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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI RAJPAL YADAV & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal by the assessee is directed against the revisionary order of ld. Pr. CIT, Kolkata-1 vide order No. ITBA/REV5/2021- 22/1040498620(1) dated 09.03.2022 for A.Y. 2017-18 u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. Grounds raised by the assessee in the present appeal are reproduced as under:
“1. For that on the facts and in the circumstances of the case and in law, the Ld. Pr. CIT was unjustified in law and on facts in revising the assessment order u/s 143(3) of the Act dated 30.12.2019 even though the said order was neither erroneous nor prejudicial to the interest of the Revenue.
For that on the facts and in the circumstances of the case and in law, the Ld. Pr. CIT failed to appreciate that the issue raised in the SCN as well as the impugned order had already been examined and enquired into by the Assessing Officer in the original assessment completed u/s 143 (3) of the Act and the order of the AO could not be held to be erroneous and prejudicial to the interests of the Revenue for alleged non-enquiry.
Britannia Industries Ltd. AY 2017-18
For that on the facts and in the circumstances of the case and n law, the assessee having substantiated before the Ld. Pr. CIT that the excess capital expenditure of Rs.1,00,95,632/- had been disallowed u/s 35(2AB) and was therefore not required to be again separately disallowed u/s 35(1) of the Act, the Ld. Pr. CIT was unjustified in setting assessment and directing the AO to re-verify the said claim, without first himself dealing with the submissions of the assessee which clearly proved that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue.
4. For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.” 3. Brief facts of the case as culled out from records are that assessee is engaged in the business of manufacturing and trading of bakery and dairy products. It had filed its return of income on 30.11.2017 reporting total income at Rs.11,00,33,42,190/-. Case of the assessee was selected for scrutiny assessment u/s. 143(3) of the Act through CASS. Statutory notices were issued which were complied by the assessee. In the course the assessment, Ld. AO examined various issues and made additions/disallowances including the claim of deduction made by the assessee u/s. 35(2AB) of the Act. Ld. AO issued notices u/s. 142(1) of the Act seeking details for deduction claimed u/s. 35(2AB) along with supporting documents. Details were also called for deduction claimed u/s. 35(1) of the Act along with supporting documents. Assessee filed its reply by submitting the details along with supporting documents, all of which are placed on record in the paper book.
3.1 In the assessment completed by the Ld. AO, he noted that assessee has claimed deduction u/s.35(2AB) of the Act for an amount of Rs.31,18,07,632/- based on Form 3CLA issued by the auditor. Ld. AO noted that the certificate issued by the nodal agency i.e. Department of Scientific & Industrial Research (DSIR) in Form 3CL, the amount of Britannia Industries Ltd. AY 2017-18 eligible deduction u/s. 35(2AB) of the Act excluding land building was Rs.2955.96 lacs. Accordingly, Ld. AO disallowed the difference of Rs.162.11 lacs u/s 35(2AB) owing to the difference between the amount claimed by the assessee and the amount approved by the DSIR.
3.2 Subsequent to the said assessment, Ld. Pr. CIT on checking the assessment records noted that assessee has claimed deduction u/s. 35(1) of Rs.21,73,61,278/- and of Rs.31,18,07,632/- u/s. 35(2AB) of the Act. He further noted that break-up of Rs.21,73,61,278/- revealed that an amount of Rs.7,33,01,155/- is claimed as revenue expenditure and the balance Rs.14,40,60,123/- as capital expenses. It was also noted by the Ld. Pr. CIT that DSIR had approved capital expenditure of Rs.13,39,65,000/- as against Rs.14,41,60,123/- reported in form 3CLA. Accordingly, assessee had claimed excess capital expenditure of Rs.1,00,95,632/- i.e. [Rs.14,41,60,123 - Rs.13,39,65,000]. Ld. Pr. CIT further observed that ld. AO had disallowed excess claim of capital and revenue expenditure for an amount of Rs.1,62,11,632/- u/s. 35(2AB) of the Act which according to him ought to have been disallowed u/s. 35(1) also. Thus, Ld. Pr. CIT formed an opinion about the under- assessment of income by Rs.1,00,95,123/- having a tax effect of Rs.34,93,720/-.
3.3 Ld. Pr. CIT further noted that assessee had claimed double deduction of capital expenditure u/s. 35(1) and section 35(2AB) of the Act which ought to have been disallowed by the ld. AO. Thus, on the basis of forming this opinion in respect of the two issues, Ld. Pr. CIT invoked the provisions of section 263 of the Act by holding that assessment order is erroneous which has caused prejudice to the interest of the revenue. Based on such consideration, Ld. Pr. CIT issued a show cause notice dated 18.02.2022 seeking explanation from the Britannia Industries Ltd. AY 2017-18 assessee on the above two issues, relevant extracts of which are reproduced as under: “Whereas the undersigned had called for and examined the record of your case and it is considered that the impugned assessment order passed u/s 143(3) of the I. T. Act, 1961 by the DCIT,Circle- 7(1),Kolkata on 30.12.2019 for A.Y. 2017-18 is, prima facie, erroneous in so far as it is prejudicial to the interests of the revenue for the following reasons: Assessment u/s 143(3) of the Income-tax Act, 1961 was completed on 30/12/2019 at assessed income of Rs.1116,54,13,702/- against returned income of RS.1100,33,42,190/-. On checking of the assessment record, it was seen that the assessee company claimed deduction u/s 35(1) of Rs.21,73,61,278/- and Rs.31,18,07,632/- u/s 35(2AB) of the act during the F. Yr. 2016-17. Break up of Rs.21,73,61,278/- revealed that RS.7,33,01,155/- claimed as Revenue expenditure and Rs.14,40,60,123/- as capital expenses. It was further noticed from DSIR (Department of Scientific & Industrial Research) report that capital expenditure was allowed at RS.13,39,65,OOO/- instead of Rs.14,40,60,123/- as reported in 3CLA. Thus assessee claimed excess capital expenditure of Rs.1,00,95,632/-(Rs.14,40,60,123 - Rs.13,39,65,OOO) u/s 35(1) of the act. However excess claim of capital and Revenue expenditure of Rs.1,62,11,632/- was disallowed u/s 35(2AB) in the assessment by AO but, the same excess capital expenditure should also be required to be disallowed u/s 35(1) of the act. This has resulted in underassessment of income by Rs.1,00,95,123/- having tax effect of Rs.34,93,720/-. It was further noticed from the breakup of expenditure of Rs.21,73,61,278/- (Revenue exp. of Rs.7.33,01,155 & Cap. Exp. of Rs.14,40,60,123) and of expenditure of Rs.31,18,07,632/- (Revenue exp. of Rs.16,77,47,509/- and capital expo of 14.40,60,123) that double deduction of capital expenditure was claimed u/s. 35(1) and u/s. 35(2AB) of the Act. Therefore, double deduction claimed should have been disallowed and added to total income.
2. The AO has passed the impugned assessment order without any application of mind nor conducting any enquiries or verifications which should have been made in this case.”
Assessee replied to the said show cause notice, explaining its case on the two issues raised by the Ld. Pr. CIT, by substantiating it with the supporting documents. In the revisionary proceedings, Ld. Pr. CIT observed in para 5 as under:
Britannia Industries Ltd. AY 2017-18
5. I have considered the facts of the case and submission of the assessee. It was seen that the assessee company claimed deduction u/s. 35(1) of Rs.21,73,61,278/- and Rs.31,18,07,632/- u/s. 35(2AB) of the act during the F.Y. 2016-17. Break up of Rs.21,73,61,278/- revealed that Rs.7,33,01,155/- claimed as Revenue expenditure and Rs.14,40,60,123/- as capital expenses. It was further noticed from DSIR (Department of Scientific & Industrial Research) report that capital expenditure was allowed at Rs.13,39,65,000/- instead of Rs.14,40,60,123/- as reported in 3CLA. Thus assessee claimed excess capital expenditure of Rs.1,00,95,632/- (Rs.14,40,60,123 – Rs.13,39,65,000) u/s. 35(1) of the act. However excess claim of capital and Revenue expenditure of Rs.1,62,11,632/- was disallowed u/s. 35(2AB) in the assessment by the AO but, the same excess capital expenditure should also be required to be disallowed u/s. 35(1) of the act because no company shall be entitled to this deduction unless it enters into an agreement with the prescribed authority i.e. DSIR and the prescribed authority pass an order in writing in form No. 3CM, which should be verified. Apart from this, nature of capital expenditure should also be verified for eligible deduction. From the assessment records it was found that during assessment proceedings the AO could not consider over this and allowed deduction without due verification and condition for approval under rule 6(7A) should also be verified. This has resulted in underassessment of income by Rs.1,00,95,123/- having tax effect of Rs.34,93,720/-. The AO has passed the assessment order without making enquiries or verification which should have been made in the instant case. Clause (a) and (b) of Explanation-2 to section 263(1) is attracted in this case. Accordingly, it is held that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. Hence, in fitness of things, there is no alternative but to set aside the case to the AO, before whom the assessee is given another chance to argue his case.
Based on these observations, Ld. Pr. CIT concluded the revisionary proceeding by setting aside the assessment and giving the direction to the Ld. AO to frame the assessment afresh by giving opportunity of being heard to the assessee.
Shri Akkal Dudhwewala, FCA appeared on behalf of the assessee and Shri Sudipta Guha, CIT, DR appeared on behalf of the department.
At the outset, Ld. Counsel for the assessee submitted that Ld. Pr. CIT has grossly erred in assuming his jurisdiction and initiating the Britannia Industries Ltd. AY 2017-18 proceedings u/s. 263 of the Act on grossly incorrect state of facts which are unsustainable and also on grossly incorrect application of the provisions of section 35(1) and 35(2AB) of the Act.
Ld. Counsel for the assessee pointed out that in the show cause notice two issues have been raised – (a) excess claim made u/s. 35(2AB) of the Act in respect of capital expenditure of Rs.1,00,95,123/- which ought to have been disallowed separately u/s. 35(1) also, and (b) double deduction of capital expenditure of Rs.14,40,60,123/- which has been claimed under both the sections of 35(1) and 35(2AB) of the Act.
8.1 Ld. Counsel also pointed out that in the show cause notice, Ld. Pr. CIT has also noted that AO has passed the assessment order without application of mind and without taking making any enquiries or verification which ought to have been done in the matter. On these, Ld. Counsel took us through the statement giving the computation of deduction claimed u/s. 35(1) and 35(2AB) of the Act, placed at page 10 of the paper book, to lay down the correct factual position vis-à-vis what is alleged by the Ld. Pr. CIT for initiating the revisionary proceedings.
8.2 From the said statement, he pointed out that deduction towards capital expenditure eligible for deduction u/s. 35(1) of the Act is Rs.21,73,61,278/-. From this amount, it was pointed out that the amount eligible for additional weighted deduction u/s. 35(2AB) of the Act as per Form 3CLA is Rs.14,40,60,123/-. Thus, on account of capital expenditure, normal deduction u/s. 35(1) is of Rs.7,33,01,155/- and the other component of Rs.14,40,60,123/- is eligible for both, the normal deduction u/s. 35(1) as well as weighted deduction additionally
Britannia Industries Ltd. AY 2017-18 u/s. 35(2AB) of the Act. Contrary to this effect, the Ld. Pr. CIT in the show cause notice has stated that break up of Rs.21,73,61,278/- revealed that Rs.7,33,01,155/- is claimed as revenue expenditure and the balance as capital expenditure which according to the ld. Counsel is a grossly incorrect fact. Further, DSIR had allowed capital expenditure of Rs.13,39,65,000/- as against Rs.14,40,60,123/- claimed by the assessee u/s 35(2AB). Ld. Counsel thus stated that on this difference in the amount of claim by the assessee and the approval of the DSIR in respect of capital expenditure, Ld. AO had made a disallowance of Rs.1,00,95,632/- in the assessment completed u/s. 143(3) of the Act.
8.3 Further, in respect of claim towards revenue expenditure, by referring to the said computation, Ld. Counsel submitted that normal deduction claimed u/s. 35(1) is of Rs.22,37,06,523/- which was already debited in the P&L Account and, therefore, no separate deduction was claimed in it.
8.4 Also, for the additional weighted deduction u/s. 35(2AB) of the Act towards revenue expenses, assessee claimed an amount of Rs.16,77,47,509/- as reported in Form 3CLA. Against the weighted deduction u/s. 35(2AB) of the Act towards revenue expenditure, DSIR approved an amount of Rs.16,16,31,000/- as reported in Form 3CL. Thus, in the assessment proceedings, ld. AO made a disallowance of Rs.61,16,509/- [Rs.16,77,47,509 - Rs.16,16,31,000]. Ld. Counsel thus very strongly submitted that disallowance made by the ld. AO in the assessment u/s. 35(2AB) of the Act comprises of both, the capital expenditure and the revenue expenditure totaling to Rs.1,62,11,632/- [Rs.1,00,95,123 + Rs.61,16,509]. To this effect, a reconciliation statement was also placed on record at page 60 of the paper book. Scanned copy of the same is reproduced as under:
Britannia Industries Ltd. AY 2017-18
Britannia Industries Ltd. AY 2017-18 8.5 Based on the reconciliation statement placed on record (supra), ld. Counsel contended that Ld. AO denied the unapproved weighted deduction portion u/s. 35(2AB) of the Act but has rightly allowed the normal deduction portion u/s. 35(1) of the Act. He also submitted that the requirement of obtaining approval from DSIR for the quantum of expenditure is only in respect of claiming weighted deduction u/s. 35(2AB) which is @ 100% over and above the normal deduction of the expenditure incurred u/s 35(1). According to him, as per the provisions of section 35(1) and 35(2AB) of the Act, irrespective of whether the DSIR approves the quantum of expenditure or not, the capital expenditure incurred at the approved R&D facility is eligible for normal deduction. Denial of weighted deduction u/s. 35(2AB) of the Act by DSIR does not in any manner affects the claim for normal deduction u/s. 35(1) of the Act.
8.6 Ld. Counsel thus, strongly opposed the jurisdiction assumed by the Ld. Pr. CIT on the first issue of excess claim of Rs.1,00,95,123/- which according to him, is factually erroneous and unsustainable on facts and in law.
On the second issue relating to claim of double deduction of capital expenditure of Rs.14,40,60,123/- both u/s. 35(1) and 35(2AB) of the Act, Ld. Counsel submitted that such an assertion by the ld. Pr. CIT it is factually incorrect. According to him, the entire expenditure of Rs.21,73,61,278/- is capital expenditure incurred on scientific research. According to him, out of this amount, component of Rs.14,40,60,123/- was claimed as a normal deduction u/s. 35(1). This same component was also eligible for weighted deduction u/s. 35(2AB) of the Act. Against the weighted deduction, DSIR had approved an amount of Rs.13,39,65,000/-. The difference was already disallowed by Britannia Industries Ltd. AY 2017-18 Ld. AO in the course of assessment. Thus, according to Ld. Counsel, the averment made by Ld. Pr. CIT in the show cause notice itself is patently incorrect and factually preserve. He further pointed to Para 5 of the impugned order that Ld. Pr. CIT raised this issue of claim of double deduction in the show cause notice but did not deal with it to arrive at a consideration for the revisionary proceedings u/s. 263 of the Act.
Ld. Counsel further submitted that the issues raised in respect of non-application of mind and lack of enquiry by the ld. AO, he pointed out that detailed replies with relevant documents were furnished in the course of assessment, all of which are placed on record in the paper book. Ld. AO applied his mind to form a considered view for making a disallowance of Rs.1,62,11,632/- in respect of weighted deduction u/s. 35(2AB) of the Act after considering the approval of DSIR. He submitted that Ld. AO did not dispute the normal deduction claimed u/s. 35(1) of the Act but made addition only in respect of weighted deduction u/s. 35(2AB) which was based on the approval given by DSIR, in terms of Form 3CL. Ld. Counsel, thus, strongly submitted that the revisionary proceeding invoked u/s. 263 of the Act and the order passed thereon is devoid of any merit, is baseless and bad in law. He also placed reliance on the decision of Hon’ble Jurisdiction High Court of Calcutta in the case of CIT v. J L Morrison & Co. Ltd. 366 ITR 593 (Cal).
Per contra, Ld. CIT, DR supported and placed reliance on the order of the Ld. Pr. CIT and submitted that the revisionary proceedings u/s. 263 of the Act have been rightly invoked since AO failed to conduct proper enquiry on both the issues stated in the show cause notice. Ld. CIT, DR further submitted that Ld. Pr. CIT has merely remitted these issues to the file of AO for fresh enquiry and no prejudice is caused to the assessee, if these issues are being examined afresh.
Britannia Industries Ltd. AY 2017-18
We have heard rival submissions, perused the material available on record and given our thoughtful consideration to the submissions made before us. Before we advert on the issue in hand, we apprise ourselves with the relevant provisions of section 35(1) and 35(2AB) of the Act, which are reproduced as under: “Section 35 (1): In respect of expenditure on scientific research, the following deductions shall be allowed— (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. (ii) … (iia) any sum paid to a company to be used by it for scientific research: Provided that such company— A) is registered in India, (B) has as its main object the scientific research and development, (C) is, for the purposes of this clause, for the time being approved by the prescribed authority in the prescribed manner, and (D) fulfils such other conditions as may be prescribed; (iii) … (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub- section (2): … … (2) For the purpose of clause (iv) of sub-section (1), - (i) … (ia) in a case where such capital expenditure is incurred after the 31st day of March 1967, the whole of such capital expenditure
Britannia Industries Ltd. AY 2017-18 incurred in any previous year shall be deducted for that previous year: … 2AB (1): Where a company engaged in the business of bio- technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to two times of the expenditure so incurred: … … (3): No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed. (4): The prescribed authority shall submit its report in relation to the approval of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such form and within such time as may be prescribed. … … [emphasis supplied by us by bold] 12.1 From the perusal of the provisions of section 35(1), we note that the normal deduction is a available to the assessee irrespective of the approval granted by DSR in respect of claim made u/s/. 35(2AB) of the Act. We note that clause (i) of section 35(1) provides for deduction of revenue expenditure and clause (iv) of the same sub-section provides for deduction of capital expenditure in respect of scientific research related to the business of the assessee. It is further noted that sub-section provides for additional weighted deduction in respect of any expenditure on scientific research except for cost of any land or building, on in- house research and development facility which is subject to the Britannia Industries Ltd. AY 2017-18 approval granted by the prescribed authority which is DSIR in the present case.
We observe that in the course of proceedings u/s. 263 of the Act before the Ld. Pr. CIT, assessee had furnished all the relevant details and explained the two issues by supporting it with corroborative documentary evidences, all of which are placed on record in the paper book. We note that it is a well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of the revenue needs to be satisfied. This ratio is laid down by various Hon’ble courts. In the present case before us, from the computation of total income placed at page 8 in the paper book, we note that assessee has claimed the following deductions: (i) Capital expenditure on Scientific Research – 100% - u/s. 35(1) of Rs.21,73,61,278/-; (ii) Capital expenditure as additional weighted deduction - u/s. 35(AB) of Rs.14,40,60,123/-; (iii) Revenue expenses u/s. 35(2AB) of the Act – Rs.16,77,47,509/-.
13.1 In addition to the above, revenue expenditure of Rs.22,37,06,523/- were also claimed u/s. 35(1) as normal deduction which were already debited to P&L Account and, therefore, these were not separately listed as an item of deduction in the computation of total income.
We also take note of the claim of normal deduction and weighted deduction from the Form 3CLA placed on record. Further, we also take note of the approval granted by DSIR in respect of weighted additional claim u/s. 35(2AB) of the Act as claimed by the assessee against which ld. AO has already made the disallowance in the assessment
Britannia Industries Ltd. AY 2017-18 proceedings u/s. 143(3) of the Act. From the perusal of the reconciliation statement referred by the Ld. Counsel in the course of hearing, we note that the claim of deduction towards capital expenditure of Rs.21,73,69,298/- comprises of two components, one being of Rs.7,33,01,155/- towards normal deduction and another being of Rs.14,40,60,123/- which is available for normal deduction as well as eligible for weighted deduction. There is no element of revenue expenditure comprised in this amount of Rs.21,73,69,298/-. Thus, we note that the consideration arrived at by ld. Pr. CIT while exercising revisionary powers vested in him by section 263 are not based on relevant objective factors as found from the perusal of the material placed on record. The very basis, in other words, the foundation of the impugned exercise of revisionary power carried out by the ld. Pr. CIT is missing from the material on record which demonstrates his non- application of mind and non-examination of the material on record.
14.1 We observe that to invoke provisions of section 263, Ld. PCIT is required to examine the record of any proceeding under this Act and conduct such enquiries as he deems necessary. It is important to note that Ld. PCIT on an analysis of both, the records and the order passed by the Assessing Officer has to arrive at a consideration that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. This is exercised by calling for and examining the records relating to any proceeding under this Act available at the time of examination by the PCIT.
14.2 The term ‘record’ has been explained in Explanation 1(b) to section 263 of the Act as – ‘record’ shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Britannia Industries Ltd. AY 2017-18 Commissioner. Thus, record shall include all the documentary evidences which were submitted before Ld. AO and also those submitted before Ld. PCIT against the SCN issued to invoke the provisions of section 263. Ld. PCIT is required to examine all the documentary evidences including those which were before Ld. AO and submitted before him.
14.3 Exercise of revisionary power u/s 263 of the Act is a quasi-judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination ‘to consider’ or in other words, to form an opinion that the particular order is erroneous in so far as it is prejudicial to the interests of the revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re- examination and reconsideration of an order of assessment, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Ld. PCIT.
14.4 We find that in the present facts and circumstances, the legal maxim ‘sublato fundamento cadit opus’ is applicable, meaning thereby – ‘a foundation being removed, the superstructure falls’. Once the basis of a proceeding is gone, the action taken thereon would fall to the ground. Thus, in the absence of such foundation, exercise of a suomotu power is impermissible. It should not be presumed that initiation of power under suomotu revision is merely an administrative act. It is an act of a quasi- judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue.
Britannia Industries Ltd. AY 2017-18 14.5 Ld. Counsel of the assessee made detailed submissions in the course of hearing before us and took us through the material placed on record to verify the claim of deduction made by the assessee. We find that it is an issue purely on facts which is verifiable from the records of the assessee. Examination and verification of the financial statements, Form 3CLA, Form 3CL and reconciliation statement vis-à-vis the computation of income of the assessee in this regard which are all on record, brings out the correct set of facts on the issue in hand. It is observed from the impugned order that Ld. PCIT did not delve on the submissions made by the assessee to point out how and what was erroneous in respect of the claim made by the assessee towards scientific research expenses u/s 35 of the Act except for noting of a mere arithmetic difference of amounts claimed by the assessee and as approved by DSIR including recording certain grossly incorrect fact relating to capital expenditure.
14.6 We find that in the reconciliation statement as submitted by the assessee and reproduced above, correct factual matrix was presented which were already taken into consideration by the ld. AO for making a disallowance in the assessment u/s 35(2AB) of the Act. Ld. PCIT and the ld. CIT, DR could not bring any material on record to controvert this verifiable factual position. For the above finding of ours, we find force from the decision of Hon’ble Bombay High Court in the case Gabriel India Ltd. [1993] 203 ITR 108 (Bom) wherein it is observed as under (page 113) – " . . . From a rending of sub-section (1) of section 263, it is clear that the power of suomotu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous in so far as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power, it can be exercised only on Britannia Industries Ltd. AY 2017-18 fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction.” [Emphasis supplied by us by underline]
Further, we find that it is not a case where there was no enquiry at all by the Ld. AO. Our perusal of the notices u/s 142(1) dated 07.08.2019 and 14.11.2019 issued by the Ld. AO and the replies dated 20.08.2019 and 05.12.2019 filed by the assessee in the course of assessment (all of which placed on record in the paper book), reveals that Ld. AO did enquire in to the claim of assessee in respect of section 35(2AB) and section 35(1) which deals with expenditure on scientific research. Here, in support of our finding, we would like to refer the judgment of Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Sharma [2011] 335 ITR 83 (Del) wherein it has been held dismissing the appeal “that the present case would not be one of, “lack of inquiry” even if the inquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied his mind to the relevant material and fact, although such application of mind is not discernable from the assessment order. The Tribunal held that, the Commissioner in proceedings under Section 263 also had all these details and material available before him, but not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non application of mind by the Assessing Officer. The Tribunal was right and the order of revision was not valid”.
Britannia Industries Ltd. AY 2017-18 15.1 We also find that Co-ordinate bench of ITAT Kolkata in the case of Satya Prakash Sharma v. Pr.CIT vide to 2576/Kol/2018 order dated 22.11.2019 on a similar issue laid down the proposition that “wherein enquiry was conducted by the assessing officer, even if inadequate, that would not by itself give occasion to the ld. Pr. CIT to interdict and interfere by exercising his revisional jurisdiction merely because he is of the opinion that some more enquiries should have been conducted in the matter.”
The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgment of ITO v. DG Housing Projects Ltd. [2012] 343 ITR 329 (Del), which has been followed by various co-ordinate benches of the ITAT in various cases. Hon’ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, 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. 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. 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 Britannia Industries Ltd. AY 2017-18 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. 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. It was further observed by the Hon’ble High Court that the material, which the CIT can rely upon 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.
Britannia Industries Ltd. AY 2017-18 16.1 We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to re-examine the issue of claim of scientific research expenditure on account of excess claim as well as double deduction towards capital expenditure incurred by the assessee Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court decision in the case of ITO v. DG Housing Projects Ltd. (supra) coupled with the fact that the assessee both, during the assessment proceedings and before the Ld. PCIT had submitted evidences in support of claim of normal deduction u/s. 35(1) and weighted deduction u/s. 35(2AB), both on account of revenue and capital expenditure towards scientific research expenditure. Therefore, the consideration arrived at by the Ld. PCIT invoking provisions of section 263 of the Act on the two issues is not justified and cannot be sustained under the facts and circumstances of the present case.
We find that Ld. PCIT in Para 11 of the impugned order has taken note of the amendment made in section 263 w.e.f. 01.06.2015. This amendment relates to Explanation 2 inserted in section 263 of the Act. The Co-ordinate bench of Mumbai ITAT has dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan Tatu Rane v. Income Tax Officer [2016] 70 taxmann.com 227 (Mum) to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court in DG Housing Projects Ltd (supra), according to which the Ld. PCIT has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law. The co-ordinate bench of Mumbai ITAT has further held that the intention of the legislature could not have been to enable the Ld. PCIT to find fault with each and every assessment order,
Britannia Industries Ltd. AY 2017-18 without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the Ld. PCIT referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion.
On the issues raised by the Ld. PCIT in the revisionary proceedings, no action u/s 263 of the Act is justifiable which cannot be sustained under the facts and circumstances of the present case and judicial precedents dealt herein above. We, therefore, quash the impugned order u/s 263 of the Act and allow the grounds raised by the assessee.