TaxTMI 
TaxTMI 
2025 (3) TMI 221
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....verification of the following issues : i. Claim of "Any other amount allowable as deduction" in Schedule BP. ii. Depreciation Claim iii. Deduction and deposit of TDS iv. Deduction under Chapter VIA v. Expenses incurred for earning exempt income vi. Tax deduction, TDS deposit and TDS statement filing vii. Deduction/Exemption u/s. 10A/10AA viii. Income from house property ix. Reduction in profit due to ICDS x. International Transaction(s) xi. Loss from currency fluctuations 3. Statutory notices u/s. 143(2)/142(1) were duly served upon the assessee along with detailed questionnaire and the assessee made compliance to such notices. Since the assessee had entered into certain international transactions, the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) who proposed upward adjustment of Rs. 9,41,77,133/-. The AO thereafter completed the assessment u/s. 143(3) r.w.s.144C(13) r.w.s.144B of the Act at Rs. 455,25,53,250/- wherein apart from the Transfer Pricing adjustment of Rs. 9,41,77,133/- he made disallowance u/s. 40(a)(i) at Rs. 26,39,84,698/-. 3.1 ....
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....he reasons to verify the following issues: 1. Claim of "Any other amount allowable as deduction" in Schedule BP 2. Depreciation claim 3. Deduction and deposit of TDS 4. Deduction under Chapter VIA 5. Expenses incurred for earning exempt income 6. Tax deduction, TDS deposit and TDS statement filing 7. Deduction/Exemption u/s 10A/10AA 8. Income from house property 9. Reduction in profit due to ICDS 10. International transaction(s) 11. Loss from currency fluctuations 03. The assessment was completed u/s 143(3) r.w.s. 144C(13) r.w.s 144B of the Income Tax Act, 1961 on 26/02/2022 determining total income of Rs. 455,25,53,250/- (Rs.722,11,90,423/- as per computation sheet). 04. On subsequent review of the assessment and the case records, the following facts are observed: 05. Deduction u/s 10AA of the Act On perusal of the assessment records, it is noticed that the Faceless Assessing Officer (FAO) has allowed deduction u/s 10AA of the Act at Rs. 263,46,37,168/-. It is also observed from the record that disallowance u/s. 10AA of the Act was made in the earl....
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....t between the assessee and its AE for producing more than ordinary profits and there is close connection between the persons transacting business and also that the arrangement is to earn more than ordinary profits to the eligible unit so that the profits can be routed back to the parent AE. Although the FAO as well as the assessee has not brought on record any details of buyback of shares during the year and that it is not possible to verify the same since the assessee has not furnished the relevant notes to the audited financial statements, the findings are squarely applicable to the assessment year under consideration since the basis of transactions is still remain the same i.e. the agreement between the assessee and the AE dated 19/04/2007 and as noted by the CIT(A), the buyback of shares was involved in earlier years as well. The FAO has not verified this aspect of the case and allowed the deduction under section 10AA of the Act in toto. 4.3 The provisions of Section 263 are very clear that Commissioner of Income-tax can exercise power under the said section when he forms an opinion on the basis of records that an order passed by the Assessing Officer is both erroneous....
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....ngs, leading to the assessment order. It, therefore, appeared that the Assessing Officer after having asked a pertinent question of the method of valuing unlisted shares did not pursue that line of enquiry. Thus, this was a case of non-enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer was certainly erroneous and prejudicial to the revenue." 4.3.3 In the case of Ambika Agro Suppliers vs. ITO, Jalgaon [(2005) 95 ITD 326 (Pune)], the Hon'ble ITAT held as under: "Mere filing of an explanation was not sufficient and at the same time, it could not be inferred that the Assessing Officer had applied his mind. There was also no proper verification in respect of creditors from whom the assessee had accepted unsecured loans. No specific enquiries to prove the genuineness of these loans had been conducted by the Assessing Officer. The Assessing Officer had simply obtained account extracts of these parties as appearing in the books of the assessee and accepted the loan as genuine. No confirmation letters were filed from these parties." 4.3.4 Considering the facts discussed in the foregoing paragraphs, the above decisions are equally....
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.... 5. In view of the above facts, it is seen from records that the FAO has allowed deduction under section 10AA of the Act to the tune of Rs. 263,46,37,168/- and Rs. 1,23,15,523/- without making proper inquiries, without making proper verification and without examining the actual facts of the case which were required to be verified for allowing such a deduction. Failure on the part of the FAO rendered the assessment order dated 26/02/2022 under section 143(3) read with section 144C(13) read with section 144B of the Act as erroneous in so far as it is prejudicial to the interests of the revenue. 5.1 Since proper enquiries with regard to correctness of the claim and verification of all the aspects involved have not been made, the order under section 143(3) read with section 144C(13) read with section 1448 of the Act, dated 26/02/2022 is prejudicial to the interests of revenue. Thus both the conditions specified under section 263 of the Act are satisfied in this case and it is a fit case to invoke provisions of the said section. Hence, the assessment order dated 26/02/2022 for the A.Y. 2017-18 is hereby partly set aside to the file of the Assessing Officer on the issue....
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....sed on mere change of opinion, and by substituting his own views against the plausible views already taken by the AO, as due enquiry was made by the AO during assessment proceedings. 5. That on the facts and circumstances of the case and in law, the PCIT has erred in setting-aside the order of the AO on the ground that due verification/examination of expenditure under section 14A has not been made, not appreciating that the AO has already applied Rule 8D and made disallowance under section 14A of the Act. 6. That on the facts and circumstances of the case and in law, the PCIT has erred in not appreciating that the AO has allowed the enhanced deduction under section 10AA on increased income due to disallowance made under section 14A of the Act by virtue of the judgement passed by the Jurisdictional High Court of Bombay in the case of CIT vs Gem Plus Jewellery India Ltd. [2010] 330 ITR 174 and duly confirmed by the Hon'ble Supreme Court of India in the case of CIT vs HCL Technologies Ltd. [2018] 404 ITR 719 (SC). Disallowance under section 10AA of the Act: 7. That on the facts and circumstances of the case and in law, the PCIT erred in denying ....
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....ing the course of assessment proceedings has made enquiry, considered the submissions of the assessee and then exercised his powers to assess the income of the assessee, the order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. Therefore, the ld. PCIT was not justified in exercising revisionary proceedings u/s. 263 of the I.T. Act. 6.1 He submitted that the ld. PCIT himself has admitted that the Tribunal has consistently decided the issue of deduction u/s. 10AA in favour of the assessee and the Revenue is in appeal before the Hon'ble High Court. Under these circumstances, the order of the AO may be prejudicial to the interest of the Revenue but certainly not erroneous. Referring to various decisions, he submitted that for assuming jurisdiction u/s. 263 of the Act, the twin conditions namely, (i) the order is erroneous and (ii) the order is prejudicial to the interest of the Revenue must be satisfied. Since in the instant case the order may be prejudicial to the interest of the Revenue since the Revenue has not accepted the decision of the Tribunal and is in appeal before the Hon'ble High Court, however, it cannot be said that the order is er....
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.... carried out proper verification of the deduction claimed u/s. 10AA and without making any disallowance u/s. 14A passed the order for which the order has become erroneous and prejudicial to the interest of the Revenue. The relevant notice issued by the PCIT for assuming jurisdiction u/s. 263 of the I.T. Act has already been reproduced in the preceding paragraphs. According to the PCIT, such deduction claimed u/s. 10AA was disallowed by the AO from A.Y. 2013-14 to A.Y. 2016-17 but the Tribunal has allowed such claim of deduction. Since the matter is pending before the Hon'ble High Court as the Revenue has not accepted the decision of the Tribunal, therefore, the AO should have made the disallowance after calling for necessary details from the assessee. It is also the case of the PCIT that the AO has allowed the disallowance made by him u/s. 14A without carrying out proper verification/examination of the original claim itself. 8.1 It is the submission of the Ld. Counsel for the assessee that when the assessee has made submission before the AO regarding the claim of deduction u/s. 10AA and the AO after due application of mind and on the basis of order of the Tribunal in assessee's ....