TaxTMI 
TaxTMI 
2024 (3) TMI 715
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....o far as it is prejudicial to the interest of the revenue. 1.1. That on the facts and in the circumstances of the case, the Id. Principal Commissioner of Income-tax grossly erred in passing the impugned order u/s. 263 of the Income-tax Act and in holding that "the Id. AO has failed to make necessary inquiries regarding eligibility & allowability of the deductions u/s. 10AA of the IT Act, 1961" which is wholly unjustified, bad in law and deserve to be quashed. 1.2. That the Id. Principal Commissioner of Income-tax failed to appreciate that the Id. Assessing Officer had passed the assessment order after appreciating all supporting documents and evidences and past history of the assessee and therefore the assessment order passed by the Id. Assessing Officer is neither erroneous nor is prejudicial to the interest of the revenue. 1.3. That the Id. Principal Commissioner of Income-tax grossly erred in ignoring the detailed submissions made by the assessee in response to notice u/s. 263 and in passing the impugned order on assumptions, presumptions, conjectures and surmises which is bad in law. 1.4. That the Id. Principal Commissioner of Income-tax gros....
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.....04.2021. Thus the delay of 58 days filing the appeal by the assessee is condoned as the assessee is prevented by sufficient cause. 6. Succinctly, the fact as culled out from the records is that the assessee filed his income tax return for A.Y. 2015-16 on 30.11.2015 declaring total income of Rs. 4,68,02,540/-. The assessee company claimed deduction of Rs. 3,90,12,873/- u/s. 10AA. The assessment u/s. 143(1) was completed on 05.08.2016 at total income of Rs. 4,68,02,540/-. 6.1 A survey u/s. 133A of the Income-tax Act was carried out at the business premises of the assessee on 17th & 18th August, 2017. During the course of survey proceedings, it was gathered that another group concern of the assessee i.e. M/s. Pinkcity Colorstone Pvt. Ltd. was having strong profits but later on the same was closed and the Plant and Machinery as well as building was rented over to the assessed company i.e. M/s. Pinkcity Jewelhouse Pvt. Ltd. The management and shareholders of both the companies were/are same. This arrangement has been done for only motive to avoid legitimate taxes. Accordingly, the case was reopened u/s. 147/148 after recording reasons and getting necessary approval of the Addl.CI....
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....survey premises located at Sitapura SEZ Unit and further accepted by ShriManujGoyal, Director ofassessee company. It was also admitted by the Sr. Employee of the assesseeShri Hanuman PrasadSharma in his statements recorded at Sitapura SEZ Unit that during the F.Y. 2010-11 and 2011-12 there was no casting facility at Sitapura Unit and the finished goods were transferred JromMahapura Unit." Thus, ld. PCIT noted that the AO has failed to make necessary inquiries regarding eligibility & allowability of the deduction u/s 10AA of the IT Act, 1961. Therefore, a Show Cause Notice u/s 263 dated 12.03.2021 was issued and hearing fixed on 15.03.2021. In reply of the above Show Cause Notice u/s 263 of the IT Act, 1961 the AR of the Assessee submitted his written submission on 15.03.2021. The ld. PCIT based on the written submission held that ; I have examined the facts at hand. I have studied the reply of the assessee. From the matrix of facts and events, it is noted that the case was reopened under section 148 based upon information gathered specifically in a survey carried out under section 133A, whereby it was found that the assessee is not eligible for claiming, and being granted,....
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....sessment year 2010-2011 till 2019-2020. NO part of Building and Plant & Machinery owned by M/s. Pink City Colorstones Pvt. Ltd. was given on lease/sold to M/s. Pinkcity Jewelhouse Pvt. Ltd. (SEZ Unit). SEZ Unit constructed its own Building on land owned by it and purchased the necessary Plant & Machinery required for the purpose of manufacturing. 5. That scrutiny assessment u/s. 143(3) of the Act for assessment year 2010-2011 to 2014-2015 was consistently carried out of the assessee appellant. That reassessment for assessment year 2011-2012 was initiated and assessed. Benefit of deduction u/s.10AA was granted. 6. That during the year under consideration assessee appellant had filed its income tax return on 30.11.2015 at Rs 4,68,02,540/- PB-I, Pg. 165-202. 7. That survey proceeding u/s 133A of the Act was carried out against the assessee appellant on 17-18.08.2017 and in consequence, reassessment proceedings u/s. 148 of the Act was initiated for the Assessment Years 2012- 2013 to 2015-2016. That scrutiny assessment u/s. 143(3) of the Act for assessment year 2016-2017 & 2017-2018 was also initiated. 8. That in the reasons recorded for initiating re....
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.... 20,48,030.00 8,14,33,841.00 21.03.2016 PB-I [74-89] 8,14,33,841.00 17.12.2018 PB-I [90-106] 6,17,64,673.00 2,52,62,800.00 2,32,14,770.00 5 2014-2015 1,43,61,050.00 4,03,38,194.00 25.11.2016 PB-I [107-121] 3,61,10,941.00 17.12.2018 PB-I [122-139] 1,83,19,875.00 3,76,11,190.00 2,32,50,140.00 6 2015-2016 4,68,02,540.00 3,90,12,873.00 17.12.2018 PB-I [20-35] 22.02.2019 (154 order) 2,71,31,212.00 7,05,65,860.00 1,18,81,660.00 7 2016-2017 4,08,10,500.00 3,34,52,232.00 19.12.2018 PB-I [140-154] 1,38,65,057.00 6,03,97,670.00 1,95,87,170.00 8 2017-2018 5,57,64,320.00 4,59,27,499.00 30.12.2019 PB-I [155-164] 4,38,96,065.00 5,77,95,760.00 20,31,440.00 11. That the case of the assessee appellant prior to and subsequent to the survey proceeding was regularly sel....
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....dings for A.Y. 2015-2016 were initiated against the assessee appellant by the ld. PCIT by invoking the powers u/s 263 of the Act and show cause notice dated 12.03.2021 was issued to the assessee appellant [PB-I, Pg. 1-14] proposing revision of assessment order dated 17.12.2018 passed by the Assessing Officer. SCN dated 12.03.2021 was issued on the basis of Audit Objection dated 17.11.2020 & 19.02.2021 [PB-III, Pg. 267-271, 272-274]. 13. That ld. PCIT issued the impugned show cause notice dated 12.03.2021 u/s. 263 on the ground that: the assessing officer has failed to carry out proper inquiries. the assessing officer has not made any inquiries regarding statements recorded during the course of survey proceedings u/s 133A of the Act wherein it was gathered that M/s Pinkcity Colorstones Pvt. Ltd was having strong profits but later on the same was closed and the plant & Machinery as well as building was rented over to the assessee appellant company i.e. Pinkcity Jewel House Pvt Ltd. the employees of M/s. Pinkcity Colorstones Pvt Ltd were also absorbed in M/s Pinkcity Jewel House Pvt Ltd. the management and shareholde....
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.... deduction u/s. 10AA will not be permitted if the management of two companies is similar. Items were not transferred from its Mahapura Unit to Sitapura SEZ unit, even otherwise, some raw-materials (gemstones) were sold which were used for manufacturing by SEZ unit, even otherwise there is no bar under the Act in order to claim deduction u/s. 10AA. In initial years casting machine were not available in Sitapura SEZ unit, hence, casted components were purchased from Pink City Color Stones Pvt Ltd. Complete note of manufacturing activity carried out at each stage of process was also enclosed during assessment proceedings as well as survey proceedings. The Company is maintaining complete records of stock movement at each stage of production process. In assessment year 2010-2011, i.e., the first year in which deduction u/s. 10AA was claimed the Assessing Officer had issued notice dated 12.03.2013 proposing disallowing the benefit by referring to section 80IA(10) of the Act. Detailed reply was filed by the assessee appellant vide its letter dated 18.03.2013 and the Assessing Officer was satisfied with the submissi....
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....ring the AY 2015-16 is based on wrong facts, as during survey proceedings as well also statements recorded after survey proceedings it was made clear that the initially Sitapura SEZ unit was not having casting machine accordingly in A.Y. 2010-2011 to A.Y. 2012- 2013, company was purchasing casted component from Pink City Color Stones Pvt Ltd and thereafter these casted component are further processed by SEZ unit. Manufacturing process at this unit mainly involves Filling process, Pre Polish, Gem Stone Bagging, Stone Setting, Polishing, Plating, Quality Control and Packaging. 19. That the ld. PCIT failed to appreciate and consider that entire process of making jewellery from metal & stones is done at SEZ unit only and after July 2011 no Semi Finished Goods were transferred from DTA Unit (Mahapura) or from Pinkcity Colorstones Pvt. Ltd. to SEZ Unit (Sitapura). 20. That the ld. PCIT failed to appreciate and consider that only loose Gem Stones & Diamonds were being transferred from Mahapura Unit to Sitapura SEZ Unit after July 2011 and not semi-finished jewellery as claimed. That during A.Y. 2015-16 out of Purchases of about Rs 52.20 Crores the loose gemstones which h....
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.... Assessing Officer. Section 263 of the Act does not visualize a case of substitution of the judgment of the Revisional Commissioner for that of AO unless the decision of the AO is found to be erroneous. 24. The language used by the legislature in section 263 is to the effect that the CIT may interfere in revision, if he considers that the order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. It is quite clear that two conditions must coexist in order to give jurisdiction to the CIT to interfere in revision. The order of the Assessing Officer in question must not only be erroneous but also it must be prejudicial to the interest of the revenue. In other words, merely because the assessment order is erroneous, the CIT cannot interfere. Again, merely because the order of the Assessing Officer is prejudicial to the interest of the revenue, then that is not enough to confer jurisdiction on the CIT to interfere in revision. The CIT cannot assume jurisdiction u/s 263, if the two conditions prescribed under the provisions of Act, viz. (i) the order is erroneous; and (ii) the same is also prejudicial to the interest of the re....
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.... the assessment had taken a possible view, and revenue did not demonstrate the error remain on the part of the ld. AO. In fact, when the ld. AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue. * Hon'ble Rajasthan High Court in PCIT v. Manna Trust (2022) 1 TMI 693 [Compilation 42-44] has held: We are broadly in agreement with the view of the Tribunal. It is well settled through a series of judgments that power under Section 263 of the Act can be exercised only when twin conditions of the order of assessing officer being erroneous and prejudicial to the interest of revenue are satisfied. The Jurisdiction of the Commissioner under Section 263 of the Act is restricted and cannot be equated with the appellate jurisdiction. The Commissioner does not sit in appeal. * Hon'ble ITAT Jaipur Bench in Gayatri Devi v. PCIT (2023) 10 TMI 23 [Compilation 45-78] has held: It is well settled that the prerequisites to exercise of ....
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....exercise of jurisdiction existed. No rigid rule could be laid down about the situation when the jurisdiction can be exercised. Whether satisfaction of the Commissioner of Income-tax for exercising jurisdiction was called for or not, has to be decided having regard to a given fact situation. * Hon'ble ITAT Amritsar Bench in Rajinder Kaur v. ITO (2023) 4 TMI 565 [Compilation 4-13] has held: Admittedly, the proceedings were initiated u/s 263 of the Act on the basis of audit objection and consequent order passed u/s 263 of the Act is opposed to judgment of SOHANA WOOLLEN MILLS [2006 (9) TMI 157 - PUNJAB AND HARYANA HIGH COURT] From the record, it is established that the Ld. PCIT has initiated the proceedings u/s 263 of the Act by invoking provisions contained in clause (a) of explanation 2 to sub section 1 of section 263 of the Act. In our view, the subject proceeding initiated by the Ld. PCIT u/s 263 of the Act, is illegal and bad in law, since the provisions contained in clause (a) of explanation 2 below to section of section 263 of the Act were introduced by Finance Act 2015 are not applicable retrospectively and therefore, clause (a) of explanation 2 to s....
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....se of revisional power on the basis of audit objection is not tenable in law - thus, the CIT without examining the records and proper application of mind has invoked the provisions of section 263 in disallowing the advertisement expenditure claimed by the assessee - There is nothing on record to suggest that the order of AO is not sustainable in law - the order of the CIT is set aside - Decided in favour of assessee. 29. Further it is settled law that initiation of 263 proceedings should be at the instance of PCIT itself and it cannot be initiated on borrowed satisfaction. Reliance is placed upon: * Hon'ble ITAT Pune Bench in Volkswagen India Pvt. Ltd. v. PCIT (2023) 11 TMI 794 [Compilation 79-84] has held: Revision u/s 263 - taxability of Government grants - As per CIT grants received by the assessee in such year were wrongly taken as capital receipt - HELD THAT:- The entire show cause notice that the initiation of revision is premised only on the report submitted by the AO requesting for the revision of the assessment order. During an earlier hearing, the ld. DR was directed to produce the said report of the AO forming part of the show cause notice. DR ....
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....h no fresh investigation of facts is required. That is raison d'etre for our admitting the additional ground and then espousing it for consideration. It is, therefore, ultimately held that the ld. Pr. CIT was not justified in invoking the revision jurisdiction. Decided in favour of asses * Hon'ble ITAT Indore Bench in DBL Betul Sarni Tollways Ltd. v. PCIT (2023) 10 TMI 1187 [Compilation 85-89] has held: Validity of Revision u/s 263 - prescription and requirement of revision u/s 263 - objection raised by Ld. AR that the show-cause notice issued on the very same day on which proposal is mooted before PCIT - Revenue submitted that there are multiple communications and in-house working in department before showcause notice is actually issued to assessee and that the draft-notice was prepared by AO at the behest of PCIT - HELD THAT:- PCIT received proposal for revision from AO and the AO has even placed draft-notices before PCIT for signature. AR is successfully able to demonstrate that the revision in these cases had been conducted on the bedrock of AO's proposal and draft-notice. That means, the conditions prescribed in section 263 are not fulfilled ....
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....d by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12 of the Income-tax Act of 1961. 31. That the updated Written Submissions is being filed in lieu of the directions of the Hon'ble Bench dated 16.01.2024 triggered due to subsequent developments which took place after the matter was argued by the A/R of the assessee appellant at length on 31.10.2023 and after the arguments were over, the ld. D/R sought time to seek clarification fro....
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....CIT v. Sohana Wollen Mills {2006 (9) TMI 157} Punjab & Haryana High Court 01 03 2. Rajinder Kaur v. ITO {2023 (4) TMI 565} ITAT - Amritsar 04 13 3. Majestic Properties Pvt. Ltd. v. PCIT {2023 (08) TMI 673} ITAT - New Delhi 14 17 4. Paramjit Singh v. PCIT {2016 (12) TMI 799} ITAT -Chandigarh 18 28 5. Refex Industries Ltd. v. DCIT {2014 (11) TMI 653} ITAT -Chennai 29 34 RULE OF CONSISTENCY Radha Soami Satsang v. CIT {1991 (11) TMI 2} Supreme Court 35 41 ^ SCOPE OF REVISION U/S. 263 7. CIT v. Manna Trust {2022 (01) TMI 693} Rajasthan High Cour....
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....ed by the ld. Addl. Commissioner (Audit) 269 273 3. Copy letter dated 19.02.2021 to the ld. PCIT issued by the ld. ACIT. 274 276 4. Copy letter dated 18.03.2021 to the ld. CIT(Audit) issued by the ld. ACIT, Circle-1. 277 284 9. The ld. AR of the assessee in addition to the written submission vehemently argued that the ld. PCIT has not considered the fact that pursuant to the survey conducted assessment was re-opened for A. Y. 2011-12 to 2015-16 and even the assessment for A. Y. 2016-17 was also completed. The issue arose on account of the survey has not only subject matter of this year but was also of the previous other years too. On this aspect he relied upon the just filed by him and reproduce here in above. The assessee has replied all the queries that has been raised by the assessing officer for all these years which are re-opened by the assessing officer. There is no proceeding of 148 or 263 in other years but only in this year the order has been passed u/s. 263 of the Act based on the audit objection filed at page 267 of the paper book filed by the assessee which is based on the audit objection raised by the ACIT,(Audit....
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....s Pinkcity Color Stones Pvt. Ltd. Was having strong profits but later on the same was closed and building, plant and machinery were on rent by assessee company and the employees of Pinkcity Color Stones Pvt. Ltd. Were also absorbed by assessee company. This arrangement has been done for only motive to avoid legitimate taxes. This finding is very vague. M/s Pinkcity color Stone Pvt. Ltd. Is a legal entity established under the Companies Act, 1956, and has all right with it to decide the business on its closure or renting of its assets etc. and the assessee company is a separate legal entity. Both the Companies work as per their ethic of business and try to earn better income. It is wrong to say that M/s Pinkcity Color Stone was closed as an arrangement avoid legitimate taxes. It has alleged that the items transferred from Mahapura Unit remained the same and no value addition was made at Sitapura Unit. As disclosed during the survey proceedings as well as during the course of assessment proceedings the Sitapura Unit had no casting unit till July - Aug, 2012, but this do not mean that no manufacturing activity was carried out at Sitapura. In fact the items transferred from Ma....
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....t. Ltd. The management and shareholders of both the companies were/are same. This arrangement has been done for only motive to avoid legitimate taxes. Based on these set of facts case for A. Y. 11-12 onwards was reopened u/s. 147/148 after recording reasons and getting necessary the approval of the competent authority. The assessment pursuant to the notice u/s. 148 was completed on 17.12.2018 determining the income at Rs. 7,05,65,857/- as against the returned income of Rs. 4,68,02,540/- wherein the addition of Rs. 1,52,49,551/- made by observing as under : "3.17 Therefore, there is no dispute over the computation of profit of SEZ as per the provisions of section 10AA. It is most reasonable to work out the overload of expenses on Mahapura unit, which can only be worked out on the basis of bifurcation of expenses in the ratio of turnover of both the units as also allowed for as per the proviso to section 80IA(8) r.w.s. 10AA(9) the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit, as already reproduced above. The assessee through the note sheet entry dated 04.12.2018 again informed that the submission made on even date are not s....
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.... claiming unit was newly set up and started production from AY 2009-10. For setting up a new unit, it requires management of the company to see the feasibility of surviving, expected profits compare to investments, government benefits, access of market, launching brand value and marketing, arrangement of sources of funds, technological requirements, research and development in the improvisation of quality of production, expertise of selling and marketing, etc for which the SEZ unit got benefitted by the existing Mahapura unit. 3.20 From the table it shows that Sitapura unit has shown net profit ratio @ 10.84% whereas the Mahapura unit has shown net profit ratio @ 1.11%. Therefore, to arrive at correct profit of Mahapura unit the following expenses to be bi- furcate in ratio of the turnover of the unit: X X X X 3.21 Therefore, Rs. 2,37,63,322/- is the minimum amount which have excess loaded on Mahapura unit and which must be related to the SEZ unit. The income to be added by an amount of Rs.2,37,63,322/-. Accordingly deduction claimed u/s 10AA is also reduced by this amount of Rs. 2,37,63,322/- and deduction under section 10AA is now remains at Rs. 1,52,49....
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.... • the issue was considered in detail in the regular assessment, reassessments from the A.Y. 2010-2011 to 2017-2018. • entire basis for issuing notice u/s. 263 is factually wrong, • all issues relevant for scrutiny assessment have been considered by the Assessing Officer and all relevant enquiries were carried out. • Rental of plant & machinery and building by M/s Pinkcity Colorstones Pvt. Ltd. was to its DTA Unit, i.e., Mahapura Unit and not to Sitapura SEZ Unit. • SEZ Rules do not permit to take Building / Plant & Machinery on rent, without prior permission of the Development Commissioner and no such permission was taken. • No statement by any Director or Employee that plant & machinery and building have been given on rent by M/s Pinkcity Colorstones Pvt. Ltd. to Sitapura SEZ Unit. • SEZ unit has constructed its own Building and purchased Plant & Machinery. • M/s Pinkcity Colorstones Pvt. Ltd. has not sold any plant & machinery to Sitapura SEZ Unit. • M/s Pinkcity Colorstones Pvt. Ltd. was not having strong profits but on the contrary was incurring regular losses. ....
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.... which the assessment was reopened. The ld. Counsel representing the assessee objected to the order of the ld. PCIT where in he could not point out any mistake / error in order which is prejudicial to the interest of the revenue. The AO while framing the assessment had taken a possible view, and revenue did not demonstrate the error remain on the part of the ld. AO. In fact, when the ld. AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue and to support the view he relied on the decision Hon'ble Rajasthan High Court in PCIT v. Manna Trust (2022) 1 TMI 693 [Compilation 42-44] wherein it has been held that "We are broadly in agreement with the view of the Tribunal. It is well settled through a series of judgments that power under Section 263 of the Act can be exercised only when twin conditions of the order of assessing officer being erroneous and prejudicial to the interest of revenue are satisfied. The Jurisdiction of the Commissioner unde....
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....he record, it is established that the Ld. PCIT has initiated the proceedings u/s 263 of the Act by invoking provisions contained in clause (a) of explanation 2 to sub section 1 of section 263 of the Act. In our view, the subject proceeding initiated by the Ld. PCIT u/s 263 of the Act, is illegal and bad in law, since the provisions contained in clause (a) of explanation 2 below to section of section 263 of the Act were introduced by Finance Act 2015 are not applicable retrospectively and therefore, clause (a) of explanation 2 to sub section 1 of section 263 is not applicable to Assessment Year (2011-12), under consideration. We hold that the order of the CIT passed u/s 263 is bad in law and as such it is quashed. 17. The bench also noted that similar issue was involved in all the years starting from 2011-12 and what is the status of the issue on the other years and the revenue was directed to update the status. Thereafter the event that has happened has been strongly opposed by the counsel and he has submitted as under : That the updated Written Submissions is being filed in lieu of the directions of the Hon'ble Bench dated 16.01.2024 triggered due to subsequent develop....
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....s judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings, in the absence of any material change justifying the Revenue to take a different view of the matter and, if there was no change, it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the Radhasoami Satsang was entitled to exemption under sections 11 and 12 of the Income-tax Act of 1961. 19. Even on merits the clai....
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....ent view of the ld. PCIT and even on merits when the claim has been accepted by re-opening the case after survey which has been completed there cannot be third inning to the revenue. To drive home to this contention drive strength from the finding of the Hon'ble apex court in case of Parashuram Pottery Works Co. Ltd Vs ITO [ 1977] 106 ITR 1 at page 10 "At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity". 21. Ergo, we quash the order passed by the PCIT, Central, Jaipur. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 07/03/2024. ============= Document 1 SNo. PAPER BOOK Particulars 1. Copy of Show cause Notice dated 12.03.2021. 2. 3. Copy of Reply to the Show cause notice submitted by the assessee on 15.03.2021 Copy of order dated 17.12.2018 passed u/s 147 r.w.s 143(3) of the Act for the Assessment Yea....