TaxTMI 
TaxTMI 
2023 (8) TMI 759
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....erest bearing inter corporate deposits to a group of concern namely M/s SMS Tolls and Developers Ltd., out of the interest bearing loans from banks, which is in violation of legal provisions U/S 36(l)(iii) of the IT Act?" 3. "Whether on points of law and on facts & circumstances of the case, the Ld.CIT(A) having concurrent power of the AO as per the due provisions of law u/s 250(4) of the IT Act, was justified in giving the finding that, the impugned disallowance of Rs. 13,90,58,404/- is eligible for deduction u/s 80IA of the Act which is contrary to the finding of the AO, that the addition made by the assessee to the income eligible for deduction u/s 80IA of the Act on account of disallowance of interest have been so far arranged, that the profit of eligible business is arrived at in a quantum, more than the profit derived in the ordinary course of such eligible business?" 4. "The order of Ld. CIT(A) is erroneous both in law and on facts". 5. "Any other ground that may be adduced at the time of hearing". 3. Brief facts of the case are that, the assessee company has filed its return of income for AY 2012-13 on 28.09.2012 declaring income of Rs. 1,13,53....
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....llenge the findings of the Ld CIT(A) on this issue. 6. At the outset, Ld. CIT DR submitted that funds raised by way of a loan by the assessee from the bank were diverted to the associate concern M/s Tolls & Developers Ltd. (SMS Tolls), but to avail the benefit of deduction u/s 80IA the portion of the interest attributable on the bank loan used for granting of ICD of Rs. 107.70 Crore for which no interest was either stipulated or being charged was added back to the income by the assessee suo moto. According to Ld CITDR, Ld CIT(A) was wrong in not considering the correct view taken by the AO that the interest on borrowed loan which was not used for the business is not an allowable expenditure and is required to be disallowed and added to the income of the appellant. The Appellant had devised the transaction in such a way that profit of eligible business for deduction under provisions of section 80IA(10) of the Act arise more than the profit derived in the ordinary course of such eligible business. Ld CIT(A) had not appreciated the facts of the case in correct perspective and thus have reached on a wrong and unjust finding by allowing the assessee's excessive claim of Rs. 13,90,58,....
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....rom business, which is the eligible business, was computed at Rs. 23,88,87,498/-, 100% of which was deductible under section 80lA and was accordingly claimed in the return of income. 5. It is noteworthy to mention here that the claim of deduction under section 80IA is not in dispute and the Assessee has been claiming deduction under section 80lA for the past many years as well which has also been allowed by the Department on same facts of the case. 6. The case of the Appellant was selected for scrutiny. The Appellant during the course of assessment proceedings provided all the details as desired by the Assessing Officer ("AO") including furnishing of statutory form 10CCB in support of deduction claimed u/s 80lA as well as the computation of book profits u/s 115JB of the Act. The assessment was completed u/s .143(3) of the Act by making an addition of Rs. 13,90,58,404 representing the amount of interest paid to bank and which is attribute to the loan amount utilised for giving interest-free ICD loan to the sister concern by the Assessee on the ground as under: Therefore addition on account of this allowance of interest of Rs. 13,90,58,404 made to the profit of busi....
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.... section 30 to 430 of the Act are to be excluded for the purpose of computation of income eligible for deduction under 80lA of the Act. The Appellant also brought to my notice that the observations of the AO pertaining to notional interest of Rs. 13,90,58,404 which should be treated as income from other sources is misplaced. The Appellant argued that the said amount is not to notional interest but the actual interest paid by the Appellant to the bank on loans borrowed. It was submitted that this was an actual expenditure and taxing the same could be tax on expenditure. 9. The CIT(A) further observed that while the contentions of the Assessee have force, the AO has not brought on record any credible instances in support of his observations of the business arrangement being such between the Assessee and the associate concern that produces more than ordinary profits which might be expected to arise in such eligible business. 10. The CIT(A) also at paragraph 2.1 of the order referred to the order of the PC IT passed under section 263 for the immediately preceding previous year i.e AY 2011-12 wherein the PCIT despite having initiated 263 proceedings on identical ground....
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....en as interest-free ICD to its sister concern and accordingly not utilized for the purpose of the eligible business of the Assessee, the interest pertaining to the same also could not be debited to the profit derived from the eligible business since the loan amount was not utilized for the benefit of the eligible business. 13.1.4. Considering the above, the Assessee added back and disallowed the interest amount of Rs. 13,90,58,404/- pertaining to the interest-free advance given, to the net profit as derived in the profit and loss account of the Assessee to arrive at the correct figure of profit of eligible business. By adding the interest pertaining to the interest free advance, the net profit thus had the effect of only the interest paid pertaining to the bank finance utilized for the purpose of the eligible business of the Assessee and the resultant net profit reflected the correct figure of the profit pertaining to the eligible business of the Assessee. 13.1.5. The resultant profit amounting to Rs. 23,88,87,498 from the eligible business of the Assessee was accordingly claimed deduction under section 80lA of the Act in accordance with the scheme and the provisi....
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.... Rs. 107.70 Crore to its associate concern then the Assessee would have probably repaid this loan to the bank / not availed the loan and would have saved interest expenditure of Rs. 13.90 Crores. This would have resulted into the same taxable profit as the Assessee has shown in its return of income. Similarly, the profit eligible for deduction under section 80lA would also have been the same as claimed by the Assessee in its return of income. 13.4. Section 80IA(10) is not applicable to the facts of the case as has been wrongly applied by the AO 13.4.1. In A.T Kearney India Pvt. Ltd. Vs. Additional Commissioner of Income Tax (2014) 60 (11) ITCL 521 (Delhi 'I' - ITAT), it was held that the provisions of sub-section (10) of section 80lA is a deeming provisions and it must be strictly construed. The assessing officer must show at the first instance that the course of business between the closely connected persons was arranged so as to produce more than ordinary profits in the hands of a person carrying on the eligible business. 13.4.2. In the present case the Assessee having not charged any interest from its sister concern, it can by no stretch of ima....
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....r deduction under section 80lA of the Act. 13.6.4. The Assessee thus rightly added back the interest paid and debited to profit and loss account and the books of accounts to the extent of Rs. 13,90,58,404 in its computation of income being a disallowable expenditure which was not pertaining to the eligible business and as such was to be excluded while computing the profits of eligible, business as per the provisions of section 80IA. 13.6.5. The action of the Assessee was thus as per the scheme of section 80lA and the addition made by the AD was rightly deleted by the CIT(A). 13.7. Similar working by the Assessee has been allowed by the AO in the immediately preceding previous year which has further been confirmed is allowable in section 263 proceedings. 13.7.1. The interest free ICD of Rs. 107.70 Crores was granted by the Assessee in the immediately preceding year i.e AY 2011-12 and not in the current year. 13.7.2. Accordingly, even in AY 2011-12, the Assessee had added back the proportionate interest attributable to the interest-free advances given to its book profit in the computation of income to arrive at the eligible profit under se....
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.... appeal of the revenue in the interest of justice. Prayed Accordingly. 8. Having heard the rival contentions, on perusal of the records available, after thoughtfully considering the relevant CBDT circular as well as various judicial pronouncements relied upon by the parties. Our observations are in the following para's : 9. On perusal of the order of the Ld CIT(A), wherein it has been explained, that how the impugned deduction u/s 80IA is admissible and should be allowed to the assessee. Ld CIT(A) has discussed the provision of section 80IA(10), which the AO has relied upon for making the impugned disallowance. Ld CIT(A) has also considered the findings of Ld PCIT on this issue, while conducting revisionary proceedings u/s 263 for a year just before the relevant AY 2012-13 being AY 2011-12, wherein, under the identical situation, except the figure of the interest suo moto disallowed by the assessee, the proceedings on this issue were dropped after giving a thoughtful consideration to the facts of the issue, inlight of the provisions of section 80IA. Ld PCIT has concluded that "it is a matter of quantum of amount of claim and it does not make a difference in deduction....
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....the AO has not brought on record any credible instances in support of his observations on the business arrangement being such between the appellant and the associate concern that produces more than ordinary profits which might be expected to arise in such eligible business. The hon‟ble Chandigarh Tribunal reported in 67 Taxmann.com 152 held that where the AO failed to bring any material on record to show existence of any arrangement for business transacted between two entities section 80IA(10) could not be invoked. The hon‟ble Allahabad High Court in Commissioner of Income Tax Meerut vs. Translam ltd. Reported in 52 taxmann.com 357 (Allahabad) held that where assessee company had maintained separate accounts for each unit and further assessing officer could not prove that business between eligible unit and other units of the assessee were so arranged that business transactions between them produced more profit to eligible business, assessee would be entitled for deduction u/s. 80lA of the Act. 2.1 It was also brought to my notice that for the assessment year 2011-12 in the order u/s. 263 of the Act dated 31.03.2016 of the Principal Commissioner of Income tax-2,....
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....nath Tiwari IT Appeal no. 2 of 2011, September 11.2015, Bombay High Court. ii. If deduction u/s. 40A(3) of the Act is not allowed the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction u/s. 80-IB of the Act This view was taken by the court in the following case: - Principal CIT, Kanpur vs. Surya Merchants Ltd." IT Appeal No. 248 of 2015, May 03,2016, Allahabad High Court. The above views have attained finality as these judgements of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. Lll. In view of the above, the Board has accepted the settled position that the disallowance made u/s. 32, 40(a) (ia), 40A(3), 43B etc of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed result in enhancement of the profits of the eligible business and that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance. 2.3 In view of the above discussions I find that the AO is not justified in denying the claims of the appellant u/s 80lA relating to ....
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....side the assessment was not a subject matter of notice issued u/s 263 of IT Act. 3. That any other ground may be raised during the course of hearing of this appeal. 12. Brief Facts of the case as state are, that the Appellant is a private limited company engaged in the business of Construction, management and operation of Durg bypass project on Build, Operate and Transfer (BOT) basis. The Appellant is assessed to tax vide PAN: AADCS2258Q and has been regularly filing its returns of income on time. The books of accounts of the Appellant are duly audited under the provisions of The Companies Act, 1956 as well as under section 44AB of the Income Tax Act, 1961 ("Act"). 13. The assessee filed its original return of income for the AY under appeal electronically on 29.9.2011. However, due to some technical fault all the entries in the return were shown as NIL. Accordingly a revised return was filed on the same day declaring a total income of Rs. 73,66,990/- comprising of interest income and Short Term Capital Gains. Income under the head business and profession was fully claimed as deduction U/s 80lA for Rs. 19,17,84,203/-. Tax was paid U/s 115JB of the Act. The Appellant h....
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....urse of assessment, there was no reason to hold that the order of the AO was erroneous and prejudicial to the interest of the revenue. The Appellant further, on merits as well, furnished detailed submission explaining that the grounds for 263 proceedings do not constitute any error much less error which is prejudicial to the interest of revenue and that the Appellant had correctly offered the income which has further been rightly accepted by the AO. The Appellant in light of the submission requested the Pr. CIT - 2 to drop the revisionary proceedings initiated U/s 263.The PCIT-2 accepted the contention of the Appellant in relation to both the grounds on which section 263 proceedings were initiated accordingly dropped the revision proceedings on those original grounds. 17. The CIT however, held the order of the AO to be erroneous and prejudicial to the interest of the revenue on a new ground that the AO ought to have examined whether the Book Profit disclosed at Rs. 9,29,14,553/- is correct in accordance to part-II of Schedule VI to the Companies Act, 1956 for the purpose of determination of tax payable under MAT U/s 115JB of IT, Act, 1961. The said new ground was taken and adjud....
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..... CIT (2000) 159 CTR (SC) 1 The PCIT has wrongly presumed that the AO has not verified the tax calculation U/s 115JB ignoring the fact that the calculation has been duly verified by the AO and has even been reproduced in the assessment order. The interest of Rs. 10,28,97,0081- having been added back to the book profit by the Appellant in its computation of income which has been accepted by the AO and the same also having been elaborately disclosed in the accounts and audit report of the Appellant, it cannot be said that the same has not been verified by the AO. The issue having already been verified by the AO, the same cannot be the subject matter of section 263 proceedings. Further, even if it is presumed that there was inadequate enquiry by the AO, still it is not sufficient for section 263 revision. Reliance placed on CIT Vs. Vikas Polymers (2012) 341 ITR 537 (Del) CIT Vs. Sunbeam Auto Ltd. (2010) 332 ITR 167 (Delhi) Further, the CIT having issued a Show Cause Notice U/s 263 stating the reasons for invoking the section, has no authority to travel beyond the reasons issued in the Notice as has been done in the present case. Re....
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....g the facts of the case which makes the order passed U/s 263 violative of the principles of natural justice and thus unsustainable under law. Reliance placed on Shriniwas Engineering Auto Components Pvt. Ltd. Vs. Pr. CIT - 3, Pune ITA No. 777/Pun/2018 Prayed Accordingly 20. Ld CIT DR on the other hand vehemently supported the order of Ld PCIT and submitted that Ld PCIT was well within his powers to invoke revisionary proceedings, in the present case since the AO's order was established to be erroneous in so far as it is prejudicial to the interest of revenue, there for order of the PCIT deserves to be upheld. 21. We have considered the rival submissions. The PCIT has raised two issues for invoking his revisionary powers conferred upon him by the statute under section 263 of the Act. The Issues raised under notice dated 29.02.2016 were as under: 1. "The P&L Alc for the said assessment year reveals that the interest of Rs. 10,28,97,008/- on bank loan for granting ICD [inter corporate deposit] of Rs. 1,07,70,00,000/- in which interest was neither stipulated nor charged, was added to the net profit of business Vis 80lA of the IT Act. The said a....
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....iating the ratio laid down by Hon'ble Supreme Court in the case of CIT vs. Amitabh Bachchan (384 ITR 200) (2016) wherein it was clearly held by the Apex Court that there is nothing in Section 263 to make the CIT confine himself to the terms of show cause notice? 23. Hon'ble Mumbai High Court on the aforesaid question of law proposed by the revenue, has decide the issue after deliberating upon a judgment of Hon'ble Apex court in the Case of CIT Vs Amitabh Bacchan reported in (2016) 384 ITR 200 and has held as under: 5. On the issue of payments made to persons specified under Section 40A(2)(b) of the Act, the ITAT gave a finding of fact that no such issue was ever raised by CIT in the notice served upon the assessee and the assessee was not even confronted by the CIT before passing the Order dated 20th March, 2013. ITAT concluded that the said ground therefore cannot form the basis for revision of assessment order under Section 263 of the Act. It is only this finding of ITAT which is impugned in this Appeal. On the other two points, revenue has accepted the findings of ITAT that the Order under Section 263 was not warranted. 6. Mr. Suresh Kumar submitted that Ape....
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....it in the requirement cast by the Section to give the assessee an opportunity of being heard. It is in the context of the above position that this Court has repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. The two requirements are different; the first would comprehend a prior notice detailing the specific grounds on which revision of the assessment order is tentatively being proposed. Such a notice is not required. What is contemplated by Section 263, is an opportunity of hearing to be afforded to the assessee. Failure to give such an opportunity would render the revisional order legally fragile not on the ground of lack of jurisdiction but on the ground of violation of principles of natural justice. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal vs. CIT [1970] 76 ITR 496 a....
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....he case of Section 34. Section 33-B merely requires that an opportunity of being heard should be given to the assessee and the stringent requirement of service of notice under Section 34 cannot, therefore, be applied to a proceeding under Section 33-B." (Page 827- 828). [Note: Section 33-B and Section 34 of the Income Tax Act, 1922 corresponds to Section 263 and Section 147 of the Income Tax Act, 1961] 11. It may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (Section 263) to raise the 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 sa....