TaxTMI 
TaxTMI 
2025 (2) TMI 1138
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.... situated in Sirmour District of Himachal Pradesh. For the financial year 2016-17 relevant to impugned assessment year 2017-18, it filed its return of income declaring total income of Rs. 2,68,78,900/- after claiming deduction under section 80IC @ 100% amounting to Rs. 15,12,63,064/-. The return was processed under section 143(1) of the Act. Thereafter, the case of the assessee was reopened in order to verify the claim of deduction under section 80IC @ 100% and notice under section 148 was issued. In response to the notice, the assessee filed its return of income declaring total income of Rs. 2,68,78,900/- as originally declared and thereafter notice under section 143(2) and 142(1) alongwith detailed questionnaire were issued and after taking into consideration the submissions so filed by the assessee and after carrying out necessary examination/verification, the assessment proceedings were completed under section 147 r.w.s 144B vide order dt. 30/03/2022 without drawing any adverse inference with regard to claim of deduction under section 80IC @ 100% and income so returned was accepted. 4. Subsequently, the assessment records were called for and examined by the Ld. Pr. CIT, Chan....
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....e objects to ld PCIT invocation of his jurisdiction for initiating the revision proceedings by issue of notice under section 263 of the Act dated 14th March 2024. It was submitted that Section 263 of the Act grants power to the Principal Commissioner or Commissioner to call for and examine the record of any proceeding under the Act, and if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, to pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. It was submitted that the power to initiate revision proceedings can be exercised only if the two conditions are satisfied simultaneously, that is, the order passed by the Assessing Officer must be an erroneous one; and secondly, the order must be prejudicial to the interests of the Revenue. It was submitted that the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. 243 ITR 83 (SC) has held that "a bare reading of this provision makes it clear that the pre-requisite to the exercise of jurisdiction by the Commis....
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....ion 263 of the Act merely because he has a different opinion in the matter and the relevant findings read as under: "In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fell into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by the Tribunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd.'s case (supra), "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter". No substantial question of law arises for our consideration. Consequently, the appeal is dismissed." 11. It was subm....
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.... submitted that where the Assessing Officer examined all the details with respect to assessee's claim of deduction, the order could not be said to be erroneous or was passed without application of mind merely because the same was not an elaborate order. 14. It was submitted that in the present case, the assessee's case was reopened by the AO specifically on the issue of claim of 100% deduction under section 80-IC of the Act and our reference was drawn to the reasons so recorded u/s 148 and the contents of which read as under: "1. Brief details of the Assessee: The assessee has filed its return of income for the A.Y. 2017-18 on 28.10.2017, The return of income of the assessee was processed by CPC on 23.03.2019 and raised a demand of Rs. 1,16.270/-. 2. Brief details of information collected/ received by the AO: information was gathered during the assessment proceedings for A.Y. 2017-18 in sister concern of the assessee i.e. M/s SBS Biotech Unit-I (PAN ABKFS2514E) which was completed on 27.12.2019 where the assessee has claimed 100% deduction u/s 80IC of the I.T. Act and same was restricted to @25% as entitled 3. Analysis of information collected/....
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....tion u/s 80IC of the I.T. Act at reduced rate of 25% only in A.Y. 2017-18. In this background, the excess claim of deduction u/s 80IC of Rs. 10,91,16,920/-[15,12,63,0644,21,46,144 (25% of 16,85,84,575)] is escaped income of the assessee. Further in case other unexplained income of the assessee comes to light during the course of assessment proceedings, then such unexplained income will be added to the total assessed income at the culmination of assessment proceedings. Considering the factual matrix, statutory provisions and legal principles, the undersigned has reasons to believe that the assessee has not disclosed fully and truly all materials on facts necessary for assessment and there has been an escapement of income to the tune of Rs. 10,91,16,920/- chargeable to tax for the assessment within the meaning of Clause (b) of explanation 2 of section 147 of the Income Tax Act, 1961 for the Assessment Year 2017-18 and hence it is a fit case for initiation of proceedings in terms of section 147 of the Income Tax Act, 1961. 7. Applicability of the provisions of section 147/151 to the facts of the case: In this case, a return of income was filed for the year under cons....
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.... herewith as Annexure 3. The fact here to be noted that at the time of substantial expansion, the assessee had not completed the initial five years of claiming 100% deduction. 4. Section 80-IC of the Act provides for Special Provisions in respect of certain undertakings or enterprises in certain special category states. The relevant extract of the section is reproduced below: "(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in subsection (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise, - (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning- ....
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....use (b) of, sub-section (2), one hundred per cent of such profits and galns for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clauses (il) of clause (a) or sub-clauses(ii) of clause (b) of sub-section (2), one hundred per cent of such profits and gains for five assessment years commencing with the Initial assessment year and thereafter, twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains." 5. Section 80-IC of the Act also provides for definition of "Initial assessment year" which means the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expansion. 6. Further, section 80-IC also provides for 100% deduction from eligible profits in case any substantial expansion is undertaken by an undertaking or an enterprise. The assessee during the AY 2012-13, undertook a substantial expansion and therefore become eligible for claiming 100% deduction from eligible profits for five assessment years.....
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....ion 80-IC for ten assessment years beginning from AY 2009-10 till AY 2018-19. For first five assessment years, the assessee was eligible for 100% deduction from eligible profits and for the remaining five years, the assessee was eligible for 25% deduction. 11. However, the assessee undertook substantial expansion in AY 2012-13 and therefore, It was entitled to claim 100% deduction from eligible profits again for fresh period of five assessment years but within the block of the original 10 assessment years. The assessee firm had fully complied with the provisions of the law and had claimed deduction during the above-mentioned period within the block of ten assessment years only. 12. In the recent judgement of Hon'ble Supreme Court of India in case of PCIT v. Aarham Softronics [2019] (102 taxmann.com 343), the controversy with regard to two initial assessment years within the block of 10 assessment years has been put to an end. The decision of the Supreme Court has been delivered in favour of assessee whereby it is affirmed that there could be two initial assessment years, one at the time of commencement of operations and another at the time of completion of sub....
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.... 100% deduction for assessment years from AY 2013-14 on the basis that substantial expansion has been undertaken by the assessee on 30.03.2012. Further, these AYs fall within the block of 10 assessment years for which the assessee Is eligible to claim deduction under section 80-IC. Although the substantial expansion was undertaken by the assessee during the AY 2012-13 but since the first block of five years i.e. from AY 2009-10 to AY 2013-14 was still not exhausted, the assessee continued to avail 100% deduction till AY 2012-13 on the basis of initial setup and 100% deduction for four assessment years i.e. AY 2013-14 to AY 2017-18 on the basis of substantial expansion carried out. 15. For AY 2017-18, being 9th assessment year under the block of eligible 10 assessment years, assessee availed 100% deduction even though the substantial expansion took place in AY 2012-13. This was due to overlapping of two assessment years i.e. AY 2012-13 and AY 2013-14 between first block and second block. Due to the overlapping of two assessment years, the assessee would have faced genuine hardship and deduction for those two assessment years would have been limited to 25% of eligible profit....
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....ing cases, the Hon'ble Supreme Court has held that incentive provisions/beneficial provisions should be construed liberally: a) Bajaj Tempo Ltd. v. CIT [1992] 62 Taxman 480 (SC) "A provision In a taxing statute granting incentives for promoting growth and development should be construed liberally!... Since a provision intended for promoting economic growth has to be interpreted liberally, the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it." b) Broach Distt. Cooperative Cotton Sales Ginning & Pressing Society Ltd. v. CTT [1989] 177 ITR 418 (SC) "The object of section 81(1) was to encourage and promote the growth of cooperative societles, and, consequently, a liberal construction must be given to the operation of that provision." c) CIT v. Strawboard Mfg. Co. Ltd. [1989] 177 ITR 431 (SC) "It is necessary to remember that when a provision is made in the context of a law providing for concessional rates of tax for the purpose of encouraging an Industrial activity, a liberal construction should be put upon the language of the statute." 21. Furthe....
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..... The assessee has filed return of income in response of notice u/s 148 of the I. Τ. Act declaring total income at Rs 2,68,78,900/-, Notice u/s 143(2) of the I.T. Act dated 30/06/2021. 2. The assessee has shown Profit from Manufacturing 3. The assessee submitted reply on e-filing portal in response to notices under section 142(1) of the Act. The reply of the assessee has been verified and the assessment is completed accepting the total Income of Rs. 2,68,78,900/-as per return of income in response of notice u/s 148 of the IT Act 1961. 4. Assessed income u/s 143(3) r.ws 147 r.w.s 144B of the Act. Computation sheet and demand notice are attached and part of the assessment order" 17. It was submitted that the AO during the reassessment proceeding specifically raised query on 80- IC deduction which was answered by the assessee to the satisfaction of the AO. Since the AO has already made proper enquiry with respect to the issue as also evident from the order, therefore, there is no occasion to assume jurisdiction under section 263 of the Act in the assessee case. 18. It was further submitted that the AO having recorded the reasons for reopening the a....
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....cified in sub-section (3). (2) This section applies to any undertaking or enterprise,- (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the [1st day of April, 2007], in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme 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 Sikkim, or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified....
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....gins to manufacture or produce articles or things, or commences operation or completes substantial expansion. Thus, section 80-IC also provides for 100% deduction from eligible profits in case any substantial expansion is undertaken by an undertaking or an enterprise. The assessee during the AY 2012-13, undertook a substantial expansion and therefore become eligible for claiming 100% deduction from eligible profits for five assessment years. Due attention is invited to the fact that section 80-IC had a sunset clause and in order to avail benefit of the said section, the requirements had to be complied with before 1st day of April 2012. Accordingly, in order to claim benefit of 100% deduction, the assessee undertook substantial expansion before the year ending 31 March 2012. Copy of Certificate with regard to substantial expansion issued by the Industrial Department of Himachal Pradesh has been placed on record. 22. It was further submitted that the basic intent of the lawmakers behind the introduction of section 80-IC was promotion of the said notified areas through setting up of new manufacturing units or substantial expansion of already established units. This would promote de....
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....n from eligible profits again for fresh period of five assessment years but within the block of the original 10 assessment years. The assessee firm had fully complied with the provisions of the law and had claimed deduction during the above-mentioned period of 10 assessment years only. 25. It was submitted that in the judgement of Hon'ble Supreme Court of India in case of PCIT v. Aarham Softronics [2019] (102 taxmann.com 343), the controversy with regard to two initial assessment years within the block of 10 assessment years has been put to an end. The decision of the Supreme Court has been delivered in favour of assessee whereby it is affirmed that there could be two initial assessment years, one at the time of commencement of operations and another at the time of completion of substantial expansion. The advantage of this provision is also accrued to those existing units, if they carry out "substantial expansion" of their units by investing required capital and the findings of the Hon'ble Supreme Court read as under: (a) Judgment dated 20th August, 2018 in Classic Binding Industries case omitted to take note of the definition 'initial assessment year' conta....
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....visions of section 80-IC of the Act have been enacted with a view to encourage the setting up of new industrial undertaking/expansion of the industries in certain special category State and object is sought to be achieved by granting exemption or concession from tax on the profits earned by such establishment. Ordinarily, a provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; and since a provision for promoting economic growth has to be interpreted liberally, the restriction on it, too has to be construed so as to advance the objective of the provision and not to frustrate it as laid down in case of CIT v. UP State Agro Industrial Corpn. (1991) 188 ITR 370, 375(AII). Amongst others, in the following cases, the Hon'ble Supreme Court has held that incentive provisions/beneficial provisions should be construed liberally: a) Bajaj Tempo Ltd. v. CIT [1992] 62 Taxman 480 (SC) "A provision in a taxing statute granting incentives for promoting growth and development should be construed liberally!... Since a provision intended for promoting economic growth has to be interpreted liberally, the res....
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....which prima facie does not appear to be case here, meaning thereby he is also of the view that the assessee is eligible for 100% claim of deduction, at the same time, ld PCIT has directed the JAO to verify the submission made by the assessee and it was submitted that JAO has not found any defect in facts given in submission before PCIT-1 Chandigarh. 31. In view of the aforesaid facts and legal position, it was submitted that AO has already verified and accepted the claim of assessee. Further, ld PCIT himself held in para 6 of order stated that submission made by assessee is not prima facie erroneous as well as prejudicial to the interests of revenue and therefore we request to quash the revisionary order passed u/s 263 of Income Tax Act. 32. Per contra, the Ld. CIT/DR has vehemently argued the matter. It was submitted that firstly, the AO has passed a very cryptic order and it is not clear that as to whether he has examined the matter relating to claim of deduction under section 80IC of the Act. Further, our reference was drawn to the show cause notice issued by the Ld. Pr. CIT wherein it has been stated that even if the assessee firm has carried out substantial expansion on ....
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....t u/s 263 of the Act. 35. Our reference was further drawn to the findings of the Ld. Pr CIT in para 5 of the impugned order wherein the Ld. Pr. CIT has stated that a case can be in principle per law made out against the assessee u/s 263 of the Act only if there is clear failure on the part of the Assessing Officer in framing the assessment order without making the requisite inquiries. There would then be the imperative legal need in all such inquiries and investigations to comprehensively examine all applicable facts including to the relevant minutiae of their applicability, to reconcile every logical inconsistency in the arguments debated, if and as any, and to ensure total compliance to all statutory provisions, rules, regulations, instructions, accounting and other standards and stipulations. The investigation/ inquiry carried out by the Assessing Officer would have to be unsatisfactory, superficial and incomplete along several of these matters/dimensions including the due and necessary and complete examination of the documentary particulars/details mandated. A partially driven by whatever reasons inquiry cannot be held to be a full, proper, satisfactory, complete and therefo....
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....Court in Income Tax Officer versus DG Housing Projects Limited (2012) 343 ITR 329 (Delhi) has observed: "The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits." vi) Hon'ble Delhi High Court in Gee Vee Enterprises vs. Additional Commissioner of Income-Tax, [1975] 99 ITR 375 (Delhi), has observed as under: "The reason is obvious. The position and function of the Income-Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evi....
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..../s 147 r.w.s. 144B of the Act dated 30.03.2022 can be held to be erroneous as well as prejudicial to the interests of revenue only if the factual verifications directed to be carried out by the Jurisdictional Assessing Officer(JAO) lead to a finding that is contrary to the submission made by the assessee, which prima facie does not appear to be the case here. 37. Further, our reference was drawn to the findings of the Ld. Pr CIT in para 7 of the impugned order wherein the Ld. Pr. CIT has stated that he was of considered opinion that the assessment order u/s 147 r.w.s. 144B of the Act dated 30.03.2022 passed by the Assessing Officer would be erroneous as well as prejudicial to the interests of revenue in accordance with the Explanation 2(a) below section 263(1) of the Act only if the factual verifications as above directed to be carried out by the JAO are found to yield results inconsistent with the stand of the assessee. This is because the order then would not have been passed in accordance with the law, which should have been done, thus making such assessment order passed not only erroneous but also prejudicial to the interests of revenue in the matter of proper, detailed, sat....
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....ficer rendering such previous impugned order of assessment erroneous and prejudicial to the interest of Revenue. Elaborating the same, the ld Pr. CIT has stated that the factual matrix being the Assessment Years in which the expansions of the pertinent activities commenced and the legal position in light of the Hon'ble Supreme Court decision in the case of Aarham Softronics are to be carefully examined and applied by the Assessing Officer before drafting and passing the assessment order. 40. The ld Pr. CIT has further stated that at this time, that is, at the time of passing of the impugned order u/s 263, the assessment order passed u/s 147 r.w.s. 144B of the Act dated 30.03.2022 can be held to be erroneous as well as prejudicial to the interests of Revenue only if the factual verifications directed to be carried out by the Jurisdictional Assessing Officer lead to a finding that is contrary to the submission made by the assessee, which prima facie does not appear to be the case here. The Ld. Pr. CIT has finally stated and concluded by holding that at this time, he was of considered opinion that the assessment order u/s 147 r.w.s. 144B of the Act dated 30.03.2022 passed by th....
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....tent with the stand of the assessee, the assessment order so passed by the Assessing Officer would be erroneous as well as prejudicial to the interests of Revenue in accordance with the Explanation 2(a) below section 263(1) of the Act. 42. Section 263 of the Act grants power to the Pr. CIT to call for and examine the record of the proceeding under the Act, and if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The power to initiate revision proceedings can be exercised only if the two conditions are satisfied simultaneously, that is, the order passed by the Assessing Officer must be erroneous; and secondly, the order must be prejudicial to the interests of the Revenue and the ld Pr CIT has to be satisfied of the twin conditions been fulfilled and the satisfaction must be one which is objectively justifiable and cannot be the mere ipse dixit of the Commissioner. It is for the ld Pr.CIT to record his own sa....
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.... Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is....
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....that the factual matrix being the Assessment Years in which the expansions of the pertinent activities commenced and the legal position in light of the Hon'ble Supreme Court decision in the case of Aarham Softronics (supra) are to be carefully re-examined and re-verified by the Assessing Officer in matter under reference, being the question of proportion of deduction (25% versus 100%) which the assessee can claim u/s 80IC of the Act for the impugned assessment year 2017-18. There is however no discussion or findings by the ld Pr.CIT in respect of the nature of enquiry or verification so carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case in the proceedings so completed u/s 147 r/w 144B of the Act. The Explanation 2(a) to Section 263 doesn't give such unfettered powers to the ld PCIT and it is the responsibility of the ld PCIT to show that the enquiry or verification conducted by the Assessing officer was not in accordance with the enquires or verification that would have been carried out by a prudent officer in the facts and circumstances of the present case. 45. Having said that, since the emphasis of the ld. PCIT is on the d....
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....wed to even those units who had availed this deduction on setting up of a new unit and have now invested huge amount with substantial expansion of those units. In the instant case as well, it is an admitted fact that the substantial expansion was carried out on 31/03/2012 and as on the first day of previous year in which substantial expansion took place, total book value of the Plant and Machinery (before taking depreciation) was Rs. 35,28,074/- which increased by more than 50% to Rs. 82,72,428/- as on 31/03/2012 as per Form No. 10CCB duly submitted by the assessee company for A.Y 2012-13 and a copy thereof has been placed on record. It is further relevant to note that as a result of carrying out the substantial expansion, the total sales of the undertaking which was Rs. 79,83,57,343/- for the F.Y. 2011-12 relevant to A.Y 2012-13 increased to Rs. 141,10,14,347/- for the F.Y. 2012-13 relevant to A.Y 2013-14 as evident from Form No. 10CCB duly submitted by the assessee company for A.Y 2013-14 and a copy thereof has been placed on record. We therefore agree with the submissions of the Ld. AR that the assessee claim of 100% deduction on account of substantial expansion for the impugned....