Income Tax Appellate Tribunal - Pune
Patni Computers Ltd., Pune vs Assessee
Author: G.S. Pannu
Bench: G.S. Pannu
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER
AND SHRI G S PANNU, ACCOUNTANT MEMBER
S.No. ITA No. Asstt.year
1. 519/PN/07 2002-03
2. 794/PN/08 2002-03
3. 475/PN/08 2003-04
Patni Computer Systems Ltd., .. Appellant
S.No 1A, Irani Market Compound,
Yerwada, Pune
PAN AABCP6219N
Vs.
Dy. Commissioner of Income-tax, .. Respondent
Cir.4, Pune
AND
4. 1058/PN/08 2002-03
Asstt. Commissioner of Income-tax, .. Appellant
Cir.4, Pune
Vs.
Patni Computer Systems P Ltd. .. Respondent
Pune
Assessee by : Shri S N Inamdar
Department by: Shri V Anandraj
ORDER
PER G.S. PANNU, AM
The captioned four appeals, three by the assessee and one by the Revenue pertaining to same assessee, were heard together and are being disposed off by a consolidated order for the sake of convenience and brevity.
2. We shall first take up assessee's appeal in ITA No 519/PN/2002-03. This appeal by the assessee is directed against the order of the Commissioner of Income-tax dated 30.3.2007 passed under section 263 of the Income-tax Act, 2 1961 (in short "the Act") setting aside the order of the Assessing Officer passed under section 143(3) of the Act, pertaining to the assessment year 2002-03.
3. The facts, in brief, are that in this case the original assessment for the assessment year 2002-03 was completed by the Assessing Officer under section 143(3) of the Act vide order dated 15.3.2005 allowing the assessee's claim for deduction under section 10A in respect of its various units on the ground that each of the units is a separate undertaking eligible for such deduction.
4. On examination of the record, the Commissioner of Income-tax (in short "the Commissioner") noticed that in the assessment year 2004-05, the Assessing Officer had deviated from the earlier conclusion and held that the assessee was not entitled to deduction under section 10A in respect of its same various units on which deduction under section 10A was allowed by the Assessing Officer for the assessment year in question. Further, the Commissioner noticed that the assessee had not adhered to the principles of section 80AB while computing its claim of deduction under section 80HHE in respect o the units treated by the assessee as not eligible for deduction under section 10A but eligible for deduction under section 80HHE of the Act.
5. In view of the above facts, the Commissioner considered that the assessment completed by the Assessing Officer under section 143(3) for the assessment year 2002-03 was erroneous in so far as it was prejudicial to the interests of Revenue and accordingly, exercising the revisionary powers vested in him under section 263 of the Act, the Commissioner initiated proceedings under the said section. In response to the notice issued by the Commissioner, the assessee primarily submitted that the impugned aspect relating to the claim of deduction under section 10A of the Act for various units for the assessment year 2002-03 was a subject-matter of appeal before the Commissioner of income-tax (Appeals) and the first appellate authority had confirmed the order of the Assessing Officer and decided the issue in favour of the assessee. Similarly, the deduction under section 80HHE was also examined in the assessment 3 proceedings by the Assessing Officer and was also subject matter of appeal before the Commissioner of Income-tax (Appeals). It was thus submitted that both the points were also considered both by the Assessing Officer and thereafter in appeal by the Commissioner of Income-tax (Appeals). Relying on the provisions of clause (c) of Explanation to section 263(1) of the Act, it was contended by the assessee that both the issues cannot be a subject-matter of consideration by the Commissioner under section 263 of the Act.
6. After considering the objections of the assessee and the judicial pronouncements, the Commissioner was not satisfied and he concluded that the assessment finalized under section 143(3) of the Act for the impugned assessment year was erroneous in so far as it was prejudicial to the interests of the Revenue. In this view of the matter, the Commissioner set aside the order passed by the Assessing Officer with directions to pass a fresh assessment order de novo after investigation on the two issues relating to the eligibility of units for claim of deduction under section10A of the Act and the quantum of deduction eligible under section 80HHE of the Act. It is this order of the Commissioner passed under section 263 of the Act, which is being challenged by the assessee in further appeal before us.
7. Before us, the learned Counsel for the assessee has vehemently argued that the Commissioner has erred in law and on facts in assuming jurisdiction under section 263 of the Act. The first and foremost submission put-forth is that the Commissioner has erred in invoking his revisionary power under section 263 of the Act in the context of the Explanation (c) to section 263(1) of the Act. It is submitted that in terms of Explanation (c) to section 263(1) the Commissioner was not entitled to revise the assessment order on the issues relating to the claims of deduction under section 10A and 80HHE of the Act, inasmuch as the said claims were critically examined and partially disallowed by the Assessing Officer and the same were subject-matter of consideration and decision by the Commissioner of Income-tax (Appeals) in the quantum proceedings. In this 4 regard, it has been pointed out that in the assessment proceedings the claim of the assessee for deduction under section 10A as also the quantum of deduction under section 80HHE of the Act was modified and the same was carried in appeal before the Commissioner of Income-tax (Appeals), who vide his order dated 23.1.2006 has allowed relief to the assessee. In these circumstances, the Commissioner was precluded from examining the same in terms of section 263 of the Act. In support of the aforesaid proposition, reference was made to the following decisions:
(i) Marico Industries Ltd. v. ACIT 5 DTR 263 (Mum,) (Trib) 5 DTR 263;
(ii) CIT v. Nirma Chemicals Works P. Ltd. 309 ITR 67 (Guj.); and,
(iii) CIT v. Design & Automation Engineers (Bombay) P. Ltd. 323 ITR 632 (Bom).
8. It is brought out by the learned Counsel is that the assessee is engaged in the business of development and export of software and it has been expanding its business on a substantial scale over the years. It is submitted that for over a period of years, the assessee has established various new undertakings at different locations which are not only physically identifiable, but are also separate, independent and severable units and the assessee company has been claiming and was allowed exemption in respect of the profits of such individual units in terms of section 10A of the Act. It was pointed out that in so far as the assessment year 2002-03 is concerned, the assessee had ten separate undertakings eligible for the claim of deduction under section 10A of the Act which had been set up over various years. This also included two undertakings which were set up during the year under consideration. It was submitted that the assessment under section 143(3) of the Act was completed by the Assessing Officer after examining assessee's eligibility for the claim of deduction under section 10A of the Act and in this context, reference was also made to the discussion made in the assessment order. In fact, it was pointed out upon verification of assessee's claim of deduction under section 10A of the Act the Assessing Officer held that three units could not be considered as new 5 undertakings, but were to be considered as part of the corresponding old units and, therefore, there was interference in the deductions claimed by the assessee under section 10A of the Act. This issue was subject-matter of appeal before the Commissioner of Income-tax (Appeals) who vide his order dated 21.3.2006 analyzed the claim of the assessee that such three units are new industrial undertakings independently eligible for deduction under section 10A of the Act and upheld the stand of the assessee. Secondly, it was pointed out that while examining the claim of deduction under section 10A, the Assessing Officer disallowed the losses of the following six units being units eligible for deduction under section 10A of the Act:
1. Software & Conversion unit at Pune,
2. Gandhinagar Unit,
3. SDF VII unit,
4. Noida,
5. MIDC Marol (Sigma) unit,
6. Millennium Business Park unit.
This aspect of the claim under section 10A was also subject-matter of consideration by the Commissioner of Income-tax (Appeals). Further, it was also contended that deduction under section 80HHE was examined during the assessment proceedings by the Assessing Officer and was subject-matter appeal before the Commissioner of Income-tax (Appeals), which has been adjudicated upon. Thus, on the aforesaid basis it has been pointed out that having regard to Explanation (c) to section 263(1) of the Act, the Commissioner erred in invoking his revisionary power under section 263 of the Act.
9. Secondly, it has been pointed out that in the assessment proceedings for the assessment year 2004-05, it was for the first time the Assessing Officer took the view that the new undertakings have been formed by splitting up of a business already in existence since 1980 and, therefore, the new undertakings did not constitute any new undertaking but were merely formed by splitting up of business already existing and, therefore, it was held that it did not satisfy the conditions of section 10A(2)(ii) of the Act. It is on this basis that the 6 Commissioner has issued notice under section 263 of the Act for the instant assessment year to contend that the different undertakings of the assessee were not eligible for claim of deduction under section 10A of the Act. Without going into the merits of the clam, it was submitted that the action of the Commissioner in treating the assessment order erroneous and prejudicial to the interests of Revenue on this basis, is untenable having regard to the fact that some of the units have been set up in the earlier years and the relevant claim of deduction under section 10A stood allowed in those years. It was pointed out that such claims have not been disturbed and, therefore, there was no justification to hold that it constituted an error within the meaning of section 263 of the Act for the year under consideration. In this regard, reliance has been placed on the following judgments:
(i) CIT v. Paul Brothers 216 ITR 548 (Bom);
(ii) Saurashtra Cement & Chemical Industries Ltd. v. CIT 123 ITR 669
(Guj); and,
(iii) Excel Softech Ltd 175 Taxman 257 (P&H).
10. Even on facts, it has been pointed out that the Revenue has adopted contrary positions inasmuch as in the impugned order as per the Commissioner the new units have been formed by splitting up of the business already in existence, whereas in the appeal filed before the Tribunal against the order of the Commissioner of Income-tax (Appeal) dated 21.3.2006 arising from the assessment framed under section 143(3) of the Act, it has been specifically averred that the "Assessing Officer had not concluded that these units were formed by splitting up......... and that the AO had only held these as expansion of existing business." The relevant Ground of appeal reads as under:
"(ii) The ld CIT(A) II erred in not appreciating that the AO had not held these units as not eligible for exemption u/s 10A of the I.T. Act and that AO had not concluded that these units were formed by splitting up or the reconstruction of the existing units, and that the AO had only held these as expansion and hence the period of exemption u/s 10A would be applicable to the original unit."
Therefore, on this aspect, it was pointed out that the Revenue does not contend that the units have been formed by reconstruction of the existing business units 7 while in the impugned order, the Commissioner contends otherwise. For all these points, it was submitted that the jurisdiction has been wrongly assumed.
11. In the alternative, it has also been pointed out that on the issues raised in the impugned order the same is based on the assessment finalized under section 143(3) of the Act for the assessment year 2004-05. That such assessment for the assessment year 2004-05 was a subject-matter of appeal before the Commissioner of Income-tax (Appeals), wherein the view of the Assessing Officer has been reversed. It was, therefore contended that the view adopted by the Assessing Officer in the impugned order is a possible view as stands fortified by the decision of the Commissioner of Income-tax (Appeals) for the assessment year 2004-05. In a situation where two views are possible on an issue, the same is outside the purview of section 263 of the Act and, therefore, it was contended that the impugned order passed by the Commissioner on such debatable issue is without jurisdiction.
12. On the other hand, the learned Departmental Representative, appearing for the Revenue has primarily relied upon the order of the Commissioner in support of the case of the Revenue. It has been pointed out that during the course of assessment for the assessment year 2002-03, the investigations carried out by the Assessing Officer were limited to the eligibility of the assessee's units for deduction under section 10A of the Act and it has been pointed out that the finer aspects of the conduct of the business and how the business is spread over across the various years were not investigated, which were essential to determine the fulfillment of conditions prescribed under section 10A(2)(ii) of the Act, which has been adequately carried out by the Assessing Officer in the assessment year 2004-05. It was pointed out that during the year under consideration, the units in respect of which the claimed deduction under section 10A has been allowed by the Assessing Officer, has been subsequently investigated in a detailed manner and adjudicated upon in the course of assessment proceedings for assessment year 2004-05, wherein it was found that 8 the same were not eligible for deduction under section 10A of the Act. Therefore, since necessary investigation into the relevant facts was not done in the instant assessment year while framing the assessment under section 143(3) of the Act, the Commissioner rightly assumed jurisdiction under section 263 of the Act and held the assessment to be erroneous and prejudicial to the interests of Revenue. Even with regard to the claim of deduction under section 80HHE of the Act, the learned Departmental Representative submitted that the issue raised by the Commissioner has neither been investigated into nor adjudicated upon by the Assessing Officer during assessment proceedings and, therefore, the order has been correctly found to be erroneous and prejudicial to the interests of Revenue on this aspect also.
13. We have carefully considered the rival submissions. Section 263 of the Act empowers the Commissioner to revise an assessment order, if he considers that such order is erroneous in so far as it is prejudicial to the interests of Revenue. In the instant case, the preliminary issue raised by the assessee is that such a power could not have been invoked by the Commissioner having regard to the embargo contained in Explanation (c) to section 263(1) of the Act. The relevant portion of section 263(1) and Explanation (c) thereof is as under:
"263(1): The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation-
(a)......
(b)......
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the st 1 day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal."
14. In terms of the said Explanation, the power contained in section 263(1) cannot be exercised by the Commissioner in a case where the issue is subject- matter of consideration and decision in appeal. In fact, it is clearly envisaged that 9 before exercising jurisdiction under section 263 of the Act, it has to be ascertained whether the order in question has been a subject-matter of appeal and, if it is found so, then the Commissioner is to confine his revisional powers only to such matters which has not been considered and decided in such appeal.
15. The case set-up by the assessee before us is that the assessment order dated 15.3.2005 examined by the Commissioner under section 263(1) was a subject-matter of appeal before the Commissioner of Income-tax (Appeals) vide order dated 21.3.2006 and, therefore the revisional powers of the Commissioner are available only if the impugned issues had not been considered and decided in such appellate proceedings. Continuing further, it is canvassed on behalf of the assessee that the Commissioner has found the assessment order dated 15.3.2005 fit to be revised under section 263(1) on two issues, i.e. the claim of deduction under section 10A and quantum of deduction under section 80HHE of the Act and that both these aspects were subject-matter of the appellate proceedings and, therefore, the same could not have been subject to revisional proceedings envisaged under section 263(1) of the Act read with Explanation (c) thereof. In this background, it would be necessary to examine the relevant facts. In so far as the issue relating to the claim of deduction under section 10A is concerned, the facts reveal that the assessee had claimed deduction in respect of various 10A eligible units. During the assessment year under consideration, the assessee company had as much as ten different undertakings which were claimed to be eligible for deduction under section 10A of the Act with respect to their respective profits. In the course of assessment proceedings, the assessee's claim was verified and while confirming the eligibility of deduction under section 10A of the Act in principle in respect of various undertakings of the assessee, the Assessing Officer concluded that three of the units, namely, Chinchwad Unit, Akruti unit and Millennium Business Park Unit were not independent undertakings and that they were part of Software and Conversion Unit, Sigma unit and TTC Units respectively. Therefore, the eligibility of such units for 10A 10 benefits was counted from the year of setting up of the older units. Secondly, losses of following six units being eligible for deduction under section 10A of the Act were disallowed:
1. Software & Conversion unit at Pune,
2. Gandhinagar Unit,
3. SDF VII unit,
4. Noida,
5. MIDC Marol (Sigma) unit,
6. Millennium Business Park unit.
Accordingly, the deduction claimed under section 10A of the Act was varied by the Assessing Officer.
16. Both these aspects were carried in appeal by the assessee before the Commissioner of Income-tax (Appeals), who deliberated and decided upon the same, vide his order dated 21.3.2006. In nutshell, in this backdrop it emerges that the relief claimed by the assessee under section 10A in respect of the profits of its various undertakings was re-worked by the Assessing Officer in the assessment proceedings after making certain enquiries and the claim was partially reduced. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), who allowed certain reliefs to the assessee as claimed. These factual aspects are not being denied by the Revenue before us and also by the Commissioner in the impugned order. So, however, it is sought to be made out by the Commissioner in the impugned order that only limited aspect concerning the assessee's claim under section 10A has been dealt with in the assessment proceedings and certain other investigations which depicted non-fulfillment of conditions prescribed under section 10A(2)(ii) have neither been considered and nor has been decided in the appellate proceedings. In other words, the claim set-up by the Commissioner is that fulfillment of the conditions stipulated by section 10A(2)(ii) and the aspects considered in the assessment and thereafter by the Commissioner of Income-tax (Appeals) are two independent aspects and, therefore, the former cannot be said to have been considered and decided in appeal and, thus, leading to the inference that the embargo contained in Explanation (c) is not attracted in the 11 present case. In our considered opinion, the distinction sought to be made out by the Commissioner so as to escape from the embargo placed by Explanation (c) to section 263(1) is not factually tenable in the present case. When the deduction under section 10A was in principle granted by the Assessing Officer after making a partial disallowance and which was carried in appeal before the Commissioner of Income-tax (Appeals), it is but natural that the appellate authority was bound to examine whether the claim made by the assessee was in accordance with and subject to provisions of section 10A of the Act. In other words, the requirement of fulfillment of conditions stipulated by section 10A(2)(ii) can be said to be very much a subject-matter of appeal in relation to the disallowance made by the Assessing Officer. In fact, a perusal of section 10A itself reveals that while computing the amount of eligible deduction, the assessing authority is required to ensure that only the profits and gains eligible for deduction are considered and that the allowance has to be in accordance with and subject to the provisions of section 10A of the Act. Once the same has been considered and adjudicated, it cannot be said that section 10A(2)(ii) has to be independently considered. In fact, section 10A(1) contains the language "subject to the provisions of this section......" which clearly means that the amount deductible is required to be ascertained in terms of the provisions of section, and therefore, the requirements contained in section 10A(2)(ii) are includible thereof. Therefore, once the Assessing Officer has granted the deduction after partial disallowance and it has been thereafter carried in appeal before the Commissioner of Income-tax (Appeals), the adjudication by the appellate authority is bound to be within the realm of the conditions prescribed under section 10A of the Act. Therefore, the contention of the Commissioner that the fulfillment of conditions of section 10A(2)(ii) was never the subject-matter of appeal requires to be rejected. In this view of the matter, in our view, the embargo placed by Explanation (c) to section 263(1) of the Act is applicable to the present position. The contention on behalf of the Commissioner that the assessment order does not reflect any application of 12 mind towards the investigations which were subsequently made out in the assessment proceedings relevant to assessment year 2004-05 and, therefore, invoking of section 263 is justified in this year, is mis-placed. It is quite well- settled that an assessment order cannot incorporate all reasons for making/granting deduction and especially in the present case wherein the claim under section 10A was a subject-matter of enquiry and in that situation, it cannot be said that there is lack of application of mind on the part of the Assessing Officer merely because as per the Commissioner a certain aspect of the matter has not been discussed in the assessment order.
17. In nutshell, we find ample force in the preliminary plea raised by the assessee that in so far as the issue raised by the Commissioner qua the claim of deduction under section 10A is concerned, the same is clearly hit by the embargo placed in Explanation (c) to section 263(1) of the Act, since it has been considered and decided in appeal.
18. Even on the aspect of the computation of eligible deduction under section 80HHE of the Act, we find that factually speaking the proposition advanced by the assessee on the basis of Explanation (c) to section 263(1) of the Act is in order. Therefore, without dwelling further, in our view, the two issues raised by the Commissioner in proceedings under section 263 of the Act were beyond his jurisdiction having regard to the prohibition contained in Explanation (c) to section 263(1) of the Act.
19. In the result, the order of the Commissioner is hereby set aside and the appeal of the assessee vide ITA No 519/PN/07 for the assessment year 2002-03 is allowed as above.
20. In ITA No. 475/PN/08 filed by the assessee for the assessment year 2003- 04, same issue relating to invoking of revisional jurisdiction under section 263 of the Act by the Commissioner is involved and for the detailed reasoning given hereinabove in ITA No. 519/PN/07 for the assessment year 2002-03, the order 13 of the Commissioner passed under section 263 is hereby set aside and the appeal of the assessee is allowed.
21. In the result, ITA No 475/PN/08 pertaining to the assessment year 2003- 04 is allowed.
22. We shall now take up cross-appeals filed by the assessee vide ITA No 794/PN/08 and by the Revenue vide ITA No.1058/PN/08 for the assessment year 2002-03. Both the cross appeals arise out of the order passed by the Assessing Officer under section 143(3) giving effect to the order passed by the Commissioner under section 263 of the Act. For the detailed reasons given by us hereinabove in ITA No 519/PN/07 for the assessment year 2002-03, we have set aside the order of the Commissioner passed under section 263 of the Act, and therefore, the consequential assessment made by the Assessing Officer under section 143(3) r.w.s. 263 no longer survives and the same thus having become infructuous, the aforesaid cross appeals are dismissed as such.
23. In the result, ITA No. 794/PN/08 of the assessee and ITA No. 1058/PN/08 filed by the Revenue for the assessment year 2002-03 are dismissed.
Decision was pronounced in the open Court on 29th Day of July, 2011.
Sd/- Sd/-
(I.C. SUDHIR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune: Dated: 29th July, 2011
B
Copy of the order is forwarded to :
1. Assessee
2. Department
3. The CIT(A)-II,Pune
4. The CIT-II, Pune
4. The D.R, 'B' Bench,Pune
5. Guard File
"True copy" By order
Assistant Registrar , ITAT, Pune