Income Tax Appellate Tribunal - Chandigarh
Axind Software Development Services ... vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'A' CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND SHRI T.R. SOOD, ACOCUNTANT MEMBER
ITA No. 555/CHD/2012
Assessment Year:2007-08
M/s Axind Software Development Vs. The CIT - II
Services Pvt. Ltd. Chandigarh,
Sector- 35 A
Chandigarh
PAN No.AAFCA5780K
(Appellant) (Respondent)
Appellant By : Shri Tej Mohan Singh(Adv.)
Respondent By : Smt. Jyoti Kumari (CIT,DR)
Date of hearing : 11-09-13
Date of Pronouncement : 13-09-13
ORDER
PER BHAVNE SH SAINI, JM
This appeal by the assessee is directed against the order of the Ld. CIT-II, Chandigarh dt. 20/03/2012, for assessment year 2007-08, challenging the order under section 263 of the Income Tax Act on the following grounds.
1. That the or der under section 263(1) of the I.T. Act, 1961 dated 20/03/2012 passed by Commissioner of Income Tax-II, Chandigarh is contrary to law and facts of the case.
2. That in the facts and circumstances of the case, the Ld. Commissioner of Income Tax-II, Chandigarh gravely erred in canceling the assess ment framed u/s 143(3) and reopening the said assessment u/s 263, 2 when the allowability of deduction under section 10 A was fully deliberated upon by the ld. Assessing Officer.
3. That the Ld. Commissioner of Income Tax gravelly erred in holding that the appellant is not entitled to deduction under section 10 A.
4. That in the facts and circumstances of the case the Ld. Commissioner of Income Tax gravelly erred in holding that the Assessing Officer erred in not examining the applicability of provisions of Section 80IA(8) and 80IA(10).
5. That the profit show n by assessee was duly verified by the Ld. Assessing Officer on the bas is of audited books of accounts and after due application of mind, he had accepted the book results shown by the assessee, therefore, the assessment framed by the Ld. Assessing Officer is neither err oneous nor prejudicial to the interest of the revenue.
6. Any other gr ound that may be taken at later stage with the permission of the Hon'ble Bench.
2. Briefly the facts of the case are that the assessee filed its return declaring 'NIL' income for the assessment year 2007-08. Later the case was selected in scrutiny. Assessment was framed u/s 143(3) of the Income Tax Act by Assessing Officer vide order dt. 30/12/2009 at 'NIL' income as returned by the assessee.
3. The Ld. CIT on perusal of the assessment record, seen that the assessee company had claimed an income of Rs. 3,98,53,584,/- as exempt u/s 10B of the Income Tax Act, 1961. However, to be eligible for that exemption, it was mandatory on part of the assessee to furnish a report by an accountant in Form No. 56 G along-with return of income or in the alternative s ubmit the same during the course of assessment proceedings as per the provisions of Section-10B (5) of the 3 Income Tax Act, 1961 r.w. Rule-16 E of Income Tax Rules, 1962. The said report in Form No. 56 G was not furnished even during the course of assessment proceedings; therefore the assessee's claim u/s 10 B was not allowable. On a perusal of the copy of the sub vendor's agreement filed during assess ment proceedings, it is noticed that services provided by the assessee company was not covered within the meaning of computer software as per explanation 2 of Section- 10 B of the Act. To qualif y as a 100% EOU, the assessee was required to seek the approval of the Central Govt. under The Industries Act, 1951 and as per explanation 2(iv) of Section - 10 B. That approval was not furnished. The AO was not justified in allowing the claim u/s 10 B of the Income Tax Act, 1961 of the assessee.
Further, it was noticed that total services by the assessee company had been provided to its sister concern M/s. Axind LLC based in USA and an abnormally high net profit of 84% on sales of Rs. 4.77 crore had been shown. The AO did not carefully examine the applicability of the provisions of Section 80IA(8) and 80IA(10) in the course of assessment proceedings.
4. The Ld. CIT issued a show cause notice asking the assessee company to explain as to why recourse to the provision of Section 263 be not taken as the assessment was erroneous in so far as it was prejudicial to the interest of Revenue. The assessee appeared before Ld. CIT through counsel and filed replies on different dates. The inspection of the records maintained by AO was allowed. 4
5. The Ld. CIT after considering the replies above and material on record set aside the assessment order u/s 143(3) dt. 30/12/2009, while invoking jurisdiction u/s 263 of the ITA and directed to f rame afresh assessment after carrying out proper investigation and affording reasonable opportunity to the assessee.
6. The findings of Ld. CIT in paras 6 to 9 are reproduced as under:
" 6. Here, it is important to note that the assessee company, as per computation of income furnished during the assessment proceedings, claimed exemption u/s 10B. The AO accepted the assessee's claim without reference to the eligibility of the assessee and quantum of eligible exemption. For accepting the claim of he assessee to be proper, the requisite report had to be submitted in Form No. 56 G. In the various replies submitted, the assessee maintained that the company was entitled to exemption u/s 10 A and that the Report w as to be submitted in Form No. 56F. In this background, the reply filed [in parts] by the assessee are briefly discussed as under:
i) Regarding eligibility for exemption u/s 10B [As per computation of Income submitted during assessment proceedings] , the counsel of the assessee submitted that the AO had allowed the genuine claim of exemption u/s 10 A [ as per reply dated 12/03/2012 after due application of mind and, as such, the assessment was neither erroneous nor prejudicial to the interest or revenue.
ii) Regarding ser4vices provided by the assessee company to M/s. Axind LLC based in USA, the company had show n high net profit of 84 % which w as verified by the AO on the basis of the audited accounts, sales and expenses.
After due application of mind, he had 5 accepted the book results s hown by the assessee and therefore the assessment was neither erroneous nor prejudicial to the interest of revenue.
iii) With regard to high profit shown by the assessee, it was submitted by the counsel for the assessee that the issue was taken up by the AO during the assessment proceedings. It has also been submitted that ".. to rebut it [high profit shown by the assessee] no comparable case has been brought out by the revenue..."
iv) The counsel of the assessee cited a number of judgments in his support.
7. After carefully considering the reply of the counsel vis-à-vis the facts of the case, I find that there is no merit in assessee's submission. The assessee's claim that the Assessing Officer had made proper enquiries with regard to exemption u/s 10 B [10A as per replies now s ubmitted] and applicability of provisions of Section- 80IA(8) and 80IA(10) as being genuine are not acceptable for the following reasons:
i) On a careful perusal of the assessment records it is seen that during the course of assessment proceedings neither the AO called for a report u/s 54 G nor the assessee submitted the same. The report in Form No. 54 G was mandatory to determine the eligibility of the assessee for exemption u/s 10 B and the quantum of exemption to be allowed. Thus, when the relevant report in Form 56 G is not placed on the assessment record, the question of AO having verified the same does not arise.
ii) As per the computation of income submitted during the course of assessment proceedings, the asses see claimed exemption u/s 10B, for which report was to be submitted in Form N o.
56 G. However, during the course of proceedings u/s 263, the various replies submitted by the assessee refer to claim of exemption u/s 10A, for which 6 requisite Report w as required to be submitted in Form No. 56F. When , assessee itself is not certain as to w hich exemption it is entitled to, therefore the AO can not be stated to have made necessary enquiries in that regard .
iii) On a perusal of assessment records, it is noted that the assessee had shown a very high Net Profit of 84% which was very astounding. Since the entire services of the assessee company had been provided to its sister concern, the provisions of Section 80IA(8) and 80IA(10) become applicable. The AO was required to thoroughly verify the genuineness of the high profitability.
However, during entire assessment proceedings, there was no question asked by the AO either about high profitability shown or about the applicability of provisions of Section 80IA(8) and 80IA(10). The assessee's contention that the AO had made necessary verification in this regard are not acceptable.
iv) The counsel of the assessee has himself submitted vide reply dated 12/03/2012 regarding the high profit shown by the assessee by s tating "... to rebut it [high profit shown by the assessee] no comparable case has been brought out by the revenue...". This itself shows that the aspect of High profits shown by the assessee has not been examined vis-à-
vis provisions of Section 80IA(8) and 80IA(10).
v) The judgments cited by the assessee in support of its contention and facts in the present case are distinguis hable.
8. After careful consideration of the facts of the case, submissions of the counsel for the assessee and relevant provisions of the Income-tax Act, 1961 [as discussed in detail in the preceding paragraphs] it is clear that the AO has not examined the various issues regarding assessee's claim for exemption u/s 10B [ or 10A as per assessee's reply in proceedings u/s 263] the eligibility, quantum 7 of exemption to be given and the applicability of pr ovisions of Section 80IA(8) and 80IA(10) with regard to the high profit shown by the assessee. The assessment framed by the Assessing Officer is therefore erroneous in so far as it is prejudicial to the interest of revenue. The Assess ing Officer has failed to gather the facts and carry out proper investigations. "
9. In view of the above, the assessment order passed by the Assessing Officer u/s 143(3) on 30/12/2009 is hereby cancelled u/s 263 of the Income-tax Act, 1961, being erroneous in so far as it is prejudicial to the interest of revenue. He is directed to frame assessment afresh after carrying out proper investigation and affording reasonable opportunity to the assessee.
7. Learned Counsel for the assessee reiterated the submissions made before Ld. CIT he has referred to Page 57 of Paper Book which is reply filed before Ld. CIT dt. 21/02/2012 in which the assessee explained that the assessee company was registered under Software Technology Park of India, Noida vide there approval dt. 21/06/2006 as 100% export oriented unit under Software Technology Park scheme for the developing / manufacturing of Computer Software / IT enabled services, copy of the certificate is filed at page 31 of the paper book. It was also explained that required audit report and balance sheet alongwith report of the C A in Form 56 F was submitted before AO copy of which is filed in the paper book at Page 18. It was submitted that the as sessee company had claimed deduction under section 10A of the Income Tax Act and fulfilled all the statutory compliances as provided in the Income Tax Act He therefore submitted that assessee specifically explained that claim before AO was made for exemption of income under section 10 A of the Income Tax Act and not under 8 section 10B of the Income Tax Act. Therefore there is no requirement to file form no. 56 G because it is not applicable to provision of section 10 A of the Income Tax Act. Further reply dated 12/03/2012 was filed before Ld. CIT explaining the facts that assessee in all the replies made a claim of deduction under section 10 A of the Income Tax Act, copies of which are filed at page 59 to 63 of the paper book. It was also submitted that the AO examined complete books of accounts and supporting documents at assessment stage alongwith the report of the Chartered Accountant and after making complete enquiry into the matter accepted the return of income therefore the reasonableness of the profit under section 80IA(8) &(10) of the Income Tax Act were also examined by the AO, and in the opinion of the AO the profit was reasonable. Looking to the facts and circumstances of the case the AO has not pointed out any discrepancy in the explanation and evidences produced before him. He has submitted that even in the re-assessment proceedings under section 143(3) read with section 263 of the Income Tax Act, the assessee made a similar claim of deduction under section 10A of the Income Tax Act but the AO did not examining the claim of assessee and summarily rejected the claim vide order dt. 08/03/2013 (Paper Book 67). Learned Counsel for the assessee submitted that the provisions of section 10 A (2) of the Income Tax Act applies in the case of the assessee because the assessee has begun or begins to manufacture or to produce article or things or Computer Software during the assessment year under appeal and assessee was entitled for exemption under the said provision by filing Form no. 56 F which was filed before the AO. He has submitted that entire material 9 and evidences and explanation was before Ld. CIT even in the proceedings under s ection 263 of the Income Tax Act, who have not given finding on the same. Since CIT did not give any findings on the explanation of the assessee with regard to claim of exemption under section 10 A of the Income Tax Act, therefore revision order is invalid. He has referred to page 2 of Paper Book which is computation of income in which the assessee has made claim of deduction / exemption under section 10,10A,10B and 11. He has submitted that since it was a first year of claim of exemption therefore there may be some error in mentioning all the above provision in the computation of the income but all facts were before AO in the original assessment proceeding who have examined the issue in detail and granted exemption to the assessee under section 10 A of the Income Tax Act. He has referred to Paper Book 72 which is questionnaire dt. 22/12/2009 iss ued by AO in which about 27 questions have been raised by AO including brief history of the issue and called for note on business activities carried on during the year with details of all sources of income. Reply was filed. The AO examined complete details from books of accounts and was satisfied with explanation of the assessee and accepted the computation of income filed by the assessee therefore it is not a case of lack of enquiry or making improper enquiry into the matter. He has submitted that since provision of section 10 A or 10 B are similar and there is no revenue effect therefore it may not be a case of erroneous or prejudicial to the interest of revenue. The condition of both the sections are similar and 10A have been satisfied by the assessee. He has relied upon decision of the Hon'ble Supreme Court in the case of 10 Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax [2000]243 ITR 83 in which it was held that before Commissioner to exercise the jurisdiction under section 263 of the Income Tax Act the twin condition namely, the order of the AO sought to be revised is erroneous and it is prejudicial to the interest of revenue have to be satisfied. It was further held in this case " that 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 on erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law ". He has also submitted that even if the order passed by the AO is cryptic and no elaborate discussion is made but when he has applied mind to the facts and evidence before him, the jurisdiction exercised by the CIT under section 263 is not valid and assessment order cannot be said to be "erroneous". In next year claim of assessee u/s 10A is accepted u/s 143(1). He has relied upon decision of the Punjab & Haryana High Court in the case of Hari Iron Trading Co. Vs. Commissioner of Income -Tax [2003]263 ITR 437 and decision of Bombay High Court in the case of Commissioner of Income Tax Vs. Gabriel India Ltd. [1993]203 ITR 108. In the case of Gabriel India Ltd. (Supra), it was also held that "Moreover, in instant case, Commissioner himself, even after initiating proceedings for revision and hearing the assessee could 11 not say that the allowances of claim of assessee was erroneous and expenditure was not revenue expenditure but an expenditure of capital nature. That was not permissible to ask AO to re-examine the matter. Tribunal justified in setting aside order u/s 263 of C IT." He has also relied upon certain orders of the tribunal. He has also submitted that impugned order passed by the Ld. CIT under section 263 is not valid and is liable to be quashed. On the other hand Ld. DR relied upon order of the Ld. CIT under section 263 of the Income Tax Act. Ld. DR submitted that in the return of income assessee made claim of exemption under section 10B of Income Tax Act and since the required audit report under section 56 G was not filed therefore Ld. CIT was justified in passing the order under section 263 of the Income Tax Act. The claim of the ass essee regarding exemption under section 10A have not been supported by any evidence. The explanation 2(iv) of Section 10B was not examined by the AO. The AO als o did not examine the applicability of section 10 A in the case of assessee. Therefore there is no application of mind by the AO. Ld. DR filed copy of all the notices and order sheet of the original assessment order on record. Ld. DR relied upon following decisions:
1. Decision of the Supreme Court In case of Rampyari Devi Saraogi Vs. Commissioner of Income-Tax, West Bengal, and Others.[2002] 67 ITR
84.
2. Decision of the Supreme Court In case of Smt. Tara Devi Aggarwal Vs. Commissioner of Income-
Tax, West Bengal, [1973] 88 ITR323 in which it was held, on the facts, that there were materials before the Commissioner to justify his finding that the order of assessment for the year 1960-61 w as erroneous in so far as it was prejudicial to the interests of the revenue.
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3. Decision of Andhra Pradesh High Court in the case of Commis sioner of Income Tax Vs. Firma Hi- Tech [2012] 343 ITR 507.
4. Decision of Delhi High Court in case of Commissioner of Income Tax Vs. Eastern Medikit Ltd.[2011] 337 ITR 56
8. We have considered rival submissions and material available on record.
8.1. Section 10A of the Income Tax Act provides about special provision in respect of newly established undertaking in free trade zone etc. It provides deduction out of profit and gains as are derived by an undertaking from the export of articles or things or computer software. Sub Section (2) of section 10 A provides as under :
" (2) This section applies to any undertaking which fulfils all the following conditions, namely:-
(i) it has begun or begins to manufacture or produce articles or things or computer s oftware during the previous year relevant to the assessment year:
(a) commencing on or after the 1 s t day of April, 1981, in any free trade zone; or
(b) commencing on or after the 1 s t day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park;
(c) commencing on or after the 1 s t day of April, 2001 in any special economic zone;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence;
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of there establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period of specified in that section;
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(iii) It is not for med by the transfer to a new business of machinery or plant previously used for any purpose. Explanation: The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. Sub Clause (5) of Section 10A provides that the deduction under this section shall not be admissible for any assessment year beginning on or after 1/04/2001, unless the assessee furnishes in the prescribed form (56F) alongwith the return of income, the report of Chartered Accountant in prescribed form no. 56 F certif ying that the deduction has been correctly claimed in accordance with the provisions of this section.
Explanation 2(i) of Section 10A provides the definition of "Computer Software" which reads as under:
" (i) C omputer Software means -
(a) any computer programme recorded on any disc, tape, perforated media or other information storage device ;or
(b) any customized electronic data or any product or service of similar nature, as may be notified by the Board Sub Clause (vii) of Explanation 2 to Section 10 A provides the definition of "Software Technology Park" means any park set up in accordance with the Software Technology Park Scheme notif ied by the Government of India in the Ministry of Commerce and Industry.
8.2. Section 10 B of the Income Tax Act similarly provides the special provision in respect of newly established 100% export oriented 14 undertaking and provisions for deduction out of such profits and gains as are derived by a 100% export oriented undertaking f rom the export of article or things or computer software.
Sub section (2) to Section 10 B of the Income Tax Act provides as under:
" (2) This section applies to any undertaking which fulfils all the following conditions namely:-
(i) it manufactures or produces any articles or things or computer software;
(ii) It is not formed by the splitting up, or the reconstruction, of a business already in existence:
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33 B, in the circumstances and within the period specified inthat section;
(iii) it is not for med by the transfer to a new business of machinery or plant previously used for anypurpose.
Explanation- The provisions of Explanation 1 and Explanation 2 to sub-section(2) of section 80-I shall apply for the purposes of clause (iii) of this sub- sectionas they apply for the purposes of clause (ii) of that sub- section.
Sub section (5) of Section 10 B of the Income Tax Act similarl y provides that deduction under this section shall not be admissible for any assessment year beginning on or after the 01/04/2001, unless the assessee furnishing in the prescribed form 56 G alongwith the return of income as prepared by the Chartered Accountant certif ying that the deduction has been correctly claimed in accordance with the provisions of this section.
15Explanation 2(i) to Section 10 B provides the definition of "Computer Software" which reads as under:
" (i) "Computer Software" means-
(a) any computer programmed recorded on any disc, tape, perforated media or other infor mation storage device; or
(b) any customized electronic data or any product or service of similar nature as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means;
Sub Clause (iv) to Explanation 2 to Section 10B provides 100% export oriented undertaking means an undertaking which has been approved as a 100% export oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries Act and Rules made under that Act. 8.3 A bare reading of the above provisions show that the deduction under both the provisions are entitled to such undertaking who have begun or beginning the manufacturing or produce articles or things or Computer Softwares. There is further requirement to furnish audit report from the Chartered Accountant certifying claim of the assessee in Form 56 F under section 10A and report 56 G in case deduction has claimed under section 10B of the Income Tax Act. In case of deduction claimed under section 10A, the business which have been commenced in any "electronic hardware, technology park" or as the case may be "Software Technology Park". Therefore the condition of both the 16 sections have similarity for granting of deduction / exemption in case of the undertaking connected with the "Computer Software". 8.4. The assessee has filed return of income in prescribed form for the assessment year under appeal within the time, copy of the same is filed at page 1 of the Paper Book and computation of income is filed at page 2 of the Paper Book. In the computation of income the assessee has claimed deduction under section 10 B in one part and in the same computation of income the assessee claimed deduction on account of income being exempted under section 10,10A, 10B and 11. The assessee also filed copy of the audit report under section 44AB at page 4 of the Paper Book in which it was certified that the nature of busines s of assessee is 100% EOU for Computer Software. The assessee also filed form no. 56 F in the Paper Book at page 18 in which the Chartered Accountant has certified that the assessee is engaged in export of articles things or computer software during the year ended on 31/03/2007. It was also certified that the undertaking of the assessee is situated in Software Technology Park / Special Economic Zone and deduction has been claimed under section 10A of the Income Tax Act. The nature of business is certified to be export of computer software and it was also explained that it was the first year of deduction being financial year 2006-07. It is also certified that sale proceed of the assessee are computer software. The assessee's form no. 56 F is a part of the record. The assessee has filed copy of the questionnaire dated 22/12/2009 issued by the AO at the assessment stage raising as many as 27 questions regarding history of assessee and nature of business 17 activities carried on and complete details related to the business activities. The assessee filed reply before AO (Paper B ook 27) in which complete details of nature of business and history of the assessee were explained. The assessee explained before AO at the assessment stage that assessee company is doing business of developing and exporting of computer software and online maintenance of such softwares. The assessee company is 100% EOU for computer software and has been duly registered with the Software Technology Park of India, copy of which is filed at page 31 of the Paper Book. The assessee, however, in the reply claimed that deduction has claimed under section 10 B of the Income Tax Act. The certificate of Software Technology Park of India as noted above filed at page 31 of the Paper Book certified that assessee is engaged in 100% EOU for manufacturing Computer Software.
8.5. The assessing officer in the assessment order dt. 30/12/2009 has specifically mentioned that the assessee company attended the assessment proceeding and furnish the requisite information / documents as per query raised by the AO. The case has been discussed with representative of the assessee company and all the inf ormation / documents submitted by the assessee were examined and test checked. Documentary evidence regarding source of income were obtained. The AO was satisfied with explanation of the assessee and accepted the returned income filed at NIL income. The copy of the order sheet are filed by Ld. DR on record which also support the fact and the AO examined the issue of deduction / exemption being Computer Software 18 in favour of the assessee and was satisfied with the explanation of the assessee. The documents filed on record as noted above clearly revealed that the assessee in the form no. 56 F clearly certified that assessee has claimed deduction/ exemption under section 10 A of the Income Tax Act and being the first year of claim of deduction the assesssee has mentioned all the provisions of Act, in the return of income claiming deduction under section 10,10A,10B and 11 of the Income Tax Act. The assesse has mentioned all the provisions of the Act in the computation of income as well as all the reply filed before the AO but the fact remained that the assessee complied with the provisions of Section 10A of Income Tax Act being approval granted by Software Technology Park of India. In the facts and circumstances noted above the assessee, therefore, was entitled for deduction under section 10A of the Income Tax Act. Hon'ble Supreme Court in the case of Commis sioner of Income Tax, Delhi Vs. Mahalaxmi Sugar Mills C o. Ltd. [1986] 160 ITR 921, held as under:
"BY THE COURT: There is a duty cast on the Income-tax Officer to apply the relevant provisions of the Indian Income-tax Act for the purpose of determining the true figure of the assessee's taxable income and the consequential tax liability. That the assessee fails to claim the benefit of a set-off cannot relieve the Income-tax Officer of his duty to apply section 24 in an appropriate case.
8.6. It is duty of authorities below to apply correct provisions of law while considering claim of assessee according to facts and circumstances of case. The AO took one of view permissible in law in favour of assessee accepting "NIL" returned income as per Section 10A 19 of Income Tax Act, the assessment order could not be held to be erroneous in so far as prejudicial to interest of revenue.
8.7. Hon'ble Allahabad High Court in the case of Commissioner of Income Tax Vs. Goyal Private Family Specific Trust [1988] 171 ITR698 held as under :
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 w as committed by the Income-tax Officer in having reached the conclusion that the income of the trust was exempt in its hands and w as 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.
8.8. Hon'ble Delhi High Court in the case of Commissioner of Income-Tax Vs. Anil Kumar Sharma [2011] 335 ITR 83 held as under:
There is a 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 Income-tax Act, 1961, merely because he has a different opinion in the matter:20
Held, dismissing the appeal, that the present case would not be one of "lack of inquiry" even if the inquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied his mind to the relevant material and facts, although such application of mind was not discernible from the assessment order. The Tribunal held that the Commissioner in proceedings under section 263 also had all these details and material available before him, but had not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non-application of mind by the Assessing Officer. The Tribunal was right and the order of revision was not valid.
8.9. We may also note here that the assessee filed reply before Ld. CIT in the proceeding under section 263 of Income Tax Act dt.
21/02/2012 (Paper Book 57) in which the assesse explained that the assessee company is registered under Software Technology Park of India being 100% export unit under Software Technology Park Scheme for developing / manufacturing of computer software / IT enabled services, copy of the certificate was also filed. It was also submitted that the report and balance sheet as certified by Chartered Accountant in Form No. 56 F was filed before AO and copy of the same was also filed before Ld. CIT. It was also explained that assessee company had claimed deduction under section 10A of the Income Tax Act and complied with provision of Law. The assessee further filed reply before Ld. CIT on dt. 12/03/2012 (Paper Book-59 and 63 ) in which the assessee explained that complete books of accounts and all the material were furnished before AO at the assessment stage to claim deduction under section 10A of the Income Tax Act. Similar facts were explained that assessee claimed deduction under s ection 10A being the assessee 21 company 100% EOU for Computer Software and is duly registered with Software Technology Park in India. Form No. 56 F was also filed before AO and the AO after examining the complete details and reply allowed the genuine claim of assessee of deduction under section 10A of the Income Tax Act. It was also explained that the AO examined the complete books of accounts and was satisfied with the explanations of assessee and profit earned out of said business. The AO was satisfied with reasonableness of the profit earned by the assessee. Therefore assessee was rightly granted deduction under section 10A of the Income-tax Act. When the matter was taken up by the AO in re- assessment proceeding under section 143(3)/263 dt. 08/3/2013 the assessee made similar claim of deduction under section 10A but it was not allowed being no revised return have been filed. It would therefore show that the assessee since beginning before AO as well as before Ld. CIT claimed that deduction was claimed under section 10 A of the Income- tax Act and the claim of assessee was supported by Form no. 56F and approval by Software Technology Park of India. Neither the Ld. CIT nor the AO in the re-assessment proceeding has been able to point out defects in the claim of assessee for deduction under section 10A of Income Tax Act. The Ld. CIT did not deal with the explanation / submission of the assessee for claiming deduction under section 10A of the Income Tax Act. The assessee filed complete details before the authorities below in support of the contention and on going through the same in the light of provision of Section 10A, we find that assessee duly complied with the provisions of Section 10A, therefore the AO at the original assessment stage even if passed a cryptic order was 22 justified in granting deduction in favour of the assessee in accordance with provision of Section 10A of the Income-tax Act. The Ld. CIT in proceeding under section 263 of the Income Tax Act also had all these details and material before him, but had not been able to point out defects conclusively in the material / evidences for arriving at a conclusion that exemption under section 10 A is not allowable in the case of the assessee. Therefore the revision order under section 263 of the Income tax Act cannot be sustained.
8.10. We rely upon decision of Hon'ble Gauhati High Court in case of Smt. Lila Choudhury Vs. Commissioner of Income-Tax And Others [2007] 289 ITR 226 in which it was held that "in the order the Commissioner had not recorded any opinion that the order of assessment of the petitioner for the assessment year 1992-93 was erroneous and prejudicial to the interests of the Revenue. That was the opinion recorded in the notice dated August 14/19, 1996, but the opinion being recorded in a notice iss ued to the petitioner asking to show cause, must be understood to be reliable. Such opinion was required to be reiterated after hearing the petitioner and after holding the necessary enquiry. On receipt of the show-cause notice, the petitioner submitted an elaborate reply. The Commissioner on receipt of the reply of the petitioner could not have ignored the same. Rather, it was incumbent on the Commissioner to consider the explanations offered and on that basis to record his opinion / conclusion. Moreover, the competent criminal court had exonerated the son-in-law of the petitioner from any liability on account of the house property in question holding it to belong to the petitioner. The findings recorded by the criminal court in this regard could not be brushed asidc. Hence, any de novo proceedings at this stage would be futile. The order of revision had to be quashed. The assessment of the petitioner for the assessment year 1992-93 made by order dated May 16, 1994, had to be considered complete and final."
238.11. Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Vikas Polymers [2012] 341 ITR 537 held as under:
"That the Commissioner had mentioned that the Income-tax Officer had not examined the cash credits of the partners or deposits of chit fund. Assuming this to be so, this might make the order erroneous, but how it was prejudicial to the interests of the Revenue had not been stated by the Commissioner as he did not deal with the explanation given by the assessee in the course of the section 263 proceedings. The Commissioner observed in his order that the assessee had not filed certain documents on the record at the time of assessment. Assuming this w as so it did not justify the conclus ion arrived at by the Commissioner that the Asses sing Officer had shirked his responsibility of examining and investigation the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the Commissioner, and this was duly reflected in the respective assessments of the partners w ho were income-tax assesses and the unsecured loan taken from the chit fund was duly reflected in the assessment order of the chit fund which was also an assessee. The order of revision was not valid."
8.12. Hon'ble Gauhati High Court in the case of B And A Plantation And Industries Ltd. And Another Vs. Commissioner of Income -Tax And Others [2007]290 ITR 395 held as under:
" That it was after examination of the books of account under section 43 B that the assessing authority had allow ed the deduction on account of bonus in exercise of its powers under section 143(3). The Assessing Officer, having acted within his jurisdiction, in allowing the claim of bonus as deduction, it was not open to the Commissioner to consider the said order as erroneous merely because in his view a certain amount of bonus allowed as deduction s hould have been disallowed, particularly when the order of the Commissioner did not show how the order of assessment could be said to be an order passed without juris diction or an order passed beyond jurisdiction or wholly contrary to jurisdiction. A rectification proceeding was 24 initiated, under section 154 of the Act, by the Joint Commissioner at the initiative of the audit party. The Joint Commissioner, after making necessary enquiry, dropped the proceedings. The assessing authority was satisfied that there was no mistake apparent from the record in allowing the claim of deduction on account of bonus. Initiation of the suo motu revisional proceedings, in the same matter, amounted to entrenching upon the powers of the assessing authority. There was nothing in the notice or the order to show that the C ommissioner had applied his independent mind and had come to the conclusion that the assessment needed to be revised. When a rectification proceeding is initiated under section 154 and a final order dropping the rectification proceeding is passed, the effect is that the assessment order has merged into the order made in the rectification proceeding. In the case at hand, the as sessment order dated March 11, 1998, had merged in the order dated January 7, 2000. In such circumstances, without interfering with the order dated January 7, 2000, the order dated March 11, 1998, could not have been reached by the revisional authority and set aside. The notice dated January 24,2000 and the order dated March 28,2000, passed by the Commissioner, under section 263, were absolutely without jurisdiction and not tenable in law. The notice and order were liable to be quashed."
8.13. Considering the above discussion in the light of the above case laws, we are of the view that when all the evidence and material on record clearly support the case / explanation of the assessee that assessee is entitled for deduction under section 10A of the Income-tax Act, the Ld. CIT should have examined the explanation of the assessee and passed the order of revision in accordance with law. Merely because AO passed a cryptic order or might have made inadequate enquiry would not be a ground to set as ide the asses sment order. Ld. Counsel for assessee also contended that in next year similar claim of assessee has been accepted u/s 143(1) by Revenue Dept. has not been disputed before us.
258.14. The order passed by the AO thus cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue. The revis ion order passed by the Ld. CIT in the facts and circumstances of the case is not sustainable in law. We accordingly set aside the order under section 263 of the Income Tax Act dt. 20/03/2012 and quashed the same. Resultantly the original assessment order dt. 30/12/2009 under section 143(3) is restored.
9. In the result, appeal of the assessee is allowed.
Order Pronounced in the Open Court on 13/09/2013 Sd/- Sd/-
(T.R. SOOD) (BHAVNE SH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 13 t h September, 2013
AG
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR.