TaxTMI 
TaxTMI 
2021 (4) TMI 464
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....nal validity of the revisionary proceedings initiated by the respondent given that the original assessment order passed by the AO is not erroneous as the AO has granted deduction claimed under Section 10A of the Act only after duly verifying the documents submitted during the course of original assessment proceedings? (ii) Whether on the facts and in the circumstances of the case the Tribunal was right in law in concluding that in the absence of separate books of accounts being maintained for the 10A units, the deduction shall be computed based on the overall average profit margin of the appellant despite the provisions of Section 10A of the Act specifically provides for unit-wise computation of deduction? and (iii) Whether in the facts and in the circumstances of the case the Tribunal was right in remanding the case back to Assessing Officer for fresh adjudication?" 3.The assessee is a company engaged in the business of software development. For the assessment year under consideration 2010-11, they filed their return of income on 27.09.2010, declaring a taxable income of Rs. 52,87,83,933/- under normal provisions, after claiming deduction of Rs. 79,13,24,379/-....
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....ned separate books of account for 10A units. In the absence of separate books of accounts for 10A units, it is evident that the assessee has shown lesser profit relating to non 10A units thereby reducing the taxable profit by booking excessive expenditure. The average profit of 11.31% has to be uniformly applied and the deduction allowed u/s 10A will have to be reworked accordingly, thereby reducing the deduction under Section 10A, than what is claimed in the return of income. The Assessing Officer has failed to consider this aspect while finalizing the Assessment Order. As such, the Order passed by the Assessing Officer dated 28.03.2014 u/s.143(3) is erroneous and prejudicial to the interest of revenue. Therefore, please show cause as to why the aforesaid order passed u/s.143(3) for the AY 2010-11 should not be set aside u/s.263 of the Income tax Act to bring to tax the aforesaid income which has been left out to be assessed by the Assessing Officer in the impugned order." 5.The assessee submitted their reply dated 16.02.2016, the Authorised Representative of the assessee was heard in person by the PCIT and an order under Section 263 of the Act dated 24.02.2016, was pa....
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....s stated that the profit percentage of 10A units is 24.6% as against 5.42% in non-10A units and the sales turnover of (>90%) is with its AEs only. Further, the assessee-company has not maintained separate books of accounts for 10A units and in the absence of separate books of accounts for the 10A units, it is evident that the assessee had shown lesser profit relating to non-10A units thereby, reducing the taxable profit by booking excessive expenditure. That it was stated that the average profit of 11.31% has been uniformly applied and the deduction allowed under Section 10A will have to be reworked accordingly, thereby, reducing the deduction under Section 10A Act, than what was claimed in the return of income. Therefore, in the opinion of the PCIT, the assessment order under Section 143(3) of the Act, is erroneous and prejudicial to the interest of Revenue. Thus, it could be seen that the PCIT was of the opinion that the assessment order is erroneous and prejudicial to the interest of Revenue on the ground that the profit margin of 10A units is very high, when compared to the profit margin of non-10A units. Further, the assessee has not maintained separate books of accounts for 1....
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....om the export turnover for computation of deduction under Section 10B of the Act. Further, a sum of Rs. 6,75,79,529/- was reduced from the export turnover in computation of deduction under section 10A of the Act. If this is the undisputed factual situation, as has been reflected in the assessment order, we are of the clear view that the Assessing Officer had applied his mind to arrive at the deduction as made by him in his order. Therefore, the PCIT committed an error in holding that the assessment order is erroneous. 12.3.Admittedly, the details called for from the assessee have been submitted before the Assessing Officer, as we find that the Assessing Officer has not recorded that the details were not submitted or not submitted in full form. In the absence of any such finding, it has to be held that the Assessing Officer was satisfied with regard to the details, which were placed by the assessee pursuant to notice dated 29.01.2014. Therefore, the Assessing Officer has completed the assessment based on the materials and documents placed before him and there is nothing to suggest that the conclusion arrived at by him was unsustainable in law, justifying invoking the revisional j....
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....s expenses pertaining to the 10A units and the turnover of the 10A units. 15.In the reply dated 26.02.2014, the assessee has also made submissions on the merits by stating that they have not booked excessive profits in 10A units and not claimed excessive deduction under Section 10A of the Act. The assessee explained the transaction with its AEs, regarding maintenance of separate books of accounts and the allegation of booking excessive expenditure in non-10A units. This has been brushed aside by the PCIT and not considered. 16.With regard to the maintenance of separate books of accounts, as submitted by the learned counsel, the assessee has stated that it is not mandatory to maintain separate books of account for expenses incurred in the different units for the purpose of claiming deduction under Section 10A of the Act. Without prejudice to the said submission, the assessee stated that they have maintained separate statement of profit and loss for each of its units and the same has been submitted to the Assessing Officer during the course of assessment proceedings. Further, the assessee has also furnished report of the Chartered Account in Form 56F certifying the computation ....
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....sessment order, insofar as it relates to the deduction allowed to the assessee to the tune of Rs. 37,10,94,443/- under Section 10A of the Act and directed the Assessing Officer to modify the assessment. 20.On a perusal of the order passed by the PCIT, we find there is no discussion and finding with regard to the exercise of jurisdiction under Section 263, which according to the assessee was without jurisdiction. Secondly, the issue whether it is mandatory for the assessee to maintain separate books of accounts was also not decided by the PCIT. If according to the PCIT, it is mandatory to maintain separate books of accounts, the alternate submission made by the assessee that they have maintained separate profit and loss account and the same was submitted to the Assessing Officer, who has considered the same and then completed the assessment, was not dealt with or discussed. To be noted that the Assessing Officer did not reject the profit and loss account submitted by the assessee, but undertook an exercise to rework the deduction, which was not challenged by the assessee. 21.The PCIT would state that the Assessing Officer has not made any enquiry. This finding is absolutely....
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....ding that Section 80IB does not mandate that for claiming deduction, separate books of accounts should be maintained. 27.In Kumar Rajaram vs. Income-tax Officer (International Taxation 2(1)), Chennai [(2019) 110 taxmann.com 109 (Madras)], the Court considered the scope of Section 263 of the Act and after noting the decision in CIT vs. Gabriel India Ltd. [(1993) 71 Taxman 585 (Bombay)] and the decision of the High Court of Delhi in CIT vs. Sunbeam Auto Ltd. [(2011) 332 ITR 167 (Del)], held that the power exercised under Section 263 of the Act was on account of mere change of opinion. The operative portion of the judgment reads as follows:- "5. ............ The Commissioner had issued show cause notice dated 12.03.2015 under Section 263 of the Act. In the show cause notice, the Commissioner states that the figures mentioned by the assessee were culled out from the records, thus there was no other independent material which formed the basis of the show cause notice. .......... The CIT while issuing the show cause notice did not rely upon any independent material nor on any interpretation of law but on perusal of the records was of the view that the expenditure cannot be al....
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....01.07.2015/22.07.2015 passed under Section 263 of the Act one can easily form an opinion that the order is based upon the interpretation which the CIT has given to the terms and conditions of the last will and testament of the assessee's father dated 30.10.2008. Thus, it is evident that the CIT has made a roving enquiry and substituted his view to that of the view taken by the Assessing Officer who had done so after conducting an enquiry into the matter and after calling for all documents from the assessee, one of which is the last will and testament executed by the assessee's father. Therefore, we are of the clear view that this is not a case where the Commissioner could have invoked the power under Section 263 of the Act. For all the above reasons, the Substantial Questions of Law 1 and 4 are answered in favour of the assessee. 13.The Substantial Question of law No.3 is with regard to the expenditure claimed by the assessee. The assessee had produced documents before the Assessing Officer who had scrutinized the same and accepted the genuinity of the claim and granted the benefit. The CIT disallowed the expenses on the ground that the Assessing Officer did not ma....