ANUGRAHA VALVE CASTINGS LIMITED ,COIMBATORE vs. DCIT , CORPORATE CIRCLE - 1 , COIMBATORE

This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax, Coimbatore -1, Coimbatore dated 22.11.2022 relevant to the assessment year 2017-18 passed under section 263 of the Income Tax Act, 1961 [“Act” in short].

Subsequently, the ld. PCIT has issued show-cause notice dated 29.09.2022 stating that on verification of the return of income, the assessee has claimed deduction of ₹.3,99,87,883/- under section 80IA of Act in respect of income of the following wind. mills: HTSCNo.1182 – ₹.1,09,67,821/-; HTSC No.1313 - ₹.26,58,959/-; HTSC No.2193 – ₹.1,34,03,091/- and HTSC No.2221 ₹.1,29,58,012/-. In response to the notice u/s 142(1) regarding the difference in name of the company entered in the installation certificate as M/s. Graha Industries Pvt. Ltd, Coimbatore in respect of the wind mill HTSC No.1313, the assessee company enclosed a copy of the order of High Court of Madras evidencing' the merger' of M/s Graha Industries with the assessee company. In the Court order, it was mentioned that M/s. Graha Industries has merged with the assessee company w.e.f. 01.04.2007 through the scheme of amalgamation. Further scrutiny of the approved amalgamation revealed that the Appointed Date was defined as 01.04.2007 and Effective Date was defined as the last of the dates on which certified copies of the orders of the Madras High Court sanctioning the scheme are filed with the Registrar of Companies. Since the order of High Court of Madras is 18.12.2007, the Effective Date would be on or after the date of HC order. As per Sub- section 12A of section 80IA, if the amalgamation or demerger is taken place on or after 01.04.2007, the deduction is not applicable to both amalgamating and amalgamated companies. Since the scheme of amalgamation was taken place on 01.04.2007 in the assessee company, the allowance of deduction under section 80IA of ₹.26,58,959/- in respect of the wind mill HTSC No.1313 requires withdrawal. Since the above issue was not considered in the assessment order passed u/s 143(3) read with section 143 (3A) &143 (3B) of the Act, the same was erroneous in so far as it is prejudicial to the interest of the revenue.

In order to remedy the said error in the order of assessment in the instant case made on 09/03/2021 for the assessment year 2018-19, the recourse would be to resort to provisions of sec.263 of the Act. Accordingly, the order of the AO dated 09/03/2021 for the assessment year 2018-19 in the case of the captioned assessee is, set aside to examine the above particular issue alone, in exercise of the powers vested in me u/s.263 of the Act.

The Assessing Officer, is hereby, directed to re-do the assessment afresh with regard to the above issue alone after verification of the facts discussed above. The AO may satisfy himself in accordance with law and come to a logical conclusion in respect of the above issue and after due satisfaction in accordance with law, shall proceed with the assessment and pass appropriate orders in the assessee’s case. The Assessing Officer shall give adequate opportunity of being heard to the assessee n this regard before passing the fresh assessment order. The Assessee is also given yet another opportunity to present its case and the assessee shall provide the relevant details with material evidence, so as to facilitate the Assessing Officer to arrive at a logical conclusion.”

On being aggrieved, the assessee is in appeal before the Tribunal questioning the revision order passed under section 263 of the Act dated 22.11.2022. The assessee has raised following grounds: 1. The impugned order u/s.263 of the Act of the Principal Commissioner of Income Tax is illegal, erroneous, contrary to provisions of law and the facts of the case. 2.1 The PCIT grossly erred in assuming jurisdiction u/s.263 of the Act and revising the order of assessment dated 09.03.2021. 2.2 The issue of deduction u/s.80IA of the Act being one of the issues for selection of the appellant’s Return for scrutiny, the Assessing Officer having called for details regarding the same on multiple occasions and allowed the claim upon satisfaction, the PCIT has erred in concluding that the AO has not carried out the necessary verification. 2.3 Also, the order of assessment having been reviewed and passed through the necessary checks as per the E-assessment Scheme, 2019, the PCIT ought not to have held the same to be erroneous. 2.4 The AO having adopted a legally plausible view after conducing enquiry and verification of submissions made, the PCIT’s action of substituting his view with that of the AO is illegal making the impugned order liable to be quashed. 3.1 The PCIT has committed a grave error in coming to the flawed conclusion that the order of assessment dated 09.03.2021 is erroneous for the reason that the claim of deduction was incorrectly allowed. 3.2 Even as per the AO, the claim of the appellant being legally allowable u/s.80IA of the Act, the PCIT has erred in concluding that the same ought to have been disallowed. 3.3 The PCIT’s action of holding the order of assessment to be erroneous on an incorrect interpretation of the law is itself erroneous and liable to be cancelled.” 4.1 The ld. Counsel for the assessee has submitted that in the assessment order, the Assessing Officer has noted the issue of allowability of claim made under section 80IA of the Act. He has also argued by referring paper book page No. 1 & 2 para 3.7 and also para 6, wherein, the Assessing Officer has asked specific question to substantiate the claim made under section 80IA of the Act and also to submit computation of deduction under section 80-I/80-IA/80-IB/80-IC of the Act. The Assessing Officer again issued notice under section 142(1) of the Act dated 03.02.2021, wherein, he has specifically asked in para 5 and the same is extracted as under: 5) As per the Form 1OCCB for each HTSC no., the year in which the undertaking has started generating power is mentioned as 2006-07 for HTSC no 1313, 2193 and 2221 while 2004-05 for HTSC no 1182. However as per the provisions of Section 80IA (4) the period of tax holiday/concession to claim deduction is for 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking or the enterprise develops or begins to operate generates power or commences transmission or distribution of power or undertakes substantial renovation and modernization of the existing transmission or distribution lines. In view of the same please justify the period in respect of which deduction is claimed. Also as per the certificates provided in respect of commencement of business certificate for HTSC No 1313 is granted to the undertaking M/s Graha Industries Pvt Ltd. Please explain the mismatch in name of the undertaking: The ld. Counsel for the assessee has submitted that the Assessing Officer, after examining all the details, completed the assessment order under section 143(3) of the Act and therefore, the assessment order passed by the Assessing Officer is not erroneous and prejudicial to the interest of Revenue. He further submitted that the issue involved in this appeal i.e., deduction claimed by the assessee under section 80IA(12A) of the Act is eligible as per the decision of the Coordinate Benches of the Mumbai ITAT in the case of UltraTech Cement Ltd. v. DCIT [2022] 139 taxmann.com 151 (Mum) and thus, the assessment order is not erroneous and prejudicial to the interest of Revenue.

On the other hand, the ld. DR has submitted that the Assessing Officer has not made any enquiry with regard to the deduction claimed by the assessee whether the assessee is eligible for claiming deduction or not. Without making any enquiry, the Assessing Officer has simply allowing the claim of deduction is erroneous and prejudicial to the interest of Revenue.

We have heard both the sides, perused the materials available on record and gone through the revision order passed by the ld. PCIT as well assessment order of the Assessing Officer. In this case, in the assessment order, the Assessing Officer has specifically noted the issue, wherein at para 1 Sl.No. (iii) deduction claimed for industrial undertaking u/s 80IA/ 80IAB/80IAC/IB/IC/IBA/80ID/80IE/10A/10AA. The Assessing Officer has issued notice under section 142(1) of the Act dated 08.12.2020 in respect of deduction claimed under section 80IA of the Act and also computation in respect of 80IA in page 2 (Annexure) of the paper book. Again, the Assessing Officer has issued notice under section 142(1) of the Act dated 03.02.2021 and specifically asked about the claim of the assessee in respect of HTSC No. 1313 for which the assessee claimed deduction under section 80IA of the Act and he also asked that why there is a mismatch in name of the undertaking i.e., M/s. Graha Inds. Pvt. Ltd. In response to that the assessee filed a reply dated 03.02.2021, wherein, it has specifically explained that M/s. Graha Industries got merged with the assessee company and the Hon’ble Madras High Court has approved the amalgamation and filed copy of the judgement before the Assessing Officer. Thereafter, after examining the details produced by the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 09.03.2021. Under these facts and circumstances of the case, we are of the opinion that it cannot be said that the Assessing officer has not examined the issue. Further, the Assessing Officer, after making enquiry about allowability of deduction claimed by the assessee and after receiving the information relating to that, the Assessing Officer has completed the assessment order. The ld. PCIT was of the opinion that the Assessing officer has not discussed anything in respect of the issue in the assessment order and therefore, the assessment order is erroneous. In our opinion, the Assessing Officer, examining all the details, came to a conclusion that the assessee is eligible for claiming deduction and no discussion is required. Therefore, the order passed by the Assessing Officer cannot be said that it is an erroneous order.

The Ld DR contended that the intention of providing benefit under section 80-IA was to accord incentive to those who had made initial investment and taken entrepreneurial risk. He accordingly submitted that the amendment was brought in by introducing sub-section (12A) to disallow such benefit in the hands of someone who has not taken these risks and had only acquired the eligible undertaking much later when the risk had reduced.

The CBDT in this circular has tried to clarify something which is nowhere stated either in the language of newly inserted sub-section (12A) or in the Notes to Clause or explanatory memorandum to Finance Bill 2007. Sub- section (12A) simply prescribes that from a particular date the provisions of sub-section (12) shall not apply to the undertaking which are transferred under a scheme of amalgamation or demerger. Further, as we have already held, sub-section (12) of section 80IA did not confer any new rights to the tax payer and hence its non-applicability cannot be construed to mean withdrawal of a right which is conferred under separate provisions of Section 80IA i.e. sub-section (1) r.w.s. (4) of section 80IA of the IT Act.

If the intention of tax holiday under section 80IA was to provide incentive to only original investor, the legislature would have never inserted sub-section (12) in the statute. At least, the memorandum explaining the provisions of Finance Bill 2007, regarding insertion of sub- section (12) in Section 80IA should have clarified why the legislature thought fit to deviate from the its basic intent of providing incentive to the original investor and provide benefit to the successor. We have seen earlier, the memorandum explaining the provisions of Finance Bill 2007 has no such reference. It is, therefore, difficult to accept the contention of the Revenue and accept the contents of Circular no. 3 of 2008 to be depicting correct intention.

In our view, therefore, the clarification provided in the circular for insertion of sub-section (12A) cannot be extended beyond what is unambiguously stated in the provisions of the IT Act. Sub-section (12A) simply states that from a particular date i.e. 31 March 2007 the provisions of sub- section (12) shall not apply in the specified situations. There cannot be any other meaning to such simple provision of the IT Act.

We are not inclined to take cognisance of the contents of this Circular since the language of sub-section (12A) is plain and unambiguous. The Hon'ble Supreme Court in case of Ratan Melting & Wire Industries (Civil Appeal No. 4022 of 1999) has held as under: "6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/ circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law."

We also place reliance on the decision of the Allahabad High Court in a case Shivangee Crafts Limited vs. State of UP. A writ petition was filed by assessee in reference to UP Trade Tax Act, 1948, wherein the Court has held that till such time as a clarification or amendment by the Legislature or by Ordinance is not incorporated in the statute, no notification or circular of the Department can override the statutory provisions of the Act. It would not be permissible to read words into the statute, which prima facie is very plain and straight. 91. Even if one has to assume that the real intent of insertion of sub- section 12(A) was to accord incentive to those who had made initial investment and taken entrepreneurial risk, then also deduction under section 80IA cannot be denied to the successor taxpayer entities since successor entities would pay due and fair consideration for the value of the undertakings taken over, which includes the price for assumption of full risk of investment and operations. In other words, the entrepreneurial risk of the undertaking would also travel with the undertaking and the new owner of the undertaking would also bear the same risk as the original investor. The original investor will recover the price from the new investor in respect of the higher risk which he would have assumed at the initial stage. 92. Further, even if this intention is considered as relevant, such claim cannot be denied in case of amalgamation and demerger since: i. In case of demerger, there may not be any change in ownership of the entity. The same shareholders or atleast three fourth in the value of shares of the demerged company become the shareholders of the resulting company.

While we reject the contention of the Revenue that intention of the legislature in introducing sub-section (12A) was to deny the benefit to the successor in the scheme of amalgamation or demerger, it is also worth noting that in the present case, the initial investment in eligible undertakings /enterprises was made by Grasim (the holding company of the assessee). These undertakings were demerged by Grasim to its wholly owned subsidiary, viz. SCL. Subsequently, SCL was amalgamated with the assessee w.e.f. 1 July 2010. Accordingly, even after the amalgamation of SCL with the assessee, there is no change in the entity which made the initial investment since Grasim still retains the entrepreneurial risk with itself as the ultimate shareholder of the assessee company. Therefore, even assuming that the CBDT Circular is to be relied upon, the conditions prescribed by the CBDT for denial of deduction is not fulfilled in the present case. Accordingly, even on this count, the deduction should continue to be available to the assessee company.

We are also inclined to draw reference to one more argument of the AR of the assessee. The scheme of amalgamation of SCL with the assessee was duly approved by the Hon'ble High Courts of Bombay and Gujarat. The Hon'ble Courts in its order has explicitly conferred upon the assessee, being the amalgamated company, a right to claim deduction under section 80-IA in respect of the eligible undertakings for the residual period. The relevant extract of the scheme is reproduced below for reference: "... all the rights and benefits that have accrued or which may accrue to the Transferor Company, whether on, before or after the Appointed Date, including income-tax benefits and exemptions including the right to deduction under Section 80-IA of the Income-tax Act, 1961 (or any statutory modification or re-enactment thereof for the time being in force), shall, under the provisions of section 391 to 394 of Act and all other applicable provisions, if any, without any further act, instrument or deed, cost or charge be and stand transferred to and vest in and/ or deemed to be transferred to and vested in and be available to the Transferee Company so as to become licenses, permits, entitlements, quotas, approvals, permissions, registrations, incentives, sales tax deferrals, exemptions and benefits, subsidies, concessions, grants, rights, claims, leases, mining leases, prospecting licenses, tenancy rights, liberties, special status and other benefits or privileges of the Transferee Company and shall remain valid, effective and enforceable on the same terms and conditions."

We would be sitting on the judgment and wisdom of the Hon'ble Courts if we were to deny the benefit especially sanctioned by the Hon'ble High Courts.

The Kolkata Bench of the Tribunal in case of Electrocast Sales India Ltd. vs. DCIT [2018] 170 ITD 507, has held that merger scheme approved by the Hon'ble High Court having in mind the larger public interest, cannot be disturbed by the revenue. We concur with the view taken by the coordinate Bench to hold that since the scheme of amalgamation was approved by the Hon'ble High Court only after ensuring that the same is not prejudicial to the interests of its members or to the public interest, the same cannot be challenged by the Revenue subsequent to the approval. If at all, they could have raised the objection when the Court had sought their comments on the scheme.

In view of the above discussion, we hold that sub-section (12A) of section 80IA of the IT Act, merely neutralises applicability of sub-section (12) and does not disentitle the successor entities to claim deduction in accordance with section 80IA of the IT Act. Accordingly, AO is directed to allow the deduction as claimed by the assessee with respect to eligible units acquired from SCL. Accordingly, Ground no.1 of the assessee is allowed.” 6.1 In view of the above decision of the Coordinate Benches of the Mumbai Tribunal, we are of the considered opinion that the order passed by the Assessing Officer cannot be said that it is erroneous and prejudicial to the interest of Revenue.

In the result, the appeal filed by the assessee is allowed.