C & E LTD., ,KOLKATA vs. PRINCIPAL CIT - 4, KOLKATA , KOLKATA

Appellant by : Shri Srikumar Banerjee, FCA Respondent by : Shri G. Hukugha Sema, CIT, DR Date of Hearing : 25.05.2023 Date of Pronouncement : 08.06.2023 O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

by the assessee are reproduced as under: “1.That the learned Pro Commissioner of Income Tax has erred in law and in fact by passing an order under section 263(1)for excess deduction amounting to Rs.1,36,28,981/- under section 80IC without considering the fact substantial expansion was made in the A Y 2012-13 and it is not related in the relevant assessment year.

2. That the learned Pr. Commissioner of Income Tax has erred in law and in fact by passing an order under section 263(1) without considering the fact substantial expansion was established in the initial year of 2012-13 and the same is carried forward in the relevant assessment year.

C&E Limited, AY: 2014-15 3. That the learned Pr. Commissioner of Income Tax has erred in law by passing an order under section 263(1) where he had mentioned in the assessment order that AO has overlooked the issue in the assessment year 2012-13 whereas the order u/s 263 has been passed for the assessment year 2013-14.

4. That the learned Pr. Commissioner of Income Tax has erred in law by passing an order under section 263(1) for the assessment year 2013-14 whereas he had concluded that AO has overlooked the issue in the assessment year 2012-13.

5. That the learned Pr. Commissioner of Income Tax has erred in law and in fact by passing an order under section 263(1) in accordance with the Explanation 2(c) whereas no order/direction has been made to the AO as envisaged in Explanation 2(c).

7. That the learned Pr. Commissioner of Income Tax has erred in law and in fact by passing an order under section 263(1) in accordance with the Explanation 2(c) whereas he has not mentioned anywhere in the order the deficiency of the AO.

8. That the learned Pr. Commissioner of Income Tax has erred in law and in fact by forming opinion that order passed by AO is erroneous and at the same time he sets aside the order to the AO which means he is not sure whether order passed by AO is erroneous.

9. That the learned Pr. Commissioner of Income Tax has erred in law and in fact by particularly when the issue is set aside to the AO to judge whether it is erroneous and at the same time he opined that order passed by AO is erroneous and prejudicial to the interest to the revenue.

C&E Limited, AY: 2014-15 11. That the appellant cause leave, to add, alter, amend or modify and or all of the above Grounds of Appeal at or before the time of hearing of the appeal.”

3. All these ground relate to assumption of jurisdiction by the Ld. Pr. CIT, Kolkata-4, for invoking the revisionary proceedings u/s. 263 of the Act and passing the impugned order thereon.

4.1. From the perusal of above observations of Ld. Pr. CIT, the two issues raised by him are in respect of allowance of excess deduction u/s. 80IC by the Ld. AO amounting to Rs.1,30,28,981/- as the assessee was eligible for claiming deduction @ 30% only against 100% claimed by the assessee. Other issue raised by the Ld. Pr. CIT is that as the Ld. AO has not verified the substantial expansion made on 31.02.2013 in respect of its undertaking for which deduction has been claimed @ 100%, as appearing in column no. 25(ii)(b) in Form 10CCB. Assessee made a detailed written submission explaining this case, contents of which are reproduced in the impugned order. After considering the submissions, Ld. Pr. CIT concluded the revisionary proceedings and arrived at the consideration that - “From perusal of the record it appears that the Assessing officer has made enquiries and collected the relevant evidences in respect of the issue discussed in Para-2 Supra. But from the examination/verification done by the AO, it appears that the enquiry has not been carried to a logical end and concluded the· issues without obtaining and verifying all the relevant evidences

C&E Limited, AY: 2014-15 and material. Merely accepting the submission of the assessee and not conducting enquiry on the glaring key issue including the issue of substantial expansion makes the order erroneous. There is prima acre material issue available on records which called for specific enquiry for examining both eligibility as well as quantum of deduction u/s. 80IC. It is also relevant to point out that even in reply to show cause notice u/s. 263, the assessee has not been able to controvert the error pointed out in the said show cause notice regarding excess deduction allowed by the AO as mentioned in para 2 above, making the order erroneous. Considering the aforesaid facts it is a case which comes within the domain of lack of enquiry validly warranting revision u/s. 263 of the Act, 1961. Thus order passed u/s. 143(3) of the Income Tax Act,1961 is erroneous so far as prejudicial to the interest of revenue. As regards to the explanation of the assessee that the company has undergone substantial expansion in the Assessment Year 2012-13 and the relevant details in respect of the expansion of the business was provided during the course of scrutiny proceedings, it may be logically concluded that the Assessing officer has overlooked the issue and bas allowed the deduction u/s. 80lC as claimed by the assessee. This is the case, where the AO has failed to verify the aforementioned issue before going on to complete the assessment proceedings.”

4.2. Ld. Pr. CIT thus, set aside the assessment order by holding it as erroneous insofar as it is prejudicial to the interest of revenue in accordance with explanation (2)(c) below section 263(1) of the Act on the ground of lack of enquiry. He thus directed the Ld. AO to pass a fresh assessment order in accordance with the relevant provisions of law after affording reasonable opportunity of hearing to the assessee. Aggrieved, assessee is in appeal before the Tribunal.

5.1. Ld. Counsel furnished the legal position as contained in section 80IC of the Act which provides for the following:

(a) The first five years of deduction is 100% and the remaining five years is at 30% without having substantial expansion. (b) In case of substantial expansion, the deduction permissible is 100% from the initial year of substantial expansion to the tenth year of deduction. (c) Total deduction is for ten years and cannot exceed this limitation including that for substantial expansion.

5.2. From the statistical information tabulated above, reference is made in respect of AY 2013-14. It is the second

C&E Limited, AY: 2014-15 year of substantial expansion (being the seventh year over all) for which also revisionary proceedings were invoked u/s. 263 and assessee came up in appeal before the Tribunal in ITA No. 636/Kol/2018. Order of this appeal has been pronounced on 15.12.2022 by dismissing the appeal of the assessee. While dismissing the appeal, Coordinate Bench stated about its inability to find any such documents on record which could show that issue regarding deduction of claim u/s. 80IC before the Ld. AO was examined. Accordingly, the Coordinate Bench found no infirmity in the order passed u/s. 263 of the Act, setting aside the assessment order dated 28.03.2016, directing the AO to frame the assessment afresh after considering the observation made by the Ld. Counsel.

5.3. In this respect, Ld. Counsel made another submission dated 09.02.2023, pointing out differences between the two assessment years viz., AY 2013-14 and 2014-15 in respect of revisionary proceedings invoked in both the years. Ld. Counsel thus, asserted that order passed by Coordinate Bench for AY 2013-14 (supra) cannot be applied in the impugned order i.e. AY 2015-16.

5.4. Since Ld. Counsel has claimed that substantial expansion has taken place in AY 2012-13 wherein this issue of expansion has been thoroughly examined by the AO, he was directed by the Bench to furnish the details in this respect. Further direction was given to furnish copies of order of the Ld. AO for AY 2013-14 and 2014-15 in compliance of the direction of Ld. Pr. CIT passed u/s. 263 of C&E Limited, AY: 2014-15 the Act. In compliance to this direction, another submission was made by the Ld. Counsel, dated 06.04.2023, the details of papers submitted to the Ld. AO as claimed by the assessee in the submission is tabulated as under:

C&E Limited, AY: 2014-15 6. Per contra, Ld. CIT, DR placed reliance on the order of Ld. Pr. CIT. He also placed reliance on the decision of Coordinate Bench in assessee’s own case for AY 2013-14 wherein the revisionary proceedings u/s. 263 of the Act have been upheld on similar observations. According to him, there is no prejudice caused to the assessee if issues raised in the revisionary proceedings are examined by the Ld. AO afresh to arrive at the conclusion.

7.1. From the perusal of assessment order placed on record, through this submission, passed u/s. 143(3) read with section 263 of the Act, both from the AY 2013-14 and 2014- 15, we note that there is no conclusive finding by none of the authorities below which is based on facts and corroborative material to substantiate that why the assessee is not entitled to claim of deduction u/s. 80IC in respect of substantial expansion carried out in AY 2012-13 being the 7th year in the overall claim. Even in both the revisionary orders passed u/s. 263 for AY 2013-14 and 2014-15, there is no specific conclusion which has been arrived at by the Ld. Pr. CIT in respect of the substantial expansion which has been claimed to have been undertaken by the assessee so as to dislodge the deduction of 100% towards the same. Ld.

C&E Limited, AY: 2014-15 Counsel has placed on record the paper book containing 141 pages comprising of various documents and evidences which have been claimed to have been furnished in respect of substantial expansion. We agree with the submission by Ld. Counsel that the very basis of initiation of proceeding u/s. 263 are mechanical in nature without application of mind by the Ld. Pr. CIT.

7.2. It is also observed that the concluding para of the order passed u/s. 263 for both the AYs 2013-14 and 2014-15 are identical, containing the reference to explanation (2)(c) below section 263(1) of the Act on the ground of lack of enquiry. Ld counsel has taken a ground in this respect wherein explanation 2 (c) refers to “the order has not been made in accordance with any order, direction or instruction issued by the Board u/s. 119.” Ld. Counsel has categorically submitted that there is no such order or direction or instruction in respect of the claim of the assessee in view of which Ld. Pr. CIT has made a reference to set aside the assessment order and invoke the revisionary proceeding. In the course of hearing before us, we have considered this contention and found it to be more in the nature of a typographical mistake wherein the intent of the Ld. Pr. CIT is to make a reference to clause (a) to Explanation (2) which deals with “the order is passed without making enquiries or verification which should have been made” as Ld. Pr. CIT has mentioned “ground of lack of enquiry” before referring to explanation (2)(c) below sec. 263(1). However, at the same time, we note that this mistake considered by us as typographical mistake exists in both the revisionary orders passed u/s. 263 in para 6 for AY

C&E Limited, AY: 2014-15 2013-14 as well as AY 2014-15. Para 6 of order u/s. 263 for AY 2013-14 is reproduced by the Coordinate Bench in its order (supra). Repeating the same mistake in two consecutive years with exact same verbiage leads us to believe that Ld. Pr. CIT has not applied his mind to arrive at the consideration for passing the impugned order u/s. 263 of the Act. It appears to be a mechanical approach for arriving at a consideration that assessee is not entitled to claim 100% deduction u/s. 80IC in respect of substantial expansion carried by it.

7.3. Assessee has furnished its details and explanation on the issues raised by the Ld. Pr. CIT supporting its contention by corroborative documentary evidence, part of which is reproduced for ease of reference:

“iii) Notice issued vide letter doted 10.03.2015 in which the learned assessing officer had sought for identified for employees for Bona fide Himachal is in connection with the availing of benefit for substantial expansion in Unit IV under section 80IC of the I T Act. Kindly refer to page number 33 of the paper book. Against such query, the assessee company has provided the details vide their letter dated 15.03.2015. Kindly refer to page number 34 to 63 of the paper book. Relevant page number in the said letter the assessee company had provided the following detail in connection with the substantial expansion of unit IV : • C & E Ltd. Unit-IV l0CCB Form for claiming 80IC deduction. • List of worker Employees in manufacturing process of Unit-IV along with certificate of Bona fide Himachali. • Copy of application letter file before department of industries, Boddi, dist. Solan, H.P. for Expansion of existing unit-IV of C&E Letter dated 13.02.2012 submitted on 14.02.2015.

C&E Limited, AY: 2014-15 • Copy of approval letter received from Department of Industries , SWCA, Baddi, District Solan, H.P. dated 25.09.2012. • Copy of application file before Department of Industries, Baddi. District-Solan, H.P. for 15% central capital investment subsidy claim dated 21.01.20l3. • Copy of letter received from department of industries, Baddi, District-Solan, H.P. dated 29.03.2013 regarding subsidy. • Copy of letter received from Department of Industries, Baddi, District Solan, H.P dated 21.01.2015 regarding subsidy. • Product wise sale of Unit-IV for F. Y. 2011-12 • List of major Raw material and Final Product of Unit-IV.

8.1. While adverting on the issue, Hon’ble High Court held that the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. 8.2. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law.

C&E Limited, AY: 2014-15 8.3. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the AO had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question. 8.4. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the AO, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry himself. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law.

C&E Limited, AY: 2014-15 8.5. It was further observed by the Hon’ble High Court that the material, which the CIT can rely up on includes not only the records as it stands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT. Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous. 8.6. In the present case before us, we note that Ld. Pr. CIT has raised two issues in the show cause notice and thereafter concluded on the same to set aside the assessment with the direction to do it afresh. We find that the issues in the present case considered by the Ld. CIT for exercising revisionary proceedings u/s. 263 of the Act are purely on facts which are verifiable from the records of the assessee.

9.1. It is also important to mention here that clause (b) to explanation (1) of sec. 263 defines “records”, according to which, records shall