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Income Tax Appellate Tribunal, A BENCH, MUMBAI
order : 17.02.2023 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 10.03.2022, passed by the Ld. Principal Commissioner of Income Tax, Mumbai - 1 [hereinafter referred to as ‗the PCIT‘] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‗the Act‘] whereby the Assessment Order, dated 16.12.2019, passed under section 143(3) of the Act was set aside as being erroneous in so far as prejudicial to the interest of revenue.
2. The Appellant has raised following grounds of appeal:
―1. That the notice issued u/s 263 and the order passed by the Principal Commissioner of Income Tax ("Pr. CIT") under said
Assessment Year: 2017-18 section dated 20/01/2022 is illegal, bad in law and without jurisdiction.
2. That the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. The same has been passed after making necessary enquiries and after due application mind and deductions u/s 801C & 80G have been rightly allowed.
3. That the Assessing Officer had allowed deduction u/s 80IC & 80G after examining the Issues in detail. The deduction has been rightly allowed affair certification after verification of facts u/s 801C & 80G hence no error is committed by the Assessing Officer by allowing the said deduction u/s 80IC.
4. That the view of the Assessing Officer in allowing the deductions u/s 80IC & 80G is valid in the eyes of law. The same cannot be disturbed by the CIT u/s 263 merely on certain technical grounds. 5. That the order passed by the Pr. CIT u/s 263 is vague, without any basis and without pointing out any specific error in the assessment order and passed by the Assessing Officer allowing the deductions 801C & 80G. 6. That the Pr. CIT has passed the order u/s 263 in a hurried manner without giving adequate opportunity of being heard to the Appellant. The Pr. CIT has passed the order u/s 263 ignoring the evidence, documents filed by the Appellant and material available on record. 7. That the explanation given, evidence produced and material place and available on record has not been properly considered and judicially interpreted by Learned Assessing Officer and the same do not justify the order passed u/s 263.
8. That the Appellant craves leave to alter, amend or withdraw all or any objections herein or add any further ground as may be considered necessary either before or during the hearing.‖
Brief facts of the case are that the Appellant is engaged in the 2
Assessment Year: 2017-18 business of manufacturing, distribution and sale of drug and pharmaceuticals, its e-filed return of income on 18.10.2017 for the Assessment Year 2017-2018 disclosing total income of INR 25,10,87,350/-. The return was revised on 16.03.2018, declaring an income of INR 29,68,54,840/- after claiming accounting MAT Credit brought forward from earlier years. The case of the Appellant was selected for scrutiny and assessment was completed on 16.12.2019 under Section 143(3) of the Act determining the total income at INR 30,25,86,600/- after making the addition/disallowance on account of advertisement and promotion expenses of INR 49,35,234/- and disallowance under Section 14A of the Act of INR 7,96,520/-. Deduction claimed by the Appellant under Section 80IC and Section 80G of the Act were accepted by the Assessing Officer.
4. Subsequently, on perusal of the assessment records the PCIT formed an opinion that there were certain discrepancies in respect of deduction claimed under Section 80IC and 80G of the Act. The PCIT was of the opinion that the Assessing Officer had allowed deduction under Section 80IC and 80G of the Act without verifying correct facts and without proper application of the correct provisions of law and therefore, notice, dated 20.01.2022, under Section 263(1) of the Act was issued to the Appellant. Since no response was filed by the Appellant, another notice, dated 02.02.2022, was issued to the Appellant. In reply, the Appellant filed written submission dated, 09.02.2022 and 11.02.2022. However, the PCIT was not convinced with the submission/explanation furnished by the Appellant. The PCIT vide order, dated 10.03.2022, passed under Section 263 of the Act set aside the Assessment Order, dated 16.12.2019, holding the same to be erroneous in so far as it is prejudicial to the interests of Revenue and directed the Assessing Officer to frame a fresh assessment. 3
Being aggrieved by the above order passed by the PCIT, the Appellant has preferred the present appeal.
Before us, the contention of the Appellant was that the Assessment Order, dated 16.12.2019, allowing, inter alia, deduction under Section 80IC and 80G of the Act was passed after due inquiry and verification and therefore, the provisions of Explanation 2 to Section 263(1) of the Act are not attracted, and that the assessment order was neither erroneous nor prejudicial to the interest of Revenue. While the contention of the Revenue was that the Assessing Officer has failed to carry out necessary inquiry/verification as warranted in the facts and circumstances of the case and therefore, the assessment order was rightly set aside by the PCIT as being erroneous so far as prejudicial to the interest of the Revenue. Accordingly, we proceed to examine the factual background in which the Assessment Order was passed.
We note that the case of the Appellant was selected for scrutiny and notice under Section 142(1) of the Act was issued on 04.03.2019. The Appellant, on 19.03.2019, filed reply to the aforesaid notice, which was followed by submissions, dated 12.11.2019. In the aforesaid submissions, the Appellant dealt with the claim of deduction of INR 13,27,35,054/- under Section 80IC and the claim for deduction of INR 1,53,82,581/- under Section 80G of the Act. We find that the Appellant had also filed ‗Statement of Income‘ during the assessment proceedings which provided the computation of income and was accompanied by Schedules (Schedule 1 to Schedule 22) giving details and break-up. The details of deduction under Section 80G of the Act were contained in Schedule 15 whereas the details of deduction claimed under Section 80IC of the Act were contained in Schedule 22. 4
On 14.11.2019, another notice under Section 142(1) of the Act was issued to the Appellant which was accompanied by an Annexure being questionnaire forming part of the aforesaid notice. The aforesaid questionnaire contained specific queries on deduction claimed under Chapter VI-A of the Act which included deduction Section 80IC & 80G of the Act. The relevant extract of the Annexure/questionnaire read as under: ―(20) Please provide detailed self explanatory note along with supporting documentary evidences in respect of the following reasons: 1 Large deduction under chapter VI-A from Total Income. Please provide the details of deductions claimed by you under Chapter VI-A along with all the supporting documents and proof of payments. 2. xx 3. xx 4. Large Deductions claimed u/s 801A/80/AB/801AC 801B/801C/801BA/ 801D/801E/10A/10AA in comparison to preceding Year:
1. 1. Please provide complete address of all the manufacturing units and offices of the assessee.
2. Please provide description of your manufacturing activity for which you are claiming deduction under Section 80IC in following format- Please submit certificate of commencement of operation obtained from competent authority and certificate obtained from local authority. In case your manufacturing unit is located in notified areas, please provide the copy of such notification.
3. Please provide copy of form 10CCB for all the units with respect to your claim under Section 80IC. 4. xx 5. Please mention if you have any other manufacturing unit which is not covered under Section 80IC producing similar products.‖
Assessment Year: 2017-18 9. In response to the aforesaid notice, dated 14.11.2019, the Appellant filed two replies having e-proceedings response acknowledgement No. 25111912305161 and 25111912305493. The aforesaid replies were accompanied by submission, dated 25.11.2019, and reply, dated 12.11.2019, which was already filed by the Appellant. The Appellant also filed submissions dated 26.11.2019, 27.11.2019, and 05.12.2019 under e-proceedings response acknowledgement No. 27111912364229, 27111912364695, 05121912524342 and 05121912524608. The relevant extract of submission, dated 05.12.2019, dealing with the claim of deduction under Section 80IC of the Act reads as under:
―Sub Point 4: Large Deductions claimed 801A/80LAB/801AC/801B/801C/80IBA/801D/801E/10A/1OAA in comparison to preceding year. As per clause (b) of Sub-section (2) of Section 80 IC, Company, which has begun to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that schedule, or which manufactures or produces an any article or thing, specified in the Fourteenth Schedule or commences any operation specified in the schedule and undertakes substantial expansion during the period. beginning - i).......Sikkim; or ii) On the 7th day of (1 January, 2003 and ending before the 1st day of April, 2012 in the state of Himachal Pradesh or the state of Uttaranchal; or iii).......North-Eastern States. The deduction referred to in sub-section) shall be - i) In the case of any undertaking or enterprise referred to in sub- clauses (1) and (iii) of clause (a) or sub clauses (i) and (iii) of clause (b), of sub section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year;
Assessment Year: 2017-18 ii) in the case of any undertaking or enterprise referred to in sub- clause (ii)of clause (a) or sub-clause (ii) of clause (b), of sub-section (2), one hundred percent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter, twenty five percent (or thirty percent where the assessee is a company) of the profits and gains. Clause (v) of sub-section (8) of section 80 IC defines "Initial Assessment year" as the assessment year relevant to the previous year in which the undertaking or the enterprise begins to manufacture or produce articles or things, or commences operation or completes substantial expenses. Clause (ix) of sub-section (8) of section 80 IC defines "Substantial Expansion as the increase in the investment in the plant and machinery by at least fifty percent of the book value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken. Sub-section (6) of the section 801C provides that notwithstanding anything contained in this Act, no deduction shall be allowed to any undertaking or enterprise under this section, where the total period of deduction inclusive of the period of deduction under this section, or under the second proviso to sub-section (4) of section 80- IB or under 10C, as the case may be, exceeds ten assessment years. (Deduction u/s. 801C):-
1. 1. Assessee is engaged in the business of manufacturing pharmaceutical products.
2. Deduction has been claimed with respect to unit in one in VillLibhberhadi, Roorkee, Uttaranchal since September 2008 (relevant to AY 2009-10) 3. For the said unit, MHL claimed deduction u/s 801C of the Act from the AY in which said unit have commenced production (AY 2009-10 for unit at VillLibhberhadi).
4. In respective AYs, as MHL satisfied all the following conditions and MHL had adduced evidence for satisfaction of all the conditions specified u/s 801C read with Explanation to 801A(3), MHL was allowed deduction u/s 801C * a) MHL is engaged in manufacturing of Pharma products which are not covered in Schedule 13 of ITA and covered by Schedule 14 part C: item no 12 pharma products. b) MHL has started production in VillLibhberhadi, Roorkee, 7
Assessment Year: 2017-18 Uttaranchal since September 2008 relevant to AY 2009-10 and another in Gagreet, Himachal Pradesh from March 2010 relevant to AY 2010-11. Copies of certificates issued by the respective District Industries centres confirming manufacturing of pharmaceutical products were duly submitted during respective assessment proceedings. c) The undertakings are not formed by splitting up or reconstruction of a business already in existence d) The undertakings are not formed by the transfer to a new business of machinery or plant previously used for any purpose. e) Explanation 1 to S-80IA does not apply because none of the machinery is imported machinery. f) Explanation 2 to S-801A does not apply because none of the machinery is second hand machinery. g) The accounts have been audited and report in the prescribed form had been submitted: h) Profit and Loss account of the respective undertakings had been submitted. In view of the above, Assessee has fully complied with all statutory conditions specified u/s. 801C read with Explanation to 80IA(3) of the Act. Moreover the eligibility of deduction under the said section was tested in earlier years and after due verification deduction was allowed to the Assessee. Further details asked by Your Honour is enclosed herewith: Particulars Annexure Copy of Form 10CCB already been submitted Annexure D(i) vide letter dated 12.11.2019, (Please refer point 1 Annexure A(i) of the said submission) Complete list of all products manufactured Annexure D(ii) by Assessee Product Manufacturing process. Annexure D(iii) Electricity bills for 2016-17 for each units. Annexure D(iv) 2016-17 Ledger of generator running expenses for Annexure D(v) 2016-17 Copy of VAT returns Annexure D(vi) It may also be noted that Assessee is a Company and thus Sec 115JC read with Rule 40BA is not applicable. Thus Form No 29C could not be submitted.‖
On perusal of above, it can be seen that the Appellant had filed relevant details and documents relating to claim of deduction under Section 80IC of the Act. List of products manufactured, manufacturing process, copy of VAT returns and Form 10CCB were placed before the Assessing Officer.
Vide Assessment Order, dated 16.12.2019, passed under Section 143(3) of the Act, the Assessing Officer completed the assessment at assessed total income of INR 30,25,86,604/- after making disallowance of advertisement & promotion expenses of INR 49,35,234/-, and disallowance of INR 7,96,530/- under Section 14A of the Act. The deductions claimed by the Appellant under Section 80IC and Section 80G of the Act were accepted.
However, subsequently on perusal of record, the PCIT formed opinion that the Assessing Officer had completed the assessment without making proper verification and without applying correct provisions of law. Therefore, a show cause notice under Section 263(1) of the Act was issued to the Appellant on 20.01.2022 wherein the Appellant was asked to show cause why assessment order dated 16.12.2019, passed under Section 143(3) of the Act should not be set aside under Section 263 of the Act on account of the following:
Form No. 10CCB filed by the Appellant was unsigned (hereinafter referred to as ‗First Issue‘).
Turnover/total sales of the eligible undertaking were reported in Form 10CCB incorrectly at INR 134,48,93,216/- which was INR 29,29,45,436/- more than the sales of INR 105,19,47,780/- reflected in the audited financials hereinafter referred to as ‗Second Issue‘).
Assessment Year: 2017-18 3. Excess deduction of INR 2,96,64,862/- was allowed by the Assessing Officer under Section 80IC of the Act. According to the computation at page 2/3 of the notice dated 20.01.2022, the amount eligible for deduction was INR 10,35,02,593/- (hereinafter referred to as ‗Third Issue‘).
Excess deduction of INR 3,90,373/- was allowed by the Assessing Officer under Section 80G of the Act. Deduction of INR 1,53,82,561/- has been allowed by the Assessing Officer whereas as per the tax audit report, the Appellant was eligible for deduction of INR 1,49,92,208/- only (hereinafter referred to as ‗Fourth Issue‘) 13. In response, the Appellant filed reply/written submission, dated, 09.02.2022 and 11.02.2022, through Income Tax Business Application (ITBA) portal. However, the PCIT, not being satisfied, concluded that the deduction under Section 80IC and 80G of the Act were allowed by the Assessing Officer without due verification, and therefore, held that the Assessment Order, dated 16.12.2019, was erroneous in so far as prejudicial to the interest of Revenue in terms of Explanation 2 to Section 263(1) of the Act. Exercising power of revision under Section 263 of the Act, the PCIT set aside the Assessment Order, dated 16.12.2019, with directions to the Assessing Officer to reframe the assessment denovo after conducting all the necessary enquiries and verifications as warranted on the facts of the case.
We have perused the material on record and in view of the facts/discussion in paragraph 6 to 9 above, it is clear that in the case before us enquiry/verification was carried out by the Assessing Officer during the assessment proceedings as specific queries were raised by the Assessing Officer in relation to deduction under Assessment Year: 2017-18 Section 80IC/80G of the Act, which were replied to by the Appellant. Therefore, the judgment of the Hon‘ble Bombay High Court in the case of Jeevan Investment & Finance Pvt. Ltd. vs. CIT, City -1, Mumbai : [2017] 291 CTR 241 (Bombay), relied upon by the Ld. Departmental Representative, is also not applicable to the facts of the present case. In that case the necessary information to support the claim was not furnished by the Assessee to the Assessing Officer. Whereas in the case before, us all the relevant information/details were available on record. Further, the case before us is not one in which no enquiry/verification was carried out by the Assessing Officer. The Appellant had also moved rectification application wherein the Appellant had sought increase in the amount of deduction under Section 80IC and 80G of the Act on account of increase in qualifying amount of income as a result of additions/disallowances made by the Assessing Officer in the Assessment Order. This rectification application was disposed off vide order, dated 18.12.2020, after specifically considering the prayer of the Appellant. The PCIT did not take into account the aforesaid rectification order, dated 18.12.2020, on the ground that the same was not signed. Thus, the case before us is not one where there is no application of mind by the Assessing Officer. The case of the Revenue is that the Assessing Officer failed to conduct the necessary verification warranted in the facts and circumstances of the case. The PCIT has also not held that no inquiry or verification was carried out by the Assessing Officer. Therefore, the judgment of the Hon‘ble Bombay High Court in the case of Sesa Starlite Ltd. vs. CIT, Panaji, Goa : [2021] 430 ITR 121 (Bombay) [20.11.2020], relied upon by the Learned Departmental Representative would not have application in the facts of the present case. During the course of hearing, the Ld. Authorised Representative for the Appellant had relied upon the Hon‘ble Bombay High Court in the case of CIT, Goa 11
Assessment Year: 2017-18 vs. Borkar Packaging Pvt. Ltd. : [2020] 121 taxmann.com 167 (Bombay). In that case deduction claimed by the Assessee under Section 80IB of the Act was disallowed by the Assessing Officer on the ground that the assessee had not properly filled Form 10CCB. The Revenue preferred appeal before the Hon‘ble Bombay High Court since the order of CIT(A) deleting the disallowance made by the Assessing Officer was confirmed by the Tribunal. One of the issues before the Hon‘ble High Court was whether the Tribunal was right in allowing deduction ignoring that the Assessee has not filed properly filled Form No. 10CCB. Rejecting the contentions of the Revenue, the Hon‘ble Bombay High Court decided this issue against the Revenue observing that there was material before the Assessing Officer to conclude that the Assessee fulfilled the conditions required for claiming deduction was on record and, therefore, a mistake in filling details in Form 10CCB, which was in the nature of technical/venial breach, did not merit disallowance of deduction. In the present case also all the relevant information (including the details of the turnover and the documents supporting manufacturing turnover) was available on record and therefore, deduction could not have been disallowed by the Assessing Officer merely on account of incorrect detail being filled in the Form 10CCB.
During the course of hearing, the Learned Departmental Representative had vehemently contended that as per Explanation 2 to Section 263(1) of the Act in case an opinion was formed by the PCIT that assessment order has been passed by the Assessing Officer without making inquiries or verification which should have been made, the assessment order would be deemed to erroneous to the extent prejudicial to the interest of Revenue and the PCIT would be justified in setting aside the same in exercise of power under Section 263 of the Act. We note that the Mumbai Bench of the 12 Assessment Year: 2017-18 Tribunal has, in the case of Sir Dorabji Tata Trust Vs. DCIT, (Exemption) Circle 2(1), Mumbai: [2020] 122 taxmann.com 274 (Mumbai - Trib.), has rejected the aforesaid contention of the Revenue holding as under: ―19. The question that we also need to address is as to what is the nature of scope of the provisions of Explanation 2(a) to Section 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the revenue" when Commissioner is of the view that "the order is passed without making inquiries or verification which should have been made".
Undoubtedly, the expression used in Explanation 2 to Section 263 is "when Commissioner is of the view," but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner's view that "the order is passed without making inquiries or verification which should have been made". Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when Assessment Year: 2017-18 circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right—public or private—of a citizen. [L Hirday Narain v. ITO [1970] 78 ITR 26 (SC). As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be.
That brings us to our next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and Assessment Year: 2017-18 investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an Assessing Officer is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the income tax return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills [(1896) 2 Ch 279,], in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) "is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound.". Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When 15
Assessment Year: 2017-18 the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the Assessing Officer is taken bona fide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case of Malabar Industrial Co Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83, Hon'ble Supreme Court has held 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 ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bona fide in a real-life situation. It is also important to bear in mind the fact that lack of bona fides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. On a similar note, a co-ordinate bench of the Tribunal, in the case of Narayan Tata Rane v. ITO [2016] 70 taxmann.com 227 (Mum.) has observed as follows: "20. Clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been 16 Assessment Year: 2017-18 made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld. Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld. Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made."
Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or 17
Assessment Year: 2017-18 disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in the exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and ask the Assessing Officer to conduct such inquiries or verifications afresh.‖ (Emphasis Supplied) 16. In the light of the above, we proceed to deal with the rival submissions on each of the issues on the basis of the powers of revision was exercised by the PCIT.
First Issue – According to the PCIT Form 10CCB was not signed by the chartered accountant.
17.1. In this regard, the Ld. Authorised Representative for the Appellant submitted that Form No. 10CCB was filed online and the same was uploaded by the Chartered Accountant and approved using digital signatures. Form 10CCB was uploaded online using digital signatures. During the course of assessment proceedings, a copy of Form 10CCB was furnished which was not signed physically. It is for this reason that the PCIT has concluded that Form 10CCB was not signed.
17.2. Per contra, the Ld. Departmental Representative submitted that the Assessing Officer failed to carry out necessary verification as no queries were raised by the Assessing Officer regarding the unsigned Form 10CCB. She submitted that the PCIT has returned a specific finding that the downloaded Form 10CCB was neither signed nor 18
Assessment Year: 2017-18 contained the details of the Chartered Accountant who had issued the certificate.
17.3. On perusal of documents placed at page 176 to 201 of the paper- book, we find that Form 10CCB in respect of claim of deduction under Section 80IC(2)(a)(ii) for the relevant Assessment Year was uploaded by the concerned Chartered Accountant on 10.10.2017 with the under Transaction ID No. 4642708498. Copy of the screenshot of the portal showing that Form 10CCB has been assigned to the concerned Chartered Accountant for the Assessment Year 2017-18 has been placed on record (at page 197 to 202 @ 201 of the paper-book). This screenshot clearly shows the name as well as the membership number of the concerned chartered accountant. The facts that Form 10CCB was required to be filed online and was to be uploaded by the chartered accountant by using the digital signature has not been controverted by the Revenue. In our view, the relevant facts were on record and the same did not warrant any further inquiry/verification on the First Issue by the Assessing Officer. Our view draw support from the decision of Chennai Bench of the Tribunal in the case of M/s Armstrong Knittign Mills, vs. ITO, Ward 1(1), Tirupur, [ITA No. 748/Mds/2017, dated 13.01.2016] (Assessment Year 2009-10) cited by the Ld. Authorised Representative for the Appellant. Thus, we hold that PCIT was not justified in exercising powers of revision under Section 263 of the Act on the First Issue by invoking provisions of Explanation 2 to Section 263(1) of the Act.
Second Issue - According to the PCIT, the manufacturing sales as per the audited financials were INR 105,19,47,780/- whereas turnover/total sales of the eligible undertaking reported in Form 10CCB was INR 134,48,93,216/-. Thus, there was a difference of INR
Assessment Year: 2017-18 29,29,45,436/- in the turnover/total sales.
18.1. In this regard, the Ld. Authorised Representative for the Appellant submitted that the aforesaid difference was on account of F&O/Derivative Turnover of INR 29,29,45,436/- being included in the figures of total sales of the undertaking as reported in Form 10CCB. Referring to ‗Note 9 – Turnover‘ forming part of Notes to financial statements for the relevant previous year ending 31.03.2017, the Ld. Authorised Representative for the Appellant submitted that the aforesaid information formed part of the record and was available with the Assessing Officer as ‗Note 9 – Turnover‘ clearly provided the break-up of turnover of INR 134,48,93,216/- in to manufacturing turnover of INR 105,19,47,780/- and F&O/Derivative Turnover of INR 29,29,45,436/-. He further submitted that even in the computation of income turnover from F&O/Derivative business has been separately disclosed and offered to tax. He vehemently contended that the manufacturing turnover of INR 105,19,47,780/- was examined in detail by the Assessing Officer. The Appellant had filed copy of periodical VAT Returns in Form III for each quarter of the relevant previous year along with reconciliation of sales vide letter, dated 05.12.2019, as reply in Point No. 30 during the assessment proceedings which was duly considered and examined by the Assessing Officer. No adverse has been inference by the Assessing Officer was drawn. He further submitted that deduction under Section 80IC of the Act has not been claimed in respect of F&O/Derivative Turnover of INR 29,29,45,436/- as can be seen from the Statement of Income placed at Page 165 to 173 of the paper- book.
18.2. Per contra, the Ld. Departmental Representative submitted that clearly there was an apparent mistake in Form 10CCB as has been Assessment Year: 2017-18 admitted by the Appellant in reply filed before the PCIT (reproduced at page 5 & 6 of the order impugned). Despite the aforesaid, the Assessing Officer made no enquiries to verify the amount of turnover/total sales figure of INR 134,48,93,216/-.
18.3. We have perused the material on record and find the averments made by the Ld. Authorised Representative for the Appellant to be factually correct as the break-up of turnover/total sales of INR 134,48,93,216/- was clearly reflected in the financial statements of the Appellant. The aggregate the turnover/totals sales consisted of manufacturing turnover of INR 105,19,47,780/- and F&O/Derivative Turnover of INR 29,29,45,436/-. The relevant material was, therefore, was available on record. The Appellant had furnished the details of manufacturing sales along with VAT returns and reconciliation statement. Thus, there was no requirement on the part of the Assessing Officer to carry out any further enquiry/verification. The Appellant has also not claimed deduction under Section 80IC of the Act in respect of the F&O/Derivative Turnover of INR 29,29,45,436. In view of the aforesaid, we hold that the PCIT could not have exercised power of revision by invoking provision of Explanation 2 to Section 263 of the Act merely on account of incorrect total turnover stated in Form 10CCB furnished by the Appellant.
Third Issue - The net profits of the eligible enterprise as per the audited financial worked out to be INR 40,44,66,261/- whereas profits and gains derived from undertaking as per Form 10CCB were INR 44,38,91,518/-.
19.1. The Ld. Authorised Representative for the Appellant submitted that the PCIT failed to appreciate that the profits and gains qualifying for Assessment Year: 2017-18 deduction under Section 80IC of the Act deferred from the profits as per Profit & Loss Account on account of (a) disallowance of donation/CSR of INR 5,00,00,000/-, (b) loss in F&O Business of INR 1,44,00,000/- and (c) difference of INR 1,10,00,000/- in depreciation as per the provisions of the Act as compared to the book depreciation. Taking us through the computation, reproduced by the PCIT at page 7 of the order impugned he submitted that deduction under Section 80IC has not been claimed in respect of income/loss from F&O/Derivative business, interest income received, capital gains on sale of investments and miscellaneous income and exempt income included in net profits. Thus, the Appellant had claimed deduction under Section 80IC of the Act only in respect of manufacturing income which has been verified by the Assessing Officer during the assessment proceedings. He further submitted that the figure of deduction under Section 80IC of the Act specified in Form 10CCB was a dynamic figure which changed as per the computation of income on finalization of return and/or on passing of the Assessment Order. The Ld. Authorised Representative for the Appellant submitted that the Central Board of Direct Taxes (CBDT) has, vide Circular No. 37 of 2016, the enhancement of income on account of additions made by the Assessing Officer would enhance the qualifying deduction amount for deduction by the amount of INR 5,00,00,000/- disallowed by the Appellant in the computation of income.
19.2. Per contra, Ld. Departmental Representative referred to notice, dated 20.01.2022, issued to the Appellant by the PCIT (placed at page 119-122 of the paper-book) and submitted that the Appellant was eligible for deduction of INR 10,35,02,593/- (34,50,08,642/- x 30%) under Section 80IC of the Act as computed in the said notice. Thus, the Appellant had claimed extra deduction of INR 22
Assessment Year: 2017-18 2,96,64,862/-. She submitted that despite there being discrepancy in Form 10CCB, the Assessing Officer made no efforts to make inquiry into the computation of deduction under Section 80IC of the Act.
19.3. In rejoinder, the Learned Authorized Representative for the Appellant submitted that the Appellant had moved application for rectification under Section 154 of the Act pursuant to which the Assessing Officer has specifically examined the computation under Section 80IC of the Act and therefore, it cannot be said that the Assessing Officer has not made requisite inquiry or verification.
19.4. On perusal of notice dated 20.01.2022, we find that the PCIT has moved upon an incorrect premise while computing the amount of eligible deduction for Section 80IC of the Act. While making the computation, the PCIT has incorrectly taken depreciation as per the provisions of the Act at INR 7,30,25,809/- in place of depreciation of INR 2,54,56,320/- as reflected in Note No. 5 to financial statements placed at page 140 and 141 of the paper book. Further, while computing the deduction under Section 80IC of the Act, the Appellant has increased the amount of business profits by the disallowance of INR 5,00,00,000/- made under Section 37 of the Act in view of Circular No. 37 of 2016 issued by CBDT. This adjustment has also not been considered by the PCIT while computing the amount eligible for deduction. In case both the aforesaid factor are taken into account, the amount of eligible deduction as computed by the PCIT almost matches the claim of deduction made by the Appellant in terms of Section 80IC of the Act. Thus, the conclusion drawn by the PCIT is based upon incorrect appreciation of facts. Therefore, we hold that PCIT was not justified in exercising power of revision under Section 263 of the Act on account of this issue.
20. Fourth Issue - The Appellant had claimed excess deduction of INR 3,90,373/- under Section 80G of the Act in the return of income and the Assessing Officer had accepted the same without proper verification of facts.
20.1. In this regard, the Ld. Authorised Representative for the Appellant submitted that donation of INR 4.55 Crores were made by the Appellant during the relevant previous year, and the details of deduction claimed were disclosed in Schedule 15 to ‗Statement of Income‘. Specific query was raised by the Assessing Officer during the assessment proceedings which were duly replied to during the course of assessment proceedings. Further, necessary supporting document in the form of donation receipts of M/s V K Siksha Trust and certificate under Section 80G of the Act were provided to the Assessing Officer. The Ld. Authorised Representative for the Appellant referred to reply letter dated 11.02.2022 (placed on page 129 to 135 of the paper-book) in this regard. He further pointed out the rectification application had been filed by the Appellant for claiming deduction under Section 80G of the Act. He submitted that the sole basis of the PCIT arriving at the conclusion that excess deduction of INR 3,90,373/- has been claimed by the Appellant was the fact that in the tax audit report of the Appellant it was stated that sum of INR 1,49,92,208/- was eligible for deduction under Section 80G of the Act whereas the Appellant has claimed deduction of INR 1,53,82,561/- without appreciating the qualifying amount was a dynamic figure which underwent change on account of disallowances made by the Appellant in the computation of income.
20.2. Per contra, the Ld. Departmental Representative relied upon order passed by the PCIT and submitted that as per the Appellant‘s Audit Report the Tax Auditor has certified that a sum of INR 1,49,92,208/- 24
Assessment Year: 2017-18 was eligible for deduction under Section 80G of the Act, whereas deduction of INR 1,53,82,561/- was claimed by the Appellant. No verification carried out by the Assessing Officer even though there was clear mismatch in the amount of deduction claimed and to be allowed under Section 80G of the Act as claimed by the Appellant and the amount specified in the tax audit report. Further, the PCIT has returned a finding that even donation receipts were not placed on record by the Appellant.
20.3. We have considered the rival submissions and perused the material on record, we find that the Appellant had claimed deduction of INR 1,53,82,581/- under Section 80G of the Act the Schedule 15 annexed to the statement of income clearly provided the basis of computation. Further, on perusal of reply letter, dated 11.02.2022, we find that the Appellant had placed on record the donation receipts of M/s V K Siksha Trust. Thus, the PCIT moved on incorrect premise that the Appellant had not furnished the same. As regards the difference in the qualifying amount is concerned, the Appellant had explained that the difference had arisen on account of the disallowances made by the Appellant in the return of income which were not considered by the tax auditor while issuing the tax audit report. However, this aspect has not been considered by the PCIT. All the relevant facts were on record and therefore, the PCIT was not correct in exercising powers of revision under Section 263 of the Act read with Explanation to Section 263(1) of the Act in relation to the Fourth Issue.
21. In view of the above, we hold that the PCIT was not justified in exercising power of revision under Section 263 of the Act on all the four issues. Thus, Ground No. 2 raised by the Appellant is allowed while all the other grounds raised by the Appellant are dismissed as Assessment Year: 2017-18 being infructuous. Accordingly, the order dated 10.03.2022, passed by the PCIT is set aside and Assessment Order, dated 16.12.2019, passed under Section 143(3) of the Act is reinstated.
In the result, the present appeal by the Assessee is allowed.
Order pronounced on 17.02.2023.