticed that the assessee had claimed deduction of Rs. 3,48,57,221 (30% of total income of the Stargunj unit of Rs. 11,61,90,736) u/s. 801C(2) of the Act for the Sitargunj unit situated at Sidcul Industrial Park of Udham Singh Nagar of Uttaranchal. It is further noticed from the profit and loss account of the Stargunj unit, that the assessee had credited income of Rs. 96,51,611 from export incentive and also other income totalling to Rs. 38,92,938 which mainly obtained from interest, exchange difference, insurance etc. However, the assessee while calculating the deduction u/s. 801C of the Act (i.e. 30% of total profit from the related business of the assessee) the assessee had taken the above mentioned income of Rs. 1,35,44,549 (Rs 96,51,611 +Rs. 38,92,938). As per provisions of section 801C of the Act, the deduction will be available only from the profit or gain of the assessee derived from the business as specified in sub section (2). However, the amount of Rs. 40,63,365 i.e.30% of Rs. 1,35,44,549 which was not derived from the eligible business of the assessee was required to be added back to the income of the asses....