SHIR BAJRANG POWER AND ISPAT LTD.,RAIPUR vs. DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1), RAIPUR

PER PRADIP KUMAR KEDIA - AM:

The captioned appeal has been filed at the instance of the assessee against the order of the Principal Commissioner of Income Tax, Raipur-1 (‘PCIT’ in short), dated 27.03.2021 passed under s.263 of the Income Tax Act, 1961 (the Act) whereby the assessment order passed by the Assessing Officer (AO) dated 06.12.2018 under s. 143(3) r.w.s. 147 of the Act concerning AY 2011-12 was sought to be set aside for reframing assessment in terms of supervisory directions.

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 2 - 2. As per the grounds of appeal, the assessee has sought to challenge the jurisdiction assumed by the PCIT under s.263 of the Act and as a corollary, sought to impugn the revisional order passed by the PCIT under s.263 of the Act.

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 3 - giving effect to the scheme of amalgamation. Consequently, the assessee company after amalgamation filed a revised return on 07.01.2013 declaring total income at Nil and claimed revised deduction under s.80IA(4) of the Act in parity with the revised financial accounts. The case of the assessee was subjected to scrutiny assessment under s.143(1) of the Act after considering the amalgamation scheme with reference to revised return filed by the assessee. The assessment was completed after making additions of Rs.4.20 Crore by treating the capital subsidy as revenue subsidy. However, after raising queries and verification in several rounds, the AO accepted the revised claim of deduction under s.80IA(4) of the Act under s.143(3) of the Act. Thereafter, the case of the assessee was also reopened by issue of notice under s.148 of the Act dated 19.09.2017 for verification of claim of deduction under s.80IA(4) of the Act. The AO did not find any error in the claim of the assessee under s.80IA(4) of the Act even under reopened proceedings. Similarly, explanation of the assessee with respect to eligibility of deduction under s.80IA of the Act on character of subsidy was also accepted in the light of the decision of the co- ordinate bench of Tribunal dated 09.08.2018 in assessee’s own case for A.Y. 2010-11. Consequently, the reasons initially formed for reopening the completed assessment were not applied adverse to the assessee and no additions were made in the re-assessment proceedings on both the counts.

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 4 -

Revenue. The show cause notice issued in this regard is extracted hereunder for ready reference:

“Subject: Notice for Hearing in respect of Revision proceedings u/s 263 of the THE INCOME TAX ACT, 1961 – Assessment Year 2011-12.

In this regard, a hearing in the matter is fixed on 08/03/2021 at 11:00 AM. You are requested to attend in person or through an authorized representative to submit your representation, if any alongwith supporting documents/information in support of the issues involved (as mentioned below). If you wish that the Revision proceeding be concluded on the basis of your written submissions/representations filed in this office, on or before the said due date, then your personal attendance is not required. You also have the option to file your submission from the e-filing portal using the link: incometaxindiaefiling.gov.in Please refer to the above. On examination of your Income Tax records for the above assessment year, I find that the order passed u/s 143(3) r.w.s 147 on 06.12.2018of the Income tax Act, 1961 is erroneous in so far as it is prejudicial to the interest of revenue in the following manner: - The order in the aforesaid case is erroneous so far as prejudicial to the interest of revenue on the following grounds: The assessee is a company and was engaged in the manufacturing and sale of structural Pellets, Sponge-iron, Billets and Blooms & Ferry Alloys. The assessee company had filed its return of income for A.Y. 2011-12 on 26.09.2011 declaring income at Nil. The case was reopened after issuing notice u/s 148 and reassessment was completed on 06.12.2018 as such and tax levied under MAT for Rs. 61299035/- on book profit of Rs. 307563963/-. The regular assessment was completed on 14.03.2014 at nil after allowing deduction u/s 80IA for Rs. 337916123/- including disallowance made for Rs. 42028246/- on account of subsidy from C.G. State Govt. treated as revenue receipt. The case was reopened after issuing notice u/s 148 on 19.09.2017 and assessee company filed return of income on 16.11.2017 declaring income at Rs. Nil/- after claiming deduction u/s 80IA for Rs. 295887877/- and reassessment was completed on 06.12.2018 as such and tax levied under MAT for Rs. 61299035/- on book profit of Rs. 307563963/-.

Incorrect allowance of deduction u/s 80IA of IT Act. Audit examination revealed that the RAP has pointed out for incorrect allowance of deduction u/s 80IA due to non-maintenance of separate books of accounts and disallowance made on account of subsidy received from the C.G. State Govt. treated as revenue receipt vide H.M. No./CRA/DT/ Review 80IA/2015-16/13 dated 18.09.2015. The case was reopened to examine the eligibility of deduction claimed and allowed

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 5 -

u/s 80IA during regular assessment. Further, it was observed that the assessee company had filed the original return of income on 26.09.2011. During re- assessment the assessee company had furnished books of account audited by the Chartered Accountant alongwith 3CA report signed and verified by the Chartered Accountant alongwith Form 10CCB which was signed and verified by the Chartered Accountant on 24.01.2012 after date of filing of return of income. The Chartered Accountant had certified deduction u/s 80IA for Rs. 352395627/- in

form 10CCB but no separate/ revised books of accounts and report in form 10 CCB was furnished for calculation of profit and deduction u/s 80IA for Rs. 295887877/- as claimed in revised return of income and allowed during re-assessment (as per books of account, computation of income and report in form 10CCB available on record.) This aspect was remained to be examine by the AO during re-assessment proceeding.

In view of section80IA(7) r.w.s. 44AB - the books of account audited by the Chartered Accountant alongwith 3CA report and report in form 10CCB was required to be signed and verified on or before the due date specified u/s 139(1) of IT act i.e. 30.09.2011. The assessee company had failed to comply the conditions specified for claiming the deduction and not eligible for claiming the deduction u/s 80IA for Rs. 295887877/- and required to be added back to the assesse income which was not done. The omission resulted in under assessment of income to the extant involving short levy of tax of Rs. 88975169/-.

Further, audit examination revealed that the assessee had got account audited by the Chartered Accountant for A.Y. 2011-12 and 3CD report was signed by the accountant on 24.01.2012. During assessment the assessing officer neither initiated the penalty proceeding for levy of penalty u/s 271B nor having reason with speaking order passed for non levy of penalty. The assessee failed to comply the provision of section 44AB and liable to pay penalty u/s 271B for Rs. 1,50,000/-.

Incorrect allowance of depreciation on subsidized capital assets. Audit examination revealed that RAP has pointed out for incorrect allowance of deduction u/s 80IA for disallowance made on account of subsidy received from C.G. State Govt. treated as revenue receipt vide H.M. no./CRA/DT/review/80IA/ 2015- 16/13 dated 18.09.2015. Further, it was observed that the Chartered Accountant had certified that the assessee company had received capital subsidy of Rs. 43155400/- which was adjusted against sale tax liability (refer 13(e) of 3CD report). During regular assessment the Assessing Officer had treated as revenue subsidy and addition made for Rs. 42028246/- but deduction u/s 80IA allowed on the said subsidy amount.

During re-assessment the assesssee company had submitted that on the exactly same sets of facts an addition of Rs. 3.41 Cr. was made by the Assessing Officer in AY 2010-11 by treating the capital subsidy as revenue subsidy and the said addition was subject to first appeal before Hon’ble CIT(A) who was kind enough to allow the appeal of the asssessee by deleting the addition of Rs. 3.41 CR. made by the AO by his order dated 28.04.2016 the said order of CIT(A) was also confirmed by the Honble ITAT, Raipur bench on 09.08.2018 thereby deleting the

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 6 - addition made by the AO. The assessing officer had accepted the Plea of the assessee and no addition made on this ground during re- assessment. Since, the assessee had received capital subsidy from C.G. State Govt. for Rs. 4,31,55,400/- which was adjusted against sale tax liability( as per 13(e) of 3CD report certified by the Chartered Accountant) during the previous year relevant to AY 2011.12. Further, it was observed from the balance sheet that the assessee company had shown as capital subsidy for Rs. 7,97,84,262/- as on 31.03.2011 (refer schedule- 2 reserve and surplus). The assesse had received total capital subsidy for Rs. 4,31,55,400/- during the previous year which was credited to the balance sheet, the depreciation was required to be calculated after considering capital subsidy which was not done. In view of explanation 10 of section 43 the assessee had claimed and allowed excess depreciation for Rs. 3,45,24,230/- (being 80% on plant and machinery for Rs. 4,31,55,400/-) was not in order and required to be added back in the assesses income which was not done. Since the above facts and enquiry was not done by the Assessing officer during the course of re-assessment proceedings, the order passed u/s 143(3) r.w.s. 147 of the I.T Act dated 06.12.2018 for A.Y 2011-12 is prejudicial to the interest of revenue. 4. Hence, there is no application of mind on the part of the AO to correctly tax the income of the assessee in the return of income and therefore, the assessment order passed u/s 144 of the Act is erroneous in so far as it is prejudicial to the interest of revenue. Therefore, in exercise of the powers conferred on me by section 263 of the I.T.Act, 1961, I propose to suitable revise the order u/s 263, which may include setting aside the order as such. Accordingly, an opportunity is being extended to explain your case along with details, documents and necessary evidences. An absence of any submission or reply shall lead to the conclusion that you have no objection for the proposed action and the proceedings shall be finalized accordingly. Your submission / reply may kindly be sent through the e-mail on or before 17/02/2021. If you wish to appear personally or through your authorized representative, personal hearing may kindly be availed on 08/03/2021 at 11:00 am in the office of PCIT-1, Central Revenue Building, Civil Lines, Raipur.”

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 7 - 5.1 With reference to first allegation, following reasons were quoted to assail the correctness of claim of deduction under s.80IA(4) of the Act. (a) The audit party has pointed out incorrect allowance due to non-maintenance of separate books of accounts; & (b) the tax audit report and Form 10CCB to be filed for the purposes of claim of deduction under s.80IA of the Act is signed by the Chartered Accountant on 24.11.2012 i.e. after the date of filing of return of income; & (c) The AO failed to initiate the penalty proceedings for levy of penalty under s.271B of the Act for non- compliance of Section 44AB of the Act.

5.2 With reference to second allegation, the show cause notice pointed out that depreciation was required to be calculated after considering the capital subsidy of Rs.4.31 Crore which has not been done.

“I have gone through the above submission and annexures submitted by the assessee. The contention of the assessee that they have filed the revised return along with the amalgamated financial statement and revised Form 10CCB (after amalgamation) is in view of the order of amalgamation passed by Hon’ble High Court of Chhattisgarh needs further verification. However, the AO is directed to verify the above

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 8 - facts mentioned by the assessee. Also, the AO is also directed to verify whether assessee has filed Amalgamated Financial Statement along with revised return from the effective date of amalgamation i.e. from 1.04.2008 to 31.03.2011. The AO is further advised to verify the status of claim of deduction u/s 80IA in preceding previous years. With respect to issue No. 2, the industrial policy for subsidy framed by the State of Chhattisgarh and the case laws relied upon by the assessee. It is the undisputed fact of the case that the assessee has received the subsidy of Rs.4.20 Crore by way of deferment of sales tax liability. Therefore, the AO is directed to apply of the provision of section 43(1) for computing the actual cost of assets treating subsidy received on capital assistance obtained by state government.”

11.1 First issue in the revisional order concerns eligibility of deduction under s.80IA(4) of the Act. Few facts needs to be reiterated. Original return in the instant case was filed on 28.09.2011. The application for amalgamation was filed on 11.11.2008. By High Court dated 14.11.2011, the scheme of

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 9 - amalgamation was sanctioned and the transferor company, namely, Shri Bajrang Mettalics & Power Ltd. got merged with the assessee company. The scheme of amalgamation was sanctioned with effect from 01.04.2008. Consequently, the amalgamated audited financial statement was prepared. The revised return thereafter filed on 07.01.2013. Amalgamated Form 10CCB was signed and verified on 24.01.2012 i.e. much before filing of revised return filed on 07.01.2013. On the basis of the revised return, the assessment was carried out under s.143(3) of the Act dated 14.03.2014. Thereafter, completed assessment of the assessee was reopened to verify the claim of the deduction under s.80IA(4) of the Act in the light of reasons recorded in this regard. The eligible deduction under s.80IA of the Act stood at Rs.35,23,95,627/- but was however restricted to the available profit. All the facts concerning claim of deduction under s.80IA(4) of the Act was verified by the AO in the original return based on revised return as per amalgamated accounts and thereafter in the re-assessment proceedings yet again as claimed and demonstrated by the assessee with reference to notices issued and replies filed thereon. It is noticed from the reasons recorded for reopening the assessment dated 27.04.2018 that reopening was carried out to ascertain the claim of deduction under s.80IA(4) of the Act alone. Apparently, all the facts were examined by the AO and the claim of deduction under s.80IA(4) of the Act was accepted and allowed for which the case was reopened. Noticeably, original as well as re- assessment were carried out on the very issue of eligibility of Section 80IA(4) of the Act in the case of the assessee. The revisional jurisdiction under s.263 of the Act was invoked yet again on the same set of ground for which the case was reopened under s.147 of the Act. Such action of the PCIT was held to be impermissible in law by the Hon’ble Madras High Court in the case of Indira Industries vs. PCIT 305 CTR 314 (Mad.).

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 10 - 11.2 In this backdrop, the PCIT has raised strange issues in revisional order, such as, revised Form 10CCB (after amalgamation) was signed and verified after the due date specified under s.139(1) of the Act i.e. 30.09.2011 and consequently the assessee has failed to comply with the conditions specified for deduction. The stand of the PCIT is bizarre. Admittedly, the amalgamation of the assessee company was sanctioned by the Hon’ble High Court on 14.11.2011 with effect from 01.04.2008. It is thus natural that Form 10CCB showing computation of deduction eligible to assessee under s.80IA(4) of the Act can be signed and verified only after 14.11.2011 after amalgamation of accounts and completion of other formalities. The assessee cannot be expected to do the impossible when the scheme of amalgamation itself has been sanctioned in November 2011. The assessee could not have filed the Form 10CCB on amalgamated account, verified by the Chartered Accountant prior to that date. In our view, neither the assessee nor the AO can be faulted in this regard. The AO has rightly appreciated the peculiar circumstances and ignored the procedural latches and the claim of the deduction under s.80IA(4) of the Act was allowed after verification in two rounds. The action of the AO being plausible, cannot be regarded as erroneous for taking into account Form 10CCB signed after the date of amalgamation in these peculiar circumstances. The direction of the PCIT on ‘further verifications are required’ in the context of revised Form 10CCB is not intelligible at all. The PCIT himself could have easily verified these obvious facts available on record and pointed out to Revenue. The PCIT has apparently acted without the authority of law asking for some directionless probe on categorical facts and that too after two rounds of assessments on the issue. We also fail to understand the purport of directions to the AO to verify whether assessee has filed amalgamated financial statement alongwith revised return from the effective date of amalgamation. The facts placed on record vouches for the stand of the assessee. Such non-speaking omnibus direction points to fishing expedition and would evoke an apparent unease in the minds of the tax

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 11 - payers. The PCIT on verification of the case records could have verified these facts very easily without any effort and could have come to some meaningful observations. The action of the PCIT is grossly contrary to the observations made by the Hon’ble Delhi High Court in the case of ITO vs. DG Housing Projects Ltd. (2012) 343 ITR 329 (Delhi) wherein a case of inadequate enquiry and lack of enquiry has been clearly distinguished and a burden albeit on some lower pedestal has been placed upon PCIT to conduct some minimal enquiry himself to prevent misuse of revisional jurisdiction. In the instant case, the PCIT could have gathered the apparent facts without any exertion to our mind. Inexplicably, the PCIT has rather asked the AO to revisit the facts already placed on record and for the purpose unknown to us. The facts available on record clearly points out to proper verification on aspects of deduction claimed and do not warrant any indulgence. Such act of the PCIT to dislodge a quasi judicial order under s.263 of the Act cannot be countenanced. The revisional action on the first issue therefore is quashed.

11.3 Adverting to the second issue, a controversy has been raised by the PCIT on correctness of depreciation on gross value of assets without deduction of subsidy receipt on capital assets obtained from the Government. In defense, the case of the assessee is two fold; (i) the AO was not seized of the impugned issue in the second round of proceedings under s.147 of the Act. No obligation was thus cast on the AO under law to enter into roving enquiries on all aspects unconnected to the issue on which the reopening was made. Such issue could have been examined only in the regular assessment. Thus, such issue could not be raised indirectly by way of a direction in the garb of revisional proceedings; (ii) On merits, it was contended that the subsidy by way of deferment of sales tax liability was not given to the assessee to meet the cost of any specific asset but was given to create an environment for industrial development and growth of economically backward areas of Chhattisgarh State to create

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 12 - additional employment, to ensure participation of backward and weaker section of people etc. The highlights of the industrial policy awarding the subsidy was referred to and relied upon. It was thus contended that when under the scheme no payment is made directly or indirectly to meet any portion of the actual cost of acquisition of capital asset and where the release of subsidy itself is determined on the basis of sales tax payment made by the assessee without any reference to the cost of project, Explanation 10 to Section 43(1) has no application. The reliance was placed on the judgment in the case of PCIT vs. M/s. Welspun Steel Ltd. (2019) 264 TAXMAN 0252 (Bombay), wherein in the similar facts, the issue was decided in favour of the assessee. It was held therein that the government subsidy which is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, would not be reckoned for the purposes of Explanation (10) to Section 43(1) of the Act. It was pointed out that the PCIT could have easily ascertained the position of law himself.

11.4 We find merit on both the counts. When a point in issue was not raised in the reasons recorded for alleged escapement of income, the AO cannot be compelled in law to start a witch-hunt to examine all peripheral issues. This will tantamount to roving enquiry in the garb of reopening and expand its scope which is not permissible under s.147 of the Act. The AO thus was not entitled to revisit the impugned issue of depreciation on capital subsidy. Secondly, the issue raised in second round was in relation to Section 80IA(4) of the Act for which no additions were made and therefore no other additions/disallowances were permissible in law as echoed by several judicial precedents including CIT V. Jet Airways , [2011] 331 ITR 236 (Bom); Ranbaxy Laboratories Limited versus CIT, (2011) 336 ITR 136 (Delhi).

ITA No. 32/RPR/2021 (Shri Bajrang Power and Ispat Ltd.vs. DC IT) A.Y. 2011-12 - 13 - 11.5 We also find the case of the assessee on merits to be prima facie plausible. All the relevant facts were placed before the PCIT, which clearly justifies the stand of the assessee that subsidy granted not being attributable to meet any portion of actual cost, such subsidy cannot be reduced from the cost of assets. The claim of assessee is plausible and is in accord with judicial precedents. Consequently, non-adjustment in the depreciation cannot termed as erroneous. We thus see total absence of merit in the assumption of jurisdiction under s.263 of the Act.

Order pronounced on 21/09/2021 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule, 1963.

Sd/- Sd/- (N. K. CHOUDHRY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Raipur True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, रायपुर / DR, ITAT, RAIPUR 6. गाड� फाइल / Guard file. By order,

Sr. Private Secretary ITAT, Raipur (on Tour)