TaxTMI 
TaxTMI 
TaxTMI 
2025 (2) TMI 1138
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....nancial 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, Chandigarh -1 and a show cause under section 263 dt. 14/03/2024 was....
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....e 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 Commissioner suo motu under it, is that the order of the Income-tax Officer....
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....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 submitted that the Hon'ble Delhi High Court in the case of Vodafone Essar South Ltd.....
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....ot 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/received: It is pertinent to mention here that the case of the assessee, M/s SBS Biotech Unit-1 (PAN. ABOFS6830P) was not under scrutiny for A.Y. 2017-18, there....
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....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 consideration but no scrutiny assessment u/s 143(3) of the Act was made. Accordingly, in this cases, the only requirement to Initiate proceedings u/s 147 is reason to believe which has been recorded ....
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....ct 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- (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 A....
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.... 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. 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. 7. It is further submitted that the basic intent of the lawmakers behind the introduction of section 80-IC was promotion of the said notified areas through s....
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....igible 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 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, in the assessment year relevant to the previous year. Relevant extract of the judgement is reproduced below: "24. The aforesaid discussion leads us to the following conclusions: (a) Judgment dated 20th August, 2018 in Clas....
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....t 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 profits. Accordingly, the assessee claimed 100% deduction under section 80-IC in AY 2017-18. 16. With regard to the quantum of deduction, it is respectfully submitted that the assessee has claimed a deduction of INR 15,12,63,064 under section 80-IC for subject AY as enumerated in below table. The same has been duly reported by the assessee in schedule 80-IC of the income tax return filed for the subject AY. Particulars Amount (In INR) Profits derived from Manufa....
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....ales 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. Further, reliance is placed on following judicial precedents wherein the courts laid down preposition that provisions relating to exemption or concession must as far as possible be liberally construed and in favour of the assessee: Textile Machinery Corpn. Ltd. v. CIT [1977] 107 ITR 195 (SC) CIT v. Gaekwar Foam & Rubber Co. (1959) 35 ITR 662, 673 (Bom) Capsulation Services Pvt. Ltd v. CIT, (1973) 91 ITR 566, 570 (Bom) CIT v. Simpson & Co. (1980) 122 ITR 283, 287 (Mad.) CIT v. Sanghi Beverages Pvt. Ltd. (1982) 134 ITR 623 (MP) 22. In light of the above legal arguments and judicial precedents and consideri....
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.... 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 assessment and having formed a belief that income of the assessee had escaped assessment, had not made any addition in the reassessment proceedings in respect of issues that are subject matter of reopening. Hence, the very basis of formation of belief for the AO vanishes. Hence, the AO could not have framed any reassessment per se. It was submitted that logically, the AO should have simply dropped the initiation of reassessment proceedings instead of passing a separate reassessment order. Once, the reassessment order per se framed by the AO is not sustainable in the eyes of law, any revision proceedings under section 263 seeking to revise such unsustainable order cannot be accepted in the eyes of law. In support,....
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....ied 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 by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 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 any of the North-Eastem States; (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operati....
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....o 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 development, employment and revenue generation in such backward areas. Therefore, in order to encourage people to set up undertaking /enterprise in such areas, deduction was provided under section 80-IC. The intent of section 80-IC of the Act has been explained by Central Board of Direct Tax (CBDT) vide Circular No. 7/2003 dated September 5, 2003 (memorandum explaining the provisions of Finance Bill, 2003) which is reproduced below: "49.1 The Union Cabinet has announced a package of Fiscal and non-fiscal concessions for the special category States of Himachal Pradesh, Uttaranchal, Sikkim and North-Eastern States, in order to give boost to the economy in these States. With a view to give effect to these new packages a new section 80-IC has been inserted to allow a deduction for ten years from the profits of ne....
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.... 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' contained in Section 80-IC itself and instead based its conclusion on the definition contained in Section 80-IB, which does not apply in these cases. The definitions of 'initial assessment year' in the two sections, viz. Sections 80-IB and 80-IC are materially different. The definition of 'initial assessment year' under Section 80-IC has made all the difference. Therefore, we are of the opinion that the aforesaid judgment does not lay down the correct law. (b) An undertaking or an enterprise which had set up a new unit between 7th January, 2003 and 1st April, 2012 in State of Himachal Pradesh of the nature mentioned in clause (ii) of sub-section (2) of Section 80-IC, would be entitled to deduction at the rate of 100% of the profits and gains for five assessment years commencing with the 'initial assessment year&....
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....ns 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(i) was to encourage and promote the growth of cooperative societies, 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." 28. Further, reliance was placed on following judicial precedents wherein the Courts laid down preposition that provisions relating to exemption or concession mus....
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....ting 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 or before 31/03/2012, the assessee firm is entitled to claim deduction under section 80IC @ 100% of eligible profit till A.Y 2016-17 being the 5th A.Y. after substantial expansion. However the assessee firm has claimed deduction @ 100% of eligible profit for the sixth A.Y. i.e; impugned A.Y and therefore the assessee has claimed excess deduction under section 80IC of the Act. 33. Further, our reference was drawn to the findings of the Ld. Pr. CIT in para 4 of the impugned order wherein the Ld. PCIT has stated that the technical arguments of the assessee against the present revision proceedings initiated based on decision and findings in law of the various Hon'ble Courts and Tribunal Benches are discounted and disregarded as either parimateria inapplicable or since the orders of the ITAT Benches in other cases are only orders in personam and not orders in rem or are the ratios of non-jurisdictional High Courts not directly binding on the fac....
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....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 therefore statutorily valid inquiry, which partial enquiry as carried out by the Assessing Officer resulting in the impugned assessment order in this case has created a vacuum zone of unexplained facts which constitutes an error on facts. This would be tantamount to a premature, precipitate and erroneous decision not borne out by facts or founded on proper law. Such incomplete inquiry would be unacceptable and outside of the pale of law, and inconsistent with the various judicial precedents of the Hon'ble Courts cited later below. Any such a failure on the part of the Assessing Officer would then be referred to and recognized u/s 263 of the Act. It is such failure that would call for revision of the assessment order u/s 263 of the Act. That such jurisdiction for revision proceedings u/s 263 of the Act by the Commissioner would be applicable and called for is held in following cases: - i) Thus, even as observed in paragraph 9 by this Court in the case o....
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....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 evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assum....
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....thus making such assessment order passed not only erroneous but also prejudicial to the interests of revenue in the matter of proper, detailed, satisfactory and complete inquiries into the assessee's claim that the issue of deductibility u/s 80IC of the Act, viz. whether at 25% or 100%, has already been examined and accepted during the earlier assessment proceedings, and into the consequent matter of arising and bringing to tax any disallowed portions of the deductions claimed u/s 80IC as incomes in the hands of the assessee. The Jurisdictional Assessing Officer is therefore directed to verify the factual submissions as above made by the assessee, and only if found correct and satisfactory, pass the necessary order u/s 143 of the Act dropping the matters in reference. If the contrary scenario of that the assessee's submissions and arguments are unsatisfactory is obtained in the said matter, such matter can be processed by the JAO for further action of assessment and consequent initiation/imposition of penalty as applicable under the statute. The assessee is at liberty to adduce the facts as deemed relevant before the JAO in consequence to this order. The JAO shall allow the....
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....olding 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 the Assessing Officer would be erroneous as well as prejudicial to the interests of Revenue in accordance with the Explanation 2(a) to section 263(1) of the Act only if the factual verifications as directed above to be carried out by the Jurisdictional Assessing Officer are found to yield results inconsistent with the stand of the assessee. As per ld Pr. CIT, the reason for the same is that in such a case, the order 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, satisfactory and complete inquiries into the assessee's claim that the issue of deductibility u/s 80IC of the Act, viz. whether at 25% or 100%, has already been examined and accepted during the earlier assessment proceedings, and into the consequent matter of arising and bringing to tax any disallowed portions of the deductions claimed u/s 80IC as incomes in the hands of the assessee. The ld Pr. CIT has di....
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.... 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 satisfaction and such a satisfaction has to be in clear and unambiguous terms as to why he is of the opinion that the order so passed by the Assessing officer is erroneous in so far as prejudicial to the interest of the Revenue and such a satisfaction has to be recorded at the time of passing of the revisionary order u/s 263 of the Act. Such formation of opinion and recording of satisfaction cannot be deferred or made subject to or conditional upon subsequent action on part of the Assessing officer. There is no concept of prima facie satisfaction, conditional satisfaction or for that matter, delegated satisfaction for exercise of jurisdiction u/s 263 of the Act as can be seen in the instant case as it is a settled legal proposition that the powers have to be exercised by an authority who is authorized and competent to exercise such powers under the statue and not by any other authority. 43. As far as the invocation by the Ld. PCIT of Explanation 2(a) to section 263 of the Act is concerned, the Delhi Benches of the Tribunal had an occasion to consid....
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....ch and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd Vs. ITO (1977)(106 ITR 1) that there must be a point of finality in all legal proceedings and the stale issues should not be re-activitated beyond a particular stage and the 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. 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if th....
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....he facts and circumstances of the present case. 45. Having said that, since the emphasis of the ld. PCIT is on the decision of the Hon'ble Supreme Court in the case of Aarham Softronics (Supra) and its applicability in the instant case, we deem it appropriate to refer to the same. In the said case, the question of law for consideration before the Hon'ble Supreme Court was "Whether an assessee who sets up a new industry of a kind mentioned in sub-section (2) of Section 80-IC of the Act and starts availing exemption of 100 per cent tax under sub-section (3) of Section 80-IC (which is admissible for five years) can start claiming the exemption at the same rate of 100% beyond the period of five years on the ground that the assessee has now carried out Substantial expansion in its manufacturing unit?". Referring to the definition of "initial assessment year" and "substantial expansion" and the discussions made thereafter, the Hon'ble Supreme Court affirmed the findings of the Hon'ble High Court wherein the latter has held that the moment substantial expansion is completed, the statutory definition of initial assessment year comes into play and consequently, the assessee becomes entitle....
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....missions of the Ld. AR that the assessee claim of 100% deduction on account of substantial expansion for the impugned assessment year is infact supported by the said decision of the Hon'ble Supreme Court. 46. Further from the perusal of the record, it is manifestly clear that the case of the assessee was reopened under section 147 for the reason that the assessee has claimed excess claim of deduction under section 80IC @ 100% as against reduced rate of 25% and during the course of reassessment proceeding, the AO issued notices calling for requisite information/documentation, in response, the assessee filed detailed submissions explaining its claim of deduction under section 80IC of the Act. In its submission, the assessee referred to the relevant provision of Section 80IC, the CBDT Circular No. 7/2003 dt. 05/09/2003 wherein the benefit regarding substantial expansion has been explained by the CBDT and the decision of Hon'ble Supreme Court in case of M/s Aarham Softronics and after taking into consideration the explanation and documentation so submitted by the assessee in terms of the Audit Report in Form No. 10CCB and having satisfied himself that the assessee is eligible for 100%....