Income Tax Appellate Tribunal - Amritsar
M/S.Kbb Nuts Private Ltd., Amritsar vs Pr. Commissioner Of Income Tax -1, ... on 24 September, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH: AMRITSAR
BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER AND
DR. MITHA LAL MEENA, ACCOUNTANT MEMBER
I.T.A No. 217/ASR/2019
(ASSESSMENT YEAR: 2013-14)
M/s. KBB Nuts Private Ltd. Vs. The Pr. Commissioner of
Dhapai Chabal Link Road, Income-Tax- 1
Amritsar Amritsar
[PAN:AADCK 3310K]
(Assessee) (Revenue)
Assessee by Sh. P. N. Arora Adv.
Revenue by Sh. Rahul Dhawan, CIT-D.R.
Date of Hearing 20.09.2021
Date of Pronouncement 24.09.2021
ORDER
Per Laliet Kumar, JM:
The present appeal has been filed against the order dated 30.01.2019, passed by the Principal Commissioner of Income Tax- 01 ('Pr.CIT') exercising revisionary jurisdiction under section 263 of the Income-tax Act, 1961 ('the Act') for the assessment year 2013-14.
I.T.A No. 217/ASR/2019 22. The assessee has raised the following grounds of appeal:-
1. That the order passed by the Principal Commissioner of Income-Tax-1, Amritsar u/s. 263 is against the facts of the case and is untenable under the law.
2. That no reasonable opportunity of being heard was allowed by the Assessing Officer before passing the said order. As such, the order passed is bad in law and is liable to be cancelled.
3. That this case does not fall within the mischief of section 263. As such the order is bad in law and the same is liable to be cancelled.
4. That the order was passed hurriedly without applying the mind and without appreciating the facts of the case as the same was going to be barred by time.
As such, the order passed is bad in law and is liable to be cancelled.
5. That the Pr CIT cannot assume jurisdiction u/s. 263 for making roving enquiry on the issues which are already enquired by the Assessing Officer, however, not expressly discussed in the assessment order passed.
6. That the Pr. CIT did not appreciate that the assessment order was passed after making through enquiries and after filing the necessary information as desired and required from time to time. It is pertinent to point out that this was a cases of tax audit. The case of the assessee was taken up several time and queries were raised and were duly complied. The Assessing Officer after considering all the facts and material and after making all the enquiries allowed deduction u/s. 80IB of the IT Act, 1961. As such the reopening by invoking the provisions of section 263 is not all justified and as such the order by the Pr. CIT is liable to be cancelled.
7. That the Ld. C.I.T. has grossly erred in invoking the provisions of section 263 in spite of the fact that all the facts and material were duly discussed and considered by the AO during the course of assessment proceeding . Because the Principal Commissioner of Income-tax takes a different view should not be made the basis for invoking the provisions of section 263. As such the CIT was not justified in invoking the provisions of section 263.
I.T.A No. 217/ASR/2019 38. That any other ground of appeal which may be urged at the time of hearing of the appeal.
Background Facts
1. The appellant is a private limited company, engaged in the business of processing, preservation and packaging of fruits and its derivatives etc.
2. In order to pursue its main object, the appellant established an industrial undertaking at Industrial Sector, Kundli, Distt. Sonepat for processing, preservation and packaging of fruits, derivatives etc. The said undertaking commenced business operations on 11.06.2011 and accordingly was eligible for deduction in terms of section 80IB(11A) of the Act from the assessment year 2012-13 onwards.
3. In the aforesaid undertaking, the appellant had created significant infrastructure for processing, preservation and packaging of fruits, mainly Badam, GiriBadam, Abjosh, Kaju, Kishmish, Pista etc.
4. During the previous year relevant to assessment year 2013-14, the appellant filed its return of income declaring income of Rs.20,860 under normal provisions of the Income Tax Act, 1961 ('the Act') and book profits of Rs.4,07,68,168 under section 115JB of the Act. The tax was paid by the appellant company under section 115JB of the Act on book profits.
I.T.A No. 217/ASR/2019 45. In the said return of income, the appellant claimed deduction amounting to Rs.3,51,25,451 under section 80-IB(11A) of the Act in respect of its profits derived exclusively from the business of processing, preservation and packaging of fruits, mainly Badam, GiriBadam. A copy of the Audit Report in Form 10CCB is enclosed herewith which is available on Page No.102 to 106 of the paper- book.
6. The case of the appellant was selected for scrutiny and various statutory notices were issued which were duly replied by the appellant. It is emphatically submitted that specific query(ies) in respect of claim of deduction made under section 80IB(11A) of the Act and gross profit declared was raised by the assessing officer during the course of assessment, which was duly responded and the same was accepted as such, without drawing any adverse inference against the appellant.
7. Further, it is of utmost importance to note that the assessment proceedings in the case of the appellant, which was completed vide order dated 30.12.2016, passed under section 143(3) of the Act, was conducted and concluded under the supervision of the Pr.CIT-1, Amritsar as is evident from the observations made by the assessing officer in the assessment order as under: [Refer Page No.14 of the assessment order] I.T.A No. 217/ASR/2019 5 "4. The case was discussed with the Worthy Principal Commissioner of Income Tax-1, Amritsar with reference to letter no. 5266 Dated 29.12.2016 of Addl. Commissioner of Income Tax, Range-3, Amritsar. After discussion, the returned income is accepted as directed by the Worthy Principal Commissioner of Income Tax-1, Amritsar."
8. It was the contention of the Ld.AR for the assessee that the same assessing officer had moved the proposal for initiation of the proceeding under section 263 of the income tax act, vide proposal dated 26 October 2017, despite the fact he was transferred from the charge of assessing Officer and new officer had taken of the charge on 5 October 2017. It was also the contention of the Ld.AR that the assessing officer namely Sh. Charan Dass was not assessing officer at time of moving the proposal as new officer had taken the charge of DCIT circle 3 Amritsar on 5.10.2017.
9. The Ld.AR for the assessee had submitted that the above said facts and verified from the assessment record. It was also the contention of the Ld.AR that even the official of the assessing officer had raised objection against the sending of proposal by the erstwhile assessing officer when the officer has assumed the charge on 5 October 2017.
10. It was also submitted by AR that the principal CIT cannot exercise the jurisdiction under section 263 of the fact on the basis of the I.T.A No. 217/ASR/2019 6 proposal given by the subordinate, as the statute the duty of the principle CIT to apply mind and thereafter issued the show cause notice, after satisfying that the order passed by the assessing officer was prejudicial to the interest of revenue and erroneous.
11. It was submitted that a show cause notice under section 263 of the Income Tax Act, 1961 dated 03.01.2019 was issued to the assessee on the following grounds
(i) It is observed that in the year under consideration the assessee company has claimed deduction of Rs. 3,51,25,451/- under section 80IB(11A) of the Income Tax Act,1961. This is first year when the company has made claim of deduction u/s 80IB of the i.t Act. The record shows that the Assessing Officer has accepted the claim of the assessee company without verifying as to whether all conditions of claiming deduction u/s 80IB as satisfied or not. There is no finding of the Assessing Officer in this regard. This shows non-application of mind by the AO making the assessment order erroneous in so far as prejudicial to the interests of the revenue.
(ii) The record shows that during the year under consideration there is fall in gross profit rate in comparison to the preceding year and the assessee company has also made substantial I.T.A No. 217/ASR/2019 7 amounts of sales in cash. The AO has failed to make necessary verification/ enquires in this regard.
12. The Ld. AR had submitted that the assessee vide reply dated 20.1.2019 had submitted as under :
" 1. With reference to above, we are in receipt of your above cited show cause Notice no 2614 dated 03.01.2018/2019 received by us on 16.01.2019. As per the said Notice, after going through our assessment records you have observed that our then assessing officer has failed to make necessary enquiries/verification and also failed to apply his mind on the following issues while framing our assessment I) That the record shows that the AO has accepted the claim of deduction U/s. 80IB of the Income Tax Act made by the company without verifying, as to whether all conditions of claiming deduction U/s. 80IB(11A) are satisfied or not and II) That for fall in gross profit rate during the year in comparison to the preceding year; the assessing officer has failed to make necessary verification and enquiries.
1. We have been afforded an opportunity to explain as to why the provisions of Section 263 of the Income Tax Act should not be invoked in this case. Our submissions on legal position of applicability of Section 263 and on facts are as under :
I) At the outset, it is submitted that said show cause Notice is illegal, based on surmises and not substantiated in law. Section 263 of the Income Tax Act, empowers the Commissioner with the power of revising any order of the assessing officer, where the order is erroneous and error has resulted in prejudice to interest of revenue. The I.T.A No. 217/ASR/2019 8 Commissioner must come to a firm conclusion to this point only after proper application of mind. Further the conclusions on which the said order is being proposed to be made should not be based on conjectures and surmises.
II) In the case of Malabar Industries Co Ltd. vs. CIT 243 ITR(2000) pg 83 the Supreme Court held that the Commissioner is to be satisfied of twin conditions namely:
a) That the order of assessing officer sought to be revised is erroneous And
b) That it is prejudicial to the interest of revenue.
It has also been held that if the order is erroneous but is not prejudicial to the interest of revenue, the Commissioner cannot exercise revisional jurisdiction U/s. 263(i). Similarly if the order is not erroneous but is prejudicial to the interest of revenue, revisional jurisdiction cannot be exercised in such a case also. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed. It is only an incorrect assumption of facts or incorrect application of law which will satisfy the requirement of order being erroneous. The phrase 'prejudicial to the interest of revenue', has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue, as a consequence of the order of assessing officer cannot be treated as prejudicial to interest of revenue.
III) In addition to the same, if assessing officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and assessing officer has taken one view which CIT does not agree, the said order cannot be treated as erroneous unless the view taken by assessing officer is I.T.A No. 217/ASR/2019 9 unsustainable in law. In view of legal position as explained above, provisions of Section 263 of Income Tax Act are not applicable on the basis of the observations made in the said show cause Notice.
2. On merit and facts of our case your honour has rightly observed from examining our assessment record, that these assessment proceedings were taken up for hearing on 26.05.2015 which continued upto the last date of hearing on 13.12.2016 and assessment was framed on 30.12.2016. During the course of these proceedings, in depth inquiries/information as required by the assessing officer from time to time were furnished. It was after almost 40 hearings, these proceedings were concluded. Also these assessment proceedings were subject to examination of two independent officers which initially continued till 21.03.2016 and subsequently because of change of new incumbent officer the assessment was finally framed on 30.12.2016.
3. As regards enquiries/verification of our claim for deduction U/s. 80IB (11A); we were asked on four occasions to justify our claim made with reference to the facts of our case and legal position. We submitted in our detailed replies dated 16.07.2015, 1/03/2016 and 04/08/2016. On 13.12.2016, again we were asked to show cause as to why 'Disallowance of deduction U/s. 80IB of Rs.35125451/- be not made' and why net profit rate be not applied on substantial cash sales. Our said reply dated 13.12.2016 forms part of the assessment order dated 30.12.2016 in which same has been reproduced in verbatim. Copy of our submission dated 13.12.2016 on the above issues which is self explanatory, for your reference is enclosed herewith
4. We explained in detail the provisions of said Section, nature of our business in detail which proved beyond any doubt to the assessing officer that the said deduction of income as I.T.A No. 217/ASR/2019 10 has been claimed by us meets the conditions of provision of Section 80IB. That various other issues with regard to our nature of trade, as well as with regard to eligibility of said deduction were also raised from time to time for which were properly replied along with evidences to the satisfaction of the assessing officer. There remained no point / issue at that time which was untouched by the assessing officer. It was after this protracted examination of our record and complete verification, the said assessment order was passed and does not suffer from any infirmity and is neither erroneous nor prejudicial to the interest of revenue.
5. Similarly as regards to the alleged charge that there is a fall in gross profit rate this year as compared to preceding year and the assessing officer has failed to make necessary enquiries , it is humbly stated that this observation is also bald. Complete information with regard to cash sales and justification of gross profit rate was also made during the proceedings vide our reply dated 09.10.2015 (copy enclosed)
6. It would thus be seen by your honour from our assessment record that for both these issues for which the said show cause has been issued to us, necessary enquiries were conducted by assessing officer. These stood replied by the company on 13.12.2016. It was after taking due cognizance of these replies, which forms part of body of assessment order also, and complete satisfaction thereof, the said assessment stood framed. It has been held by various High Courts that if there were any enquiry even an inadequate, that would not give any occasion to exercise jurisdiction u/s
263. Assessment order in any case cannot be revised on the ground that the deeper enquiry ought to have been made or proper exercise were not done while making the assessment. Reliance is based by us on decisions of CIT V/s Sunbean Auto Ltd. 332 ITR 167 (Delhi) and CIT V/s I.T.A No. 217/ASR/2019 11 Anil Kumar Sharma 335 ITR 83 (Delhi). Further no defect of whatsoever in nature has also been pointed out by the assessing officer in our books of accounts.
7. Lastly, it is submitted that our company is entitled to 100% deduction of income U/s. 80IB(11A), in view of same also no prudent assessee would understate its income which can be prejudicial to the interest of revenue.
8. At the end it is submitted that in totality of the facts, circumstances and legal position as explained above and also with reference to all detailed explanations and information furnished by us to the then assessing officer during our assessment proceedings, the assessment order dated 30.12.2016 framed by the assessing officer is correct. There isn't any doubt about the fact that the assessment has not been made without proper and detailed enquiries/verification and proper application of mind by then assessing officer. Therefore provisions of Section 263 of Income Tax Act cannot be invoked."
13. However Pr.CIT was not convinced with the reply filled by the assessee, and therefore exercised revisionary power under section 263 and order set-aside the assessment order dated 30.12.2016 passed under section 143(3), on the ground that the order was prejudicial to the interests of the Revenue on account of lack of enquiry conducted in the course of the assessment proceedings in respect of the issue of: (a) claim of deduction under section 80IB(11A) of the Act; and (b) gross profit rate declared by the appellant.
14. Feeling aggrieved by the order passed by the principal CIT the I.T.A No. 217/ASR/2019 12 assessee is in appeal before us on the ground mentioned hereinabove.
15. At the outset the Ld. AR for the assessee had submitted that during the assessment proceedings, the assessing officer had made elaborate enquiry from the assessee in respect of both the grounds raised by the principal CIT. To buttress his argument the Ld.AR had drawn our attention to the various notices issued by the assessing officer asking the questions with respect to eligibility the assessee to claim deduction under section 80 IB of the income tax act and had also enquired about the gross profit of the assessee. The Ld.AR had also filed the written submissions and in the written submission on the above two aspects it was submitted as under :
"Re (a): AO made enquiries and applied mind - order not erroneous The order u/s 263 dated 30.01.2019 passed by the Pr.CIT, sought to revise the assessment order passed by the assessing officer, on the alleged ground that the assessing officer, while passing the impugned assessment order dated 30.12.2016, failed to make sufficient enquiries in connection with the following two issues: (a) claim of deduction under section 80IB(11A) of the Act; and (b) fall in the gross profit rate declared by the appellant.
In this regard, it is emphatically submitted that the assessing officer, in the course of original assessment proceedings for the assessment year 2013-14 i.e., the year under consideration, was not only conscious/ aware of the aforesaid issues but also conducted extensive/ necessary enquiries/ investigations, as required in law, therein before accepting the same, as would be evident from the details of enquiries conducted.I.T.A No. 217/ASR/2019 13
In this connection, the appellant is providing herein below details of relevant queries raised by the assessing officer vide various notices/questionnaire and information/ replies filed by the appellant in response thereto from time to time, which clearly establishes that the assessment order dated 30.12.2016 was passed after due examination and verification of the information/ documents submitted during the course of assessment proceedings.
Particulars of Summary of information sought/filed before assessing officer notice/reply Notice dated The assessing officer vide the said notice, inter-alia required the appellant to justify the
16.06.2015 claim of deduction made under Chapter-VI-A of the Act and also directed to file details of gross profit declared in the past assessment year(s). The relevant extracts of [Copy enclosed at the notice is re-produced hereunder:
pages 8 to 10 of "1. A note on business activity/activities................................................ paperbook] 3. Also submit ROI for A.Y. (Current year and preceding year) alongwith computation of income and notes thereto.
....................
9. Please give details and justify the deduction claimed under chap VI-A of Income Tax Act, alongwith appropriate documents and evidence.
11. Please furnish the details in the following format:
Financial Year Gross Profit Net Profit Turn Over Ratio (Gp& NP) 2009-10 2010-11 2011-12 2012-13
20. Certified true copies of trading, P/L, Balance Sheet alongwith schedules thereto, Tax Audit Report for A.Y. 2013-14, 2012-13 and 2011-12." Reply dated In response to notice dated 16.06.2015, the appellant vide reply dated 16.07.2015, 16.07.2015 submitted before the assessing officer that the appellant is eligible for claiming deduction under section 80-IB(11A) of the Act and has fulfilled all the requisite conditions. The relevant extracts of the reply are reproduced as under:
"9. It is stated that the company has during the year claimed deduction of [Copy enclosed at income u/s 80-IB(11A) of the Income Tax Act ,1961. As already stated in Para pages 11 to 14 of No. 1 of the submission and as would. be observed by your goodself from our books of accounts, records and business operation of the company, that our paperbook] company has established an industrial undertaking and is deriving profit exclusively from the business of processing, preservation and packaging of fruits viz. Badam, Girl Badam, Abjosh, Kaju, Kishmish, Pista etc. Sec 80IB(11A) provides that in case of an industrial undertaking deriving profit (on or after first day of April 2001) from such business, shall be entitled to deduction of 100% of its profits & gains derived from such undertaking for five assessment years beginning with an initial assessment year and thereafter 30% of the profits I.T.A No. 217/ASR/2019 14 derived from such business, in a manner that total period of deduction does not exceed 10 consecutive years, subject to the fulfillment of the conditions as laid in the section.
We have also fulfilled all other conditions as laid out in section in 80-IB and for this purpose the company has obtained a separate Audit Report dated 29.11.2013 in Form No.10CCB (Rule18BBB)."
Reply dated 09.10.15 Explanation regarding Gross Profit and Net Profit and reasons for fall in GP Rate/NP Rate along-with other relevant details.
[Copy enclosed at pages 15 to 22 of paperbook] Reply dated Comparative analysis of all the expenses debited to Profit & Loss A/c 17.11.2015 [Copy enclosed at pages 23 to 28 of paperbook] Order Sheet dated Vide the said order-sheet, the assessing officer required the appellant to furnish 22.02.2016 following details:
(a) to give detailed analysis of the transactions of purchase and sale of various [Copy enclosed at page items from and to its associated enterprises;
29 of paperbook] (b) to explain the claim of deduction under section 80IB(11A) of the Act in light of the fact of mutual transactions with sister concerns. Reply dated In response to the aforesaid query, the appellant filed elaborate reply justifying its 01.03.2016 claim of deduction under section 80IB(11A) of the Act.
[Copy enclosed at Further, alongwith the aforesaid reply, the appellant also submitted complete details of pages 30 to 32 of all items dealt (i.e., purchase/sold)by the appellant and nature of all activities relating paperbook] to processing, preservation and packaging of said items.
Notice dated The assessing officer directed the appellant to furnish details of deduction claimed 19.07.2016 under section 80IB with relevant report of the auditor and explaining satisfaction of conditions along with documentary evidences.
[Copy enclosed at page 33 of paperbook] Reply dated In response to the aforesaid query, the appellant once again elaborately reiterated and 04.08.2016 justified its claim of deduction under section 80IB(11A) of the Act before the assessing officer.
[Copy enclosed at I.T.A No. 217/ASR/2019 15 pages 34 to 36 of paperbook] Reply dated (i) The details of cash deposits in bank duly tallies with respective bank statements. 12.09.2016 (ii) The date-wise cash and credit sales for the year ended 31/03/2013 are being enclosed herewith vide Annexure 1422 & 1423.
[Copy enclosed at (iii) The monthly cash and credit sales for the year ended 31/03/2013 are being pages 214 to 217 of enclosed herewith vide Annexure 1424 & 1425. paperbook] Reply dated (i) We have also furnished the item-wise GP in respect of all items dealt in by 03.10.2016 Company.
We again state that we have maintained proper stock record and all our purchases & [Copy enclosed at sales are duly verified.
pages 218 & 219 of (ii) Copy of cash book for the period 01/04/2012 to 31/03/2013 is enclosed herewith. paperbook] (iii) The details of all specified persons with ratio of share in all the firms and companies in which they are interested is enclosed. Reply dated (i) The item-wise stock tally in value and quantity of both raw material and finished 10.10.2016 goods for the year ended 31/03/2013 are enclosed herewith vide Annexure No.1442 & 1443.
[Copy enclosed at (ii) The item-wise account of raw material, complete details of opening stock, pages 220 to 222 of purchase, issue and closing stock in weight as well as in value are enclosed herewith. paperbook] (iii) The item-wise trading account of finished goods along-with details of opening stock, purchase, issue and closing stock of 26 items are enclosed herewith. Reply dated Further we have now been asked vide 'Order Entry Sheet' dated 10.10.2016 to give the 13.10.2016 detail of sharing of Electricity Expenses of Rs.1061835/- and Telephone Expenses of Rs.341033/- reimbursed to Bajaj Overseas Impex. In this connection , we are to state [Copy enclosed at that these electricity expenses pertains Delhi Office and to the business premises of pages 223 & 224 of 'Bakewell Industries', to whom the company is paying rent of Rs.60000/- p.m. paperbook] (Rs.720000/- for the year). That in the said premises, Bajaj Overseas Impex and Fairways Trading Company also are one of the tenants. These bills are received in the name of Bakewell Industries and are initially paid by either of these Associate Concerns. However at the end of the year, these total electricity expenses are being shared amongst all the associate concerns/tenants namely Bajaj Overseas Impex, Fairways Trading Co. and in the ratio of 70:15:15 respectively. The sharing of the same depends upon the usage of power on estimate basis by these concerns. There is 'Roasting Unit' of the company situated in the said premises. [Annexure No.1469 to 1475] Notice dated The assessing officer once again issued detailed show cause notice inquiring about the 05.12.2016 claim of deduction under section 80IB(11A) of the Act.
[Copy enclosed at In the aforesaid show cause notice, the assessing officer required the appellant to pages 38 to 40 of explain why the deduction claimed under section 80IB(11A) of the Act should not be paperbook] disallowed. Reply dated In response to the show cause notice, the appellant filed detailed reply with respect to 13.12.2016 the claim of deduction under section 80IB(11A) of the Act. I.T.A No. 217/ASR/2019 16 [Copy enclosed at pages 41 to 54 of paperbook] 30.12.2016 The assessing officer passed assessment order, duly accepting the claim of deduction under section 80-IB(11A) of the Act.
It is further relevant to point out that even during the course of assessment, the copies of opinion were duly filed before the AO during the course of assessment proceedings, the details of which are as under:-
(i) The copy of opinion given by Shri T.N. Pandey, Ex-Chairman CBDT dated 28/02/2013 on the applicability of section 80IB in the case of the assessee was duly filed before the AO during the course of assessment proceedings. [Refer Page No.227 to 233 of the paper-book]
(ii) The copy of opinion of T.U. & Company dated 13/02/2013 on the applicability of section 80IB in the case of the assessee was duly filed before the AO during the course of assessment proceedings. [Refer Page No.234 to 238 of the paper-
book] On perusal of the aforesaid, it will kindly be appreciated that the assessing officer made extensive/ necessary enquiries to verify and examine the following issues:
a) Claim of deduction under section 80IB(11A) of the Act; and
b) Reasonableness for fall in gross profit ratio of the appellant during the previous year relevant to the assessment year 2013-14.
It is evident from the above that specific queries were raised by the assessing officer during course of assessment and detailed explanations were filed by the appellant in response thereto, on consideration of which no adverse inference was drawn by the assessing officer.
It may kindly be appreciated that all possible enquiries in relation to the aforesaid issues I.T.A No. 217/ASR/2019 17 were conducted by the assessing officer during the course of assessment proceedings and only after making the aforesaid extensive/ necessary enquiries, the return of income filed by the appellant was accepted vide assessment order dated 30.12.2016. "
16. The Ld.AR had submitted that since sufficient enquiries were made by the assessing officer, therefore the order passed by the assessing officer, cannot be said to be either erroneous or prejudicial to the interest of the revenue.
17. The Ld. AR had further submitted that the assessee is immeasurable eligible for the deduction under 80 IB(11A) of the act as the assessee fulfilled all the three condition cumulatively as provided under the Act. For the above said purposes the assessee had filed the following written submission
(a) Cash Claim of deduction under section 80IB(11A) of the Act- Rs.3,51,25,451 The appellant had, in the previous year relevant to the assessment year 2012-13, set-up an Industrial Undertaking at Industrial Sector, Kundli, Distt. Sonepat and commenced its business of processing, preservation and packaging of fruits and its derivatives etc. In the said undertaking, the appellant had created significant infrastructure for processing, preservation and packaging of fruits, mainly Badam, GiriBadam, Abjosh, Kaju, Kishmish, Pista etc. In the previous year relevant to assessment year 2013-14, in its return of income, the appellant claimed deduction amounting to Rs.3,51,25,451 under section 80-IB(11A) of the Act in respect of its profits derived exclusively from the business of processing, I.T.A No. 217/ASR/2019 18 preservation and packaging of fruits, mainly Badam, GiriBadam.
Since the process of preservation, cracking and packaging of fruits mainly GiriBadamis part and parcel of the integrated business of the appellant, deduction under section 80IB(11A) of the Act was claimed by the appellant on fulfillment of all conditions specified therein.
The main allegation made by the Pr.CIT in setting aside the issue of deduction claimed by the appellant under section 80IB(11A) of the Act is that the assessing officer has failed to examine the following points (a) whether dry fruits are to be treated as 'fruits' for the purpose of section 80IB(11A) of the Act; and (b) whether the appellant is engaged in the business of 'processing, preservation and packaging.
In this regard, it is respectfully submitted, that section 80IB(11A) of the Act provides deduction in respect of profits derived from undertakings engaged in the business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products. The provisions of section 80IB(11A) of the Act read as under:
"(11A) The amount of deduction in a case of an undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or from the integrated business of handling, storage and transportation of food grains, shall be hundred per cent of the profits and gains derived from such undertaking for five assessment years beginning 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 derived from the operation of such business in a manner that the total period of deduction does not exceed ten consecutive assessment years and subject to fulfilment of the condition that it begins to operate such business on or after the 1st day of April, 2001.I.T.A No. 217/ASR/2019 19
Provided that the provisions of this section shall not apply to an undertaking engaged in the business of processing, preservation and packaging of meat or meat products or poultry or marine or dairy products if it begins to operate such business before the 1st day of April, 2009." (emphasis supplied) A bare perusal of section 80IB(11A) of the Act indicates that three primary operations are required to be undertaken by the assessee in relation to 'fruits', for the purpose of availing deduction under the said section viz.: (i) processing; (ii) preservation; and (iii) packaging. Further, the section uses the words 'and' which implies that all the 3 aforesaid activities are to be undertaken by the assessee cumulatively and even if one of the said activities is not undertaken, the assessee would not be eligible for deduction under the said section.
Before adverting to the legal position, it would be pertinent to first understand the processes undertaken by the appellant in its Industrial Unit for processing, preservation and packaging of fruits mainly BadamGiri.
It is submitted that the appellant is engaged in processing, preservation and packaging of various dry fruits which primarily include Almonds.
It is pertinent to note that after purchase of dry fruits, the appellant performs a variety of processes. In order to obtain a better understanding, the various processes undertaken by the appellant, on various dry fruits, are elaborately explained in Annexure-I. [Refer Page No.212 & 213 of the paper-book] It is further relevant to point out that the assessee company also received financial assistance/grant in aid for setting of processing of nuts, sesame nut seeds, soybean and grant in aid was received at Rs.50 Lakh. A copy of the letter dated 12/03/2013 is placed at Page No.110 & 111 of the paper-book.
I.T.A No. 217/ASR/2019 20On perusal of the activities undertaken by the appellant, it is thus clear that all the three processes, viz. processing, preservation & packaging are being carried out by the appellant, which are the essence for claiming deduction under section 80IB(11A) of the Act.
18. The Ld.AR for the assessee had also submitted that the case of the assessee is covered by the decision of the Hon'ble Supreme Court. He relied upon decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT : 243 ITR 83, wherein the apex Court, dealing with the preconditions for jurisdiction under Section 263 of the Act, held as under:
"A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suomotu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue - recourse cannot be had to section 263(1) of the Act.
There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. ...
The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income- tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue." (emphasis supplied)..
19. The Ld. AR for the assessee relied upon the following decisions for the purposes of emphasizing I.T.A No. 217/ASR/2019 21 that the order passed by the principal CIT was required to be set aside:-
- CIT vs. Max India Limited: 268 ITR 128 (P&H) [affirmed in 295 ITR 282 (SC)]
- CIT v Kwality Steel Suppliers Complex: 395 ITR 1 (SC)
- CIT vs. Amitabh Bachchan: 384 ITR 200 (SC)
- CIT v. Vikas Polymers: 341 ITR 537 (Del.)
- CIT v. Sunbeam Auto Ltd.: 332 ITR 167 (Del)
- Vimgi Investment (P) Limited: 290 ITR 505 (Del)
- CIT v. Hindustan Lever Ltd: 343 ITR 161 (Bom.)
- CIT vs. Development Credit Bank Ltd: 323 ITR 206 (Bom.)
- CIT vs. Gabriel India Limited: 203 ITR 108 (Bom)
- CIT v. Ganpat Ram Bishnoi: 296 ITR 292 (Raj)
- Hari Iron Trading Co. vs. CIT: 263 ITR 437 (P&H)
- CIT V. Arvind Jewellers: 259 ITR 502 (Guj.)
20. Ld AR had further referred the decision of the Punjab and Haryana High Court in the case of Hari Iron Trading Co. vs. Commissioner of Income-tax: 263 ITR 437, wherein it was held that even though the assessment order was silent with respect to the issues raised in the 263 order, that by itself did not vest the Commissioner with valid jurisdiction, considering that such issues were considered by the assessing officer and formed part of the assessment record. On page 444 of the judgment, the High Court observed as under:
"Thus, it is not only the assessment order but the entire record which has to be examined before arriving at a conclusion as to whether the Assessing Officer had examined any issue or not. The assessee has no control over the way an assessment order is drafted. The assessee on its part had produced enough material on record to show that the matter had been discussed in detail by the Assessing Officer. The least that the Tribunal could have done was to refer to the assessment record to verify the contentions of the assessee. Instead of doing that, the Tribunal has merely been swayed by the fact that the Assessing Officer has not mentioned anything in the assessment order. During the course of assessment proceedings, the Assessing Officer examines numerous issues. Generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made." (emphasis supplied)
21. The aforesaid judgment has been followed with approval by the Delhi High Court in the case of CIT vs. Eicher Limited: 294 ITR 310. The relevant observations are reproduced hereunder:
"15. In Hari Iron Trading Co. v. Commissioner of Income Tax, (2003) 263 ITR I.T.A No. 217/ASR/2019 22 437, a Division Bench of Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions / disallowances are made. We agree.
16. Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court we find that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse." (emphasis supplied)
22. The decision of the Delhi High Court has been affirmed by the Supreme Court in the case reported as CIT vs. Kelvinator of India Ltd.: 320 ITR 561.To the same effect is the decision of the Delhi High Court in the case of CIT vs. Anil Kumar Sharma: 335 ITR 83,where it was held that though the assessment order did 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 and once such application of mind was discernible from the record, proceedings under Section 263 of the Act would fall into the arena of the Commissioner having a different opinion, which was impermissible in law.
23. Ld AR Further, referred to the decision of the Allahabad High Court in the case of CIT v. Goyal Private Family Specific Trust: 171 ITR 698, wherein the Court observed as under:
"Thereafter, notices under section 263 were issued to the assessee by the Commissioner of Income-tax for "both the years calling upon the assessee to show cause as to why assessment orders be not cancelled, as being erroneous I.T.A No. 217/ASR/2019 23 and prejudicial to the interests of the Revenue. Not being satisfied with the explanation of the assessee, the Commissioner set aside the assessment orders for both the years directing the Income-tax Officer to make the assessments de novo. The Commissioner was of the view that the orders for both the years were erroneous and prejudicial to the interests of the Revenue, inasmuch as they were passed by the Income-tax Officer " ......in haste/hurry without proper and adequate enquiry ...... ... The Commissioner also observed that the orders do riot show " How and in what manner and with what capital the trust conducted its business relating to handloom daris and it is not at all clear from the papers filed." He also added that the record shows that the books of account of the trust were never produced before the Income-tax Officer for scrutiny, that no tick marks were made on any papers filed by the trust along with the return and that the assessment was made in one hearing, without requiring the presence of the trustees ...............
There is no finding by the Commissioner that the Income-tax Officer reached an erroneous conclusion and that, on the facts and circumstances of the case, the conclusion would have been different. The orders of the Income-tax Officer may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment orders as erroneous and prejudicial to the interest of the Revenue. Writing an order in detail may be a legal requirement, but the order not fulfilling this requirement, cannot be said to be erroneous and prejudicial to the interest of the Revenue. It was for the Commissioner to point out as to what error was committed by the Income-tax Officer in having reached the conclusion that the income of the trust was exempt in its hands and was assessable only in the hands of the beneficiaries. The Commissioner having failed to point out any error, no error can be inferred from the orders of the Income-tax Officer for the simple reason that they are bereft of details. If the order is not erroneous, then it cannot be prejudicial to the interest of the Revenue. There is nothing to show in the order of the Commissioner that the Income-tax Officer would have reached a different conclusion had he passed a detailed order. So, the conclusion of the Commissioner that the orders of the Income-tax Officer are erroneous and prejudicial to the interest of the Revenue are based merely on suspicion and surmises in the absence of any enquiry having been made by him.
In the income-tax assessments, all questions boil down to this, whether income has been properly determined and whether the correct rate of tax has been applied. The Commissioner does not say that the income was higher or that it was assessed on a wrong entity or at a low rate or that any exemption was wrongly allowed. In the absence of such a finding, the assessment orders cannot be said to be erroneous and prejudicial to the interest of the I.T.A No. 217/ASR/2019 24 Revenue."(emphasis supplied)
24. it was submitted that the Ld. AR that as a necessary corollary, when on a particular issue the assessing officer did conduct extensive enquires during the course of assessment proceedings, such order cannot, , be regarded as erroneous so as to warrant exercise of revisionary jurisdiction under section 263 of the Act. It was reiterated that once, on the facts of the case, not only the relevant details/ documents are available on record and the issues were specifically raised and considered by the assessing officer, in such circumstances, it is not open to the CIT to exercise revisionary jurisdiction, unless the assessing officer is found to have failed to make inquiries/ verification, which should have been made as per law but were not made. The CIT cannot, merely on difference of opinion with regard to the manner of the inquiries/ investigation, exercise revisionary jurisdiction
25. it was submitted by the Ld.AR that the assessment order passed by the assessing officer or the assessment year 2013 - 14 was neither erroneous nor prejudicial to the interest of revenue and therefore the exercise of jurisdiction by the PCIT was without jurisdiction .
26. It was also the contention of the Ld.AR that the assessing officer had passed the order after taking approval from the principal Commissioner of income tax and discussing the matter with him. He had drawn our attention to the observation made by the assessing officer at page 14 to the following effect "4. This case was discussed with the Worthy Principal Commissioner of Income Tax
-1, Amritsar with reference to Letter No.5266 Dated 29.12.2016 of Addl. Commissioner of Income Tax, Range-3, Amritsar. After discussion, the returned income is accepted as directed by the Worthy Principal Commissioner of Income Tax-1, Amritsar."
27. Thus it was submitted that the assessment order was passed after discussing with the Principal CIT and the Ld. AO again came to the conclusion that the returned income is accepted as directed by the worthy Pr CIT-1 Amritsar. Thus it is a clear case where the assessment order was I.T.A No. 217/ASR/2019 25 passed with the prior approval of Pr CIT. Now, therefore the revision of the said assessment order contradicts the directions of Pr. CIT. In view of these circumstances, the successor Pr. CIT has got no jurisdiction to revise the assessment order framed on the basis and in view of the directions of erstwhile Pr. CIT. This view finds support from the decision of Calcutta High Court in the case of Hastings Property reported in 233 ITR Page 124 in which it was held that the assessment order cannot be said to be erroneous and prejudicial to the interest of revenue. This view also finds support from the decision of Jurisdictional High Court (P&H) in the case of Hari Iron Trading Co vs. CIT reported in 131 Taxman Page 535. This view further finds support from the decision of Madras High Court in the case of Festo Elgi (P) Ltd vs. CIT reported in (2002) 123 Taxman 537. Again this view finds support from the decision of Madras High Court in the case of R. Srinivasan vs. ACIT reported in (2013) 29 taxmann.com 279 (Madras). He relied upon the decision of ITAT, Amritsar Bench, Amritsar in the case of Ambey Construction Company, Bathinda in ITA No. 208/Asr/2017, order dated 07/05/2019 relating to Assessment Year 2012-13 and also in the case of Ambey Construtech (P) Ltd, Bathinda in ITA No. 209/Asr/2017 & 344/Asr/2019, order dated 24/08/2021 relating to Assessment Year 2012-13.
28. The Ld.AR had further submitted that similar notice u/s 263 was issued by Pr. CIT in connection with AY 2014-15 on 13/03/2020, a copy of which is placed at Page No.116 & 117 of the paper- book against the assessee . The principal Commissioner of income tax after considering the reply of the assessee vide order dated 26 March 2021 had dropped the proceedings u/s 263. A copy of the order is available on Page No.114 & 115 of the paper-book. He had drawn our attention to Para 4 to 6 of the order, which are being reproduced hereinbelow for ready reference:
"04. On the principle of res judicata, it needs to be brought on to record that for AY 2013-14, the PCIT had set aside the assessment on the issue of 80IB(11A). However, on a perusal of case records, this decision is rooted in the assessment order, where, after over 30 order sheet notings, the Assessing Officer, in his wisdom, noted that "the returned is accepted as directed by the Worthy Pr. Commissioner of Income Tax-1, Amritsar." The genesis of the 263 proceedings for AY 2013-14 lay in this comment. This is not the case for AY 2014-15 and is dealt with as such.I.T.A No. 217/ASR/2019 26
05. The submission of the AR have been carefully perused vis-à-vis the assessment records. The AO has in fact done a detailed enquiry and due verification of the information called. The order sheet notings on the file of the AO on 1.11.2017 and 22.11.2017 and the compliance of the AR thereto indicate a sufficient level of enquiry and examination of the issued involved. As such, I am unable to conclude on the satisfaction of the twiu conditions of the order being erroneous and prejudicial to the interest of the revenue. Nor is this a case of an abject lack of enquiries to invoke revisionary power under section 263 of the Act. The fact that the Assessing Officer in both, the assessment order and the office note has specifically adverted to this issue also restrains me from further proceedings.
06. In view of the above discussions, the proceedings initiated under section 263 of the Act are hereby dropped."
29. Lastly it was submitted by the Ld.AR that the explanation to section 263 is prospective in nature and therefore it cannot be invoked by the PCIT, for alleging that the enquiry which should have been done, had not been done by the assessing Ofc at the time of passing the assessment order.
30. On the other hand the Ld.DR for the drawn our attention to the order passed by the assessing officer wherein it was categorically mentioned that the assessing officer had passed the order on the direction of the PCIT, and there is no application of mind by the assessing officer to the facts of the case. It was also the contention of the Ld. DR that, it is the case of no enquiry and non application of mind by the assessing officer as the whole assessment order was passed on the direction of the P CIT. In fact, the same officer had made the request for initiation of proceedings under section 263 vide his letter dated 4 October 2017 sent on 26 October 2017. In the letter he had also to produce the draft assessment order as sought by the PCIT in a communication dated 5 January 2017. It was the contention of the Ld.AR that it is a classic case of non application of mind by the assessing officer, the same assessing officer is admitting that there was no application of mind at his end further it was submitted by the Ld DR that further I.T.A No. 217/ASR/2019 27 enquiries were required to be made by the DR, but for the direction of the P CIT the same was not carried out by the assessing officer and the assessment was framed on his instructions. The Ld. DR rely upon the record of the assessing officer as well as of the P CIT. During the course of argument we had directed the Ld. DR to produce the assessment record with a view to find out whether any communication percent by the additional Commissioner on 29 December 2016 and what was the response of the assessing officer after receipt of the explanation letter from the P CIT dated 5 January 2017.
31. In the rebuttal the Ld.AR had submitted that the assessment was required to be completed by 31 December 2016, and there was no draft order available in the record of the assessing officer further there was no order sheet after 16 December 2016 and therefore if any enquiry was required to be made by the assessing officer, step should have been taken by the assessing officer after 16 December 2016. However no steps were taken as sufficient enquiries were already made by the assessing officer satisfying himself about the eligibility of the assessee under section 80 IB as well as in respect of GP rate of the assessee.
32. The assessment record was made available to us, however we were not able to locate either the letter dated 29th of December 2016 written by additional Commissioner to the assessing officer , the reply of the assessing officer to the explanation dated 5 January 2017 and the draft assessment order prior to passing of the assessment order on 30 December 2016.
33. We have considered the rival contention of the parties and perused the material available on record, including the judgments cited at bar during the course of hearing by both the parties. The power under section 263 vest in principal Commissioner of income tax, is a revisionary power, required to be exercised by the authorities if the authorities come to the conclusion that the order passed by the assessing officer is erroneous and prejudicial to the interests of the revenue. The principal Commissioner of income tax, in the show cause notice dated 3rdJanuary 2018, in paragraph 3 had mentioned I.T.A No. 217/ASR/2019 28 " 3 The verification of the assessment record reveals that though the assessing officer conducted several hearing and also Submissions/explanations / details on record but he failed to make necessary enquiry/verification and he has also failed to apply his mind on the issues involved in the case, thereby, making the assessment erroneous insofar as prejudicial to the interest of the revenue"
34.The whole case of the principle CIT hinges around, that the assessing officer had failed to make necessary enquiry/verification of the issues referred to in paragraph 4 and 5 of the show cause notice. For the purposes of the finding of whether the assessing officer had made necessary enquiry/verification in respect to claim of the assessee under section 80IB( 11A) and fall of in comparison to the preceding the year etc, we are required to examine whether the assessing officer had raised questions on these two issues or not. And further, we have to find out whether enquiries/ verification made by the assessing officer were sufficient or not.
35.The assessment record produced before us, clearly shows that the assessing officer and made various enquiries/ verification from the assessee, and the assessee gave the reply to the said enquiries/ verification during the assessment proceedings. We are tabulating the multiple questions/enquiry made by the assessing officer and the response given by the assessee to that during the assessment proceedings, the same is as under:-
Details of notice/ reply Description/ particulars of notice/ enqiry by AO and reply thereto Notice dated 16.06.2015 The assessing officer vide the said notice, inter-alia required the appellant to justify the claim of deduction made under Chapter-VI-A of the Act [Copy enclosed at pages 8 and also directed to file details of gross profit declared in the past to 10 of paperbook] assessment year(s). The relevant extracts of the notice is re-produced I.T.A No. 217/ASR/2019 29 hereunder:
"1. A note on business activity/activities................................................
3. Also submit ROI for A.Y. (Current year and preceding year) alongwith computation of income and notes thereto. ....................
9. Please give details and justify the deduction claimed under chap VI-A of Income Tax Act, alongwith appropriate documents and evidence.
11. Please furnish the details in the following format:
Financial Gross Profit Net Profit Turn Over
Year Ratio (Gp&
NP)
2009-10
2010-11
2011-12
2012-13
20. Certified true copies of trading, P/L, Balance Sheet alongwith schedules thereto, Tax Audit Report for A.Y. 2013-14, 2012-13 and 2011-
12."
Reply dated 16.07.2015 In response to notice dated 16.06.2015, the appellant vide reply dated 16.07.2015, submitted before the assessing officer that the appellant is eligible for claiming deduction under section 80-IB(11A) of the Act and has fulfilled all the requisite conditions. The relevant extracts of the reply [Copy enclosed at pages are reproduced as under:
11 to 14 of paperbook] "9. It is stated that the company has during the year claimed deduction of income u/s 80-IB(11A) of the Income Tax Act ,1961.
As already stated in Para No. 1 of the submission and as would. be observed by your goodself from our books of accounts, records and business operation of the company, that our company has established an industrial undertaking and is deriving profit exclusively from the business of processing, preservation and packaging of fruits viz. Badam, Girl Badam, Abjosh, Kaju, Kishmish, Pista etc. Sec 80IB(11A) provides that in case of an industrial undertaking deriving profit (on or after first day of April 2001) from such business, shall be entitled to deduction of 100% of its profits & gains derived from such undertaking for five assessment years beginning with an initial assessment year and thereafter 30% of the profits derived from such business, in a manner that total period of deduction does not exceed 10 consecutive years, subject to the fulfillment of the conditions as laid in the section.
We have also fulfilled all other conditions as laid out in section in 80-IB and for this purpose the company has obtained a separate Audit Report dated 29.11.2013 in Form No.10CCB (Rule18BBB)."
Reply dated 09.10.15 Explanation regarding Gross Profit and Net Profit and reasons for fall in GP Rate/NP Rate along-with other relevant details.
I.T.A No. 217/ASR/2019 30[Copy enclosed at pages 15 to 22 of paperbook] Reply dated 17.11.2015 Comparative analysis of all the expenses debited to Profit & Loss A/c [Copy enclosed at pages 23 to 28 of paperbook] Order Sheet dated Vide the said order-sheet, the assessing officer required the appellant to 22.02.2016 furnish following details:
(c) to give detailed analysis of the transactions of purchase and sale [Copy enclosed at page 29 of various items from and to its associated enterprises;
of paperbook] (d) to explain the claim of deduction under section 80IB(11A) of the Act in light of the fact of mutual transactions with sister concerns.
Reply dated 01.03.2016 In response to the aforesaid query, the appellant filed elaborate reply justifying its claim of deduction under section 80IB(11A) of the Act. [Copy enclosed at pages 30 to 32 of paperbook] Further, alongwith the aforesaid reply, the appellant also submitted complete details of all items dealt (i.e., purchase/sold)by the appellant and nature of all activities relating to processing, preservation and packaging of said items.
Notice dated 19.07.2016 The assessing officer directed the appellant to furnish details of deduction claimed under section 80IB with relevant report of the auditor [Copy enclosed at page 33 and explaining satisfaction of conditions along with documentary of paperbook] evidences.
Reply dated 04.08.2016 In response to the aforesaid query, the appellant once again elaborately reiterated and justified its claim of deduction under section 80IB(11A) of [Copy enclosed at pages the Act before the assessing officer. 34 to 36 of paperbook] Reply dated 12.09.2016 (i) The details of cash deposits in bank duly tallies with respective bank statements.
[Copy enclosed at pages (ii) The date-wise cash and credit sales for the year ended 31/03/2013 are 214 to 217 of paperbook] being enclosed herewith vide Annexure 1422 & 1423.
(iii) The monthly cash and credit sales for the year ended 31/03/2013 are being enclosed herewith vide Annexure 1424 & 1425.
Reply dated 03.10.2016 (i) We have also furnished the item-wise GP in respect of all items dealt in by Company.
[Copy enclosed at pages We again state that we have maintained proper stock record and all our I.T.A No. 217/ASR/2019 31 218 & 219 of paperbook] purchases & sales are duly verified.
(ii) Copy of cash book for the period 01/04/2012 to 31/03/2013 is enclosed herewith.
(iii) The details of all specified persons with ratio of share in all the firms and companies in which they are interested is enclosed. Reply dated 10.10.2016 (i) The item-wise stock tally in value and quantity of both raw material and finished goods for the year ended 31/03/2013 are enclosed herewith [Copy enclosed at pages vide Annexure No.1442 & 1443. 220 to 222 of paperbook] (ii) The item-wise account of raw material, complete details of opening stock, purchase, issue and closing stock in weight as well as in value are enclosed herewith.
(iii) The item-wise trading account of finished goods along-with details of opening stock, purchase, issue and closing stock of 26 items are enclosed herewith.
Reply dated 13.10.2016 Further we have now been asked vide 'Order Entry Sheet' dated 10.10.2016 to give the detail of sharing of Electricity Expenses of [Copy enclosed at pages Rs.1061835/- and Telephone Expenses of Rs.341033/- reimbursed to 223 & 224 of paperbook] Bajaj Overseas Impex. In this connection , we are to state that these electricity expenses pertains Delhi Office and to the business premises of 'Bakewell Industries', to whom the company is paying rent of Rs.60000/- p.m. (Rs.720000/- for the year). That in the said premises, Bajaj Overseas Impex and Fairways Trading Company also are one of the tenants. These bills are received in the name of Bakewell Industries and are initially paid by either of these Associate Concerns. However at the end of the year, these total electricity expenses are being shared amongst all the associate concerns/tenants namely Bajaj Overseas Impex, Fairways Trading Co. and in the ratio of 70:15:15 respectively. The sharing of the same depends upon the usage of power on estimate basis by these concerns. There is 'Roasting Unit' of the company situated in the said premises. [Annexure No.1469 to 1475] Notice dated 05.12.2016 The assessing officer once again issued detailed show cause notice inquiring about the claim of deduction under section 80IB(11A) of the [Copy enclosed at pages Act.
38 to 40 of paperbook] In the aforesaid show cause notice, the assessing officer required the appellant to explain why the deduction claimed under section 80IB(11A) of the Act should not be disallowed.
Reply dated 13.12.2016 In response to the show cause notice, the appellant filed detailed reply with respect to the claim of deduction under section 80IB(11A) of the [Copy enclosed at pages Act.
41 to 54 of paperbook] 30.12.2016 The assessing officer passed assessment order, duly accepting the claim of deduction under section 80-IB(11A) of the Act.
I.T.A No. 217/ASR/2019 3236.Similarly AO asked various questions/ show cause notice/ verification in respect of alleged fall in GP. The table of questions raised and reply given by the assessee to the assessing officer are given hereinbelow.
Details of notice/ reply Description/ particulars of notice/ enqiry by AO and reply thereto Notice dated 16.06.2015 The assessing officer vide the said notice, inter-alia required the appellant to justify the claim of deduction made under Chapter-VI-A of the Act [Copy enclosed at pages 8 and also directed to file details of gross profit declared in the past to 10 of paperbook] assessment year(s). The relevant extracts of the notice is re-produced hereunder:
"1. A note on business activity/activities................................................
3. Also submit ROI for A.Y. (Current year and preceding year) alongwith computation of income and notes thereto. ....................
9. Please give details and justify the deduction claimed under chap VI-A of Income Tax Act, alongwith appropriate documents and evidence.
11. Please furnish the details in the following format:
Financial Gross Profit Net Profit Turn Over
Year Ratio (Gp&
NP)
2009-10
2010-11
2011-12
2012-13
20. Certified true copies of trading, P/L, Balance Sheet alongwith schedules thereto, Tax Audit Report for A.Y. 2013-14, 2012-13 and 2011-12."
Reply dated 09.10.15 Kindly refer to the assessment proceedings being conducted by your esteemed self. We hereby submit balance information as required in the questionnaire in continuation to our earlier submitted dated 16.07.2015, 04.08.2015, 13.08.2015 & 17.09.2015.
[Copy enclosed at pages
15 to 22 of paperbook] We furnish here under Gross Profit/Net Profit chart in the format as
suggested in the questionnaire for the years
Financial year Gross Profit Net Profit Turnover Ratio
(Rs.) (Rs.) (GP & NP in %)
2009-10 N.A.
2010-11 Nil Nil N/A
I.T.A No. 217/ASR/2019 33
2011-12 6690248 3276064 10.61%/5.2%
2012-13 67437348 30473818 4.79%/2.16%
As regards the comparison of Gross Profit/Net Profit rate this year as compared to preceding year, it is submitted that the same is incomparable on account of following factors:-
1. That the company's turnover last year is Rs.630.03 Lacs as compared to Rs.14081.39 Lacs this year. Thus, there is an increase in turnover of the company by more than 22 times.
Further, all the items in which the company dealt in are in the nature of agriculture produce and is not engaged in manufacture of any industrial products. The prices of these items always remain erratic and depend upon climate, total production and demand thereof including export/import of these items from season to season. The prices vary depending upon international market also.
2. That upto last year i.e. upto 31.03.12, the company was doing its business from rental premises only with small set up of Plant and Machinery. Its own 'Factory Building' was under
construction. The company's Factory Building and its main Plant & Machinery was put to use & became operational during the year 31.03.2013. The company's own 'Cold Storage' was still under construction as at 31.3.13.
3. The comparison chart of all items dealt in by company during this year as well as last year showing the itemized value of sale, gross profit in value, gross profit rate along with the similar information for last year is enclosed herewith vide Annexure No.770 to 775. It is thus submitted that we are dealing in highly volatile items and gross profit rate(s) depend upon the market conditions prevailing at that time.
4. Our all sales and purchases are completely vouched. Complete stock tally has been maintained. It is therefore requested that no adverse inference can be drawn.
Reply dated 12.09.16 The necessary details with regard to cash sales and credit sales and other details were filed along-with annexures.
[Copy enclosed at pages 214 & 215 of paperbook] Reply dated 03.10.16 The GP rate on aggregate sales and also item-wise GP rate in respect of all items dealt by the company were filed.
I.T.A No. 217/ASR/2019 34[Copy enclosed at pages 218 & 219 of paperbook] Reply dated 10.10.16 The item-wise stock tally in value and quantity of both raw material and finished goods were filed along-with annexures.
[Copy enclosed at pages 220 of paperbook] Reply dated 13.10.16 (i) The number of Photostat copies as well as cash memo picked up at random (issued and prepared by the company) for the sale of its products are enclosed vide Annexure No.1444 to 1468 and other details were also filed.
[Copy enclosed at pages 223 & 224 of paperbook] Copy of Assessment The main object for which the company is incorporated is to carry on Order u/s 92CA(iii) business of processing, preservation and packaging of fruits and its dated 31/03/2013 derivatives etc. of all types. The primarily purchases of the company are made from domestic market only and principal item of raw materials [Page No.225 & 26 of the purchases are Badam and GiriBadam etc. paper-book] The Transfer Pricing documentation, which contains the functional and economic analysis of comparables and of assessee has been examined and placed on record.
In view of the functional and economic analysis of assessee and of comparables, no adverse inference is drawn in respect of domestic transaction undertaken by the assessee during the FY 2012-13.
Thus it is clear that this order was passed by JCIT after considering all the relevant documents and making all the enquiries.
37.The principal CIT in paragraph 6.1 of his order mentioned as under
"(6.1) Asper the assessment records the Assessing Officer has failed to make necessary enquiries/verification and he has failed to apply his I.T.A No. 217/ASR/2019 35 mind that as to whether all the conditions of sub-section (11A) of section 80 IB of the Income Tax Act,1961 are satisfied or not in the case of assessee company. He has allowed the claim of the assessee company without application of mind. The Assessing Officer has failed to examine as to whether "dry fruits" are to be treated as "fruits" for the purpose of section 80IB (11A).He also failed verify as to whether the assessee company is engaged in the business of 'processing, preservation and packaging----".The AO has also failed to examine as to whether the year under consideration was the "initial assessment Year" of the assessment company claiming the deduction Us 80IB(11A) of the I.T. Act. In a nutshell, the deduction is allowable only if all the conditions are satisfied otherwise, it cannot be allowed"
38. In other words, the objection of the Ld. PCIT can be summarised as under
• AO failed to make necessary enquiries/verification and he has failed to apply his mind that as to whether all the conditions of sub-section (11A) of section 80 IB of the Income Tax Act,1961 are satisfied or not • The Assessing Officer has failed to examine as to whether "dry fruits"
are to be treated as "fruits" for the purpose of section 80IB (11A) • He has also failed verify as to whether the assessee company is engaged in the business of 'processing, preservation and packaging."
• The AO has also failed to examine as to whether the year under I.T.A No. 217/ASR/2019 36 consideration was the "initial assessment Year" of the assessment company claiming the deduction Us 80IB(11A) of the I.T. Act
39.In first notice dated 16 June 2015, the assessing officer had asked the assessee to " 9. Please give details and justify the deduction claimed under chap VI-A of Income Tax Act, alongwith appropriate documents and evidence.". The assessee had filed the reply to the notice on 16 July 2015 and had categorically submitted that the assessee is eligible for claiming the deduction under chapter VIA of the Act. The assessee fulfills all the requisite conditions required under the law.
40. In paragraph 9 of the reply was mentioned that the assessee" in exclusively driving profit from the business of processing, preservation and packaging of fruits VIZ Badam Girl Badam,bjosh, Kaju, Kishmish, Pista.It was also mentioned We have also fulfilled all other conditions as laid out in section in 80-IB and for this purpose the company has obtained a separate Audit Report dated 29.11.2013 in Form No.10CCB (Rule18BBB)."
41. Rule 18BBB of it Rules provides as under :-
18BBB. (1) The report of the audit of the accounts of an assessee, which is required to be furnished under sub-section (7) of section 80-IA or sub-section (7) of section 80-I, except in the cases of multiplex theatres as defined in sub-section (7A) of section 80-IB or convention centres as defined in sub-section (7B) of section 80- IB [or hospitals in rural areas as defined in sub-section (11B) of section 80-IB], shall 1 be in Form No. 10CCB.
(2) A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80-I or 80-IA or 80-IB [or 80-IC] and shall 1 be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. (3) In the case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility, the form shall be accompanied by a copy of the agreement of the enterprise with the Central Government or the State Government or the local authority for carrying on I.T.A No. 217/ASR/2019 37 the business of developing or operating and maintaining or developing, operating and maintaining the infrastructure facility.
(4) In any other case, the form shall be accompanied by a copy of the agreement, approval or permission, as the case may be, to carry on the activity signed or issued by the Central Government or the State Government or the local authority for carrying on the eligible business.
42.Form 10CCB provides as under :-
FORM NO. 10CCB [See rule 18BBB] Audit report under section 80-I(7)/ 80-IA(7)/80-IB/80-IC
1. Name of the assessee :.....................
2. [Permanent Account Number or Aadhaar Number] :.....................
3. Status :.....................
4. Ownership status of the undertaking/enterprise :
(a) Fully owned by assessee Yes No
(b) Partly owned by assessee Yes No
If yes, please specify the percentage of ownership :.....................
5. Address :.....................
6. Name of the enterprise or undertaking eligible for deduction under section 80-IA, 80-IB or 80-IC :.....................
7. Section and sub-section of the Income-tax Act, 1961, under which deduction is being claimed :.....................
8. Date of commencement of operation/activity by the undertaking or enterprise : ....................
9. Initial assessment year from when deduction is being claimed :
10. Address (with District and State) of the enterprise/ undertaking claiming deduction : ....................
11. Excise/service tax registration number and office where registered :.....................
12. Sales tax registration number and office where registered .......... :
13. Local/State authorities from whom approval is taken (attach I.T.A No. 217/ASR/2019 38 copy of approval)
43.The perusal of the Performa (supra) of audit report dated 29th November 2013, clearly shows that the assessee has mentioned in the four Performa the initial year of the assessment year for which the deduction was claimed and also mentioned the date of commencement of the activities. Thus the finding of the Ld. PCIT that AO had not made enquiry with respect to the initial year of assessment for which deduction was claimed is factually incorrect as the assessing officer made sufficient enquiries.
44. Similarly, vide order sheet entry dated 22 February 2016, the assessing officer had asked the assessee to furnish the details and analysis of the transaction of purchase and sale of various item from its AE (associate enterprise). He further sought to explain, in the light of the transaction with AE and assessee eligibility under section 80IB(11A) of the Act.
45. On 1 March 2016 of along with the relevant details and information. In the reply it was also submitted by the assessee, explaining the nature of all activities relating to processing, preservation and packaging of the various dry fruit items.
46.The assessing officer had not stopped here, he had further issued the notice on 19 July 2016, and in the said notice, the assessing officer made a specific I.T.A No. 217/ASR/2019 39 enquiry/documents from the assessee pertaining to " 2. Details of deduction claimed under section 80IB with relevant report of the auditor and explaining satisfaction of conditions along with documentary evidences".
47.The assessee filed the detailed reply on 4thAugust 2016, explaining elaborately how the assessee satisfies the conditions, as required under section 80 IB. In the reply, it was mentioned as under:-
It is stated that the Company has during the year also claimed deduction of income U/s.80-IB(11A) of the Income Tax Act,1961. That the Company has established an undertaking and is deriving profit exclusively from the business of processing, preservation and packaging of fruits viz. Badam, GiriBadam, Abjosh, Kaju, Kishmish, Pista etc. Section 80-IB(11A) provides that in case of an undertaking deriving profit (on or after first day of April 2001) from such business, shall be entitled to deduction of 100% of its profits & gains derived from such undertaking for five assessment years beginning with an initial assessment year and thereafter 30% of the profits derived from such business, in a manner that total period of deduction does not exceed 10 consecutive years, subject to the fulfillment of the conditions as laid in the section.
We have also fulfilled all other conditions as laid out in section in 80-IB and for this purpose the company has obtained a separate `Audit Report' dated 29.11.2013 in Form No.10CCB (Rule18BBB) which also stands already furnished by the Company vide earlier letter dated 26.05.2015 to your ld. Predecessor. Notwithstanding, the special provision for payment of tax by certain companies U/s. 115JB are also applicable to the company, which provides that where the income tax payable on total income computed under this Act is less than 18.5% of Book Profit, such Book Profit shall deemed to be the total income of the assessee. In view of the same we have paid tax @18.5% + surcharge & education cess on the book profits of the company amounting Rs.8156794 for the year ended 31.03.2013. Audit Report under section 115JB in Form No.29B of the Income Tax Act,1961 dated 28.09.2013 for computing the book profits of the company stand already furnished by the Company vide earlier letter dated 26.05.2015 to your ld. predecessor. It is requested that the same be kindly referred to by your honor from your record.I.T.A No. 217/ASR/2019 40
48.The assessing officer after satisfying himself about the nature of activities of the assessee and its entitlement under section 80 IB, had expanded the scope of enquiry and sought to deny the deduction under section 80 IB on the basis that the assessee along with other AE have undertaken mutual sale/purchase with M/s Fairways, and therefore had issued show cause notice on 5thof December 2016, and asked the assessee to explain why the deduction claimed under section 80 IB(11A) of the Act should not be disallowed. At Serial no iii it was enquired by the AO as under :-
"assessee is engaged in the business of trading goods, and during the year is mainly purchased BadamGiri and as found stated to be by cracking Badam and thus main business activities of the assessee company is found to be cracking of Badam and not the processing packaging in preserving the fruit and vegetables, and the work of processing, preserving, if any would be the essence of trading business of(trading of dry fruit of the assessee)."
49. The assessee vide reply dated 13.12. 2016 had explained its position and submitted that the assessee is entitled to deduction under section 80 IB of the Act. page 41 to 54 of PB).The assessing officer was also provided the copy of the opinion given by Shri T. N. Pandey Ex-Chairman CBDT dated 28/2/2013 section 80 IB in the assessee's case to the assessing officer during the assessment proceedings. Beside that the opinion of T. U. &COMPANY Dated 13.2.2013 on the applicability of section 80 IB was also provided to I.T.A No. 217/ASR/2019 41 the assessing officer.
50.From the reading of the contention of various notices / note sheet enquiries, it is abundantly clear that the assessing officer while framing the assessment had made an extensive, elaborate and necessary enquiry with a view to find out whether the assessee fulfils the conditions mentioned in section 80IB or not. The reading of the notice and the reply and subsequent notices and replies clearly shows that the assessing Officer was satisfied that the assessee had fulfilled all the conditions necessary for claiming the deduction under section 80 IB.
51.Thus the finding recorded by the principal CIT in paragraph 6.1concerningthe applicability of provisions of section 80 IB is factually incorrect as are necessary material were available in the "Record" of the assessing officer.
52.The principal CIT, in another limb of decision, in paragraph 6.2 of the order mentioned that the AO failed to verify the reasons for the fall in gross profit rate of the assessee. In this regard, we have gone through the record of the assessing officer produced before us. We, ourselves had verified that the notices/questions/verifications were sought from the assessee, as tabulated by us hereinabove in para 36 (supra) in respect to eligibility under section I.T.A No. 217/ASR/2019 42 80IB.
53. In view of above we are of the considered opinion sufficient, necessary enquiries were made by the assessing officer during the assessment proceedings, therefore the action on the part of the principle CIT cannot be countenanced and the invocation of jurisdiction under section 263 , was devoid of any merit and is liable to be set aside and annulled .
54.There is yet another critical aspect of the matter whereby the Principle CIT relied upon explanation 2 to section 263 of the Income Tax Act. In our opinion, the explanation to section 263 is prospective and cannot be applied to the assessment year prior to the introduction of the explanation in the Statute book. The explanation was introduced by the Finance act 2015 with effect from 1 June 2015. Recently we had occasion to examine the issue of applicability of these explanation 2 to section 263. In the matter of Smt Surinder Kaur Brar vs PCIT ITA Nos. 204 to 207/Amr/2019 we had held as under :-
6.7 We are supported by the decision rendered by Delhi Tribunal in the case of Brahma Centre Development Private Limited, ITA nos.
4341 & 4342/Delhi/2019 dated 18.12.2019 wherein the Tribunal in paragraphs 12, 13 & 14 has held as under:-
"12. In view of the above, we find it difficult to agree with the ld. DR that there was no enquiry conducted by the Ld. I.T.A No. 217/ASR/2019 43 Assessing Officer by putting any specific question to the assessee as to the treatment given to the interest. As a matter of fact, the reason for the difference in the amount as per Form 26AS and ITR was due to the interest received from the banks that was duly accounted and considered in the financial statements of the company and was adjusted against the project expenditure. The very fact that pursuant to the scrutiny when the Ld. Assessing Officer proposed charging the interest amount received to tax, the very same explanation was offered by the assessee and was accepted by the Assessing Officer. We are, therefore, of the considered opinion that it is not a case of no enquiry and as a matter of fact, it was specifically brought to the notice of the Ld. Assessing Officer that the interest earned was adjusted against the project expenditure.
13. Further, it is an admitted fact that in this case, the business of the assessee was commenced in this case, unlike the facts in the case of M/s. Tuticorin Alkali Chemicals and Fertilizers Ltd.(supra). The Mumbai Bench of Tribunal while noticing the decision of jurisdictional High Court in the case of CIT vs. Sunbeam Auto Ltd, 332 ITR 167 and the case of Nagesh knitwear Pvt. Ltd., 355 ITR 135 observed that the Explanation-2 to section 263 inserted by Finance Act, 2015 w.e.f.
01.04.2015 would not impact the assessment earlier to 2014-15 and such a decision was followed by the Delhi Bench of Tribunal in the case of Arun Kumar Garg (HUF) vs. PCIT in ITA No. 3391/Del/2018 for the assessment year 2014-15 and by order dated 08.01.2019 held that Explanation 2 to section 263 of the Act is only prospective in nature.
14. In the case on hand, the ld. PCIT while reading the provisions of section 263 of the Act and the decision of Hon'ble Apex Court in the case of M/s. Tuticorin Alkali I.T.A No. 217/ASR/2019 44 Chemicals and Fertilizers Ltd.(supra) reached a conclusion that inasmuch as there was no specific inquiry by the Assessing Officer, the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. He does not conduct any independent enquiry to reach the conclusion that the assessment order was erroneous in so far as it is prejudicial to the interest of Revenue. If we accept the submission of the ld. DR that since all the material was available on record, there was no need for the PCIT to conduct any further inquiry, it also inures to the benefit of the assessee because all these things are available on record and the assessee specifically submitted that the difference in the ITR and 26AS occurred because of the adjustment of the interest received against the project expenditure. Admittedly, this is the only project conducted by the assessee and there is no other project. In such an event, it is not the passive submission to be recorded to the AO, but also actively pleading before him that the interest received was adjusted against the project expenditure."
6.8 From the perusal of paragraph 13 supra it is clear that the Tribunal has held that the explanation 2 section 263 is only prospective in nature.
6.9 The said decision of the Tribunal was assailed by the Revenue in ITA No.116 of 2021 and ITA No.118 of 2021 before Delhi High Court and the Hon'ble Delhi High Court had confirmed the order passed by the Tribunal. We are reproducing hereinbelow of the findings of the Delhi High Court in paragraphs 10 & 11 which are to be following effect.
Issue no. (ii):
10. The standard to be adopted while dealing with the issue as to whether or not an AO has carried out an enquiry or verification, all that the Court is required to ascertain is as to whether the AO applied his mind.I.T.A No. 217/ASR/2019 45
10.1. The fact that the AO has not given reasons in the assessment order is not indicative, always, of whether or not he has applied his mind. Therefore, scrutiny of the record, is necessary and while scrutinising the record the Court has to keep in mind the difference between lack of enquiry and perceived inadequacy in enquiry.
Inadequacy in conduct of enquiry cannot be the reason based on which powers under Section 263 of the Act can be invoked to interdict an assessment order. The observations made in this behalf, by the Division Bench of this Court, in Commissioner of Income-tax vs. Sunbeam Auto Ltd., [2010] 189 Taxman 436 (Delhi)/[2011] 332 ITR 167 (Delhi) being apposite, are extracted hereafter.
"12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 Income-tax Act.
As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure.
This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure.
However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the I.T.A No. 217/ASR/2019 46 issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open. In Gabriel India Ltd.'s case (supra), law on this aspect was discussed in the following manner:
". . . From a reading of sub-section (1) of section, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examina-tion of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous insofar as it is prejudicial to the interests of the revenue'. It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1).
The consideration of the Commissioner as to whether an order is erroneous insofar as it is prejudicial to the interests of the revenue I.T.A No. 217/ASR/2019 47 must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law 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. [See : Parashuram Pottery Works Co. Ltd. v. ITO[1977] 106 ITR 1 (SC) at page 10].
****** From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may I.T.A No. 217/ASR/2019 48 be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing Date:06.07.2021 10:30:10 either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-
tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
****** We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made I.T.A No. 217/ASR/2019 49 enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation on that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard . . ." (pp. 113-117) xxx xxxxxx
15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation.
Therefore, it cannot be said that it is a case of 'lack of inquiry'."
10.2. This view was followed by another Division Bench of this Court in Commissioner of Income-tax vs. Anil Kumar Sharma, (2010) 194 taxman 504 (Delhi).
Issue no. (iii):
11. The assessment order can be interdicted under Section 263 of the Act, if two conditions are met, i.e., that the order is erroneous and is prejudicial to the interests of the revenue. [See Malabar Industrial Co. Ltd. vs. Commissioner of Income-tax, [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC) and CIT vs. Max India Ltd., (2007) 295 ITR 282 (SC)] Signature Not Verified Digitally Signed By:VIPIN KUMAR RAI Signing I.T.A No. 217/ASR/2019 50 Date:06.07.2021 10:30:10 11.1. Therefore, the error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and therefore, by the very nature of the power, does not allow for supplanting or substituting the view of the AO. The appreciation of material placed before the AO is, exclusively within his domain which cannot be interdicted by a superior officer while exercising powers under Section 263 of the Act only on the ground that if he had appraised the said material, he would have come to a different conclusion. [See Parashuram Pottery Works Co. Ltd. v. ITO, [1977] 106 ITR 1 (SC)]"
Respectfully following the decision of Delhi High Court in the matter of Brahma Centre Development Private Limited, ITA No.116 of 2021 be quash order passed under Section 263 in the case of the Assessee"
54 There is yet another interesting and peculiar aspect in this matter. In this case, after making the elaborate and necessary enquiry in the matter, the assessing officer had passed the assessment order. However, in the assessment order, two contradictory statements were made by the assessing officer; firstly the assessing officer mentioned that the assessing officer is not satisfied with the explanation given by the assessee and immediately thereafter the assessing officer has completed the assessment he had completed the assessment from the direction of Principle Commissioner of Income Tax-1, Amritsar. After completing the assessment, the principal CIT had issued a notice calling upon the explanation from the assessing officer vide letter dated 5 January 2017. The I.T.A No. 217/ASR/2019 51 letter of the PCT provided as under:-
Sub: Explanation in the case of M/s.KBBNutts I! Private Limited.Ltd., Amritsar - Assessment P order passed on 30.12.2016 u/s 143(3) of the Income-tax Act,1961-Regarding -
Please refer to the above.
2. In this case only one issue seems to have been raised during the course of assessment proceedings and that issue, according to you, is whether the assessee is entitled to deduction u/s 80IB of the Income-tax Act, 1961.
1. Please refer to your observations given in para 2 of the assessment order where you have observed as under:-
"During the year under consideration, the assessee company is engaged in the business of processing, preservation and pasckaging of nuts and dry fruits items.' Refer to your query as raised in para 3(iii) wherein you have observed that the assessee has only purchases Badam and sold BadamGiri by cracking of Badam. According to you, the activities of the assessee are found to be cracking of Badam and not the processing, packaging and preserving the fruits and vegetables, and work of processing, preserving, if any, would be the essence of trading business of(trading of dry fruits of the assessee)
4. In your order you have mentioned but explanation of the assessee is not found satisfactory, and returned income is being I.T.A No. 217/ASR/2019 52 accepted as per directions of the Worthy Principal Commissioner of Income-tax-1, Amritsar. As far as I remember this case was never discussed with the undersigned. I do not know whether you have discussed the case with your Addl.CIT or not. You are required to send your explanation on following points:
(a) Why your observations in para 4 of the assessment order "that returned income is accepted as per directions of the Worthy Principal Commissioner of Income-tax-1, Amritsar" is made which is not based on facts. If you have prepared any draft assessment order other than the assessment order passed by you, it may be known when it was brought to my knowledge?
(b) Please explain why the observations have been made in the body of assessment order. Why it was not kept in office note?
( c) This order was also required to be discussed with the Addl.CIT, Range-3,f Amritsar also. Please state whether this case was discussed with him. If it was not discussed with the additional CIT then how you are claiming that the case was discussed with the undersigned
5. Your explanation should raise this office within seven days from the date of receipt of this letter. If no explanation is received on the receipt of this letter it will be presumed that you have nothing to say in the matter stated above.
I.T.A No. 217/ASR/2019 5355 We have also called upon the revenue to produce the letter written by the revisional Commissioner. Reference No. 5266 dated 29 December 2016 and accordingly directed the Ld. DR to produce the complete assessment record including the matter dated 29th of December 2016 written by additional Commissioner of income tax Range -3 Amritsar. However, on verification of the record produced before us, we do not find any such letter dated 29/12/2016in the assessment record.
56 Further, we tried to look at the reply of the assessing officer in the assessment record, which the assessing officer might have given after receipt of the letter dated 5 January 2017; however, the said reply was also not traceable in the file, produced before us.
57 During the argument, the Ld. DR had brought to our notice the proposal for initiation of proceedings under section 263 issued by the same assessing officer, the letter was dated fourth of October 2017, however, it was dispatched on 26 October 2017. Asa matter of record, Sh Charan Dass, Than AO, was transferred on 5 October 2017 to another Ward and the charged was given to Sh Prit Pal Singh ACIT. With this fact came to the notice of the Additional Commissioner of income tax, he had written one letter dated 10th of November 2017 to the I.T.A No. 217/ASR/2019 54 following effect.
"Sub:- Proposal u/s 263 [PAN:- AADCK3310K] M/s KBB Nuts Pvt. Ltd. for the Asst. Year. 2013-14 -Regarding.
*.*.*_*.*.*_* Refer to the above.
The proposal u/s 263 in the aforesaid case has been sent vide letter no. 4584 dated 26.10.2017. It has to be noted that you have taken over the charge of Circle-3 Amritsar on 5/10/2017, whereas the proposal bears the signature of your predecessor who was not DCIT Circle-3, Amritsar on 26/10/2017, i.e. the date of sending of proposal. In this regard, the proposal is returned herewith for clarifying the discrepancy and taking necessary action after examining the issues involved in this case in detail."
58 After that the fresh proposal was given by the new assessing officer on 6thMarch 2018. Based on that, the PCIT had issued the show-cause notice to the assessee under section 263 of the Income Tax Act.
59 Based on the above-said facts, the Ld.AR had made two-fold arguments firstly the notice was required to be issued after verifying the record by the PCIT and it should not have been done on the recommendation of the same/incumbent assessing officer of the assessee. Secondly, assessing officer / PCIT, were bothon two different occasions had taken two contrary views. At the time of I.T.A No. 217/ASR/2019 55 framing of assessment, it was the case of the AO, the assessment was framed under the direction of the PCIT, to which the assessing officer is not agreeable, despite framing the assessment on 30 December 2016. However, at the time of sending the proposal, the assessing officer had changed his stand and send the proposal for issuing the notice under section 263 and had given the reasons in the proposal dated 26 October 2017.
60 In the proposal dated 26 October 2017, the earlier assessing officer, in the proposal act mentioned that " the assessment order was passed under section 143 (3) dated 30 December 2016 of as per one direction of the Commissioner of income tax-1 Amritsar.
The Commissioner of income tax-1Amritsar vide letter no 5832 dated 17.1.2017 asked for explanation as to why order has been passed as above mentioned as per his direction when he did not issue any directions and neither case discussed in detail by furnishing draft assessment order and asked draft order, which was furnished as under"
61 Interestingly the draft assessment order was sought by the principal CIT vide letter dated 5 January 2017 and two weeks time was given to AO however the assessing officer in the letter dated 26 October 2017, had stated that the assessment order was passed on 30.12.2016, on the verbal instructions of the Commissioner of income tax-1. There was no noting in the assessment file to support the case of AO that PCIT issued verbal instructions for passing the I.T.A No. 217/ASR/2019 56 assessment order. Further, the draft assessment dated 4Oct 2017was sent to the Commissioner of income tax-1, only on 26/10/2017 after he was transferred from the ward. The Conduct of the assessing officer speaks volumes of breach of settled procedure, which is evident from the delay in providing the draft assessment order to PCIT despite notice dated 5.1.2017. Technically the draft assessment order should have been ready before 30 December 2016, so it should be so that it should be ready for discussion with the said authorities however in the present case despite specifically asking for the draft assessment order vide communication dated 5 January 2017, the draft assessment order was not provided to the Senior authorities.
62 We have noted down the above-said sequence of fact, intending to show the above perversity in the working of the Department at the level of the assessing officer and thereafter.
63 In our opinion, the law is fairly settled. The assessing officer cannot be given the right to review his own order in the garb of sending proposal under section 263 of the income tax act. Under the Income Tax Act, the two options are available with the assessing officer, either to initiate proceedings under section 148 of the income tax act or to correct the mistake by invoking the power under section 154 of the income tax act to rectify the mistake. No other authority has I.T.A No. 217/ASR/2019 57 been conferred on the assessing officer under the income tax act for sending the proposal under section 263. The power only vests with the officer mention under section 263 and not to any other officer. It is the settled position of law. If a act is required to be done by a particular officer, then it should be done by the said officer and by none other. Under section 263 of the Act, it is the duty and responsibility of the Commissioner, to apply his mind and issue the notice under section 263, he cannot delegate his work to the same officer who had passed the assessment order or in other words he cannot act upon the recommendation of the same assessing Officer whose the assessment order was under revision. On this ground also the order passed by the principal CIT is required to be quashed. We fruitfully rely on the decision in the case of Ambey Construction in ITA no ITA No.208(Asr)/ 2017 decided on 5.5.2019 wherein in identical facts, the tribunal had quashed the 263 order passed by the PCIT.
64 As mentioned hereinabove, the assessing officer at the first instance was holding the view that no addition can be made based on either non-fulfilment of the Commissioner under section 80IB and thereafter he had turned around and proposed that additions are required to be made on account of non-fulfilment of the conditions of section 80 IB and non-verification of the GP ratio of the I.T.A No. 217/ASR/2019 58 assessee. Similarly, If we believe the assessing officer, that the order section was given by the Commissioner income tax framing the assessment and making the additions again the assessee at the time of passing the assessment order, the Commissioner was holding a view and was also simultaneously discussing the matter with the assessing officer, however quite contrary to this he chooses to issue the show-cause notice based on the proposal given by the assessing officer and pass the order under section 263, thus substantially both the officers were having two views for deleting the additions in making the addition. The law is reasonably settled when two views are possible, then the proceedings under section 263 are required to be dropped and quashed.
65 Lastly, we would like to mention that in the identical facts, the notice under section 263 was issued by the P CIT for subsequent the assessment year 2014- 15 on the similar ground of non-fulfilment of conditions under section 80IB, however, the proceedings were subsequently dropped by the PCIT vide order dated 26 March 2021. Thus it supports the case of the assessee, that it fulfilled the conditions in AY 2013-14, the nature of activities of assessee continued to be same and as it had all along been fulfilling requirements of section 80 IB and therefore the proceedings under section 263 for the assessment year under consideration are required to be quashed. Further, we are of the opinion that the I.T.A No. 217/ASR/2019 59 principle of consistency and predictability are needed to be religiously followed by the revenue authorities so that the confidence of the tax payers remains intact.
66 Examining the matter from any angle, we believe that the proceedings under section 263 for the assessment year 2013-14 were initiated without any basis.
Accordingly, we quash impugned order passed under section 263 of the ACT.
Order pronounced in the open court on 24/09/2021.
Sd/- Sd/-
(DR. M.L. MEENA) (LALIET KUMAR)
ACCOUNTANT MEMBER JUDICIALMEMBER
Dated 24/09/2021
*GP/Sr. P.S.*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
True Copy
By Order