DCIT, CIRCLE - 3(1), , KOLKATA vs. M/S. MSL INDUSTRIES LIMITED , KOLKATA

Whether in the facts and circumstances of the case and in law the Ld. CIT(A) was justified in deleting the addition made by the AO of Rs. 1,05,03,063/- on account of excess deduction u/s 80IA. 3. Briefly stated, the facts of the present case are that, the assessee is engaged in the business of manufacture and production of steel strips and compounds. The assessee operated two steel units at Patna, namely Steel Unit-I & Steel Unit II and a Hi-Tech Steel Unit. For the relevant AY 1997-98, the assessee had filed the return of income declaring total income of Rs.5,76,06,700/- after claiming deduction u/s 80-IA of Rs.1,15,46,638/- being 30% of the profits of Rs.3,84,88,795/- of the eligible Steel Unit-II. The AO in the original assessment order passed u/s 143(3) of the Act dated 15.03.2000 assessed the total income at Rs. 10,03,18,170/-. In the said order, the AO had inter alia disallowed the

Findings & Decisions:

The present proceedings emanate from the order of the Hon’ble ITAT dated 07.09.2016 wherein the Tribunal restored the matter back to the First Appellate Authority for deciding the issues afresh by passing a well-reasoned and well discussed order after verifying all the factual aspects from the records. In the course of appellate proceedings, besides claiming that the order u/s 154 was passed by the Ld. AO without properly serving the statutory notice and without granting adequate opportunity of being heard, it was emphatically claimed by the appellant-company that the order was passed by the Ld. AO due to wrong understanding of the facts concerning the appellant’s claim of deduction u/s 80IA of the Income Tax Act. During the course of the appellate proceedings, the Ld. A.R.s filed before me the Audited Financial Statements of three units of the appellant which were in operation during the FY 1996-97. The Id. ARs have submitted that the primary issue to be adjudicated in the present appeal is whether the interest capitalization of Rs.3,50,10,212/- for which deduction as revenue expenditure was allowed by the Id. CIT(Appeals) 'actually pertained to the industrial undertaking which claimed deduction u/s 80IA or it related to other non-eligible undertaking. The Ld. AO passed the impugned order u/s 154 cm the premise that interest capitalization was effected in the books of Steel Unit No. II, which had claimed deduction u/s 80IA @ 30% of its profits for the FY 1996-97.In the assessment order u/s 143(3) the Ld, AO did not allow the claim of the assessee for its deduction but on appeal the Ld. CIT(A) allowed the appellants claim for interest as revenue deduction in computing the profits of the business for AY 1997-98. In the order u/s 251 the Ld. AO allowed the relief as per the directions of the Ld. CIT(A). -Later on the Ld, AO considered the order u/s 143(3)/251 to be erroneous on the presumption that the deduction for interest allowed pertained to the assessee's undertaking which had claimed deduction u/s 8OJA. On this presumption the Ld. AO considered the order u/s 143(3)/251 to be erroneous within the meaning of Section 154 and accordingly passed the rectification order impugned in appeal. 2. On careful analysis of the submissions filed by the Ld, A.Rs for the appellant-company, I find that if the facts assumed by the ld. AO were in fact correct, then the order u/s 154 would have been upheld to be legally correct. I however observe that since the proceedings u/s 154 were conducted by the Ld. AO in what clearly appears to be utmost haste and adequate and proper opportunity of being heard was not granted to the assessee, the true and correct facts were not considered by the Ld. AO nor the assessee was afforded any dear opportunity of bringing to the Ld. AO's attention that the proceedings u/s 154 were initiated on assumption of incorrect facts, Keeping in mind the fact that the authorities below passed the orders without discussing thread-bare the relevant facts the Hon'ble Tribunal deemed prudent and necessary to restore the entire matter to the file of the 1st Appellate Authority for deciding the matter afresh and after verifying all factual aspects and affording opportunity of hearing. From the audited financial statements of the three undertakings as also the annual audited accounts of the appellant company at entity level. I find that the Ld. AO has proceeded on an incorrect appreciation and understanding of the material facts. It is undisputed that the appellant's claim u/s 80IA related to profits derived by Steel Unit II in respect of which separate accounts were maintained by the appellant and audit report in the prescribed form as required u/s 80IA was furnished before the Ld. AO. On careful scrutiny of the accounts of Unit II-I find that the gross interest, expenditure of Unit-II was Rs. 5,90,39,087/- whereas interest recovery was Rs. 5,28,16,707/- and thereby the net interest expenditure of Unit II was only Rs, 62,22,380/- ."From the fixed asset schedule it also appeared that the gross additions to the fixed assets during the relevant year was only Rs.32,63,286/- and there was no capitalization of expenses in the

I also rote that in the annual audited accounts; of the appellant at entity level, the assessee had in the annual audited accounts; of the appellant at entity level, the assessee had in the annual audited accounts; of the appellant at entity level, the assessee had made following disclosure in Clause (13) of the Notes on Accounts: made following disclosure in Clause (13) of the Notes on Accounts: "13 High Tensile unit was commissioned in 199 le unit was commissioned in 1993 and the related expenses, cost of Plant & 3 and the related expenses, cost of Plant & Machinery and. cost of other Assets were capitalized in usual course. However, due to certain cost of other Assets were capitalized in usual course. However, due to certain cost of other Assets were capitalized in usual course. However, due to certain technical bottlenecks, teething problems and non technical bottlenecks, teething problems and non-stabilization of feasible production, ce stabilization of feasible production, certain correction and remedial correction and remedial measures certain adjustments in Financial accounts to refl measures certain adjustments in Financial accounts to reflect the correct position. The following adjustments are position. The following adjustments are made in this account for 1996-97 including relating to the 97 including relating to the period for 1994-95 and 1995 95 and 1995-96 affecting profit and loss accounts accordingly: 96 affecting profit and loss accounts accordingly:

Admittedly, these annual audited financial statements w Admittedly, these annual audited financial statements were available before the Ld.AO at ere available before the Ld.AO at the time when the assessment order u/s 143(3), o the time when the assessment order u/s 143(3), order u/s 143(3)/25t as also the rder u/s 143(3)/25t as also the order u/s 154 was passed. From plain reading of the disclosures made in the Notes on Accounts, it was very much passed. From plain reading of the disclosures made in the Notes on Accounts, it was very much passed. From plain reading of the disclosures made in the Notes on Accounts, it was very much apparent that the interest cap apparent that the interest capitalization of Rs.3,50,10,212/-for which the Ld. CIT(A) had allowed for which the Ld. CIT(A) had allowed deduction did not pertain to Steel Unit II which qualified for deduction u/s 80IA of the Act. I deduction did not pertain to Steel Unit II which qualified for deduction u/s 80IA of the Act. I deduction did not pertain to Steel Unit II which qualified for deduction u/s 80IA of the Act. I therefore find merit in the submissions made therefore find merit in the submissions made by the Ld. A.Rs that the Ld. AO passed the impu y the Ld. A.Rs that the Ld. AO passed the impugned order u/s 154 on assumption of wrong facts, The material on record indicate that in arriving at order u/s 154 on assumption of wrong facts, The material on record indicate that in arriving at order u/s 154 on assumption of wrong facts, The material on record indicate that in arriving at profits of the eligible undertaking no deduction for interest of Rs.3,50,10,212/ profits of the eligible undertaking no deduction for interest of Rs.3,50,10,212/ profits of the eligible undertaking no deduction for interest of Rs.3,50,10,212/- was allowed by the Ld. AO while passing the order u/s 143(3)/251 dated 17 Ld. AO while passing the order u/s 143(3)/251 dated 17,01.2001. In the circumstances therefore, ,01.2001. In the circumstances therefore, there was no cause for the Ld.AO to initiate proceedings u/s 154 for rectifying any mistake apparent there was no cause for the Ld.AO to initiate proceedings u/s 154 for rectifying any mistake apparent there was no cause for the Ld.AO to initiate proceedings u/s 154 for rectifying any mistake apparent from record in the order dated 17.01.2001. from record in the order dated 17.01.2001. 5. For the foregoing reasons therefore, I hold that the order u/s 143( For the foregoing reasons therefore, I hold that the order u/s 143( For the foregoing reasons therefore, I hold that the order u/s 143(3)/251/154dated 30.03.2005 was passed on assumption of wrong facts and consequently t 30.03.2005 was passed on assumption of wrong facts and consequently t 30.03.2005 was passed on assumption of wrong facts and consequently therefore it was bad in law. Accordingly the order dated 30.03.2005 passed u/s 143(3)/2S1/154 is hereby cancelled. Accordingly the order dated 30.03.2005 passed u/s 143(3)/2S1/154 is hereby cancelled. Accordingly the order dated 30.03.2005 passed u/s 143(3)/2S1/154 is hereby cancelled. In the final result, appeal filed by the appellant is tre In the final result, appeal filed by the appellant is treated as "allowed". 4. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue is before us. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue is before us. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue is before us.

Whether in the facts and circumstances of the case and in law the Ld. CIT(A) was justified in cancelling the order u/s 143(3)/251/154 dated 30.03.2005 made by the AO whereas Ld. CIT(A) –XX, Kolkata has confirmed the order u/s 154. In the second ground of appeal, the Revenue has objected to the Ld. CIT(A)’s action of allowing the assessee’s appeal in the second round of proceedings without appreciating the fact that in the first round the earlier CIT(A)-XX, Kolkata had confirmed the order of the AO. On this issue, the Ld. AR of the assessee has rightly pointed out that this ground has no merit at all as the order dated 10.12.2012 passed by the CIT(A)-XX, Kolkata in the first round of appellate proceedings had been set aside by this Tribunal by their order in ITA No. 259/Kol/2013 dated 07.09.2016 wherein it had been observed that the Ld. CIT(A)-XX, Kolkata had not verified several factual aspects pointed out by the assessee and that he had dismissed the appeal by passing cryptic order without giving any cogent reason. This

Appellant- DCIT, Circle-3(1), Kolkata

Respondent – M/s MSL Industries Ltd., P-22, Swallow Lane, Kolkata-700001. 3. CIT(A)- XX, Kolkata 4. CIT- Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order