Income Tax Appellate Tribunal - Chennai
Nagesh Chundur, Chennai vs Assessee on 29 March, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'B' : CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A No.656/Mds/2010
Assessment year : 2005-06
Shri. Sri Nagesh Chundur vs The CIT -X
Flat no.4A Srinivas Chennai
30, Maharaja Surya Road
Alwarpet
Chennai 600 018
[PAN - ACUPC6638E ]
(Appellant) (Respondent)
Appellant by : Shri S. Kasi Viswanathan
Respondent by : Shri P.B Sekaran
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
This appeal of the assessee, for assessment year 2005-06, is directed against the order of the ld. CIT-X, Chennai, dated 29.3.2010, passed u/s 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act' for short).
2. Briefly stated, the facts of the case are that the Assessing Officer passed order u/s 143(3) on 30.5.2007 for assessment year 2005-06 in the case of this assessee. The assessee has disclosed total :- 2 -: ITA 656/10 income of `1,28,790/- after claiming deduction u/s 10A of the Act of `34,89,448/-. The Assessing Officer has concluded that the assessee was engaged in the business of electronic data transmission (Data Processing) and that assessee's concern is a 100% Export Oriented Unit(EOU) so, he treated him to be eligible for deduction u/s 10A of the Act. The unit is an existing unit which had started operation since 1998. During assessment proceedings, from the records available, it was revealed that the unit had been approved by the Software Technology Park. Government of India as a 100% EOU for computer software on 3.4.2002. The ld. CIT called for the records of this case and issued a show cause notice u/s 263 dated 3.2.2010 seeking assessee's objections, if any. The assessee replied vide his letter dated 10.2.2010 that the dates mentioned in section 10A(2) sub- section (i)(a), (i) and (i)(c) only list the condition regarding the year of manufacture, year wise for the purpose of reckoning the exemptions or deduction for 10 consecutive years with reference to the undertaking set up in different periods and locations viz. Free Trade Zone, STP and SEZ based on the pre-amended provisions and the present substituted sections. According to the assessee, the tax holiday is for 10 year period from the year of manufacture/ production. But it does not mean that an undertaking set up before :- 3 -: ITA 656/10 1.4.1994 and after 1.4.2001 and got registered as STPI unit would not get deduction. The ld.AR of the assessee also referred to the Board's circular No.1 of 2005 which clarified that the unit set up in DTA on approval as export oriented undertaking will be eligible for deduction u/s 10B from the year in which it got the approval, but the deduction will be available only for the remaining consecutive ten assessment years calculated from the year of manufacture or production of computer software. According to him, this clarification regarding section 10B would also apply to section 10A which are para materia to each other, and it has been clarified by the CBDT Circular No.794 dated 9.8.2000. It was stated that the only difference between the two sections is that u/s 10A the beneficiaries are the undertaking and units registered with STPI which were earlier located in Free Trade Zone, and in the case of section 10B they are the units earlier located in Domestic Tariff Area (DTA) later converted as 100% EOU both duly approved by designated authorities. So, according to him, units existing in Free Trade Zone which are subsequently registered with approval of the concerned authorities for being treated as units under STPI scheme would also get benefit of deduction from the year of registration. But the period of eligibility is 10 consecutive years from the year of manufacture/production. It was admitted that the unit was :- 4 -: ITA 656/10 set up in financial year 1999-2000 when it got approval as STPI unit but it does not ipso facto become an undertaking formed by splitting up or reconstruction of a business already in existence or a case of transfer of new machinery or plant previously used for any purpose as provided in 10A(2). After considering the entire submissions of the assessee, the ld. CIT, with reference sub-section (2) to section 10A, came to the conclusion that if an undertaking claimed deduction u/s 10A during the previous year relevant to assessment year commencing after 1.4.2001, should be operating in any SEZ. But in this case, the undertaking started production during financial year 1999-2000 and was not registered with STPI at that time as it got registered on 27.3.2002 and it was not in a SEZ so it continued to use the same old machinery which it was having earlier. Therefore, the conditions laid in section 10A(2)(i)(b) and (i)(c) are not satisfied. So he found that there is an error in the order by allowing a wrong claim u/s 10A amounting to ` 34,89,448/-. Therefore, he held the assessment order erroneous in so far it is prejudicial to the interests of the Revenue and directed to Assessing Officer to revise the order accordingly.
3. The assessee has raised the following grounds:
"The Order of the CIT, Chennai-X is contrary to law and facts of the case and is therefore unsustainable and the disallowance of 10A be deleted, dropped after considering the Grounds of Appeal of the appellant.:- 5 -: ITA 656/10
CIT 's opinion that since the unit begins to manufacture on or after 01/04/2001 it has to be in SEZ in order to be eligible for deduction U/s.10A is wrong as the date mentioned in the section is only for reckoning of the period of 10 years Tax Holiday Period as has been held by various ITATs in their decisions.
CIT has erred in his contention that since the Appellant was on existing Unit since F.Y: 1999-2000 and Plant & Machinery of which were being previously used had been transferred to the STP which was approved on 27.03.2002.
CIT is wrong in his presumption that according to Sec.10(A)(2)(i)(c) since the unit begins to manufacture or production commencing on or after 01.04.2001, it has to be in SEZ to be eligible for deduction U/S.10A without considering the fact that before and after the STPI Registration the status of the unit continued to remain as Sole Proprietorship firm and hence the conditions laid down in Sec.10A(1 )(b) &10A(2)(i)(ii) & (iii) are fulfilled since it was an existing Unit and it was not formed by splitting up or reconstruction of a business already in existence and not formed by transfer to a new business of machinery or plant previously used for any purpose The CIT has failed to take cognizance of Circular NO.1/2005 dated 06/01/2005 stating that the above circular applies only to Sec.1 OB and not to Sec.1 OA without taking note of the decisions of the ITAT Delhi Bench in M/s .Iquara Technologies and M/s Vidya Tech Solutions wherein it was held that provisions contained in Section 10B is analogous to section 10A. The Same decision was taken by ITAT Bangalore in ITO Vs. Gignext Solutions India(P) Ltd .These cases were mentioned to CIT at the time of Hearing of the case U/S.263.
In M/S.Foresee Information Systems(P) Ltd. it was held that since the Foreign Trade Policy and CBDT Circular permit conversion of a Domestic Tariff Area(DTA) unit in to a STP unit there was no transfer of Capital Assets involved in the exercise and hence Section 10A benefits cannot be denied but can be claimed only for the remaining period of 10 years Tax holiday envisaged by the Government. ITAT Bangalore Bench 'A ' upholds and dismissed the Revenue's appeal against allow ability of deduction U/S.10A..:- 6 -: ITA 656/10
For the Grounds stated above and for the arguments which may be permitted to be adduced at the Time of Hearing of this appeal, the appellant prays that the Relief as prayed for may be directed to be granted.
The Appellant prays that it may be allowed to add, correct or modify delete or withdraw any of the grounds either before or at the time of hearing of the Appeal."
4. We have heard both sides in detail. We have also perused carefully the entire evidence available on record. It is trite that an order can be revised only and only if twin conditions of 'error in the order' and 'prejudice caused to the Revenue' co-exist.
5. The subject of 'revision under section 263' has been vastly examined and analyzed by various Courts including that of Hon'ble Apex Court. The revisional power conferred on the CIT vide section 263 is of vide amplitude. It enables the CIT to call for and examine the records of any proceeding under the Act. It empowers the CIT to make or cause to be made such an enquiry as he deems necessary in order to find out if any order passed by Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. The only limitation on his powers is that he must have some m0aterial(s) which would enable him to form a prima facie opinion that the order passed by the Officer is erroneous in so far as it is prejudicial to the interest of the Revenue. Once he comes to the above conclusions on the basis of the 'material' that the order of the Assessing Officer is erroneous and :- 7 -: ITA 656/10 also prejudicial to the interests of the Revenue, the CIT is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to cancel the assessment and direct to frame a fresh assessment. He is empowered to take recourse to any of the three courses indicated in section 263. So, it is clear that the CIT does not have unfettered and unchequred discretion to revise an order. The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well in section 263. As order can be treated as 'erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that it contemplated under section 263 is the prejudice to the Income Tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the CIT under section 263 may be summarized below: :- 8 -: ITA 656/10
(i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the revenue. Both the conditions must be fulfilled.
(ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous, that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interest of the revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view under with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under the law.:- 9 -: ITA 656/10
(vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income, the CIT, while exercising his power under section 263, is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.
(vii) The Assessing Officer exercise quasi-judicial power vested in him and if he exercise such power in accordance with law and arrives as a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.
(viii) The CIT, before exercising his jurisdiction under section 263, must have material on record to arrive at a satisfaction.
(ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation be a letter in writing and the Assessing Officer allowed the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.:- 10 -: ITA 656/10
6. Adverting to the facts of the case in hand, we notice from the assessment order passed u/s 143(3) that the Assessing Officer has not applied his mind to the legal position arising vis-à-vis the facts of this case. The assessment order passed u/s 143(3) is a very small order which we extract herein below:
"The assessee filed his return of income on 29-10-2005 admitting a total income of `128793/-. The same was processed under section 143(1) on 8-3-2006. Subsequently the case was selected for scrutiny under CASS. A notice under section 143(2) was issued on 25-7-2006. In response to the notice Shri S.Kasi Viswanathan, CA appeared and filed the details called for from time to time. The details were duly scrutinized. The assessee is engaged in Electronic Data Transmission(data processing) and it is 100% export oriented unit and assessee has claimed entire income out of the above business as deduction under section 10A. The relevant details and documents are also scrutinized which are found in order. Therefore, the return filed by the assessee is accepted.
Returned income ` 128793
Assessed income ` 128793
Calculation sheet enclosed. Demand notice issued."
7. Therefore, the order becomes erroneous for non-application of mind and hence, the same is also prejudicial to the interests of the Revenue. Consequently, the twin conditions laid down in section 263 stand fulfilled and therefore, in our consider opinion, the ld. CIT has :- 11 -: ITA 656/10 correctly revised the order. We confirm the same and dismiss the appeal filed by the assessee.
8. In the result, the appeal filed by the assessee stands dismissed.
Order pronounced in the open court on 28.2.2011.
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 28.2.2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR