SUDHIR VRUNDAVANDAS VALIA,MUMBAI vs. ACIT-CIR-20(1), MUMBAI

Per contra, the Ld. Departmental Representative relied upon the 5. order passed by the PCIT under Section 263 of the Act and submitted that one of the reasons for selection of the case of the Appellant for scrutiny was the examination of deduction claimed by the Appellant under Section 80IA(4)(iv) of the Act. Taking us through the relevant extract of the Assessment Order, the Learned Departmental Representative submitted that, in relation to deduction claimed by the Appellant under Section 80IA(4) of the Act, Assessing Officer has merely stated that the relevant documents and justification has been verified. However, on perusal of the documents filed by the Appellant during the assessment proceedings for the Assessment Year 2018-19, it can be seen that there were apparent contradictions and infirmities which have been highlighted by the PCIT in the order. Though, the aforesaid contradictions/infirmities were sufficient to call for further inquiry/investigation into the claim of deduction under Section 80A(IA) of the Act, the Assessing Officer failed to discharge his duty and carry out further inquiry/investigation which were very much warranted. Elaborating upon this, the Learned Departmental Representative submitted that one of the requirement for claiming deduction under Section 80IA(4)(iv) of the Act should be new undertaking not found to be splitting or reconstruction for a business undertaking already in existence. The Assessing Officer had failed to verify the details and also failed to examine how the Appellant was eligible to claim deduction under Section 80IA(4) of the Act. The Assessing Officer also did not examine whether undertaking was formed by the transfer of plant or machinery previously used for any purpose even though the Appellant had claimed that the ownership of the windmill was transferred from EMCO to the Assessee by way of slump sale. Form 10CCB filed by the Appellant stated that the Assessment Year 2018-19 was the first year of claim of deduction by 7

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) the Appellant. The fact that Assessment Year 2018-19 was not the first year of claiming deduction and that the Appellant had started claiming deduction from Assessment Year 2017-18 after purchasing the windmills from EMCO was not considered by the Assessing Officer. The Ld. Departmental Representative further submitted that the Appellant had failed to produce the details of agreement of transfer of the business and the receipts of income for generation of the power from Maharashtra Electricity Board during the assessment proceedings. Though such details were available with the Appellant the Assessing Officer did not ask for the same and failed to conduct the basic enquiry/investigation. However, the Learned Departmental Representative fairly submitted that these details were furnished during the proceedings under Section 263 of the Act. Supporting the directions issued by the PCIT to the Assessing Officer to disallow the claim of deduction under Section 80IA of the Act, the Ld. Departmental Representative pointed out that in the Form 10CCB the Appellant had claimed that Assessment Year 2018-19 was the first year for claiming deduction under Section 80IA(4) of the Act whereas the Commissioning Certificate was issued on 04/04/2008. Still the Assessing Officer did not make any inquiries on this aspect. Further, the change of ownership certificate, dated 19/04/2017, issued by the Maharashtra State Electricity Distribution Company Limited granting approval for change of ownership, recorded change of ownership from EMCO to the Appellant and the M/s Surgeon Reality Limited, whereas 100% deduction was claimed and allowed to the Appellant. On the strength of the aforesaid, the Learned Departmental Representative submitted that the PCIT was correct in concluding that the windmills in respect of which deduction under Section 80IA(4) of the Act has been claimed by the Appellant could not be regarded as new enterprises having been formed by splitting up or

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) reconstruction of the existing business unit. As regards, the issue pertaining to claim of foreign tax credit, the Ld. Departmental Representative submitted that the Appellant had filed Form 67 only in response to notice issued under Section 142(1) of the Act. During the assessment proceedings, the Appellant did not submit any supporting evidence with respect to tax deducted at source on the income earned outside India. The Assessing Officer failed to call for relevant documents required as per Rule 128(8) of the Rules and allowed benefit of foreign tax credit under Section 90/91 of the Act without due inquiry and verification as warranted in the facts and circumstances of the case. Therefore, the PCIT was justified in exercising powers of revision on this count also.

In rejoinder, the Learned Authorised Representative for Appellant 6. submitted that the grounds on which the powers of revision under Section 263 of the Act were sought to be exercised by issuance of notice under Section 263(1) of the Act were not same as those on which the Assessment Order was set aside and directions were issued by the PCIT. Relying upon the decision of the Mumbai Bench of the Tribunal in the case of Tata Chemicals Ltd. Vs. Deputy Commissioner of Income Tax, Circle 2(2), Mumbai: [ITA No. 3127/Mum/2010, Assessment Year 2005-06, dated 30/06/2011, the grounds on which the revision was sought to be done in the show cause notice were materially different from the grounds on which power of revision was finally exercised. Adding to this, the Learned Authorised Representative for the Appellant submitted that the PCIT never confronted the Appellant with the issue of Appellants eligibility to claim deduction under Section 80IA(4) of the Act and therefore, erred in giving direction to the Assessing Officer to disallow deduction under Section 80IA(4) of the Act. Learned Authorised Representative for the Appellant vehemently contended that the 9

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) Learned Departmental Representative had gone even a step further while supporting the order passed by the PCIT and the case being set up by the Learned Departmental Representative that the windmill unit has been formed by the splitting-up/reconstruction of existing unit does not even find mention in the order passed by the PCIT. He clarified that the certificate showing change of ownership contained name of the M/s Surgeon Reality Limited along with the Appellant as the windmills were commissioned on land taken on lease and it was for this reason only, that the name of the M/s Surgeon Reality Limited was included. The Appellant, being the owner of the windmill, was entitled to claim 100% deduction under Section 80IA(4) of the Act. In the show cause notice it was not the case of the PCIT that the Assessing Officer had failed to carry out proper enquiry/verification during the assessment proceedings for the Assessment Year 2017- 18.

We have considered the rival submissions, perused the material on 7. record and examined the position in law.

On perusal of notice, dated 24/02/2023, issued under Section 263(1) 8. of the Act, we find that the Appellant was confronted by the PCIT with the issue of (a) ownership of the windmill undertaking, (b) it commissioning, and (c) commencement of production in the following manner by way of the aforesaid notice: “3. On verification of the assessment record, it has been found that during the year consideration, you have claimed large deduction u/s 801A(4)(iv) of Rs.2,46,16,267/- It is seen from the details available on record and the information available on 360 degree profile that Form No 10CCB in respect of you undertaking at Nashik has been filed and the same is unsigned As per the Form No. 10CCB, AY 2018-19 is the first year of claiming the said deduction. Commissioning certificate dated 04.04.2008 issued by Maharashtra State Electricity Distribution Co. Ltd., Nashik has been filed. On perusal of the said certificate it is seen that certificate is issued to M/s EMCO Ltd., Wagle Industrial Estate, Thane. Thus the said certificate has not been issued to you or

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) his proprietary concern. The relation between M/s EMCO Ltd. and you have not been established by you vis-à-vis the transfer, if any of the windmill from M/s EMCO Ltd. to you. In view of the above, the deduction claimed by you to the tune of Rs.2,46,16,267/- was liable to be disallowed. This has resulted in under assessment of Rs.2.46,16,267/-resulting in short levy of tax of Rs.85,19,198/- 4. Further, you have claimed relief under section 90/91 amounting to Rs 59,44,947/- with respect to the income inform of sitting fees from USA and Canada. In this regard, it is noticed from the case history of assessment proceeding maintained in ITBA Portal that you have filed form No.67 in response to the notices u/s 142(1) dated 14.02.2020. However supporting evidence with respect to TDS deduction on the income earned outside was not submitted by you Accordingly, the relief claimed by you to the tune of Rs.59,44,947/- was liable to be disallowed. This has resulted in under assessment of Rs.59,44,947/- resulting in short levy of tax of Rs. 59,44,947/-. 5. In the light of the above, the undersigned proposes to revise the assessment u/s 263 as the said assessment order passed u/s 143(3) r.ws 143(3A) & 143(38) of the IT Act 1961 for AY 2018-19 was passed on 23.01.2021 is 'erroneous' and 'prejudicial to the interest of the revenue' in the light of the facts mentioned above.” (Emphasis Supplied) On perusal of the Assessment Order, it becomes clear that the 9. Assessment Order does not contain any discussion on the factual and legal aspects highlighted by the PCIT in the notice issued under Section 263(1) of the Act pertaining to the claim of deduction under Section 80IA(4) of the Act on account of which case of the Appellant was selected for scrutiny.

Further, on perusal of the material placed before us in the form of 10. Paper-book No. I containing the replies, details and documents filed during the assessment proceedings for the Assessment Year 2018-19 in response to the queries raised by the Assessing Officer during the course of assessment proceedings and on perusal of the conclusion drawn by the Assessing Officer in the Assessment Order, we are of the view that the queries raised and conclusion drawn does not 11

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) reflect conduct of any inquiry/verification or proper application of mind by the Assessing Officer in relation to the claim of deduction under Section 80IA(4) of the Act. Despite there being apparent issues warranting verification/inquiry into the claim of deduction under Section 80IA(4) of the Act, no queries were raised by the Assessing Officer during the assessment proceedings. Vide letter, dated 01/01/2021, the Appellant had given the following response regarding deduction claimed under Section 80IA(4) of the Act: “Large deduction claimed under Section 80IA in comparison to preceding year. Copy of Form 10CCB in respect of deduction claimed under Section 80IA, Commencement Certificate, Balance Sheet, Profit & Loss Account of Business Income claimed under Section 80IA4(iv). I have business of generation of power through wind mill and its profit of Rs. 2,46,16,267/- claimed deduction u/s 80IA 4(iv) during the F.Y. 2017- 18.” From the above it can be seen that in order to support the claim of deduction of INR 2,46,16,267/- under Section 80IA(4)(iv) of the Act, the Appellant had furnished following documents/details – Form 10CCB, Commencement Certificate, Balance Sheet, Profit & Loss Account.

Form 10CCB furnished by the Appellant stated that Assessment Year 11. 2018-19 was the first year for claiming deduction. The Commissioning Certificate placed on the assessment record by the Appellant to support the claim of deduction under Section 80IA(4) of the Act for the Assessment Year 2018-19 was issued on 04/04/2008 and showed year 2008 as the year of commissioning. Further, while the commissioning certificate was issued in the name of EMCO, the certificate of transfer of ownership from EMCO was issued in the name contained name of M/s Surgeon Reality Limited and the Appellant. No inquiry was made by the Assessing Officer to reconcile

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) the aforesaid facts. Without understanding the reasons for the aforesaid discrepancy, which according to us were apparent, the Assessing Officer proceeded to accept the claim of deduction made by the Appellant under Section 80IA(4) of the Act. In this regard it would be pertinent to refer to paragraph 3 of the Assessment Order which reads as under: “3. WRT the first & second reason under CASS, i.e. “First Year of Deduction claimed u/s 80IA/80IAB/80IAC/80IBA/80ID/80IE.” The assessee is engaged business of generation of power through wind mill and claimed deduction u/s 80IA(4(iv) of the Income Tax Act during the FY 2017-18. Assessee is commencement of business activity on 31.03.2018 and filed commencement certificate (form 10CCB). The relevant documents & justification furnished by the assessee has been verified.” (Emphasis Supplied) Apart from paragraph 3 reproduced hereinabove, the Assessment 12. Order does not contain any discussion on the claim of deduction under Section 80IA of the Act. Clearly, during the assessment proceedings, the aforesaid aspects were not inquired into, or examined by the Assessing Officer. Thus, claim of deduction under Section 80IA(4) of the Act was allowed by the Assessing Officer during assessment proceedings for the Assessment Year 2018-19 without making proper enquiry and verification was warranted in the facts and circumstances of the case.

During the course of hearing reliance was placed by the Learned 13. Authorised Representative for the Appellant on documents forming part of Paper-Book No. 2. The aforesaid documents/details were either filed during the assessment proceedings for the Assessment Year 2017-18 or subsequently furnished by the Appellant before the PCIT, and were, admittedly, not before the Assessing Officer while framing assessment for the Assessment Year 2018-19. We note that

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) no reference has been made by the Assessing Officer to the aforesaid documents/details in the assessment order. The Learned Authorised Representative for the Appellant had also placed reliance on the Assessment Order for the Assessment Year 2020-2021 forming part of Paper-Book No. 2 which came to be passed on 11/03/2022 which is much later after completion of the assessment for the Assessment Year 2018-19. The aforesaid documents forming part of Paper-Book No. 2 were neither asked for by the Assessing Officer nor were the same furnished by the Appellant. Since the aforesaid documents were not before the Assessing Officer, the same cannot be relied upon to support the Assessment Order passed by the Assessing Officer for the Assessment Year 2018-19. Having concluded as aforesaid, even if for the sake of arguments, it is assumed that the Assessing Officer had examined the documents placed in Paper-Book No. 2 of the Appellant, the contradictions pointed out by the PCIT in the notice issued under Section 263(1) of the Act would get magnified. This would lead to the only logical conclusion being that the Assessing Officer had failed to carry out the basic inquiry into the facts before accepting claim of deduction under Section 80IA(4) of the Act and therefore, the Assessment Order passed by the Assessing Officer was erroneous in so far as prejudicial to the interest of Revenue.

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) the order impugned passed under Section 263 of the Act, the PCIT concluded that the Appellant was not entitled to claim deduction under Section 80IA(4) of the Act for the reason that the transfer of the windmills unit was from EMCO was to the Appellant and M/s Surgeon Reality Limited. It was submitted on behalf of the Appellant that the Appellant was never confronted with this aspect of the matter. We find merit in the aforesaid contention raised on behalf of the Appellant. On perusal of the order passed by the PCIT we find that the Appellant was not put to notice in respect of this issue. In view of the aforesaid, the direction given by the PCIT to disallow deduction to the Appellant under Section 80IA of the Act cannot be sustained.

The Learned Departmental Representative had, during the course of 15. hearing, supported the order passed by the PCIT directing the Assessing Officer to disallow the claim of deduction under Section 80IA(4) of the Act by contending that the windmills were not eligible for deduction under Section 80IA of the Act as the same were set up by splitting up or reconstruction of existing unit. On perusal of the order impugned we find that PCIT has not issued directions to disallow deduction under Section 80IA of the Act on the ground pleaded by the Ld. Departmental Representative before us. Further, no inference in this regard can be drawn against the Appellant from the notice issued under Section 263(1) of the Act which is silent in this regard. Therefore, the contention raised by the Learned Departmental Representative cannot be taken into consideration for upholding the revision order passed by the PCIT under Section 263 of the Act.

We have concluded hereinabove that the Assessment Order for the 16. Assessment Year 2018-19 was passed by the Assessing Officer

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) without proper inquiry and verification. During the course of hearing the Learned Authorised Representative for the Appellant had contended that the PCIT has not mentioned Explanation 2 to Section 263 of the Act in the notice issued under Section 263(1) of the Act and in the order impugned, therefore, the order passed under Section 263 of the Act cannot be sustained on the ground that Assessment Order was erroneous in so far as prejudicial to the interest of Revenue on account of lack of proper inquiry/verification by the Assessing Officer. However, we do not find any merit in the aforesaid contention. On perusal of the notice issued under Section 263(1) of the Act as well as the order passed by the PCIT it is clearly discernable that the PCIT had formed a view that claim of deduction under Section 80IA(4) of the Act was allowed by the Assessing Officer without proper inquiry or verification as warranted in the facts and circumstanced of the case. In our view, the fact that the PCIT has not specifically mentioned Explanation 2 to Section 263 of the Act is of no consequence keeping in view of the fact that the PCIT had, after forming the opinion as aforesaid, proceeded to examine the issue and had concluded that the Appellant was not entitled to claim deduction under Section 80IA(4) of the Act. The PCIT also directed the Assessing Officer to not allow the claim of deduction made by the Appellant under Section 80IA(4) of the Act. While we have set aside the aforesaid direction given by the PCIT to the Assessing Officer to disallow the deduction under Section 80IA(4) of the Act, the opinion formed by the PCIT that the Assessment Order has been passed by the Assessing Officer without proper inquiry and verification as warranted, which is discernable from the notice issued under Section 263(1) of the Act and the order passed under Section 263 of the Act, continues to hold good. In our view also the Assessment Order passed by the Assessing Officer was erroneous in

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) so far as prejudicial to the interest of Revenue. Accordingly, we confirm the order passed by the PCIT setting aside the Assessment Order, dated 30/03/2023, for the Assessment Year 2018-19 and direct the Assessing Officer pass assessment order for the Assessment Year 2018-19 after examining the claim of deduction under Section 80IA(4) of the Act afresh after giving the Appellant a reasonable opportunity of being heard. It is clarified that as regards the merits of the claim of deduction under Section 80IA(4) of the Act are concerned, all the rights and contentions of the parties are left open and Assessing Officer is directed to examine and adjudicate the claim of deduction under Section 80IA(4) of the Act afresh as per law.

Before parting we would like to observed that during the course of 17. hearing, the Ld. Authorised Representative for the Appellant had relied upon the Assessment Order for the Assessment Year 2017-18 and Assessment Year 2019-2020 to contend that no such disallowance under Section 80IA(4) of the Act was made in the preceding or subsequent year. On perusal of the assessment orders filed by the Appellant we find that the scrutiny selection in those years was on account of different parameters. However, since all the rights and contentions on merits open the Appellant would be free to raised this plea before the Assessing Officer.

As regards, the second issue on which power under Section 263 of 18. the Act was exercised by the PCIT, we note that it was admitted position that during the assessment proceedings, relevant details/documents could not be furnished by the Appellant on account of cyber attack on the employer company of the Appellant. Thus, it is clear that the relief under Section 90 of the Act was allowed by the Assessing Officer without carrying proper

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) enquiry/investigation. Accordingly, we uphold the exercise of power of revision under Section 263 of the Act by the PCIT on this issue and direct the Assessing Officer examine and decide the claim of foreign tax credit afresh as per law and keeping in view the decision of the Mumbai Bench of the Tribunal in the case of Sonakshi Sinha Vs CIT(A): [2022] 142 taxmann.com 414 (Mumbai - Trib.) while passing the Assessment Order for the Assessment Year 2018-19 in terms of paragraph 17 above.

In terms of paragraph 16 and 17 above, Ground No. 3 raised by the 19. Appellant is allowed, Ground No. 1, 4 & 5 are partly allowed and Ground No. 2 is dismissed.

Order pronounced on 23.08.2023.

Sd/- Sd/- (B.R. Baskarn) (Rahul Chaudhary) Accountant Member Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 23.08.2023 Alindra, PS

ITA No. 1096/Mum/2023 (Assessment Year: 2018-19) आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त/ The CIT 4. प्रध न आयकर आय क्त / Pr.CIT 5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file.

आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, म ुंबई / ITAT, Mumbai